ATC120424: Report The Division of Revenue Bill [B4 – 2012], dated 24 April 2012

Standing Committee on Auditor General

Report of the Select Committee on Appropriations on the Division of Revenue Bill [B4 – 2012], dated 24 April 2012

Report of the Select Committee on Appropriations on the Division of Revenue Bill [B4 – 2012], dated 24 April 2012

 

The Select Committee on Appropriations , having considered the Division of Revenue Bill [B4 – 2012)], reports as follows:

 

1. Introduction and background

 

In terms of Section 4(4) of the Money Bills Amendment Procedure and Related Matters Act, 2009 (No. 9 of 2009) (the Money Bills Act), a committee on appropriations has the power and functions conferred to it by the Constitution, legislation, the standing rules or a resolution of a House, including considering and reporting on -

  • spending issues;
  • amendments to the Division of Revenue Bill, the Appropriation Bill, Supplementary Appropriations Bills and the Adjustment Appropriations Bill;
  • recommendations of the Financial and Fiscal Commission, including those referred to in the Intergovernmental Fiscal Relations Act, 1997 (No. 97 of 1997);
  • reports on actual expenditure published by the National Treasury; and
  • any other related matter set out in the Money Bills Act.

 

According to section 7(3) of the Money Bills Act and section 76(4) of the Constitution, the Minister of Finance must table the Division of Revenue Bill in the National Assembly and thereafter it must be sent to the National Council of Provinces. In accordance with these sections, the Minister of Finance (the Minister), Mr. Pravin Gordhan , tabled the 2012 Division of Revenue Bill (the Bill) in the National Assembly on 22 February 2012. On 09 March 2012 the Bill was transmitted to the National Council of Provinces and referred to the Committee.

 

The purpose of the Bill is to provide for the following:

  • the equitable division of revenue raised nationally among the national, provincial and local spheres of government for the 2012/13 financial year;
  • the determination of each province’s equitable share of the provincial share of that revenue; and
  • any other allocations to provinces, local government or municipalities from the national government’s share of that revenue, and any conditions on which those allocations may be made.

 

Following a briefing by National Treasury, the Committee received submissions from the Financial and Fiscal Commission and the South African Local Government Association (SALGA). The Committee further held public hearings on 17 April 2012 in line with section 9(5 )( b) of the Money Bills Act. The Committee received written and/or oral submissions from the following bodies and persons: National Union of Metal Workers of South Africa, People’s Budget Coalition, Department of Water Affairs and Mr D van den Heever .

 

 

2. The 2012/13 financial year Division of Revenue

 

The 2012 State-of-the-Nation-Address (SONA) by His Excellency President J G Zuma outlined South Africa ’s programme of action which serves as the basis for the 2012 Budget tabled by the Minister of Finance. The 2012 SONA followed on the 2011 SONA by retaining the five key government priorities with emphasis placed on massive public sector infrastructure investment, job creation, economic stimulation, and eradication of poverty, unemployment and inequality.

 

Accordingly, on 22 February 2012, the Minister of Finance tabled before Parliament the 2012 National Budget together with the Division of Revenue Bill [B4-2012] as required by the above-mentioned legislative frameworks. The Constitution sets out specific criteria for the sharing of nationally raised revenue among national, provincial and local spheres of government. The Division of Revenue Bill classifies schedules from Schedule 1 to 8 in order to divide revenue among the three spheres of government. Table 1 below provides the equitable division of nationally raised revenue among these three spheres of government.

 

Table 1: Equitable Division of Nationally Raised Revenue among the National, Provincial and Local Spheres of Government

 

 

 

 

Spheres of Government

 

Column A

 

Column B

Allocation

 

2012/13

(R'000)

Forward Estimates

2013/2014 (R'000)

2014/15

(R'000)

National

622 434 681

684 327 086

746 588 676

Provincial

309 057 382

328 920 693

349 350 999

Local

37 873 396

40 581 787

43 638 905

TOTAL

969 365 459

1 053 829 566

1 139 578 580

 

2.1 Overall Budget Allocation

 

The overall budget (revised estimates) has increased from R891.2 billion for the 2011/12 financial year to R969.4 billion for the 2012/13 financial year. This represents an increase of R78.2 billion or 8.8 per cent. The two outer-years of the Medium Term Expenditure Framework (MTEF) showed an estimated budget of R1.05 trillion and R1.1 trillion for the 2013/14 and 2014/15 financial years respectively, resulting in an increase of R85.7 billion or 8.1 per cent. The overall budget for the 2012/13 financial year included a contingency reserve of R5.8 billion and a debt-service cost provision of R89.4 billion. When these are excluded, the budget is R874.2 billion.

 

 

2.2 National share of nationally raised revenue

 

Including conditional grants (and also debt service cost, contingency reserve, and the general fuel levy), national departments were allocated R622.4 billion or 64.2 per cent of the overall nationally raised revenue for the 2012/13 financial year. This marked an overall increase in the national allocation of R55.8 billion or 9.9 per cent when compared against an estimated allocation of R566.6 billion in the 2011/12 financial year. Over the MTEF, the national revenue share is estimated to increase by 9.1 per cent from R684.3 billion to R746.6 billion between the 2013/14 and the 2014/15 financial years.

 

 

2.3 Provincial share of the nationally raised revenue

 

Excluding conditional grants, provincial departments were allocated R309.1 billion or 31.9 per cent of the nationally raised revenue. The provincial equitable share allocation increased by R17.3 billion or 5.9 per cent compared to an allocation of R291.7 billion in the 2011/12 financial year. Over the MTEF the provincial equitable share is estimated to increase by 6.3 per cent from R328.9 billion to R349.4 billion between the 2013/14 and 2014/15 financial years.

 

Table 2: Determination of each province’s equitable share of the provincial equitable share of nationally raised revenue

 

 

Province

Colum A

Column B

Allocations

Forward Estimates

2012/13

(R'000)

2013/14 (R'000)

2014/15 (R'000)

Eastern Cape

46 940 272

 

49 602 467

52 215 629

Free State

18 531 165

 

19 446 736

20 412 571

Gauteng

54 545 389

 

58 613 875

62 880 944

KwaZulu-Natal

67 802 913

 

72 579 341

77 551 103

Limpopo

38 721 016

 

40 969 082

43 170 325

Mpumalanga

24 874 453

 

26 287 888

27 698 217

Northern Cape

8 225 155

 

8 742 528

9 230 224

North West

20 614 831

 

21 905 865

23 214 536

Western Cape

28 772 188

 

30 752 911

32 977 450

TOTAL

309 057 382

 

328 920 693

349 350 999

 

 

Table 2 (above) shows the horizontal allocation of the provincial equitable share across all nine provinces. As shown in Table 2, KwaZulu-Natal Province received the highest share of R67.8 billion or 21.9 per cent followed by the Gauteng Province with R54.5 billion or 17.6 per cent, the Eastern Cape Province with R46.9 billion or 15.2 per cent and the Limpopo Province with R38.7 billion or 12.5 per cent. Provinces that received the smallest share included the Northern Cape Province with R8.3 billion or 2.7 per cent, the Free State Province with R18.5 billion or 6 per cent and the North West Province with R20.6 billion or 6.7 per cent.

 

 

2.4 Local share of the nationally raised revenue

 

Excluding conditional grants and the sharing of the general fuel levy, municipalities were allocated R37.9 billion or 3.9 per cent of the nationally raised revenue in the 2012/13 financial year. The local government equitable share increased by R5 billion or 15.2 per cent compared to a revised estimate of R32.9 billion in the 2011/12 financial year. Over the outer two years of the 2012 MTEF, the local share of the nationally raised revenue is estimated to increase by 7.5 per cent from R40.6 billion to R43.6 billion between the 2013/14 and the 2014/15 financial years.

 

 

2.5 Amendments introduced as part of 2012 Division of Revenue Bill

 

The 2012 Division of Revenue Bill introduced some changes when compared to the 2011 Division of Revenue. These could be outlined as follows:

 

• An amount of R7.8 billion was added to the provincial conditional grants to cover policy priorities. A saving of R3.4 billion was realised and allocated towards government priorities;

 

• The inclusion of a new section, section 13, which outlined processes in respect of the transferring and reporting for provincial infrastructure grants. Conditions for infrastructure grants were strengthened;

 

• Reporting in respect of the Expanded Public Works Programme (EPWP) for infrastructure changed from in-year reporting and the allocations would now be based on the previous year’s performance. The grant moved from being a schedule 8 to a schedule 5 grant. The allocated money would be conditional and would be used only for furthering the EPWP;

 

• Section 15 of the Division of Revenue Bill provided that the National Treasury must allow Parliament a period of 14 days to comment when any government department wants to amend or revise its conditional grant framework;

 

• The introduction of the National Health Insurance Grant to fund the National Health Insurance pilot projects;

• The introduction of the Nursing Colleges and Schools Grant;

• The Introduction of the Infrastructure Skills Development Grant to strengthen the capacity of local government to effectively and efficiently deliver quality infrastructure, by increasing the pool of skills available and to facilitate lifelong learning and the transfer of knowledge to municipalities; and

• The incorporation of the Forensic Pathology Service Grant into the provincial equitable share.

 

 

3. National Treasury briefing

 

The National Treasury reported that 15 per cent under the P- component of the Municipal Infrastructure Grant (MIG) was ring-fenced in the conditional grant framework for the 2011/12 financial year for municipal sports facilities. A new subsection was added to section 15 in the 2012 Division of Revenue Bill to provide Parliament with two weeks to comment on any amendments to a conditional grant framework prior to publishing in the Government Gazette.

 

With regard to Health, the following two new grants have been introduced:

 

• The Nursing Colleges and Schools Grant with a proposed allocation of R100 million for the 2012/13 financial year and R450 million over the MTEF. Its objective is to fund the upgrading and rehabilitation of nursing colleges and schools;

• The National Health Insurance (NHI) Grant with an allocation of R150 million for the 2012/13 financial year and R1 billion over the MTEF. Its objective is to pilot a range of interventions in district health authorities and central hospitals as part of the phased implementation of the NHI. In respect of the NHI, primary health care would be used as a platform to be implemented in ten district health authorities.

 

The National Treasury reported that the Forensic Pathology Services Grant was being phased out and would be incorporated into the provincial equitable share. This process started during the 2011/12 financial year and would take three years to complete.

 

The National Treasury further reported that legal and administrative issues could arise from the fact that the Bill would be enacted after 1 April 2012, as the deadlines attached to the conditions in certain conditional grant frameworks would have passed by then.

 

 

4. Interactions with stakeholders on 2012 Division of Revenue Bill

 

4.1 Financial and Fiscal Commission

 

In respect of the additional allocation to provinces amounting to R19.4 billion over the MTEF, the Financial and Fiscal Commission (FFC) reported that the personnel costs remained a major concern and that this could compromise future service delivery since it accounted for 70 per cent of the R3.3 billion set aside in the provincial equitable share in the 2012/13 financial year.

 

The FFC indicated that it supports the Infrastructure Skills Development Grant as an attempt to build the necessary capacity within local government . The FFC argued that the continued poor expenditure on repairs and maintenance of existing municipal infrastructure will be addressed through the Infrastructure Skills Development Grant.

 

The FFC commented on clause 15(3)(a) of the Bill which provided that Parliament must be given 14 days to comment, when Parliament was in session, on any amendments to conditional grant frameworks prior to the publishing of allocations in the Government Gazette. The FFC argued that the problems that this intervention aimed to solve may be symptomatic of poor grant design and that the underlying problem required serious attention.

 

The FFC made reference to the number of provincial departments that were under administration in terms of section 100 of the Constitution. It commented that there was a need for a regulatory framework for section 100 interventions to be developed going forward.

 

The FFC submitted that in terms of the differences between the 2011 MTBPS and the 2012 Budget, the revenue estimates are slightly higher in the budget with slight decreases in non-interest expenditure and state debt costs leading to a faster decrease in the budget deficit.

 

 

4.2. South African Local Government Association

 

The South African Local Government Association (SALGA) indicated that there was a gap between the cost of the mandate of local government, and the revenue capacity of the sector. They were of the view that more substantial, targeted increases were needed especially to the smaller, rural and less capacitated municipalities. They also reported that the escalating costs of construction and bulk services meant that, in real terms, there had actually been a steady decline in the Local Government Equitable Share (LGES) and other grants. In this respect, Members pointed out that, according to reports from the Auditor-General, a lot of unauthorised, irregular, fruitless and wasteful spending was occurring within the sector.

 

SALGA noted the 15 per cent ring-fencing of the public municipal service infrastructure component (P-Component) under the Municipal Infrastructure Grant (MIG). However, it stated that some municipalities did not have significant backlogs in that regard. The 15 per cent would thus not suit all the municipalities’ spatial plans. SALGA recommended that in the long term, a conditional grant with a maintenance and backlogs consideration be introduced for all infrastructure grants. SALGA further indicated that there is a need for more transparency on how the Local Government Equitable Share is calculated.

 

The Rural Households Infrastructure Grant was allocated an amount of R479.5 million for the 2012/13 financial year and R389 million for the 2013/14 financial year. No allocations were made for the 2014/15 financial year as this grant would have been incorporated into the MIG by that time. The point was made by SALGA that the integration of this grant into the MIG needed to be done sooner than the 2014/15 financial year as the grant was persistently underperforming.

 

SALGA welcomed the Municipal Disaster Grant, but felt that the grant conditions seemed to be onerous and would not respond to emergency needs during times of disaster. They were of the opinion that there needed to be a streamlined system of decision making related to the grant – there needed to be political intervention during disasters . SALGA also felt that government needed to increase municipalities’ awareness of this grant.

 

SALGA noted that the Expanded Public Works Programme (EPWP) Grant for Municipalities had been changed from a Schedule 8 grant to a Schedule 6 grant. This meant that the EPWP allocation in the current year was based on the previous year’s number of jobs created. If however, a municipality created more jobs in a current year they may be disadvantaged because they may not have the necessary cash flow support. This may have the unintended consequence of a municipality targeting the same number of jobs as created in the previous year.

 

 

 

4.3 Department of Water Affairs

 

The Department of Water Affairs (DWA) indicated that an administrative error had occurred within DWA while compiling Schedule 7 of the Bill and they sought the Committee’s approval for rectifying it. The Committee agreed that the error should be corrected, provided that both affected local municipalities ( Cape Agulhas and Swellendam ) were notified of the change.

 

 

4.4 Mr D van den Heever

 

Mr D van den Heever had responded to the Committee’s advertisement calling for comment on the Bill, and he made a submission to the Committee, highlighting challenges that he experienced at ground level with the implementation of government strategies and the budget.

 

5. Mandates from Provinces

 

5.1 Negotiating mandates

 

In compliance with section 7(b) of the Mandating Procedures of Provinces Act (Act 52 of 2008), Provinces were required to submit their negotiating and final mandates. The submitted mandates were as follows:

 

5.1.1 Eastern Cape

 

The Eastern Cape Province was in favour of the Bill, with the following comment:

 

· Municipalities in the province still do not have confidence in the equitable share formula as a tool to address their municipal needs and backlogs.

 

5.1.2 Free State

 

The Free State Province was in favour of the Bill.

 

5.1.3 Gauteng

 

The Gauteng Province was in favour of the Bill, with the following recommendations:

 

· The Portfolio Committee recommends that National Treasury should strengthen the framework regulating conditional grants to ensure proper monitoring and evaluation as a way of avoiding material under-spending and diversion of funds.

· The Portfolio Committee recommends that National Treasury in collaboration with provincial treasuries should enhance early warning systems to avert fiscal distress in key provincial departments.

· The Portfolio Committee recommends that National Treasury should work closely with all three spheres of government to strengthen human resources management in an effort to meaningfully address challenges of the escalating personnel costs. Measures should be developed to avoid scenarios where employees are recruited to positions which are not funded in any given financial year.

 

 

5.1.4 KwaZulu-Natal

 

The Province of KwaZulu-Natal was in support of the Bill.

 

5.1.5 Limpopo

 

The Province of Limpopo was in favour of the Bill, with the following recommendations:

 

· There should be provision for a conditional grant in respect of bursaries at municipal level, informed by the rural nature of most municipalities in the province.

· Allocations to rural municipalities should be increased to effect delivery of basic services to rural communities.

· Regulations should be strengthened to encourage departments to pay their rates and taxes at various municipalities.

· Strengthening fiscal policies will assist in sustaining own revenue in municipalities. Treasury should ensure that there is effective monitoring and accountability during budget implementation.

 

5.1.6 Mpumalanga

 

The Province of Mpumalanga was in favour of the Bill, taking into consideration the following emphasised matters:

 

· The allocation for health over the Medium Term Expenditure Framework (MTEF) must be revised to accommodate the needs in the Department of Health.

· It is imperative that the implementation of the Moloto Rail Corridor be fast tracked to reduce the high number of road fatalities in this area; and to improve the quality of life of the people in those areas.

· Funding must be provided to the province for the disaster that occurred in the province in January 2012.

· Although the decision to pay interns in the New Infrastructure Skills Development Grant market related salaries was discussed and agreed upon with municipalities; it is imperative that there should be a mechanism to ensure that the Internship programme to place Interns at well-capacitated municipalities is successful and that the objective to transfer necessary skills to smaller municipalities is achieved.

· Although the conditions of the Municipal infrastructure Grant framework clearly stipulate that the P-component of MIG amounting to 15 per cent must be used for municipal sports facilities only; it is recommended that there should either be specific conditions stipulated and included in the MIG to ring fence the allocation; or the 15 per cent allocation should be taken out of the MIG and be introduced as a separate conditional grant.

 

5.1.7 Northern Cape

 

The Northern Cape Province was in favour of the Bill, raising the following concerns:

 

· The reduction in the baselines of the conditional grants.

· Inadequate expenditure patterns of provincial departments.

 

 

5.1.8 North West

 

The North West Province was in favour of the Bill, taking into account the following observations:

 

· Communities wanted to know if the budget for the 2012/13 financial year will benefit both the province and the municipalities.

· The Departments of Sport, Arts and Culture, Agriculture and Rural Development and Public Works, Roads and Transport were of a great concern within the province. The communities wanted to know whether these departments have clear plans with intended objectives. Examples were that there are no libraries in rural areas and that the Mass Sport Participation and Development Grant is not benefitting the people of the province and youth in particular.

· The Provincial Road Maintenance Grant does not benefit the province as most provincial roads are in a bad state.

· The communities said they are not benefitting from the Comprehensive Agricultural Support Programme Grant which is intended to expand the provision of agricultural support services to emerging farmers.

· The communities also raised the spending and monitoring of the Municipal Infrastructure Grant by municipalities. The community of Tswaing Local Municipality in particular raised serious challenges relating to water, sanitation and infrastructure, among others.

· The communities enquired whether the new Section 13 of the Bill will actually sustain projects under the Expanded Public Works Programme.

· The communities also wanted to know if the nursing schools grant will be used to train nurses within the provinces, to avoid the migration from rural to urban provinces.

· Schedule 5 conditional grants was of a great concern to the communities, as government is appropriating money but the communities feel that the appropriation does not serve the objective in the North West Province. They enquired about the HIV/AIDS Life Skills Grant and the Further Education and Training Colleges , as the province is a mining, agricultural and tourism province. They wanted to know about the intake of scholars, skills and training offered in line with these grants.

 

5.1.9 Western Cape

 

The Western Cape Province was in support of the Bill.

 

 

5.2. Final Mandates from Provinces

 

The following provinces supported the Division of Revenue Bill [B4-2012]:

 

  • Eastern Cape
  • Gauteng
  • KwaZulu-Natal
  • Limpopo
  • Mpumalanga
  • Northern Cape
  • North West
  • Western Cape

 

The Free State province did not submit a final mandate for the meeting because the Free State legislature would only pass the final mandate on 25 April 2012.

 

6. Findings

 

On engaging the departments and various stakeholders, the Committee made the following findings:

 

6.1 The Committee appreciates the introduction of new grants like the National Health Insurance Grant, among others.

 

6.2 The South African Local Government Association did not understand why certain grant baselines have been reduced and why no reasons have been given for underperforming grants like MIG.

 

6.3 The Committee noted the concerns raised by the South African Local Government Association with respect to the way in which certain grants are structured, which made it difficult for municipalities to spend them.

 

6.4 The poor payment of municipal accounts by provincial and national government departments remains a challenge for municipalities.

 

6.5 According to the South African Local Government Association , the local government sector was underfunded , as a gap existed between the cost of the infrastructure and services required to adequately fulfil their legal mandate, and the sector’s existing revenue capacity.

 

6.6 The following administrative error had occurred within the Department of Water Affairs during the compilation of the draft Bill:

On page 290, under Appendix W5 to Schedule 7, “ Cape Agulhas Local Municipality ” has been inserted next to “ Swellendam Waste Water Treatment Works”. It should be “ Swellendam Local Municipality ”.

 

6.7 There are certain administrative and legal issues arising from the fact that the Bill is enacted after 1 April 2012. These relate specifically to the changes in the conditions of certain grants.

 

6.8 The Committee noted the issues of concern and questions raised by the provinces on spending and monitoring of conditional grants.

 

6.9 The Committee noted that certain matters raised by community members within provinces were issues of clarity regarding conditional grants allocation, spending, monitoring, and service delivery objectives.

 

 

7. Recommendations

 

The Select Committee on Appropriations recommends as follows:

 

7.1 The South African Local Government Association should assist all municipalities in utilizing a part of their existing Infrastructure Grants to address the challenge of rolling out existing infrastructure.

 

7.2 National Treasury and the South African Local Government Association (SALGA) should, before 30 June 2012, have a one-on-one interaction on all the issues of uncertainty and concerns raised in SALGA’s presentation. The interaction should specifically cover the calculation of the Local Government Equitable Share Formula and how SALGA’s participation in the budget process can be improved. A report on this meeting, detailing the way forward, should be provided to the Committee. SALGA should continue to interact with Parliament, National Treasury, and the Financial and Fiscal Commission on their concerns.

 

7.3 The South African Local Government Association should take it upon itself to clarify purposes of grants to municipalities, why certain grants have been revised upwards or downwards, when business plans should be submitted and most importantly the reporting procedures. This would improve municipalities’ awareness of grants.

 

7.4 All national and provincial government departments should work with municipalities to establish systems that would seek to resolve issues of dispute around properties and incorrect billing which contribute to non-payment of property rates.

 

7.5 The South African Local Government Association should make every effort to assist municipalities to spend their funds effectively and efficiently and in compliance with conditional grant frameworks.

 

7.6 The following correction should be made to the Bill before its enactment:

On page 290, under Appendix W5 to Schedule 7, “ Cape Agulhas Local Municipality ” must be deleted where it appears next to “ Swellendam Waste Water Treatment Works”, and the words “ Swellendam Local Municipality ” should be inserted.

 

7.7 The Committee noted the possible administrative and legal issues that could arise as a result of the Division of Revenue Bill ( DoRB ) being enacted after 1 April 2012, but recommends that the deadlines in the DoRB be adhered to in light of the fact that the DoRB was published in February 2012 and all accounting officers were made aware of its contents. In addidtion , the Minister of Finance may use his regulatory powers contemplated in clause 37 of the DoRB to resolve any matter that should arise.

 

7.8 The nine provincial treasuries should implement effective systems to monitor conditional grant spending by provincial departments, in order to prevent non-compliance which would constitute financial misconduct in terms of clause 34(1) of the Division of Revenue Bill.

 

7.9 With respect to issues of clarity raised by provinces in their Negotiating Mandates, these should be addressed by the relevant provincial treasury.

 

 

Report to be considered.

 

Documents

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