ATC160315: Report of the Standing Committee on Appropriations on the Division of Revenue Bill [B2 –2016] (National Assembly – Section 76), dated 15 March 2016

Standing Committee on Appropriations

REPORT OF THE STANDING COMMITTEE ON APPROPRIATIONS ON THE DIVISION OF REVENUE BILL [B2 –2016] (NATIONAL ASSEMBLY – SECTION 76), DATED 15 MARCH 2016

 

The Standing Committee on Appropriations (the Committee), having considered the Division of Revenue Bill [B2—2016] (National Assembly), referred to it on 10 March 2016 and classified by the JTM as a section 76 Bill, reports as follows:

 

1. Introduction

 

The Minister of Finance tabled the 2016 National Budget before Parliament on 24 February 2016 in line with section 27 of the Public Finance Management Act (PFMA), (Act 1 of 1999) and section 7(1) of the Money Bills Amendment Procedure and Related Matters Act 9 of 2009 (the Money Bills Act). Section 7(3) of the Money Bills Act requires the Minister to include the Division of Revenue Bill as part of the tabled budget. Section 214(1) of the Constitution, 1996 (the Constitution) requires that every year a Division of Revenue Act (DORA) determines the equitable division of nationally raised revenue among the three spheres of government. This is intended to foster transparency and ensure smooth intergovernmental relations. The Intergovernmental Fiscal Relations Act, No. 97 of 1997 prescribes the process for the determination of an equitable sharing and allocation of revenue raised nationally. Sections 9 and 10 (4) of this Act set out the consultation process to be followed with the Financial and Fiscal Commission (FFC), including the process of considering recommendations made with regard to the equitable division of nationally raised revenue.

 

After the tabling of the Budget, the Committee received a briefing on the Bill from the National Treasury and also had subsequent engagements with the Parliamentary Budget Office (PBO), the Financial and Fiscal Commission (FFC), and the South African Local Government Association (SALGA). In line with Section 9 (5) (b) of the Money Bills Act, the Committee has a responsibility to hold public hearings on the Division of Revenue Bill. To this end, radio promotions at 5 national radio stations ran from 27 to 28 February 2016 inviting general public comments and the Committee also sent out invitations to interested parties which have made submissions to the Committee before and only one submission was received from Equal Education.  

 

 

1. Allocations of the Division of Revenue Bill for the 2016 Medium Term Expenditure Framework

 

The 2016 Budget states that funding proposals aim at supporting the long-term health of public finances through the speeding up of the pace of the fiscal consolidation with a series of revenue and expenditure measures to narrow the budget deficit and stabilize debt. These measures all contribute to the vision of the National Development Plan (NDP). The Budget also reflects the policy priorities contained in Government’s medium-term strategic framework (MTSF), which identify the key actions required to implement the NDP.

Economic growth has been revised down since the tabling of the 2015 Medium Term Budget Policy Statement (MTBPS) and is likely to remain below 2.5 per cent over the next two years. Despite the implementation of a spending ceiling, weak economic growth coupled with one of the most severe drought in 20 years, means that there remain risks to the fiscal outlook. The spending ceiling has been lowered in the two outer years of the Medium Term Expenditure Framework (MTEF) by R10 billion and R15 billion respectively. These reductions have been effected in compensation budgets across national and provincial government in a manner designed to minimize the impact on frontline service delivery personnel.

The 2016 budget includes measures to protect spending on core social obligations, the proposed reductions in the expenditure ceiling were focused on specific items, as follows:

• Restrictions on filling managerial and administrative vacancies, subject to review of human resource plans and elimination of unnecessary positions;
• Reduced transfers for operating budgets of public entities;
• Capital budgeting reforms to align plans with budget allocations while strengthening maintenance procedures;
• Mandatory use of the new e-tender portal, thereby enforcing procurement transparency and accessible reference prices for a wide range of goods and services;
• A national travel and accommodation policy and instructions on conference costs;
• New guidelines to limit the value of vehicle purchases for political office bearers;
• Renegotiation of government leasing contracts; and
• New centrally negotiated contracts for banking services, Information Communication Technology (ICT) infrastructure and services, health technology, school building and learner support materials.

 

The Constitution sets out specific criteria for the sharing of nationally raised revenue between national, provincial and local spheres of government. The constitutional principles taken into account when deciding on the Division of Revenue include the national interest, provision of debt costs, national government’s needs and interest, provincial and local government basic services, fiscal capacity and efficiency, developmental needs, economic disparities, obligations in terms of national legislation, predictability and stability; and flexibility in terms of responding to emergencies.

The Division of Revenue Bill classifies schedules from Schedule 1 to 7 (equitable share and conditional grants) in order to divide revenue between the three spheres of government. Table 1 below provides the legal division of nationally raised revenue among these three spheres of government.

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

Spheres of Government	Column A	Column B
	2016/17	Forward Estimates
		2017/18	2018/19
	R'000	R'000	R'000
National1.	855 070 793	922 857 273	1 003 451 247
Provincial	410 698 585	441 831 122	474 851 942
Local	52 568 706	57 012 141	61 731 845
TOTAL	1 318 338 084	1 421 700 536	1 540 035 034

1. National share includes conditional allocations to provincial and local spheres, general fuel levy sharing with metropolitan municipalities, debt-service costs and the contingency reserve. Direct Charges for provincial equitable share are netted out.

 

The Division of Revenue Bill proposes that the most important public spending programmes that help poor South Africans, contribute to growth and generate employment have been protected from major reductions. These reductions have been distributed to compensation budgets across national and provincial government.

2.1        Main Budget Allocations

 

The main budget expenditure has increased from R1.2 trillion for the 2015/16 financial year to R1.3 trillion for the 2016/17 financial year. The main budget framework provides for average annual growth of 7.3 per cent in the main budget allocations over the next three years. Non-interest allocations for the three spheres of government grow at an average annual rate of 6.4 per cent over the MTEF. Growth in non-interest allocations is faster than projected inflation. For the 2016 MTEF, national government is allocated 47.9 per cent of available funds after debt costs and the contingency reserve have been provided for, provincial government is allocated 42.9 per cent of available funds and local government is allocated 9.1 per cent of available funds.

Table 2: Division of Nationally Raised Revenue, 2012/13 – 2018/19

Source: National Treasury 2016

2.2        Summary of changes to transfers to provinces and municipalities

 

National transfers to provinces increase from R471.8 billion in 2015/16 to R499.8 billion in 2016/17. National Treasury in its submission indicated that provincial baselines are reduced by R3.6 billion in 2016/17 compared to indicative figures contained in the 2015 MTBPS. To protect basic services funded by the provincial equitable share, only 40 per cent (R1.5 billion) of this reduction was taken from the equitable share, despite its accounting for more than 80 per cent of transfers to provinces while the remaining 60 per cent (R2.1 billion) of this reduction comes from provincial conditional grants. National Treasury submitted that reductions were biased towards grants with a history of under-spending. However, a number of grants funding essential services, such as the national school nutrition programme grant, the land care grant, and the provincial roads maintenance grant, were not reduced. It is important to note that over the MTEF period, provincial transfers will grow at an average annual rate of 6.9 per cent to R577.1 billion in 2018/19 while conditional grant allocations grow by 8.2 per cent per year. National Treasury indicated that during the 2015 budget process, funds and functions under the National Health Laboratory Service (NHLS) were shifted to the national Department of Health and that this shift has not affected provincial revenue.

 

Table 3: Conditional Grants to provinces 2015/16 to 2018/19

 

Source: National Treasury 2016

 

Direct conditional grant baselines total R89.1 billion in 2016/17, R100.5 billion in 2017/18 and R108.1 billion in 2018/19. Indirect conditional grants amount to R3.6 billion, R1.7 billion and R1.8 billion respectively for each year of the same period. Changes to conditional grants over the 2016 MTEF include:

• Expanding the scope of the comprehensive HIV and Aids grant to cover the treatment of tuberculosis.
• Expanding the scope of the national health insurance indirect grant to fund clinic upgrades in national health insurance pilot districts.
• Introducing incentives in the provincial roads maintenance grant to reward provinces that implement best practices in planning and completing road maintenance.
• Merging the indirect school infrastructure backlogs grant into the direct education infrastructure grant from 2017/18. School infrastructure projects will be reviewed in 2016 to ensure that all Accelerated Schools Infrastructure Development Initiative backlog projects have been added to the merged grant.
• Introducing a new conditional grant in 2017/18 to expand and improve early childhood development services.

 

Total allocations to local government (including direct and indirect transfers) decrease by R1.8 billion in 2016/17 and R244 million in 2017/18, followed by an increase of R1 billion in 2018/19.This was primarily due to the shifting of indirect transfers to direct transfers in the water sector and the additions to the local government equitable share over the MTEF period to cover rising costs of basic services. In summary, total allocations to local government still grow at an annual average rate of 6.7 per cent over the MTEF period.

 

Table 4: Conditional Grants to local government 2014/15 to 2018/19

 

Source: National Treasury 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

With regards to municipal grants, some conditional grants have been reprioritised, while others have been realigned and merged. National Treasury submitted that grant administrators and municipalities should maximise efficient spending to minimise the effect of these reductions on service delivery. Changes to conditional grants for the 2016 MTEF include:

 

• To support the implementation of the Municipal Demarcation Board’s major boundary changes, the municipal demarcation transition grant will be allocated R409 million over the MTEF to subsidise the additional institutional and administrative costs arising from municipal mergers.
• Allowing municipalities to use conditional grant funds to repair and refurbish existing infrastructure. This will improve services and secure future revenue streams.
• Reducing the number of water and sanitation grants from four to two: the regional bulk infrastructure grant to fund large bulk-water and sanitation projects, and the water services infrastructure grant to fund construction and refurbishment of reticulation schemes and on-site services in rural municipalities. Over the medium term, just over R11 billion has been shifted from indirect to direct allocations to allow municipalities with capacity to implement the projects themselves.
• Amending the municipal infrastructure grant to require secondary cities to plan how infrastructure investments will contribute to long term urban development that breaks down apartheid spatial patterns.
• A new formula to allocate the R6 billion per year set aside to upgrade public transport in 13 cities. The previous system incentivised cities to plan overly expensive systems in the hope of receiving more funding. The new formula provides greater certainty about the long-term support government will provide, and allows cities to plan affordable and sustainable infrastructure upgrades.

 

 

2.3        Main Changes to 2016 Division of Revenue Bill

 

The 2016 Division of Revenue Bill continues with emphasis on reprioritisation within the existing fiscal envelope so as to ensure that the state’s policy objectives are met despite a lower expenditure ceiling. The rising costs of providing basic services will increase even faster in the medium term and this will require greater efficiency in government’s service provision. National Treasury submitted that provinces have agreed to a number of efficiency measures which will include:

• Controlling the number of employees appointed in non-frontline services;
• Reviewing and rationalise provincial public entities;
• Furthering reductions in non-core goods and services and transfers; and
• Delaying some infrastructure projects and maximise efficiency in capital spend.

 

Local government has also agreed to a number of efficiency measures and these will include:

• Improving billing and revenue collection;
• Investing in repairs and maintenance and reduce water and electricity losses;
• Ensuring alignment of budgets, staffing and service delivery functions; and
• Revised cost-containment guidelines for municipalities.

 

 

The main policy issues considered and adjusted into the 2016 Division of Revenue include:

 

• Clause 10(10) requires provincial departments to gazette transfers to municipalities for Human Settlements Development Grant funded projects before the grant can be transferred to provinces.
• In light of the ongoing drought, Clause 20 (6) has been changed to allow grants to be reprioritised to disaster relief or recovery. The transferring officer and National Disaster Management Centre (NDMC) must agree on the need for this and National Treasury must approve any reprioritisation. Funds must remain within the same sector.
• Clause 21(2) makes provision for the conversion of a direct grant allocation (Schedule 5) to indirect grant allocations (Schedule 6) if a municipality fails to adhere to procurement procedures in terms of Municipal Finance Management Act.
• Clause 38 has been added to enable National Treasury to re-gazette allocations in the event that elections are held after the start of the municipal financial year and to set in place interim measures for grant planning and spending in re-demarcated municipalities.
• Clause 19 clarifies the grounds on which funds can be stopped by making explicit the linkages to Section 216 of the Constitution and Section 38(1)(b)(i) of the Municipal Finance Management Act.

 

 

3.         Stakeholder Inputs on the 2016 Division of Revenue Bill

 

 

3.1        Financial and Fiscal Commission

 

The Financial and Fiscal Commission (FFC /the Commission) acknowledged the difficult economic circumstances under which the 2016 budget was crafted  and commended government’s efforts to curb deficit increases and also acknowledged that cuts in allocations were inevitable. The FFC welcomed the inclusion of the following clauses in the 2016 Division of Revenue Bill:

• Provisions to allowing grant funds to be reprioritised for disaster relief. The FFC viewed this clause as transparent and in line with fiscal prudence in that it allows for trade-offs between planned and pressing expenditures necessitated by unforeseen vagaries of weather.
• Provisions that respond to corruption in procurement.  The FFC welcomed the clause for putting in place mechanisms that ensure the fast-tracking of spending and reclassification of grants in accordance with justifiable and necessary processes. However the FFC commented that the clause should set the threshold levels of procurement transgression at which point the grant is converted to an indirect grant and the timeframe within which the grant remains an indirect grant after conversion.
• Provisions for transitional measures for municipal elections in 2016.
• Clarifying provisions for withholding and stopping of allocations.
• Additional provisions in the gazetting of Human Settlement allocations to cities. The FFC welcomed this development as it enables metros to undertake integrated planning. The FFC pointed out that gazetted allocations should be aligned to the Annual Performance Plans.

 

The FFC welcomed continuous investment in infrastructure and highlighted the need for quality of infrastructure spending and the timeous delivery of projects. The FFC noted the downward revision of the provincial fiscal framework over the MTEF and were of the view that provinces would still be able to deliver their constitutionally mandated basic services although national priority expenditure areas funded through conditional grants would come under pressure in 2016/17. The Commission supported the phasing in of funds that were previously part of the devolution of property rates grant into the Provincial Equitable Share (PES) as well as the use of PES funds for the expansion of the Human Papillomma Virus Grant (HPVG). The FFC viewed these initiatives as enhancing efficiencies and mainstreaming these activities into the workflows of provinces.

 

The Commission highlighted that local government will be affected by the slowdown in economic growth, the current recession facing mining and agricultural sectors, the prevailing drought and the oncoming local government elections, tariff hikes larger than inflation and also experience one of the most wide ranging boundary redeterminations since introduction of the current local government system in 2000. The FFC noted that the total baseline allocation to local government is set to decrease by R6.3 billion and acknowledged that these reprioritisation adjustments are necessary for urgent priority areas.

 

With regard to the demarcation process, the Commission encouraged National and Provincial Treasuries to put in place mechanisms for monitoring the transitional grant in order to ensure that funds are utilized strictly to offset costs related to demarcation. The FFC re-iterated that the full financial impact of demarcations should be determined prior to boundary changes and the affected municipalities be made aware of such costs. The FFC also proposed a post demarcation review as this would assist all stakeholders to understand the impact of boundary changes on municipal viability, budgets and overall local economic development.

 

The FFC noted the downward revision of R3.5 billion over the MTEF in provincial conditional grants and supported reprioritisation in so far as cuts are equitably distributed and targeted at non-performing grants. The Commission highlighted that the R1.6 billion downward revision of the Human Settlements Development Grant (HSDG) would accelerate the rate of decline in houses delivered per allocation and encouraged government to support other housing programs such as self-built and Finance Linked Individual Subsidy Programme to reduce pressure on HSDG. The FFC observed that health grants are reflecting a positive spending trajectory however cautioned that reductions in the comprehensive HIV/AIDS and the Health Facilities Revitalisation Grants must be managed carefully to minimise impact on delivery. In this regard they re-iterated that budget cuts must be informed by thorough expenditure reviews. With regard to basic education conditional grants, the FFC were of the view that grants not fully expended should be used to relieve budget pressures in other areas.

 

The FFC indicated that the reductions in the institutional and community services component of the Local Equitable Share (LES) were unlikely to affect service delivery although they could compromise administrative efficiency which could have a bearing on service delivery. With regard to local government conditional grants baseline reductions, the FFC acknowledged that cuts were unavoidable given poor economic growth. However the FFC emphasised that unintended consequences of such reductions should be minimised and that government should ensure that such cuts do not compromise delivery of free basic services and the overall infrastructure investment programme. The Commission also encouraged the local government sector to manage resources efficiently.

 

The FFC noted the reforms in health conditional grants since the introduction of the National Health Insurance (NHI) however they expressed concerns with the endless changes to these grants and highlighted that this introduces uncertainties, duplications and erodes old priorities. The FFC welcomed the incentive grant component for meeting maintenance targets however they were of the view that this should not disadvantage under-capacitated provinces to lose out due to lack of capacity.

 

 

3.2        South African Local Government Association

 

The South African Local Government Association (SALGA) noted the country’s challenging macroeconomic outlook within which the 2016 Division of Revenue Bill was tabled and conceded to the need to balance competing priorities, better manage limited resources, increase accountability and innovation in finding alternative solutions in delivering services.

 

 SALGA referred to the decreasing baseline allocations for local government and noted that allocations to poor and rural municipalities have been protected through revisions to the LES formula and the limited reduction in institutional and community services component of the LES.  SALGA referred to their joint study with FFC on the cost of services and pointed out that the findings thereof should be urgently considered and effected in the ES review process. They highlighted that the cost of the full package of Free Basic Services grows by 6.8 per cent while total ES grows by4.6 per cent. SALGA was of the view that there should be a consideration by National Treasury for additional funding in the 2016 adjustments budget to cover the shortfall that municipalities may encounter as a result of the increase in electricity costs as approved by the National Energy Regulator of South Africa (NERSA). SALGA indicated that the increasing electricity costs have a bearing on the sustainability of electricity as a revenue source for municipalities and referred to compromised revenue collections due to increasing bulk purchase prices, controlled selling prices, high unemployment and bad debts as well as illegal connections and changing energy preferences.

 

SALGA noted that since 2015, R4.9 billion has been reduced in conditional grants over the MTEF as well as changes emanating from the grants review process. SALGA expressed its disappointment with the discontinuation of the Municipal Human Settlements Capacity Grant and the provision of only three per cent instead of the five per cent of the grant to be used to fund municipal capacity in the built environment. They were also concerned about the decline of the Municipal Systems Improvement Grant and highlighted that the 2016 Division of Revenue Bill outputs for the MSIG differ from those set out in the 2015 Division of Revenue Bill. They referred to the exclusion of the requirement of the implementation of the Municipal Standard Chart of Accounts (MSCOA) and the fact that the 2016 Division of Revenue Bill does not allocate direct funding for MSCOA and viewed this is a serious concern given that the 2016/17 financial year is the implementation year for the reform. SALGA welcomed the Municipal Demarcation Grant however indicated that the allocation is far less than their projection which raises doubts with regards to its sufficiency. 

 

SALGA supported the call for municipalities to comply with the circular on cost containment measures however highlighted that there could be a challenge if a municipality does not adopt these measures in council as per Section 168 (3) of the Municipal Financial Management Act because that would make the measures not legally binding.  In this regard, SALGA proposed the possibility of a promulgation of a municipal regulation on cost containment measures. SALGA re-iterated their views as per their 2015 MTBPS submission on measures aimed at increasing the revenue generating capacity of local government such as the local business tax and proposal for a National Collections Agency.  It was reported verbally that an estimated
R115 billion was owed to municipalities by households, businesses and government departments and entities.

 

SALGA expressed concern at a possible withholding of the LGES to 27 municipalities in the March 2016 tranche. SALGA also requested the Committee’s intervention with regard to a need for a balanced approach between municipal obligations and ESKOM’s alleged untenable business practices which comprise:

• billing after 15 days;
• prime plus 5% interest;
• debts exceeding capital amounts;
• refusal to sign Service Delivery Agreement; and
• refusal to enforce municipal credit control in areas where they reticulate.

 

 

3.3        Equal Education

 

Equal Education (EE) expressed concerns about the baseline reduction in the Education Infrastructure Grant (EIG) and the overall trend of decreasing allocations for the Accelerated Schools Infrastructure Delivery Initiative (ASIDI) or the Schools Infrastructure Backlogs Grant (SIBG) since its inception. The EE highlighted that the decreased funding raises concerns around the adequacy of funds for the implementation of the deliverables of phase one of the Minimum Norms and Standards for School Infrastructure (N&S) by the deadline of 29 November 2016.

 

The EE viewed the merger of the EIG and the SIBG in 2017/18 as advantageous given that the EIG performs better than the SIBG. However they were concerned that the merger may disadvantage those provinces with significant backlogs of inappropriate schools because it would require provinces to compete for EIG funding. Furthermore, the EE was of the view that the ASIDI targets would not be reached which is also exacerbated by the Department of Basic Education’s lack of capacity and the history of under-spending.

 

The EE was concerned about the EIG performance based incentive approach highlighting that the allocation methodology focuses on planning and fails to take into account actual implementation and the capacity and capability of different provinces. They argued that the allocation methodology could further create inequities in school infrastructure by benefitting only the better performing, well-resourced provinces while poorer provinces fail to qualify. The EE was of the view that the focus should be on creating incentives that will strengthen institutional capacity and by rewarding improvements in actual delivery of school infrastructure.   The EE also indicated that performance based incentives should be comprehensive and inclusive of actual implementers of the grant. They further indicated that the EIG incentive requirements should include monitoring and evaluation plans because the monitoring of implementing agents and private service providers is currently a significant challenge for provincial education departments.

 

The EE was also concerned about the lack of transparency around the school infrastructure implementation and called for costing assessments for N&S to be made public. They also were of the view that documents which influence budget allocations such as the User Asset Management Plans which is a requirement for the EIG Incentive should be made available to the public.

 

The EE proposed that government should consider the following recommendations with regard to school infrastructure:

• Undertaking a costing assessment to determine the budget allocations that will be required for provinces to comply with N&S for school infrastructure. The Department of Basic Education to regularly monitor provincial progress towards the achievement of N&S guidelines as well as cost and time efficiency in implementation of school infrastructure.
• The DBE to monitor and oversee the development of provincial capacity to build new schools and improve existing schools. Costing assessment referred to above should include costs to improve the capacity of provincial departments in terms of planning, budgeting and contracting processes required for compliance with N&S. DBE to also investigate training programmes for assisting provincial departments.
• The planning and development of schools meeting N&S should be undertaken in an open and transparent manner. Delivery schedules should be made easily accessible to public so progress can be measured and parents of learners in schools as well as school staff are able to plan accordingly and hold provinces accountable.

 

With regard to scholar transport the EE raised concerns that the 2016 Division of Revenue Bill does not allocate funding for learner transport exclusively. EE argued that the National Learner Transport Policy published by the Department of Transport on 23 October 2015 refers to a funding model which does not seem to address the growing demand for scholar transport as well as the budget constraints facing provincial departments.

 

In this regard they re-iterated their recommendations submitted as part of the 2014 Medium Term Budget Policy Statement (MTBPS) regarding the introduction of a scholar transport conditional grant with the following features:

• Conditional grant: to ring-fence funds for the sole purpose of scholar transport;
• Grant allocation formulation take into account rural terrain of province, the number of people who qualify for scholar transport and the distances within the province that learners are expected to travel to the nearest public school;
• Formula be based on detailed cost analysis of the overall provincial scholar transport costs and expenditure needs covering specific conditions such as different modes of transport, route accessibility, quality and availability of road infrastructure;
• Grant funds different interventions most appropriate to varying scenarios across provinces e.g. standardized remuneration model for paying contractors and bus drivers operating in rural and urban areas, capital expenditure on moveable assets such bicycles, vehicles as well as maintenance of such assets; and
• Link grant to key outputs or performance indicators.

 

 

 

 

 

 

4.         Findings and Observations

 

The Standing Committee on Appropriations having considered the 2016 Division of Revenue Bill and received inputs thereon found the following:

 

4.1        The Committee notes that economic growth has been revised down since the tabling of the 2015 MTBPS and is likely to remain below 2.5 per cent over the next two years. The spending ceiling has been lowered in the two outer years of the MTEF by R10 billion and R15 billion respectively. These reductions have been effected in compensation budgets across national and provincial government in a manner designed to minimize the impact on frontline service delivery personnel.

4.2        The Committee welcomes efficiency measures agreed to by provinces and local government which include limiting the number of employees appointed in non-frontline services, reviewing and rationalizing provincial public entities and further reductions in non-core goods and services and transfers, improving billing and revenue collection in municipalities, investing in repairs and maintenance and reducing water and electricity losses, ensuring alignment of budgets, staffing and service delivery functions and rolling out revised cost-containment guidelines for municipalities.

 

4.3        The Committee remains concerned about the capacity of provincial and local government to spend infrastructure allocations which has led to reduced allocations. Furthermore, the Committee remains concerned about the persistent under expenditure of indirect grants administered by national departments on behalf of local government.  The Committee maintains that under expenditure on infrastructure allocations hampers economic growth and undermines the achievement of the country’s NDP goals

 

4.4        The Committee notes new provisions in the 2016 Division of Revenue Bill which include allowing grant funds to be reprioritised for disaster relief, putting in place mechanisms that ensure the fast-tracking of spending and reclassification of grants in accordance with justifiable and necessary processes, improving on clarifications of provisions for the withholding and stopping of allocations. 

 

4.5        The Committee notes the proposed funding allocation of R409 million over the MTEF to the municipal demarcation transition grant to subsidise the additional institutional and administrative costs arising from municipal mergers. However, the Committee also notes and supports concerns raised by the Financial and Fiscal Commission on the need for comprehensive financial modelling and analysis in processing and finalising new municipal demarcations.

 

4.6        The Committee welcomed the report by National Treasury that the Local Equitable Share will not be withheld during the March 2016 tranche. The Committee emphasised the need for continuous monitoring of expenditure relating to the local government equitable share.

 

4.7        Whilst the Committee welcomes the new conditional grant for Early Childhood Development, it emphasizes that there should be close collaboration between the Departments of Social Development, Basic Education and Health in this regard.

 

4.8        The Committee notes the concerns raised by the Financial and Fiscal Commission on the impact of the downward revision of allocations for the Human Settlements Development Grant (HSDG) which may accelerate the rate of decline in houses delivered per allocation. The Committee encourages government to in addition to enhancing efficiencies in all human settlements programmes also support other housing programs such as self-built and Finance Linked Individual Subsidy Programme to reduce pressure on Human Settlement Development Grants.

 

4.9        The Committee is concerned about the South African Local Government Association’s submission that ESKOM billed municipalities far more than the cost of the electricity provided, and that Eskom has not agreed to the signing of Service Delivery Agreements with municipalities. The Committee views the need for speedy resolutions to differences in service delivery approaches between ESKOM and local governments on this issue as critical and the Committee reiterates its stance that all spheres of government and state agencies must cooperate and find common solutions that benefit South Africa households and the poorest of the poor. 

 

4.10      The Committee notes with concern the higher than inflation electricity tariff hikes, and the reported R115 billion which government, businesses and households owe to municipalities and the impact all this has on the collection rate and financial viability of municipalities. The Committee also notes with concern that some municipalities are transgressing their commitments with ESKOM although the Local Government Equitable Share Basic Services component provides for bulk free basic services.  In this regard, the Committee will wait to apply itself on the Financial and Fiscal Commission and South African Local Government Association’s study on cost of basic services when tabled in Parliament.

 

4.11      The Committee notes the proposed merger of school infrastructure grants beginning in 2017/18 and that school infrastructure projects will be reviewed in 2016 to ensure that all Accelerated Schools Infrastructure Development Initiative backlog projects have been added to the merged grant. However, the Committee notes concerns raised by Equal Education and emphasises that all schools infrastructure backlogs be prioritised and addressed promptly. The Committee views the provision of quality education in rural areas as an urgent imperative to be supported by all stakeholders. 

 

4.12      The Committee notes Equal Education’s submission that there should be costing assessment for schools infrastructure to determine the budget allocations that will be required for provinces to comply with norms and standards. This should include enhanced monitoring of progress in provinces towards the achievement of norms and standards guidelines as well as delivery efficiencies in the implementation of school infrastructure.

 

4.13      The Committee notes Equal Education’s concerns about the provision and funding of scholar transport. The Committee further notes proposals by Equal Education that scholar transport funding be allocated as a conditional grant and that allocations be formulated based on the rural terrain of provinces, the number of qualifying beneficiaries, the distances within the province and detailed costs analysis. The Committee notes National Treasury’s submission that allocating through a conditional grant does not equate to capacity. The Committee encourages further engagements between National Treasury and civil society organizations on finding common solutions that result in service delivery improvements and value for money for citizens.

5.         Recommendations

 

The Standing Committee on Appropriations having considered the 2016 Division of Revenue Bill recommends as follows:

           

 

5.1        That the Minister of Finance should ensure the following:

 

5.1.1     That the National Treasury in partnership with the Department of Basic Education, Department of Performance, Monitoring and Evaluation, civil society and relevant stakeholders in its programme on expenditure reviews include an assessment of the following funding areas:

• Efficacy of funding and a comprehensive evaluation of spending and implementation performance of the scholar transport programme
• Efficacy of funding and a comprehensive evaluation of spending and implementation performance of the schools infrastructure programme
• Explore options that allow for the ring fencing of funding allocated to scholar transport to be used solely and exclusively for that purpose

5.1.2     That the National Treasury in partnership with the Department of Education, Department of Performance, Monitoring and Evaluation, civil society and relevant stakeholders develop systems to enhance monitoring and implementation effectiveness of the Education Infrastructure Grant. This should include adherence to the principles of openness and transparency in the planning and delivery of schools infrastructure.

5.1.3     That the National Treasury in partnership with the Department of Performance, Monitoring and Evaluation, Statistics South Africa formulate and implement a programme at enhancing the quality and consistency of information and data utilized by provinces and municipalities in areas such as scholar transport, schools infrastructure programme, school nutrition programme, municipal infrastructure programmes and other important policy areas. 

5.1.4     That the National Treasury in partnership with the Department of Performance, Monitoring and Evaluation and the Financial and Fiscal Commission formulate and implement a programme on developing financial modelling capacity in municipalities for the processing and finalization of municipal boundary changes.

5.1.5     That the National Treasury strengthen systems and mechanisms aimed at ensuring the provinces qualify for incentives in infrastructure programmes for education, health and roads. Emphasis to be placed on the success of implementation and not only on the quality of planning documents submitted. 

5.1.6     That the National Treasury in partnership with Financial and Fiscal Commission and South African Local Government Association formulate a task team that will complete a post municipal demarcation review that would assist all stakeholders in understanding the impact of boundary changes on municipal viability, budgets and overall local economic development. 

 

5.2        That the Ministers of Human Settlements and Finance and relevant stakeholders develop and implement a programme aimed at supporting self-built housing initiatives and consider investing more resources in programs such as investment incentives using tax rebates and housing vouchers that are likely to stimulate additional funding from the private sector as well as household contributions towards housing delivery.

 

5.3        That the Minister of Cooperative Governance and Traditional Affairs together with the Department of Planning, Monitoring and Evaluation, National Treasury, South African Local Government Association and Statistics South Africa develop systems and mechanisms aimed at improving local government performance with specific focus on the following:

• Speedily finalise the necessary legal framework that will ensure that cost containment measures in municipalities are enforceable;
• Develop, compile and finalise a comprehensive report on available and implementable options for enhancing billing systems across all municipalities; and
• Facilitate dialogue and compile a detailed report on an effective approach to billing and revenue collection between ESKOM and municipalities which places emphasis on equity, efficiency, fairness and value for money for citizens.

 

6          Committee’s Recommendation on the Bill

 

The Standing Committee on Appropriations having considered the Division of Revenue Bill [B2—2016] (National Assembly) referred to it and classified by the JTM as a section 76 Bill, reports that it has agreed to the Bill without amendments.

 

 

 7         Conclusion

The responses, by the relevant Executive Authorities, to the recommendations as set out in section 5 above must be sent to Parliament within 60 days of the adoption of this report by the National Assembly.

 

 

Report to be considered.