ATC171121: Report of the Select Committee on Appropriations on the Division of Revenue Amendment Bill [B24 – 2017], dated 21 November 2017

NCOP Appropriations

REPORT OF THE SELECT COMMITTEE ON APPROPRIATIONS ON THE DIVISION OF REVENUE AMENDMENT BILL [B24 – 2017], DATED 21 NOVEMBER 2017
 

The Select Committee on Appropriations, having considered the Division of Revenue Amendment Bill [B24 - 2017] (National Assembly – section 76, reports as follows:

 

1. Introduction

 

The Division of Revenue Amendment Bill [B24 – 2017] was tabled in Parliament on 25 October 2017 by the Minister of Finance during the presentation of the 2017 Medium Term Budget Policy Statement (MTBPS), and was referred to the Committee on 14 November 2017. The Committee received a briefing on the Bill from National Treasury and also heard submissions from the South African Local Government Association (Salga), the Financial and Fiscal Commission (FFC) and the Department of Cooperative Governance and Traditional Affairs (Cogta). To facilitate public participation, the Committee published adverts in print media in all 11 official languages from 27 October to 3 November 2017 and one submission was received from the Rural Health Advocacy Project (RHAP), who also made an oral presentation to the Committee. The RHAP submission will be included in the Committee’s report on the proposed division of revenue and conditional grant allocations to provinces and local government as contained in the 2017 Medium Term Budget Policy Statement.

 

1. Changes in the Division of Revenue Amendment Bill [B24 – 2017]

 

The Bill and its annexures address the following matters:

 

• Changes in the equitable division of nationally raised revenue among the spheres of government;
• Changes to provincial allocations;
• Changes to local government allocations; and
• Changes to gazetted frameworks.

 

Table 1 hereunder outlines the equitable division of revenue raised nationally among the three spheres of government.

 

Table 1: Adjustments to spheres of government equitable share

 

Sphere of Government	2017/18 Allocation R’000	Adjusted amount R’000	2017/18 Adjusted allocation R’000
National	910 872 117	8 385 066	919 257 183
Provincial	441 331 122		441 331 122
Local	57 012 141		57 012 141
Total	1 409 215 380	8 385 066	1 417 600 446

Source: National Treasury (2017a), adapted.

 

 

The above table shows that national government receives an additional R8.385 billion, bringing the main budget allocation for the 2017/18 financial year from R1.409 trillion to R1.418 trillion. The additional amount for national government includes R49.834 million for conditional grants to provinces; R54.005 million for conditional grants to local government and R994.816 million for debt costs.

 

1. Changes to provincial allocations

 

The Bill effects the following changes to provincial conditional grant allocations: 

 

1. Comprehensive HIV, Aids and TB Grant

R19.8 million will be added to the Comprehensive HIV, Aids and TB Grant for Limpopo and Mpumalanga, in order to support the national response programme and arrest the recent malaria outbreak. Monthly malaria cases have substantially increased and the intervention will see an intensification of support for provincial prevention efforts.

 

1. Health Facility Revitalisation Grant

R30 million of the Health Facility Revitalisation Grant will be converted from an indirect to a direct grant for North West. Health infrastructure projects that were previously funded through the indirect grant, are now being implemented by the North West provincial Department of Health.

 

1. School Infrastructure Backlogs Grant

R415 million in unspent funds has been declared as savings on the indirect School Infrastructure Backlogs Grant in the Eastern Cape. This poor spending performance was reportedly a result of delays in appointing contractors, finalising the merger and rationalisation of schools, and in reappointing contractors where the services of non-performing contractors had been terminated.

 

1. Changes to local government allocations

 

The Bill effects changes to the following local government conditional grants: 

 

4.1 Municipal Demarcation Transition Grant

R27.9 million will be rolled over for the Municipal Demarcation Transition Grant for funds originally allocated to municipalities in KwaZulu-Natal in the 2015/16 financial year. The funds were rolled over in 2016/17 as an indirect grant, but went unspent and they will now be rolled over as a direct grant.

 

4.2 Municipal Disaster Recovery Grant

R26.1 million has been allocated through the Municipal Disaster Recovery Grant for the repair of sinkholes and the damage to infrastructure resulting from sinkholes in the area of Merafong City Local Municipality. This Grant is reactivated in the Bill.

 

4.3 Indirect Regional Bulk Infrastructure Grant

R200 million has been added to the Indirect Regional Bulk Infrastructure Grant for Butterworth’s emergency water supply scheme to respond to drought pressures.

 

4.4 Indirect Water Services Infrastructure Grant

R265 million will be added to the bucket eradication programme to allow the Department of Water and Sanitation to continue bucket eradication projects that the Department had already identified and committed to implementing.

 

1. Changes to gazetted frameworks

Together with the tabling of the Bill, National Treasury also submitted to Parliament proposed changes to gazetted conditional grant frameworks and allocations. Section 16(2) of the Division of Revenue Act, 2016, requires National Treasury to consult Parliament on any proposed changes to a conditional grant framework for the purposes of correcting an error or omission. The following corrections to conditional grant frameworks were submitted by the Minister of Finance together with the Bill:

 

5.1 Comprehensive HIV, AIDS and TB Grant

The framework is amended to include a window for the funding of the malaria outbreak relief interventions.

 

5.2 Health Professions Training and Development Grant and National Tertiary Services Grant

The following changes are made to the frameworks of the above two grants:

1. The due date for the submission of the list of specialists paid from both the provincial equitable share and these grants is corrected to 30 November 2017; and
2. The omission of the line specifying the scheduling of the grants has been rectified.

 

In the case of the Health Professions Training and Development Grant, a duplication in the framework is also corrected.

 

5.3 National Health Insurance Grant – Health Professionals Contracting Component

An infrastructure reporting responsibility, that had erroneously been included in this component, is removed.

 

5.4 National Health Insurance Grant – Ideal Clinics Component

The output for the number of facilities to be peer‑reviewed is amended from 1 700 to 500 clinics. This was the cumulative target for the 2017 Medium Term Expenditure Framework, not the single year target for 2017/18.

 

5.5 Substance Abuse Treatment Grant

The due date for the submission of business plans is corrected to 1 March 2017.

 

5.6 Municipal Disaster Recovery Grant

This framework is being gazetted for 2017/18, as the grant did not form part of the Division of Revenue Act, 2017. Grant funding has now been allocated in response to the need to repair sinkholes and infrastructure damage caused by sinkholes in the Merafong Local Municipality. The conditions in this grant framework are the same as for previous years when the grant existed.

 

1. Submissions by stakeholders

The submissions from stakeholders covered a variety of issues. These included the division of revenue, the local and provincial equitable share formulas, debt owed to municipalities and conditional grant expenditure. The stakeholders who appeared before the Committee include the Financial and Fiscal Commission (the Commission), the South African Local Government Association (Salga), the Rural Health Advocacy Project (RHAP) and the Department of Cooperative Governance and Traditional Affairs (Cogta).

 

6.1 Financial and Fiscal Commission

In compliance with Section 4(4)(c) of the Money Bills Amendment Procedure and Related Matters Act, No 09 of 2009 which states that Parliament must consider the Financial and Fiscal Commission’s (FFC’s) recommendations when dealing with money bills and related matters, the FFC was invited to make submissions on the Bill. Moreover, Part 1(3)(1) of the Financial and Fiscal Commission Act, No 99 of 1997 (as amended) was complied with as the FFC acts as a consultative body and makes recommendations to organs of State in all spheres on financial and fiscal matters.

 

In its submission, the Commission acknowledged that the division of revenue amongst the three spheres would generally be characterised by low growth increases over the 2018 Medium Term Expenditure Framework (MTEF). The Commission identified the local government equitable share (LGES) allocations and the potential for a spike in indirect grants to provinces over the 2018 MTEF as the main drivers of growth. In terms of unspent funds, the Commission noted that they amount to R1.7 billion in the 2017/18 revised division of revenue, which is a slight increase compared to R1.3 billion declared unspent in the 2016/17 revised division of revenue.

 

The Commission added that the projected under-spending remained unchanged at R3 billion and roll-overs amount to R217 million. The roll-over funds had decreased when compared to the R412 million in the revised division of revenue of the 2016/17 financial year. The Commission noted that the decline in roll-overs suggested that government was exercising stricter controls with respect to monitoring expenditure and roll-over requests. The Department of Cooperative Governance and Traditional Affairs had the largest roll-over and increased the extent of its roll-overs from R27.9 million in 2016/17 to R73.2 million in the 2017/18 revised division of revenue.

 

With respect to unforeseen and unavoidable expenditure, the Commission submitted that these funds amounted to R586 million. The Commission informed the Committee that R500 million of these funds would be used for water and sanitation programmes on water supply schemes and upgrades to the capacity thereof. The Commission argued that it supported government initiatives and programmes which seek to extend access to water supply so as to address issues of access and backlogs within the sector. However, the Commission also expressed concern over the indirect component of the grant being used to address water and sanitation programmes, in light of the 2016/17 findings of the Commission on the use of direct versus indirect grants.

 

On changes in conditional grants, the Commission noted that government had earmarked funding of R19.8 million to be added to the Comprehensive HIV, AIDS and TB Grant to cover the funding gap that was weakening the effectiveness of the malaria programme. The Commission was of the view that government funding to combat malaria was critical to further accelerate progress towards the elimination of malaria. However, the Commission added that the reductions to conditional grant allocations, in light of existing pressures due to the increased uptake of people on antiretroviral drugs (ARVs) and the extension of the scope of the grant, was worrisome.

 

 6.2 South African Local Government Association

The South African Local Government Association (Salga) put it to the Committee that the role of municipalities in delivering on their democratic mandate had been gradually increased over time. However, despite the increasing demands on municipalities for services such as the provision of infrastructure and other delivery needs, the financial resources allocated to municipalities have shrunk. Salga reported that this had been complicated by the current state of the economy, especially unemployment and limited tax revenues. Salga further submitted that the division of revenue trends over the past 15 years as per schedule 1 of the Division of Revenue Act (2017), show that the local government transfer represents equitable share allocations that plateau at 4 percent. Salga argued that, based on that, it was clear that local government allocations were never reviewed holistically - let alone being put on par with other spheres in terms of the responsibilities allocated to municipalities. Salga further added that the situation was further exacerbated by the unfunded mandates and unresolved allocation of powers.

 

On the issue of division of revenue among the three spheres, Salga argued that local government would receive the smallest share even after the conditional grants had been included. Salga highlighted that the 9.2 percent projected allocation comprises of both the equitable share (5 percent) and direct and indirect conditional grant transfers (4.2 percent). Above that, Salga put it to the Committee that the estimated division of revenue when revenues raised by all spheres were included, would be as follows: Local government: 28 percent; national government: 36 percent and provincial government: 36 percent. Salga also added that local government received a smaller portion of the budget than what was spent on debt service costs, as this was the fasted growing portion of the budget (that is 15 percent per annum versus 9.2 percent for local government). On the other hand, Salga submitted that there were debts owed to municipalities which as at 30 June 2017 stood at R128.4 billion, of which R24 billion was deemed realistically collectable within 90 days.

 

Salga further recommended a review of the local government equitable share vertical formula and its underlying assumptions, and that the recommendations of the FFC and Salga on the Cost of Basic Services Research be factored into the formula. The proposed new formula should take into consideration other variables and macroeconomic factors which deal with both vertical and horizontal divisions of revenue. Furthermore, Salga recommended that an investigation should be conducted with an aim to propose innovative solutions on dealing with escalating debt owed to municipalities.

 

Salga also recommended that National Treasury should amend Supply Chaim Management Regulations and the Preferential Procurement Framework to require that no municipality, provincial and national government department, state entity and any other organ of the state transact with any entity whose directors and the entity itself are not up to date with their municipal rates and tariffs. Salga added that a tariffs/rates clearance certificate should be made a compulsory requirement in bid submission documents similar to a tax clearance certificate from the South African Revenue Service. Salga also submitted that Cogta, National Treasury and the Department of Public Service and Administration should urgently amend the Municipal Systems Act, the Public Service Act, the Public Finance Management Act, the Municipal Finance Management Act and other relevant legislation to make it a requirement that all employees of government, state-owned entities, Chapter 9 institutions, municipalities and municipal-owned entities, were equally required to be no more than three months in arrears on their municipal bills, otherwise municipalities should be given the power and authority to deduct owed rates from these officials’ salaries.

 

6.3 Department of Cooperative Governance and Traditional Affairs

The submission by the Department of Cooperative Governance and Traditional Affairs (Cogta) was made in the context of the attainment of outcome 9 of the Medium Term Strategic Framework (MTSF) which champions for a responsive, accountable, effective and efficient developmental local government system. The point of departure for Cogta’s submission was supporting the roll-over funds for the Municipal Demarcation Transition Grant. A sum of R27.9 million would be rolled over for this grant for funds originally allocated to municipalities in KwaZulu-Natal in the 2015/16 financial year. These funds were initially rolled-over in the 2016/17 financial year after they had been converted from a direct to an indirect grant at the end of the 2015/16 financial year.

 

Cogta explained that the conversion occurred very close to the end of the financial year, this provided too little time for the funds to be spent. They were then rolled over to the 2016/17 financial year as an indirect grant, but were not spent as the modalities for spending them as an indirect grant could not be agreed on. Cogta clarified that it was due to this that in the Bill, the funds would now be rolled over as a direct grant and transferred to municipalities to reimburse them for expenditure incurred in line with the conditions of the grant in preparation for the municipal mergers that came into effect in August 2016.

 

Cogta also welcomed the additional allocation of R26.1 million for the Disaster Relief and Recovery Grant, which would be utilised to repair sinkholes and the damages to infrastructure in the area of Merafong City Local Municipality. A further additional allocation to address the Butterworth emergency water supply scheme drought pressures by the Department of Water and Sanitation, was also welcomed by Cogta. Cogta also added that they supported the continuation of the bucket eradication projects that the Department of Water and Sanitation had identified and were committed to implement.

 

On the issue of the Back to Basics approach in relation to budgeting, Cogta put it to the Committee that the two sides of the budget, revenue and expenditure, played equally important roles in municipal sustainability. Cogta said on average the revenue bases of metropolitan municipalities, secondary cities, larger towns and medium to smaller towns were dominated by own revenue derived mainly from property rates and user charges; whereas rural and district municipalities tended to rely heavily on intergovernmental transfers. Cogta submitted that it was against this background that, together with National Treasury, it has identified the following common challenges in financially distressed municipalities:

 

• An increase in the number of acting Municipal Managers and Chief Financial Officers;
• Poor cash flow management and reliance on conditional grant funds;
• Low capital spending on infrastructure and inadequate provision for repairs and maintenance;
• Increase in debtors and creditors;
• Lack of credible budgeting; and
• Ineffective governance structures which undermines the administration of municipalities.

In response to these challenges, Cogta submitted that municipalities who were experiencing them have been categorised into three groups which would be part of the pilot for development and implementation of municipal-specific revenue plans. The groups are municipalities in financial distress; municipalities with seven or more audit findings as financial health indicators; and municipalities identified by provincial coordinators in September 2017. The 30 identified municipalities would be offered tailor-made support instead of a one-size-fits-all approach. This support would be conducted through an intergovernmental coordination forum which would include the Department of Planning, Monitoring and Evaluation, Salga, the Department of Public Works, the Department of Public Enterprises, and National and Provincial Treasuries. 

 

 

1. Provincial Mandates

In compliance with Section 7(b) of the Mandating Procedure of Provinces Act (Act 52 of 2008), provinces were required to submit negotiating and final mandates.

 

7.1 Negotiating Mandates

During a meeting on 17 November 2017, provinces submitted negotiating mandates as follows:

 

7.1.1 Eastern Cape was in favour of the Bill.

7.1.2 Free State was in favour of the Bill, with the following recommendations:

1. All levels of political leadership should exercise prudent oversight and enforce consequence management for municipalities that are breaching the legal framework.
2. National Treasury must ensure that sufficient allocation of the Water Service Infrastructure Grant to the Free State Province is effected, due to the severe water shortages and the crippling drought that affects rural communities in the Province.
3. In terms of the bucket eradication grant, the allocation must be a direct grant to Provincial Treasury to distribute within the Free State municipalities with capacity to spend.
4. Salga should ensure that local government is guided and assisted regarding the implementation of cost containment regulations.

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

 

1. That National Treasury should continue with a gradual programme of fiscal consolidation that entails reducing the budget deficit moderately but consistently whilst protecting the poor;

 

1. That National Treasury should continue with the implementation of significant capital investment in public infrastructure that has a positive impact on employment; and

 

c) That National Treasury should incentivise city compaction initiatives, as that promotes efficient utilisation of resources.

 

7.1.4 KwaZulu-Natal supported the Bill.

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

1. EPWP grants should be utilised in a manner that impacts positively on the lives of the people.
2. More resources should be channelled towards roads infrastructure to alleviate road accidents.
3. National Treasury and Provincial Treasury must intensify plans to rescue the situation in Thabazimbi Municipality.
4. Government must ensure that schools infrastructure in Vuwani is restored and devise ways to ensure that there is protection and security for such facilities.
5. Infrastructure delivery departments must ensure that their projects are strictly monitored and immediately utilised upon completion.
6. Drought relief strategies and programmes for informal/subsistence livestock farmers in Limpopo Province should be given the necessary attention. Further, long term plans for rain water harvesting should be developed to ensure that proper catchment systems are made for the benefit of rural farming communities in the Province. Therefore, the Committee reiterates its position that rehabilitation of all water catchment dams should be prioritised.
7. The current state of affairs in Zimbabwe should not be overlooked as it could sharply affect the country and, in particular, Limpopo Province. Therefore, National Treasury should ready itself for any eventuality that might arise to that effect.

7.1.6 Mpumalanga was in favour of the Bill, with the following recommendation:

The NCOP must ensure that provinces are allocated sufficient time, at least six weeks, to process Section 76 Bills.

7.1.7 Northern Cape was in favour of the Bill, subject to the consideration of the following amendments:

1. The Northern Cape Department of Education should earnestly be considered for an allocation from the R415 million saving of the Eastern Cape. The Department is seriously under-funded and cannot fund approximately 16 000 learners. (The mandate was accompanied by a written submission in this regard.)

 

1. The Committee notes the opinion expressed by the Auditor-General based on the 2016/17 Annual Report of the Department of Water and Sanitation and recommends that the Department prudently spend the funds allocated in the adjusted budget.

 

7.1.8 North West was in favour of the Bill, with the following recommendations:

1. The conditional grant funds that have not been spent by provincial departments, must be spent in accordance as they affect the province being appropriated additional budgets.

 

1. The recommendations of the Financial and Fiscal Commission must be taken into consideration in the division of revenue and its amendments.

 

1. The Department of Finance and National Treasury should collaborate and form consultative workshops with communities to enlighten them on appropriations per departments and municipalities. Communities also need to be guided on how roll-overs and unspent budgets are dealt with.

 

7.1.9 Western Cape did not support the Bill, and included the following reasons:

 

1. That National Government did not place strong focus on the –

• Division of Revenue Bill and the Equitable Share;
• Fiscal consolidation; and
• Under-performing state-owned enterprises/entities.

 

1. The National Government should further consider to -

• Act strongly against corruption; and
• Support the application from the Western Cape relating to the drought that has an impact on agriculture, economic growth and employment.

 

7.2 Final Mandates

During a meeting on 21 November 2017, provinces submitted final mandates as follows:

 

1. Eastern Cape was in favour of the Bill.
2. Free State was in favour of the Bill.
3. Gauteng was in favour of the Bill.
4. KwaZulu-Natal supported the Bill.
5. Limpopo did not submit a final mandate.
6. Mpumalanga was in favour of the Bill.
7. Northern Cape was in favour of the Bill.
8. North West was in favour of the Bill.
9. Western Cape was against the Bill.

 

1. Observations

8.1 The Committee noted the deteriorating domestic economic environment and would like the Minister of Finance to ensure policy certainty and implement interventions that would restore confidence and bring the economy back to a faster-growth trajectory.

8.2 The Committee expressed concern over the continuous bailout of state-owned enterprises due to poor financial management, as these bailouts divert funds away from other service delivery demands such as the implementation of the National Health Insurance and addressing higher education funding needs.

8.3 The Committee welcomed the reprioritisation of R264.933 million towards the bucket eradication programme.

8.4 The Committee noted with concern the unspent funds on the School Infrastructure Backlogs Grant, R415 million, which will revert back to the National Revenue Fund due to the poor spending performance.

8.5 The roll-overs over two consecutive years, allowed by the National Treasury are not desirable and may be in breach of the legislation.

8.6 The Committee discourages any justification for accruals by any sphere of government.

8.7 The Committee noted that municipalities across most provinces owe Eskom large amounts of money and are expected to pay the capital amounts plus interest, potentially compromising delivery of basic services.

8.8 The culture of non-payment for basic services rendered by the municipalities, while perpetuated by the high rates of unemployment, could be better addressed through effective interventions and targeted initiatives.

8.9 It is disconcerting for the Committee that provinces and municipalities are still experiencing serious challenges with spending their conditional grants, particularly the Early Childhood Development Grant and capital expenditure in general, given the impact that this has on service delivery.

8.10 The Committee noted with concern that, in general, municipalities are performing poorly   on the Municipal Infrastructure Grant expenditure and that the grant is not always spent  in line with its intended objectives.  

8.11 The Committee acknowledges progress made with cost-containment measures by the National Treasury and the provinces it oversees, and further notes the concern from National Treasury that further expenditure cuts may compromise service delivery.

8.12 The Committee noted the reported misalignment between the Municipal Systems Act and the Municipal Finance Management Act and the role this plays in the liquidity challenges of municipalities.

8.13 The Committee noted the discrepancies between the district and local municipalities in that in some instances the district municipality does not have the necessary capacity to deliver mandated services and yet the local municipality would have the required capacity.

8.14 The reported trend of some councils in municipalities passing unfunded budgets is deemed illegal by the Committee and it is highly unacceptable. Also, some municipalities are reported to be overstating revenue collection to justify tabling unrealistic budgets that are not credible.  

8.15 The Committee noted the support provided to municipalities, particularly, to the 20 municipalities that are reported to be in the most financial distress and further noted that only slight improvements in spending and quality has been observed.

8.16 The municipalities regressing while under the support of Cogta and National Treasury is a cause for concern for the Committee. Some municipalities are reported to be performing unfunded mandates such as provision of water and electricity by a local municipality, which is a competence of the district municipality (DM), while some DMs are bankrupt.

8.17 The Committee noted that the amalgamation of bad- and good-performing municipalities, overall, has led to poor audit outcomes. There is a need to address the root causes of dysfunctional municipalities.

8.18 The Committee noted that National Treasury spends about R2 billion a year on support to municipalities and provinces, but there is insufficient progress.

8.19 Rural Health Advocacy Project raised a concern that, unlike the National Treasury, the provincial sphere of government is not as transparent in terms of budgeting and spending and therefore it is difficult for the public and interest groups to hold them accountable. National Treasury should note and take the matter up with the provincial treasuries to improve transparency.

8.20 The Committee noted Rural Health Advocacy Project’s concern about the need to consolidate health services in rural provinces for improved service delivery and that the challenge may not necessarily be a lack of funds but that of implementation, which requires enhanced oversight over the executive. The problem affects most provincial departments of health, some of which are under National Treasury administration.

 

   

1. Recommendations

After having considered the Division of Revenue Amendment Bill [B24 – 2017] and the submissions made by stakeholders, the Select Committee on Appropriations recommends as follows:

9.1 The Committee noted the deteriorating domestic economic environment and would like the Minister of Finance to ensure policy certainty and implement the interventions that would restore confidence and bring the economy back to a faster-growth trajectory.  

9.2 The national Department of Basic Education should, within three months of the adoption of this Report by the House, report to the Committee on progress made in eradicating inappropriate and unsafe school infrastructure through the School Infrastructure Backlogs Grant.

9.3 National Treasury should effectively manage roll-overs and approve them in time to allow the receiving provinces or municipalities adequate time to spend without compromising service delivery. 

9.4 National Treasury should work with the departments and municipalities to address the cumulative accruals challenge by enforcing compliance with legislation and implementation of consequence management rather than approve requests for additional funds. This, however, should be done without compromising service delivery.

9.5 The Committee recommends that the Department of Planning, Monitoring and Evaluation, National Treasury, the South African Local Government Association, Cogta and Eskom should prioritise resolving the challenge of debt owed to Eskom by municipalities and provinces. The stakeholders mentioned above should develop an action plan with timeframes and report progress made to the Committee within three months of the adoption of this Report by the House.

9.6 The National Treasury and the relevant stakeholders should aggressively implement municipal revenue enhancement initiatives to address the current culture of non-payment and improve revenue collection. The Ministers of Finance and Cogta should provide strategic leadership and address governance issues in provinces and municipalities.

9.7 There is a need for enhanced capacity of the state to deliver quality services, on time. National Treasury and the national and the provincial departments of Cogta should strengthen support provided to provinces and municipalities with regards to conditional grant and capital expenditure and report progress made to the Committee.

9.8 The Committee recommends that the National Treasury strengthens support to the municipalities to improve on the Municipal Infrastructure Grant spending. National Treasury should also review the policy of withholding and reallocation of conditional grants and diverting it to other municipalities perceived to be having spending capacity at the time, as that does not necessarily address the core problem. Re-allocating funds away from under-performing and under-spending municipalities could have unintended consequences.

9.9 The Committee is of the view that there is room for improvement in implementing cost-containment measures and effectively managing expenditure implementation. The Committee urges National Treasury to improve its oversight and monitoring over departments to continue to implement cost-containment measures and deliver services effectively and efficiently.

9.10 The Committee, while noting progress made with resolving the differences in the interpretation of the Municipal Systems Act and the Municipal Finance Management Act by the National Treasury and Cogta, urges the two parties to speedily find common ground in resolving this matter. The Ministers of Finance and Cogta should prioritise finalisation of the outstanding matters and table the amendment bill(s), that would address the misalignment, in Parliament.

9.11 While the overall accountability of passing unfunded budgets is at the political level, National Treasury and Cogta should exercise effective fiscal oversight over the budgets of municipalities. The Ministers of Finance and Cogta should provide strategic political intervention and implement consequence management. The two Ministers should provide the Committee with a progress report on the Back to Basics project. Cogta should provide the intervention and implementation plan with timeframes for improving performance and ensuring that municipalities do not pass unfunded budgets.

9.12 The National Treasury, provincial treasuries and Cogta should collectively provide comprehensive support to the poor performing municipalities that lack capacity to spend their allocated budgets, to ensure that services are delivered to the people as intended.

9.13 The Committee would like a progress report on Cogta’s programme for Municipal Managers, CFOs and engineers; implementation of financial recovery plans and capital expenditure programmes within three months of the adoption of this Report by the House. Cogta should timeously assess whether its efforts and interventions are effective.

9.14 The longstanding issue of filling vacant Municipal Manager and CFO positions in municipalities should be addressed. Cogta and National Treasury should develop short to medium term action plans to address this matter and report progress to the Committee.

9.15 National Treasury should respond to the recommendations made by the Financial and Fiscal Commission in its submission and implement, where applicable.

 

1. Conclusion

Having considered the Division of Revenue Amendment Bill [B24 – 2017] and submissions made by stakeholders and Provinces, the Committee recommends the adoption of the Division of Revenue Amendment Bill [B24 – 2017] without amendments.

 

The Western Cape reserved its position on this Report.

 

Report to be considered.