ATC181120: Report of the Select Committee on Appropriations on the Division of Revenue Amendment Bill [b34 – 2018], Dated 20 November 2018

NCOP Appropriations

Report of the Select Committee on Appropriations on the Division of Revenue Amendment Bill [b34 – 2018], Dated 20 November 2018
 

 

The Select Committee on Appropriations (SeCOA), having considered the Division of Revenue Amendment Bill [B34 - 2018] (National Assembly – section 76), reports as follows:

 

1. Introduction

The Division of Revenue Amendment Bill (DORAB) [B34 – 2018] was tabled in Parliament on 24 October 2018 by the Minister of Finance during the presentation of the 2018 Medium Term Budget Policy Statement (MTBPS), and was referred to the Committee on 13 November 2018. The Committee received a briefing on the Bill from National Treasury and also heard submissions from the South African Local Government Association (SALGA) and the Financial and Fiscal Commission (FFC) as mandated by section 214(2) of the Constitution of the Republic of South Africa. To facilitate the public participation process, the Committee published adverts in print media in all 11 official languages from 25 October to 2 November 2018. However, no public submissions were received. Committee members briefed their respective provinces on the Bill between 13 and 15 Nobember 2018, and public hearings were held in provinces.

 

2. Changes in the Division of Revenue Amendment Bill [B34 – 2018]

The Bill and its annexures addresses 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 (i.e. technical corrections).

 

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

2.1 Table 1: Adjustments to spheres of government equitable share

Sphere of Government	2018/19 Main Allocation R’000	Adjusted amount R’000	2018/19 Adjusted allocation R’000
National	979 181 797	-564 128	978 617 669
Provincial	470 286 510		470 286 510
Local	62 731 845		62 731 845
Total	1 512 200 152	-564 128	1 511 636 024

Source: National Treasury (2018a), adapted.

 

As reflected in table 1 above, the 2018 National Budget is reduced by R564.1 million from R1.512 trillion to R1.5116 trillion for the 2018/19 financial year. The national government’s allocation is reduced by a total of R564.1 million, which is the sum of the in-year adjustments, that are comprised of the following:

 

• Additional funding (i.e. additional funds to national votes, provincial and local government conditional grants, and State debt costs) amounting to R13.4 billion;
• The drawdown of the contingency reserve of R8 billion; and
• The R6 billion set aside for droughtrelief and to augment public infrastructure investment (which remained unallocated in the 2018 Division of Revenue Act), which has now been allocated in the adjusted budget.

3. Changes to provincial allocations

3.1 Funding for drought relief

Drought relief funding is made available as additional allocations for the following provincial grants: 

 

3.1.1 Comprehensive Agricultural Support Programme Grant (CASP)

An amount of R266.5 million is allocated for the provision of feed and water for livestock in six drought affected areas.

 

3.1.2 Land Care Programme Grant

An amount of R200 million is allocated to fund activities which will improve the resilience of agricultural land to drought conditions. These include the removal of alien vegetation, fencing, firebreaks, stock water systems and other infrastructure-related projects.

 

3.1.3 Provincial Disaster Relief Grant

An amount of R200 million, which was allocated as additional funds to replenish the Grant as the provision for the current financial year has been expended. The additional funds will be used to fund relief for any disasters that may occur in the remainder of 2018/19.

 

3.2 Additional funding to support disaster recovery

Disaster recovery funding is made available as additional allocations for the following provincial grants:

 

3.2.1 Provincial Disaster Recovery Grant

KwaZulu-Natal (KZN) receives R16.3 million through this Grant for the repairs of provincial buildings damaged by heavy storms and floods, of which -

• R11.3 million is allocated for the repair and rehabilitation of ten buildings managed by the Department of Cooperative Governance and Traditional Affairs (CoGTA); and
• R5 million is allocated for the repair and rehabilitation of ten buildings managed by the Department of Social Development.

 

3.2.2 Education Infrastructure Grant

An amount of R175.8 million is made available for the repair of schools damaged by natural disasters, as follows:

• R150 million is allocated to KwaZulu-Natal for the repair and rehabilitation of 87 schools; and
• R25.8 million is allocated to the Western Cape for the repair and rehabilitation of 22 schools.

 

3.2.3 Health Facility Revitalisation Grant

An amount of R199.5 million is allocated to KwaZulu-Natal for the repair of 14 hospitals damaged by heavy storms and floods.

 

3.2.4 Comprehensive Agricultural Support Programme Grant

An amount of R1.3 million is allocated to the Western Cape (WC) to repair fire damage to 15 farms in Knysna.

 

3.2.5 Human Settlements Development Grant

An amount of R100.1 million is allocated for the repairs to over 3 280 subsidised houses damaged by floods in KwaZulu-Natal and the repair of fire damage to three houses in Knysna, Western Cape.

 

3.3 Rolled over funds

3.3.1 Learners with Profound Intellectual Disabilities Grant

An amount of R1.3 million (that was committed, but not spent in 2017/18), is rolled over. These funds are for the procurement of learner teacher support material (LTSM) for the Eastern Cape (EC) and the Northern Cape (NC).

 

3.3.2 Substance Abuse Treatment Grant

An amount of R18.4 million is rolled over, in order to enable the completion and construction of treatment facilities in the Free State and the Northern Cape.

 

3.4 Additional allocations

3.4.1 School Infrastructure Backlogs Grant

An additional R800 million is allocated to accelerate the pace of delivery of safe school facilities, specifically the completion of school infrastructure projects where plans have already been approved and are ready for implementation.

 

3.4.2 National Health Insurance Indirect Grant

Additional funding, amounting to R196 million, is provided for the following:

• R166 million is allocated to the Health Facility Revitalisation Component of the Grant for the procurement of medical equipment, as well as the planning and design of the proposed new Academic Hospital for Limpopo Province (LP).. This allocation was approved through the Budget Facility for Infrastructure; and
• R30 million is allocated to the new Human Papillomavirus Vaccine Component of the Grant to allow for the proper closure of a number of outstanding processes that will safeguard uninterrupted service delivery, particularly as the implementation moves over to the provincial sphere. This allocation was reprioritised from the vote of the national Department of Health (DoH).  

 

3.5 Reprioritisation of funding

Funding is reprioritised from the National Health Insurance Indirect Grant, as follows:

• R350 million is reprioritised from the various components of the Grant and is allocated to a new Human Resource Capacitation Component to pay for much needed healthcare professionals. The national Department of Health will oversee the recruitment process necessary to ensure that the right healthcare specialists are appointed onto the public health platform;
• R150 million is reprioritised from the Health Facility Revitalisation Component of the Grant and is allocated to the new Beds and Laundry Service Component for the procurement of beds and linen to improve the functionality of health facilities; and
• R42 million is converted from the Health Facility Revitalisation Component of the Indirect Grant to the Health Facility Revitalisation Direct Grant, to address emergency maintenance backlogs in the Northern Cape.

4.Changes to local government allocations

4.1 Funding for drought relief

Drought relief funding is made available as additional allocations to the following grants:

 

4.1.1 Municipal Disaster Recovery Grant

An amount of R1.03 billion is allocated to subsidise the costs of water augmentation projects, including groundwater development and water conservation measures where the reduction of water losses will improve the sustainability of supply. The grant funding will be transferred to the City of Cape Town, Nelson Mandela Bay and Mangaung, as these municipalities were severely impacted by the drought. These cities are expected to contribute funds from their own revenue base to their water augmentation projects.

 

4.1.2 Water Services Infrastructure Grant

An amount of R288.1 million is allocated to the direct component, and R1.01 billion is allocated to the indirect component of this Grant. The allocations are to fund a variety of water supply augmentation projects for drought-affected municipalities. These include the drilling and equipping of boreholes to access groundwater and implementing water conservation measures where the reduction of water losses will improve the sustainability of supply.

 

4.1.3 Regional Bulk Infrastructure Grant

An amount of R6 million is allocated to the indirect component of this Grant to fund a water supply augmentation project in Ndlambe Local Municipality in the Eastern Cape, which is affected by the drought. The municipality is already receiving an allocation managed through this indirect Grant in the 2018/19 financial year.

 

4.2 Additional funding to support disaster recovery

4.2.1 Municipal Disaster Recovery Grant

An additional amount of R143.3 million is allocated to this Grant for post-disaster repair and rehabilitation projects in a number of municipalities in KwaZulu-Natal and the Western Cape, as follows:

• R138.7 million is allocated to municipalities in KwaZulu-Natal for the repair and rehabilitation of storm water and sanitation infrastructure, roads and community facilities that were damaged by floods; and
• R4.6 million is allocated to Bitou Local Municipality in the Western Cape for the repair and rehabilitation of water and electricity infrastructure.

 

4.3 Additional Allocation

4.3.1 Public Transport Network Grant

An amount of R33 million (which was approved through the Budget Facility for Infrastructure), is allocated to this Grant for the City of Cape Town to begin the detailed design on a new phase of the MyCiti public transport network.

 

4.4 Conversion from indirect to direct conditional grant funding

4.4.1 Municipal Systems Improvement Grant

An amount of R23.2 million of the indirect component of this Grant is converted into direct funding for 22 municipalities affected by major boundary changes that took effect after the 2016 local government elections. This amount was originally made available as indirect funding in 2018/19 to assist with the completion of transitional work in affected municipalities, following the end of the Municipal Demarcation Transition Direct Grant at the end of the 2017/18 financial year. The conversion of the funding from indirect to direct funding will support these 22 municipalities to complete the implementation of the required institutional and administrative changes.

 

5.Changes to gazetted frameworks

5.1 Additional conditions for the approval of drought relief funding

The grant frameworks for the Comprehensive Agricultural Support Programme Grant, the Land Care Programme Grant, the Municipal Disaster Recovery Grant, the Water Services Infrastructure Grant and the Regional Bulk Infrastructure Grant are amended to include the following conditions related to drought relief funding:

 

• Transferring officers must monitor the progress on the implementation of the interventions by considering the progress reports submitted by the receiving officers on a monthly basis.
• Transferring officers must report on a monthly basis on progress to the National Joint Drought Coordinating Committee of the Inter-Ministerial Technical Committee of Drought and Water Security.
• One month after the receipt of the allocations, receiving officers must provide a detailed breakdown to the relevant transferring office and National Treasury of the components funded through the allocations.
• Receiving officers must report on the expenditure of the funds in line with the requirements in section 12 of the 2018 Division of Revenue Act (DoRA) and the gazetted framework for the relevant grant.

 

5.2 Additional conditions for the approval of funds through the Budget Facility for Infrastructure

As mentioned above, the following two grants received additional funding, however, these are subject to additional conditions for approval.

 

The National Health Insurance Indirect Grant: Health Facilities Revitalisation component receives additional funding through the Budget Facility for Infrastructure amounting to R166 million for the procurement of medical equipment as well as the planning and design of the proposed new Academic Hospital for Limpopo. While the Public Transport Network Grant receives an additional R33 million from the Budget Facility for Infrastructure to begin the design on a new phase of the MyCiti public transport network in the City of Cape Town.

 

The grant frameworks for these two grants are amended to include the following conditions:

• The funds allocated in terms of the Budget Facility for Infrastructure are only to be used for the purposes for which it was allocated, and
• Should there be cost variations of more than 10 percent, the National Treasury must be informed within 30 days.

 

6. Gazetting of additional components

The following new components are being gazetted under the National Health Insurance Indirect Grant, as they did not form part of the 2018 DoRA:

 

• A Human Papillomavirus Vaccine Component is introduced to allow for the proper closure of a number of outstanding processes to ensure uninterrupted service delivery as implementation is being handed over to the provinces.
• A Beds and Laundry Services Component is introduced in response to the need for the procurement of beds and linen to improve the functionality of health facilities.
• A Human Resource Capacitation Component is introduced to allow provinces the fiscal space to pay for much needed healthcare professionals to improve health services across the country.

 

6.1 Ring-fencing of additional funding

The Education Infrastructure Grant framework is amended to ring-fence the additional funds allocated for the repairs of schools damaged by disasters.

 

6.2 Correction and clarification of the relevant financial year for which plans need to be submitted

The Health Facility Revitalisation Grant framework is corrected to refer to the submission of the infrastructure programme management plans for 2019/20 instead of 2018/19.

 

6.3 Correction of due date for submission of business plans

The Human Papillomavirus Vaccine Grant framework is amended to correct the due date for the final submission of business plans for 2019/20, from 29 March 2018 to 29 March 2019.

 

6.4 Correction of omission

The Math, Science and Technology Grant framework is corrected to rectify the omission of the 2016/17 audited financial outcomes.

 

6.5 Correction of incorrect statement

The Learners with Profound Intellectual Disabilities Grant framework erroneously stated that members of itinerant teams should be hired on a contractual basis, and is now corrected to allow for the permanent appointment of specialists that form part of itinerant teams.

 

6.7 Amendment of grant framework to include conditions attached to the approval of funding with regard to disasters

The Human Settlements Development Grant framework is amended to include the conditions attached to the approval of funding for the repair and rehabilitation of subsidised houses damaged by disasters.

 

6.8 Gazetting of Provincial Disaster Recovery Grant framework

The Provincial Disaster Recovery Grant did not form part of the 2018 DoRA and therefore the grant framework is being gazetted for 2018/19.

 

7. Submissions by stakeholders

As mentioned above, no submissions were received in response to the advertisements placed to invite the public to comment on the Bill. The stakeholders who appeared before the Committee were the Financial and Fiscal Commission and the South African Local Government Association (Salga).

 

7.1 Financial and Fiscal Commission

In compliance with section 214(2) of the Constitution of the Republic of South Africa, read 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 a submission 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.

 

The FFC commended government’s efforts to protect the local government equitable share (LGES), which is essential in maintaining and improving service delivery to communities. However, the FFC remained concerned about the projected slower real growth rates of the LGES in outer years (2020/21 and 2021/22) and encouraged the government to reconsider the growth rate of the LGES in outer years so that poor households are cushioned against the rising cost of free basic services. The FFC further indicated that revenue raising and inefficiency problems in the local government sector needed to be eliminated. According to the FFC, conditional grants to local government are of strategic importance as they are used to fund development of bulk infrastructure that underpin the delivery of water, sanitation and electricity. However, allocations in this regard are projected to decline by a real annual average of 1.1 percent over the next three years. The most significant reduction in local government conditional grants is in 2019 with a projected 8 percent real decline.

 

The FFC welcomed efforts to improve capacity within municipalities such as the recent deployment of experts to assist municipalities improve their performance and operational efficiencies. However, in the past five years, government has invested an average of R2 billion a year on improving capacity, without yielding positive results. The FFC called for an urgent review of government capacity initiatives within the local government space, focussing specifically on skills transfer to recipient municipalities. The FFC further reported that a significant proportion of the municipalities were distressed and dysfunctional, with their fiscal health deteriorating over the past few years. Thus the FFC recommended a thorough and comprehensive review of the local government fiscal framework in order to include a focus on governance and other institutional arrangements. The FFC was of the opinion that the division of revenue needed to respond to the fact that municipalities should not compromise on service delivery.

 

The FFC further noted the proposed establishment of an infrastructure fund that would comprise of contributions from government, the private sector and development finance institutions (DFIs); but emphasised that government needed to consider the intergovernmental fiscal arrangements and ensure balance in the allocation of resources across the three spheres of government. The FFC also welcomed efforts to publish expenditure reports of existing infrastructure projects to enhance accountability and transparency, saying this would minimise cost overruns and ensure timely completion of the projects. However, the FFC was of the opinion that, in addition to publishing expenditure reports, government needed to invest in an infrastructure delivery inspectorate to ensure that projects were delivered in accordance with the required standards and quality. It was the FFC’s view that allocating funds and observing its spending trends alone would not yield the desired results of efficiency and impact. Government should take the approach of costing infrastructure in line with its functions and performance with empirical data, to ensure the real productivity of the public sector is realised.

 

The FFC recommended that, in order to ensure optimal utilisation of the additional resources allocated to higher education and training (HET), the government should develop a much clearer plan for implementing the comprehensive fee-free higher education policy both to address uncertainty in the institutions of higher learning and to ensure efficient and effective utilisation of these resources. In this regard the FFC indicated that funding must be consistently available across all the students’ years of study; and should be aligned for building skill sets to stimulate economic development. While the FFC welcomed the implementation of fee-free HET, it felt that the government needed to implement measures to improve the quality of outputs and outcomes at all levels of the education system. This was particularly urgent in the rural universities and the Technical Vocational Education and Training (TVET) colleges.

 

7.2 South African Local Government Association (SALGA)

In compliance with section 214(2), the Committee invited Salga to make an oral and written submission on the Bill. The invitation was honoured by Salga. Salga began their submission by acknowledging that in the recent past, before the Value Added Tax (VAT) increase, there has been substantial tax rate increases (personal income tax, capital gains tax, excise duty and fuel levies) that had been implemented. Salga argued that this provided little room to increase and bolster the financial position through tax policy.

 

In response to this challenge, there has been the implementation of an economic stimulus/recovery package which aimed to unlock private sector or Development Finance Institutions funding, technical support and governance oversight in infrastructure investment. Salga also noted the initiative to create an infrastructure fund to, mainly, assist metropolitan municipalities and other entities.

 

On the public wage bill, Salga submitted that several government departments were likely to overspend on compensation of employees, with some requiring major reprioritisation towards their wage bills. The proposal that the national and provincial departments should absorb the wage cost increase may create bigger cost pressure on the budget and this may crowd out items such as procurement of goods and services and capital investment in social spending.

 

Salga highlighted the three key priorities of the 2018 Medium Term Budget Policy Statement (MTBPS) which included the economic stimulus and recovery plan as launched by President Cyril Ramaphosa; the improvement of governance and financial management at all levels of government; and the proposed reforms in state-owned entities and improving their financial health.

 

On the division of revenue, Salga submitted that they noted the medium term proposed allocation of 48.1 percent of available non-interest expenditure to national departments, and the 42.9 percent and 9 percent to the provinces and local government, respectively. Over the same period, the national government financial allocation would grow by 7 percent, provincial by 7.2 percent and local government by 7.2 percent. In actual financial terms, local government will receive, over the medium term expenditure framework, R415.5 billion, including R146.3 billion for infrastructure conditional grants.

 

With respect to the local government equitable share (LGES), Salga noted that the largest transfer to municipalities will grow from 9.9 percent in 2019/20 to 9.7 percent in the 2020/21 financial year. Even though the LGES will then contract to 8.6 percent in the 2021/22 financial year, Salga submitted that a number of factors which suggest that the LGES needed to be revisited, have been identified. These have included the following:

 

• The 2016/17 MTEF figures suggest that the true equitable share, after adjusting for local revenue, is somewhere between 19.5 and 22 percent, depending on the measure of revenue that is used;
• For many municipalities, the revenue-raising assumptions contained in the White Paper and which form the foundation of the current local government funding model, including the determination of the equitable share are neither accurate nor attainable, given local demographics and realities; and 
• The role of the bulk suppliers in undermining municipal revenue collection needs to be considered and addressed. A more realistic model of municipal revenue needs to be developed, and the structural impediments that prevent municipalities from collecting revenue need to be addressed.

 

Salga further commented that a joint study, conducted by the FFC and Salga, on the cost of providing basic municipal services, raised a number of important issues. That is, in many service categories, the actual cost of service delivery is much higher and vary considerably across different municipalities than the estimates used for the purpose of calculating the LGES. Secondly, the renewal and maintenance of existing infrastructure was well below what was required. Thirdly, the administrative cost burden on municipalities was considerable and was greatly reducing the amount of funding that was available for direct spending on service delivery and infrastructure investment management. Salga argued that the greater the administrative cost share, the less effective and efficient the service delivery business model in terms of transforming financial inputs into effective municipal services or outputs.

 

On challenges within the local government sector, Salga acknowledged that - (i) there are  financial and administrative problems in a number of municipalities that have contributed to the under-spending and/or inappropriate use of the LGES; (ii) there is no perfect solution for the division of revenue across government and trade-offs inevitably always have to be made; (iii) in reviewing the LGES, due consideration had to be given to factors that inhibit local municipalities from service delivery as mandated by the Constitution or which reduce the value-for-money outcomes of those service delivery models.

 

Salga commented that some stakeholders have argued that the equitable share of local government should increase, while others have argued that the government needs to adjust how this equitable share was distributed amongst municipalities. A better view on the understanding of the actual costs of providing municipal services, the ability of local government to raise own revenue to provide basic services to all poor households, the true extent of the funding gap, and the shortcomings of the business model assumptions that underpin the state’s funding model, were required.

 

With respect to municipal borrowing, Salga submitted that the National Treasury should implement sufficient reforms to clarify the role of Development Finance Institutions (DFIs) in municipal borrowing and regulate municipal development charges as to broaden municipal access to private capital markets. This would unlock access to an untapped credit market for viable borrowers - municipalities in this instance.

 

With regard to revenue collection and/or debt owed to municipalities, Salga welcomed the gesture of the deployment of Revenue Collection Experts to municipalities to assist in revenue collection and curbing the growth of the current debt trends. Salga submitted that the aggregate municipal consumer debts amounted to R143.2 billion, according to the 4th Quarter Section 71 Report compiled in accordance with Section 71 of the Municipal Finance Management Act. In addition, debt owed to municipalities by organs of the State was R7.9 billion. This amount was constantly rising even though the National Treasury continuously urge user departments to pay historical debts, except where there are disputes with respect to property ownership.

 

Salga welcomed the ring-fencing of debts owed by national departments in the Appropriation Bill and further urged all departments, especially Health, Education, Human Settlements and Social Development, that are the biggest debtors, to heed the call for a speedy resolution to this matter. On this issue, Salga added that should this trend and behaviour continue, decisive action – like the withholding of equitable share – should be taken against non-cooperating departments.

 

With respect to changes and differentiation in the local government conditional grant structure, Salga welcomed all the changes that had been effected in the Integrated Urban Development Grant. Salga added that the informal settlements upgrading had been part of the South African cities for a long time through the Urban Settlement Development Grant. Salga further indicated the need for a municipal turnaround allocation. This was due to 113 municipalities adopting unfunded budgets in the 2018/19 financial year, which was an increase from 83 municipalities in the previous financial year. Moreover, Salga submitted that municipalities owed Eskom and Water Boards more than R23 billion in arrears. Salga argued that when municipalities are in financial distress, the Constitution mandates that the provincial government must intervene and if the province is not able to, then national government must intervene. Salga appeared to argue that few past interventions have succeeded in producing a sustained turnaround. However, Salga welcomed the financial recovery plans which intend to strengthen the National Treasury’s Municipal Financial Recovery Service, which prepares financial recovery plans for municipalities and augment the capacity of provinces to implement these plans.

 

With respect to audit outcomes, oversight and accountability, Salga submitted that the Auditor-General had reported that audit outcomes in municipalities had regressed with irregular, fruitless and wasteful expenditure. Salga added that in the 2016/17 financial year, irregular expenditure was found to be around R28.4 billion, rising from R16 billion in the 2015/16 financial year. Over and above that, Salga submitted that R1.2 billion had been lost by municipalities in the collapse of the Venda Building Society Bank (VBS). Salga welcomed the collaboration between National Treasury, the Auditor-General and the Department of Cooperative Governance and Traditional Affairs to reduce wasteful, irregular and unauthorised expenditure and also deal with financial misconduct in municipalities.  

 

In addition, Salga pointed out that a consequence management framework was not pursued and those responsible for wrongdoing are not sufficiently held accountable. Secondly, Salga submitted that Municipal Public Accounts Committees (MPACs), in most instances, were under-capacitated, under-resourced, chaired by junior councillors and most of their oversight recommendations had no binding effect and tended not to be implemented. For this to change, Salga proposed a legislative review, which would give more powers and clout to these structures so that they provide an effective oversight role. Added to that, Salga submitted that there was a need to deal with constant reforms in the local government sphere, since these were disruptive changes in the sector’s systems, regulations, reporting and compliance matters. Examples were the Municipal Regulations on a Standard Chart of Accounts (mSCOA) and General Recognised Accounting Standards 1 to 21. Salga argued that these constant changes create managerial and system instability, resulting in negative audit outcomes and causing management to shift focus to compliance instead of the strategic developmental imperative. Salga highlighted that they continue to support municipalities with poor audit outcomes on various issues under the Municipal Audit Support Programme.

 

Besides the above, Salga submitted that the funding model for district municipalities (DMs) needed to be reviewed; as a number of DMs were not viable and had no resources, nor capacity to fulfil their mandate/function of supporting the local municipalities under their jurisdiction. Salga argued that some districts do not receive the basic services component of the LGES, particularly those that are not water and sanitation authorities and as such, they rely mainly on the Regional Services Council Replacement Grant to fund their operations. Salga further added that the historical allocation as well as the current R23 million allocation fell far short of what is required to deal with the operational as well as the capital constraints of amalgamations.

 

8. 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.

 

8.1 Negotiating Mandates

During a meeting on 16 November 2018, provinces submitted negotiating mandates as follows:

 

8.1.1 Eastern Cape supported the Bill.

8.1.2 Free State supported the Bill.

8.1.3 Gauteng did not submit a Negotiating Mandate on time.

8.1.4 KwaZulu-Natal supported the Bill.

8.1.5 Limpopo supported the Bill. 

8.1.6 Mpumalanga supported the Bill.

8.1.7 Northern Cape supported the Bill.

8.1.8 North West supported the Bill.

8.1.9 Western Cape supported the Bill.

 

8.2 Final Mandates

During a meeting on 20 November 2018, provinces submitted final mandates as follows:

 

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

 

9. Observations

9.1 The Committee noted the corrections, tabled by the National Treasury, to conditional grant frameworks and new conditional grant frameworks set out in annexures 2 and 3 of the Bill. The Committee welcomes the additional allocations to various infrastructure grants. This should be accompanied by intensive efforts to improve the capacity of the national, provincial and local government to implement infrastructure projects.

 

9.2 The Committee observed that Salga may not have utilised official reports, compiled in terms of Sections 32 and 71 of the Municipal Finance Management Act and/or Circular 62 of the National Treasury, as a resource to identify areas which municipalities need assistance and capacitation on and further pro-actively develop intervention programmes for all municipalities.

 

9.3 The Committee observed that Salga strongly pointed out the weaknesses in Municipal Public Accounts Committees (MPACs), which lead to increasing irregular, unauthorised, fruitless and wasteful expenditure without consequence management as set out in Section 32 of the MFMA. However, Salga did not propose any specific and quality reforms to make sure that the MPAC model is improved and such committees are well capacitated with competent administrative and support staff.  

 

9.4 The Committee noted the increase in municipalities who adopted unfunded budgets from 83 to 113 in 2018/19, which showed total disregard for the MFMA and gave the impression to communities that services would be delivered while there was no budget. Equally, the Committee was also concerned about the lack of project oversight in the local government sphere, wherein councils were approving project funding without making any follow up visits to such projects. The local government regulatory framework provides clear procedures and approaches on the oversight role of councillors.

 

9.5 The Committee noted Salga’s submission which suggests the Municipal Standard Chart of Accounts (mSCOA) creates more financial burden for the municipalities, most of which are relying on service providers to operationalise and maintain the system with limited resources.      

 

10. Recommendations

After having considered the Division of Revenue Amendment Bill [B34 – 2018] and the submissions made by stakeholders, the Select Committee on Appropriations recommends as follows:

 

10.1 The Committee recommends that the corrections to conditional grant frameworks and new conditional grant frameworks set out in annexures 2 and 3 of the Division of Revenue Amendment Bill [B34 – 2018], be gazetted.

 

10.2 The Committee recommends that Salga should consider utilising, amongst others, published reports, compiled in terms of Sections 32 and 71 of the MFMA and/or Circular 62 of the National Treasury, as a resource to identify areas which municipalities need assistance and capacitation on.

 

10.3 Since Salga pointed out the weaknesses in MPACs, the Committee recommends that Salga should be the champion of reforms that should be implemented by municipalities with a view to refine the MPAC model and ensure that there is competent administrative and support for such committees. Salga should make sure that such a model is able to assist municipalities to identify individuals who incur irregular, unauthorised, fruitless and wasteful expenditure and follow the process as defined by Section 32 of the MFMA for consequence management.  Part of the mechanism to ensure consequence management is the implementation of the Public Audit Amendment Bill 2018 which will allow the Auditor-General of South Africa to take remedial action to ensure that losses suffered by the State are recovered and refer suspected material irregularities for investigation.  

 

10.4 The Committee agrees that the local government oversight model needs to be enhanced to reinforce proper accountability. The Committee recommends that Salga should be at the forefront of oversight model reforms, which would improve oversight responsibility and ensure that their constitutional responsibility was taken seriously, and municipalities comply with each and every legal prescript governing their sphere.     

 

10.5 The Committee is of the view that any financial or accounting reform should result in an effective and efficient municipal environment. The Committee recommends that, as required by Section 34 of the MFMA, National Treasury and provincial treasuries, together with Salga (as a recognised organised local government association in terms of Section 163(a) of the Constitution), provide support and ensure that there is necessary capacity to maintain and operationalise mSCOA systems with immediate effect.

 

In addition, the Committee recommends that within the framework of their prescribed roles, National Treasury and National Cogta conduct better oversight over government departments and in turn advocate robust oversight and monitoring and evaluation of funds transferred to implementing agents at the provincial and local spheres of government.

     

11. Conclusion

Having considered the Division of Revenue Amendment Bill [B34 – 2018] and submissions made by stakeholders and Provinces, the Committee recommends the adoption of the Division of Revenue Amendment Bill [B34 – 2018] without amendments.

 

The Western Cape reserved its position on this Report.

 

Report to be considered.