ATC191205: Report of the Select Committee on Appropriations on the Proposed Division of Revenue and Conditional Grant Allocations to Provinces and Municipalities as Contained in the 2019 Medium Term Budget Policy Statement, dated 05 December 2019

NCOP Appropriations

REPORT OF THE SELECT COMMITTEE ON APPROPRIATIONS ON THE PROPOSED DIVISION OF REVENUE AND CONDITIONAL GRANT ALLOCATIONS TO PROVINCES AND MUNICIPALITIES AS CONTAINED IN THE 2019 MEDIUM TERM BUDGET POLICY STATEMENT, DATED 05 DECEMBER 2019  

 

Having considered the 2019 Medium Term Budget Policy Statement, the Select Committee on Appropriations reports as follows:

 

 1. Introduction

The Minister of Finance (the Minister) tabled the Medium Term Budget Policy Statement (MTBPS) on 30 October 2019, outlining the budget priorities of government for the medium term estimates. According to Section 6(10) of the Money Bills and Related Matters Act No 9 of 2009 [as amended], committees on appropriations must, within 30 days after the tabling of the MTBPS or as soon as reasonably possible thereafter, report on the proposed division of revenue and conditional grant allocations to provincial and local government as contained in the MTBPS. This report of the Select Committee on Appropriations must contain the following, as referred to it in terms of Section 6(8):

• The spending priorities of national government for the next three years;
• The proposed division of revenue between the different spheres of government and between arms of government within a sphere for the next three years; and
• The proposed substantial adjustments to conditional grants to provinces and local government, if any.

 

Upon tabling of the 2019 MTBPS, the Committee received presentations from the Minister of Finance, and in compliance with section 214(2) of the Constitution of the Republic of South Africa, the Committee consulted with the Financial and Fiscal Commission (FFC) and the South African Local Government Association (Salga). In addition, in order to facilitate public participation, the Committee advertised in print media in all 11 official languages calling for submissions from stakeholders and interested parties. Written submissions were received from the following stakeholders and individuals:

 

• Pietermaritzburg Pensioners Forum (PPF);
• Congress of South African Trade Unions (COSATU);
• Organisation Undoing Tax Abuse (OUTA);
• Budget Justice Coalition;
• United Nations Children’s Emergency Fund (UNICEF) South Africa;
• Rural Health Advocacy Project (RHAP);
• WoMin and International Rivers;
• Fields of Green for All NPC; and
• Mr P Moss.

 

Except for the PPF and Mr P Moss, all the above stakeholders also made oral presentations during a public hearing at Parliament on 29 November 2019.

 

1. Medium-term spending priorities and risks to expenditure outlook

The medium-term spending plans had been developed in the context of slow growth, rising public debt and large revenue shortfalls. However, critical service delivery obligations, cost pressures and policy priorities had been met through a combination of reallocations and reprioritisation within and across function groups.  Compared to the 2019 Budget, the total main budget non-interest expenditure increases by R23 billion in the 2020/21 financial year, and decreases by R8.2 billion in the 2021/22 financial year. These net changes mainly reflect non-interest spending increases of R45 billion and R22 billion over the next two years, mainly as a result of additional support for Eskom; and reductions of R21 billion and R28.5 billion in the 2020/21 and 2021/22 financial years, respectively. The negatively affected line items will be goods and services and current and capital transfers. The compensation of employees is also revised downwards marginally in line with lower Consumer Price Index (CPI) projections.  In the 2022/23 financial year, baselines are constrained to grow marginally below CPI inflation.

 

Excluding Eskom support, the national and provincial spending on goods, services and infrastructure is reduced by 2 percent per year over the next two years. The same rate of reduction is proposed for transfers to most public entities. Conditional grants account for about half of the total reductions. According to National Treasury, further reductions - focusing on compensation budgets - would be required to stabilise government’s finances. Details would be announced in the 2020 Budget Review.

 

The National Treasury was frank in stating that the worsening fiscal situation required spending reductions in every department, including public entities. These reductions may affect operations, commitments, programme outcomes, capital investment and provision of services. Departments, provinces and municipalities were encouraged to offset lower budgets with greater efficiency and adhere to cost-containment measures.

 

Excluding debt-service costs, the largest allocations over the Medium Term Expenditure Framework (MTEF) period are earmarked for learning and culture, health and social development. The poverty-reducing effects of government spending will be threatened without efforts to manage interest costs, the pressure on goods and services and financial challenges in state-owned companies.

 

1. The proposed division of revenue framework

National Treasury reported that provincial and municipal governments were faced with multiple pressures over the period ahead. On the one hand, provinces were expected to provide schooling for growing learner populations and improve health services before implementation of the National Health Insurance (NHI). Furthermore, local government was expected to continue to expand access to free basic services for poor households; while ensuring that those who can afford to pay for services do so, even in a difficult economic environment. Although transfers from national government will grow more slowly than in the past, planned reforms to the transfer system aim to improve efficiency in the use of these resources.

 

As reflected in Table 1 below, the 2020 MTEF includes large reductions in planned transfers to provinces and municipalities relative to the 2019 MTEF.Provincial transfers will be reduced by R20.3 billion over the MTEF period. The provincial equitable share is reduced by R7.3 billion through a 2 percent reduction per year on all non-compensation spending. Reductions in compensation of employees, based on the outcome of discussions with labour, are expected to be implemented in future. Direct conditional grants are reduced by a net R13 billion, as the reduction of R15.2 billion is partly offset by reprioritisations of R2.2 billion.

 

 

 

 

 

Table 1: Proposed Division of Revenue Framework

Division of Revenue	2020 Medium Term Estimates Framework
	2020/21 R billion	2021/22 R billion	2022/23 R billion
National allocations	757.4	766.2	796.2
Provincial allocations	615.5	694.8	731.1
Equitable share	541.0	576.7	607.6
Conditional grants	110.5	118.2	123.5
Local government allocations	132.4	143.0	152.2
Equitable share	74.7	81.1	87.2
General fuel levy sharing	14.0	15.2	16.1
Conditional grants	43.7	46.8	49.0
Provisional allocations not assigned to Votes	21.2	34.9	33.1
Total allocations	1 562.5	1 638.9	1 712.6
Percentage shares
National departments	49.1%	47.8%	47.4%
Provincial	42.3%	43.3%	43.5%
Local government allocations	8.6%	8.9%	9.1%

(Source: National Treasury, 2019)

 

Over the medium term, government proposes to allocate 48.1 percent of available non-interest expenditure to national departments, 43 percent to provinces and 8.9 percent to local government. Over this period, national government resources grow at an annual average of 2.3 percent, provincial resources by 6.1 percent and local government resources by 6.2 percent.

 

The transfers to local government will be reduced by R20.5 billion, which is comprised of R3.2 billion from the local government equitable share (LGES) and R17.3 billion in direct conditional grants. These reductions are likely to affect service delivery, particularly through delays in building infrastructure. Reductions in the LGES will be absorbed through amounts of R1 billion in 2020/21 and R1.1 billion in 2021/22 set aside as unallocated funds in the 2019 Budget for further increases in bulk electricity costs.

 

All direct conditional grants will be lowered, except for the and the . To manage the impact on services, the amount reduced from each grant took into consideration past spending and performance; whether the grant funds salaries, medicines and food; and whether there has been significant real growth in allocations in recent years.

 

Added to that, larger reductions are proposed to grants to urban municipalities, which have more capacity to offset the effect of cuts by increasing their own revenue investments. The implications of these reductions will be set out in more detail in the 2020 Budget. In some cases, programmes funded through grants will have to be revised to fit within the available resources. For example, the has been funding the development of integrated public transport networks in 13 cities for over a decade; yet only six cities have launched operations. At least three non-operational cities will be suspended from this grant and the remaining cities will be required to reduce their costs and demonstrate their effectiveness in order to remain funded.

 

1. Changes to the structure of provincial allocations

To ensure fair funding allocations to each province, the provincial equitable share (PES) formula is updated annually to reflect demographic changes related to the demand for services provided by provinces. The PES formula is under review, in collaboration with provincial treasuries, although no changes are proposed for now. Table 2 below shows the proposed PES allocations.

 

Table 2: Proposed provincial equitable share allocations

Province	2020/21 R million	2021/22 R million	2022/23 R million
Eastern Cape	71 747	75 656	78 841
Free State	30 157	32 046	33 657
Gauteng	112 460	121 685	129 908
KwaZulu-Natal	111 960	118 302	123 544
Limpopo	62 619	66 564	69 935
Mpumalanga	44 310	47 215	49 724
Northern cape	14 356	15 278	16 068
North West	37 722	40 361	42 682
Western Cape	55 464	59 552	63 194
Total	540 975	576 658	607 554

 

With respect to conditional grants, several changes are proposed to the structure of conditional grants for health over the medium term. From the 2020/21 financial year, the Human Papillomavirus Vaccination Grant will be merged into the HIV, TB, Malaria and Community Outreach Grant. From the 2021/22 financial year, two new components, mental health and oncology, will be added to the HIV, TB, Malaria and Community Outreach Grant (funded from a shift from an indirect grant). From 2020/21, funds for internship and community service posts will be shifted from the Human Resources Capacitation Grant to the Health Professionals Training and Development Grant, while the remaining funds will be incorporated into the PES.

 

In addition, National Treasury reported that provinces would receive a direct grant to contract health professionals in pilot National Health Insurance (NHI) districts, which was currently funded through the NHI Indirect Grant. Moreover, the National Treasury and the Department of Health would develop a strategy to reform health grants prior to implementing the NHI.

 

The 2019 Budget had introduced new funding mechanisms for informal settlements upgrading in the Human Settlements Development Grant and the Urban Settlements Development Grant. The planned launch of these mechanisms have now been postponed from the 2020/21 to the 2021/22 financial year. There are new requirements, namely to develop province- and city-wide informal settlement upgrading strategies that need to be embedded; and that work on planning individual upgrading projects with communities needs to be strengthened.

 

Moreover, funds would be reallocated from the Social Worker Scholarship Fund to provinces for the employment of social workers, and funds planned for transfer to HIV/AIDS organisations and the South African National AIDS Council, would be shifted to the PES. This shift supports the continued implementation of the Social Behaviour Change Programme and other initiatives that address gender-based violence.

 

 

1. Changes to the structure of local government allocations

The local government equitable share (LGES) formula has been updated to account for projected household growth, inflation and estimated increases in bulk water and electricity costs over the MTEF period. Large urban municipalities continue to under-invest in infrastructure, primarily because of poor programme and project preparation practices leading to long delays, higher costs and breakdowns in service delivery. While public and private capital funding is available, these weaknesses translate into low levels of effective demand from the municipalities.

 

To address these problems, from 2020/21, government will introduce dedicated grant funding for large urban municipalities. Eligible municipalities will receive co-financing on a declining basis over three years. Financing will be conditional on establishing a Municipal Project Preparation Fund and an infrastructure delivery management system, and achieving targets for programmes and projects under preparation. Funding for this new facility will be reprioritised from existing allocations to municipalities.

 

National Treasury reported that government was also working with municipalities to increase their revenue-raising potential. The Municipal Fiscal Powers and Functions Amendment Bill, which would be tabled shortly, would standardise the regulation of development charges. These charges were the mechanism by which municipalities recover the capital costs of connecting new developments to infrastructure for water, roads, electricity and other services. Currently, these charges were frequently below cost, so municipalities effectively subsidised the provision of infrastructure to businesses and other developments, reducing their ability to subsidise infrastructure directly for lower-income residents. The change could increase municipal revenues for capital spending by an estimated R20 billion a year.

 

Several efforts were also under way to improve the effectiveness of transfers to rural municipalities. The possibility of using Municipal Infrastructure Grant (MIG) funds to buy waste management vehicles, which must be purchased through a contract facilitated by the National Treasury to minimise costs, was being investigated to expand services in rural areas. Funds may be reprioritised between water and sanitation grants to accelerate the completion of regional bulk water schemes.

 

National Treasury further reported that the Department of Minerals and Energy would complete an Electrification Master Plan to guide the future allocation of funds between Eskom, municipalities, and non-grid components of the Integrated National Electrification Programme (INEP). The national Department of Transport would establish a national database for all road traffic and condition data to inform the prioritisation and monitoring of road maintenance across all roads.

 

On the matter of unfunded budgets, a revised strategy to address municipal financial performance failures had been endorsed by the Budget Council and Budget Forum – the respective intergovernmental forums for provincial and local government finances. This strategy was based on an analysis of performance failures in governance, financial management, institutional capabilities and service delivery. As part of this strategy, the National Treasury was helping municipalities to ensure their spending plans were adequately funded. The number of councils adopting unfunded budgets, where realistically anticipated revenue was insufficient to cover planned spending sustainably, had increased from 74 in 2016/17, to 126 in 2019/20. The National Treasury, alongside provincial treasuries, had provided extensive advice and support to ensure that municipalities plan affordable expenditure and collect all the revenue owed to them. All municipalities were able to table a funded budget – in some ways, this was easier for transfer-dependent municipalities as they had more predictable revenue and could plan their spending accordingly. National Treasury had now written to these 126 municipalities to approve their tabling of special adjustment budgets to align their spending plans with projected revenues and ensure they had plans in place to pay their creditors (including Eskom and the water boards). National and provincial treasuries were available to assist municipalities to reprioritise their budgets accordingly. If these municipalities did not table funded adjustments budgets by 15 November 2019, the National Treasury would take steps to enforce compliance, which may include withholding future transfers of the LGES.

 

5.1 A new district development model to improve service delivery

 

In order to arrest the decline in the state capacity and restructure service delivery to best serve citizens, government has introduced a new district development model - with pilots in the OR Tambo District Municipality in the Eastern Cape and eThekwini Metropolitan Municipality in KwaZulu-Natal. The model aims to integrate planning and actions across all spheres of government, and make planning more responsive to community needs and inputs. The National Treasury’s Cities Support Programme is supporting the pilot project of this model in metropolitan municipalities, based on the experience of implementing built environment performance plans that have helped cities direct their infrastructure investments in targeted integration zones.

 

1. Inputs by stakeholders

6.1 Financial and Fiscal Commission (FFC)

The Financial and Fiscal Commission (FFC) supported the thrust of the 2019 MTBPS, noting that, overall, it reflected the major sentiments of the recommendations that the FFC had been making in the past decade, namely that growth and employment in South Africa could only be achieved by combining fiscal reprioritisation and consolidation through restructuring and governance. With regard to government expenditure, the FFC endorsed the implementation of measures announced to contain the wage bill, like freezing of salaries, but felt that these initiatives should be extended to state-owned entities (SOEs) and local government. The FFC had previously advised that wage increases should be linked to productivity. The Commission reported that capital investment was not growing commensurately with government’s thrust of infrastructure-led growth and initiatives meant to grow the economy.

 

According to the FFC, the division of revenue amongst the three spheres over the MTEF would generally be characterised by a nominal increase, but negative real annual average growth, projected at minus 0.5 percent. The main driver of this negative growth was allocations to the national sphere (projected to grow by minus 2.9 percent). Allocations to the local and provincial spheres had been prioritised due to the importance attached to the provision of education, health and municipal basic services such as electricity, water and sanitation.

 

The Commission further noted the new district-based service delivery approach introduced by government, which was meant to improve coordination and planning among national, provincial and local government. This approach would have implications for the 2020 MTEF allocations, as there would be a need to align the government funding model to the new delivery model. While welcoming the new approach, with the potential to ensure integrated service delivery, the Commission emphasised the need for government to consider and address the current weaknesses, particularly in district municipalities, of which more than 60 percent were dysfunctional and poorly capacitated.

 

Local government was set to receive a total allocation of R427.7 billion over the 2020 MTEF, which was R20.5 billion less than the allocation announced in the 2019 Budget. This comprised a downward revision of the sphere’s percentage share from 9.0 to 8.6 percent and 9.2 to 8.9 percent in 2020/21 and 2021/22, respectively. The FFC cautioned about the implications of cuts on service delivery and was of the view that, considering the declining share of local government allocations from the nationally raised revenue, government must prioritise own-revenue raising capacity in local government. In its 2020/21 Annual Submission on the Division of Revenue, the FFC had isolated supplementary revenue sources for local government that municipalities could exploit.

 

The total local government equitable share (LGES) allocation was envisaged to increase from R127.2 billion in 2019/20 to R132.4 billion in 2020/21; and R152.2 in the 2022/23 financial year. The Commission welcomed the nominal increase in the allocations, but remained concerned about the projected decline in the real growth rate, as it may have an adverse effect on service delivery to communities.

 

The conditional future allocations to local government, an amount of R139.4 billion over the 2020 MTEF, was reportedly R3.2 billion less than projected in the 2019 Budget. Following an increase in the real growth rate of local government conditional grants in 2020/21, a decline of 0.6 percent was expected for the 2022/23 financial year.  The Commission indicated that it would like to see a reprioritisation towards local government relative to the other spheres; and was of the view that the proposed reductions should be implemented with caution, to ensure that service delivery was not adversely affected. The FFC further emphasised the need to consider past performance of each grant and avoid cutting on infrastructure grants as they were key for future service delivery and economic growth.

 

The Commission further reflected on allocative efficiency, challenges and opportunities within the key priority areas of infrastructure, health and higher education. According to the FFC, the effect of infrastructure spending on South African growth was moderate and public infrastructure delivery management weak, holding back potential investment returns to the economy. The FFC pointed to the need to build the required government capacity to manage infrastructure projects effectively in order to ensure the economic benefits, associated with capital investment, were realised. While the newly introduced Budget Facility for Infrastructure Planning and Infrastructure Fund supported developments, the Commission was of the view that national infrastructure delivery improvement interventions should not disincentives capacity development within provincial and local government. The FFC further reported that the Department of Health was allocated an adjusted budget of R222 billion in the 2019 MTBPS – an 8 percent increase from 2018. However, the Department had declared unspent funds of R346 million, of which R240 million, or 69.4 percent, was in respect of the NHI Indirect Grant. The Commission also expressed concern over the statement in the MTBPS that the estimates to roll out the NHI as planned, were no longer affordable. The FFC further reported that post-school education and training remained one of the major fiscal pressures for government due to growing demand for university and college education. The Commission was of the view that funding for higher education should be underpinned by a comprehensive fee-free higher education policy.

 

With respect to contingent liabilities and state-owned entities (SOEs), the FFC reported that contingent liabilities would reach an estimated R1.015 trillion in 2021/22, constituting almost a third of government’s net loan debt. Guarantees to SOEs would reach an estimated R552 billion in 2019/20, accounting for more than a third of the total government contingent liabilities, and constituting a major risk to the fiscus. Guarantees to Eskom were estimated to account for 56 percent of the total government guarantees to SOEs. The 2019 MTBPS revised in-year expenditure upwards by R44.5 billion. The largest component of this revision (R36.8 billion) was allocated to financial support for SOEs: R26 billion for Eskom; R5.5 billion for SAA; R3.2 billion for the SABC; R1.8 billion for Denel; and R300 million for SA Express Airways. These bailouts were substantially accelerating government debt. The high level of contingent liabilities and the high probability of a significant number of these contingent liabilities materialising, represented a risk to South Africa’s sovereign credit rating. Several SOEs were not able to sustain themselves financially, with Eskom, Denel, SAA, SAPO and SABC all posting losses for at least two successive years. The biggest of these being Eskom who had posted a cumulative loss of R23.1 billion between 2017/18 and 2018/19.

 

Following government’s announcement that Eskom would be separated into three entities to facilitate cost efficiencies; a special paper now set a two-phase timeline for restructuring Eskom – first the separation of the generation, transmission and distribution functions into separate, wholly-owned subsidiaries with independent boards by 31 March 2020; and secondly, the completion of the legal separation of distribution and generation functions by 31 December 2021. The Commission was of the view that the Eskom plan was the first step in the right direction in restructuring Eskom, as it articulated how Eskom would relinquish its monopoly of the electricity industry and pave the way for private generators to supply the national grid. The FFC supported this reform because it was likely to enhance efficiency and cut costs. However, the plan did not contain certain crucial details. The Commission felt that there should have been an analysis and comparison of the options, including the costs and benefits of Eskom unbundling, in order to evaluate the true financial and economic value; particularly regarding the transition from the existing dependence on fossil fuels to the mix of energy sources. In addition, an analysis of cost pressures relating to the transitioning of the staff contingent and the procurement of goods and services, which the Commission deemed critical, had not been incorporated in the plan. The FFC reported that the MTBPS did not provide details on Eskom’s R441 billion debt management measures, but did set several preconditions before debt relief would be considered. The Commission emphasised the need for such preconditions to any debt relief to ensure that the structural reforms undertaken by SOEs were implemented.

 

6.2 South African Local Government Association (Salga)

The South African Local Government Association (Salga) was of the opinion that the 2019 MTBPS reinforced the principles of open and accountable fiscal and budget processes, but indicated that the financial resources allocated to municipalities were insufficient. This was complicated by the current state of the economy, especially limited tax revenues, retracted economic growth and rising debt levels. Salga noted the key concerns listed, and the turnaround initiatives proposed, in 2019 MTBPS; but cautioned that future tax increases could overburden the people who were currently paying their taxes, and that a public sector salary freeze could lead to a severe skills drainage.

Salga reported that the local government equitable share (LGES) would be cut by approximately R3 billion over the MTEF, mainly due to the poor performance on national revenue collection. Conditional grants would be cut by approximately R14 billion over the MTEF, or on average 11 percent over the three-year period. The Urban Settlements Development Grant and the Public Transport Network Grant were receiving the largest cuts on scale, with capacity building grants receiving the lowest projected cuts. Poor performance had contributed to reductions in other grants, like the Regional Bulk Infrastructure Indirect Grant and Water and Sanitation.

With respect to the current state of local government finances Salga reported that an increasing number of municipalities were in financial distress; had negative cash positions and adopted unfunded budgets. Some municipalities had inherited major debt obligations from newly incorporated municipalities. The amalgamation of municipalities had not resolved the challenges of unviability of some municipalities, but rather created larger and even more unviable structures. The cost base of local government had been significantly increased over the past ten years, without a concomitant increase in the revenue to finance these additional costs. Additional costs came from additional responsibilities, reporting and compliance. In some instances, the cost of providing basic services exceeded the LGES, due to factors like, topography; location; and distance from economic centres, among others. In addition, consumption of indigents sometimes exceeded free basic services, particularly in instances of yard connections.

Salga was of the view that the under-funding of local government over the MTEF, coupled with the current state of local government finances, would have a detrimental effect on the local economies, job creation and social well-being of communities; which would in turn result in municipalities’ own revenue sources declining.

Salga proposed that the funding gap be filled by a combination of the following:

• A higher allocation of nationally raised revenue to local government;
• Restructuring conditional grants;
• A review of municipal demarcation to focus on financial viability;
• A concerted campaign to reduce distribution losses;
• National incentives to enforce commercial customers to settle their debt;
• The reduction of the reporting/compliance burden;
• Removing Eskom from the municipal electricity distribution market;
• Addressing confusion over the respective powers and functions of local government and other spheres; and
• Requiring other parts of government to settle their outstanding accounts with local government, and to pay their accounts timeously.

 

Salga further reported that both potential and actual own revenue collected, fell far short of the assumptions of the 1998 White Paper. The relative share and value of service charges income also differed from the assumptions made in the White Paper. The most outstanding feature being the contribution of electricity, given that Eskom supplied electricity directly to 50 percent of households despite this being regarded by Salga as, constitutionally, a municipal function. A rising debtors’ book reflected the challenges of revenue collection, with organs of state owing municipalities R10.2 billion at 30 June 2019.

Salga further indicated that it found the current structure of conditional grants counterproductive; as it failed to address the actual needs in municipalities and forced them to prioritise programmes that did not reflect local priorities, resulting in further service delivery backlogs. With regard to infrastructure, Salga indicated that poor maintenance was creating a huge contingent liability; undermining current service delivery efforts. Other conditional grant challenges mentioned, were fiscal dumping and capacity building failures by national and provincial government.

Salga further reported that it was in the process of developing proposals on the district-based delivery model.  There was a need for a long term sustainable funding model for district municipalities, based on the outcomes of the review of their functions being undertaken by the Department of Cooperative Governance. Further investigation into the possibility of implementing a shared service model approach, including a multi-jurisdictional municipal service district revenue collection agency could also be beneficial to the sector.

Salga further indicated that, as part of the technical team supporting the Inter-Ministerial Task Team, it had been tasked with finding sustainable solutions to the debt problem for both electricity and water. The recommendations in this regard included the installation of prepaid metres; independent revenue collectors for municipalities; a government-wide campaign to encourage a culture of payment for municipal services; strict management of payment default; fixing municipalities to ensure the sustainability of services and finances; and the restructuring of debts. Salga also formed part of the National Intergovernmental Debt Task Team, but reported that there was very little commitment from national and provincial government to settle escalating debts.

With regard to its initiatives to address poor municipal audit outcomes, Salga reported that it had been analysing and unpacking the reports of municipalities with disclaimer audit outcomes and assessing whether municipal audit improvement plans were appropriate and suitable. Salga had also been developing customised support plans for these municipalities and identified certain transversal areas of concern requiring support. These included record, supply chain, and asset management; and Councillor oversight on financial management. Salga acknowledged that a lack of accountability and consequence management were key drivers of the poor audit outcomes. In this regard it had developed a Consequence and Accountability Framework to reinforce and bolster the message of the Auditor-General for improved accountability and consequence management.

In conclusion, Salga listed issues to be considered in preparation for the tabling of the 2020 Budget. These included reconsidering the White Paper assumptions and reviewing the current funding model for local government; reconsidering the LGES to reflect the actual cost of providing services; reviewing the conditional grant framework to make it more flexible, cost-effective and efficient; addressing the debt owed to municipalities, especially by other organs of state; considering the impact of amalgamations on financial viability; considering the impact of the current Eskom distribution model on municipal financial viability; and conducting a detailed investigation of the costs, benefits and efficacy of the existing municipal regulation, reporting and compliance framework.

 

 

6.3 Organisation Undoing Tax Abuse (OUTA)

 

The Organisation Undoing Tax Abuse (OUTA) generally supported the 2019 MTBPS, in that it prioritised the need to lower our sovereign debt, narrow the budget deficit and increase the impact of targeted expenditure. However, OUTA was of the opinion that the ongoing financial collapse of state-owned entities (SOEs), as a result of poor leadership, mismanagement, and corruption, meant that the cost of servicing Government’s net loan debt was increasing at a rate that threatened to push aside targeted social expenditure aimed at upliftment, such as fee-free higher education and the proposed National Health Insurance. OUTA reported that bailouts to SOEs absorbed 80 percent of the unexpected upward revision of expenditure announced in the 2019 MTBPS. Adding this year’s initial Eskom bailout of R23 billion, bailouts for 2019/20 alone amounted to R59.8 billion. This was more than the entire budget for the Department of Health; more than double that of the Department of Basic Education budget; and more than the combined Human Settlements and Water and Sanitation budgets. OUTA welcomed the stated intention to “merge and consolidate entities and regulatory agencies, as well as consider salary controls at a wider range of public entities”. However, it was of the opinion that there was no indication that the underlying causes of the dismal state of SOEs were being effectively addressed. OUTA submitted that, where bailouts were unavoidable, it was essential to attach harshly regulated conditions and that these were made public.

 

OUTA was of the opinion that strict, effective oversight was needed in order to improve government finances and cause taxpayers to feel less aggrieved over the wastage and having to fund bailouts. OUTA submitted that the Auditor-General’s (AG’s) report on national and provincial government finances and on some of the big SOEs, provided documentary evidence of widespread and entrenched financial mismanagement and dishonesty; as well as the failure

of national and provincial executives, Parliament and provincial legislatures to carry out effective oversight. OUTA highlighted the huge amounts of irregular, unauthorised and fruitless and wasteful expenditure by SOEs in 2017/18, reported by the AG, and requested Parliament to leverage its power to ensure that consequences were enforced with immediate effect to initiate a culture of discipline and compliance with public finance management legislation at all levels of government. OUTA proposed that the relevant parliamentary committees demand in-year financial reporting for those SOEs considered essential for the public interest; and that those entities that were not essential, or could not be turned around, be strategically foreclosed or wound down. These strategic cost-cutting avenues, might increase our prospect of fiscal sustainability and economic sovereignty. OUTA further asked which non-core assets government was considering selling to raise R7 billion towards the

SOE bailouts. With regard to SANRAL’s financial problems mentioned in the MTBPS, OUTA indicated that it intended to make a substantive submission to the Standing and Select Committees on Appropriations and the committees on transport on the subject of SANRAL’s financial model.

 

With regard to local government, OUTA questioned the research on which the Municipal Fiscal Powers and Functions Amendment Bill, announced in the MTBPS, had been based. OUTA was of the view that consumers were already overburdened with municipal service charges, and that this was unlikely to improve the financial stability of municipalities. OUTA further mentioned the reference in the MTBPS to 126 municipalities which had passed unfunded budgets for 2019/20, and welcomed National Treasury’s instruction to these municipalities to remedy the situation by 15 November or face withholding of future transfers of the equitable share. OUTA requested an update on the results of Treasury’s instruction to the 126 municipalities; and also expressed concern that some of these municipalities had passed updated budgets which failed to make adequately provision for Eskom and water board arrears, or even for current payments.

 

6.4 Congress of South African Trade Unions (COSATU)

 

The Congress of South African Trade Unions (COSATU) expressed disappointment with the MTBPS; saying it failed to present any serious or clear plans to address the worst economic crisis since 2008 and the serious threats faced by government and the SOEs. In light of the high unemployment, COSATU felt that a clear plan (inclusive of targets, time frames and resource allocation) by all departments, provinces, municipalities and SOEs was needed to ensure that government met its Presidential Jobs and Investment Summit commitments. COSATU further asked for a commitment to engage the South African Reserve Bank on measures to support economic growth and job creation whilst managing inflation levels. COSATU further submitted that much of workers’ expectations for the MTBPS had rested upon government having clear plans to save and turn around struggling SOEs. COSATU indicated that, whilst it supported the additional financial support provided for these SOEs that provided critical services and jobs, bailouts were not a plan. With regard to Eskom, COSATU proposed that several measures be taken, that included a comprehensive public audit of all expenditure and contracts; arresting those implicated in seizing their assets; dismissal of those implicated in mismanagement; cutting tariffs of coal suppliers and Independent Power Producers; amending Eskom’s mandate to allow it to produce and own cheaper renewable energy; increasing free electricity for indigent households; reduction of debt level; clamping down on non-paying municipalities and departments and ac campaign to ensure that Soweto residents pay for electricity; and a Just Transition Plan for workers when mines and plants come to the end of their life span in the near future.

 

According to COSATU, many of the wage bill statistics in the 2019 MTBPS were distortions and that it did not disclose the massive strain that the freezing of critical service delivery posts had on the functions of public hospitals, clinics, schools, prisons, the SAPS and Home Affairs. COSATU appreciated the recognition by government that any engagement on wages belonged in the respective collective bargaining forums as stipulated by law. COSATU made several recommendations on the reduction of the public wage bill, including engaging unions at the Public Service Commission Bargaining Council (PSCBC); reducing national and provincial cabinets and mayoral committees; reducing bloated government management structures; consolidating and reintegrating fragmented departments and SOEs and redeploying staff from bloated departments and SOEs to departments and municipalities with personnel shortages; reducing the public service sector and SOE wage gap and placing all public sector entities and SOEs under the PSCBC so that there was one collective bargaining process; scrapping the perks afforded to the executive under the Ministerial Hand Book; and filling critical service delivery posts.

COSATU submitted that it had expected the 2019 MTBPS to confront the crises of corruption and wasteful expenditure; and that the revelations at the various commissions of inquiry were just the tip of the iceberg. COSATU was of the view that Eskom’s current high debt levels were in part due to rampant looting and mismanagement at Kusile and Medupi power stations. COSATU found it unacceptable that R13 billion could be spent on four departmental head offices, Tshwane council head office and the South African Consulate in New York, while nurses and teachers had to fight for a living wage. While welcoming the proposed reduction in travel expenses, COSATU felt that more should be done and recommended that government develop a clear plan to reduce wasteful and irregular expenditure; the Chief Procurement Officer’s role be expanded to ensure more cost effective centralised procurement; and plans and actions be developed to end expensive and corrupt outsourcing in government and SOEs and to freeze assets and recover stolen funds.

 

COSATU welcomed initial government interventions to fix the South African Revenue Service (SARS), and stated that revenue could be significantly increased by massively investing in SARS customs capacity-building and improving customs technology. In addition, holding companies must be held accountable for the tax breaks and incentives they received in exchange for job protection and creation. Other issues that COSATU felt needed attention were tax evasion; existing tax loopholes; and making the tax regime more progressive through increases in personal income tax for high earners; company taxes; inheritance, estate, land and dividends taxes; and VAT on luxury goods and custom duties for imports. COSATU further expressed deep concern over the lack of urgency to deal with the ballooning deficit of the Road Accident Fund (RAF) and argued that increasing the fuel levy to deal with this would only make transport and consumer goods more expensive and further shrink the economy. COSATU concluded that the solution was for Parliament to pass the Road Accident Fund and Road Accident Benefit Scheme Bills, that would ensure that RAF funds were received by road accident victims rather than lawyers, as well as a more equitable distribution of benefits.

 

6.5 United Nations Children’s Emergency Fund (UNICEF) South Africa

 

The United Nations Children’s Emergency Fund (UNICEF) South Africa submitted that expenditure on programmes and services that benefit children directly would continue to be reduced and that South Africa was fast approaching the end of its demographic dividend window. UNICEF further stated that under-spending by social sector departments remained a major problem and this required independent and urgent examination and action. UNICEF believed that innovation in service delivery models in social protection, basic education and health must be actively supported in spite of its benefits being medium to long term. It further submitted that, in an environment of dwindling resources for children, there was a need for collaborative work across government departments. UNICEF recommended the following in terms of the 2020 MTEF:

• Increase expenditure on cash transfers to households and children by a rate higher than inflation.
• National Treasury should publish a report of the undertaking by national government to arrest growing spending arrears in social sector departments;
• Reading pilot projects in basic education should be completed and a costing framework should be developed in order to scale up the projects.
• Developmental social welfare should be strengthened, especially in a depressed fiscal climate.
• The implementation of the Early Childhood Development policy should be expedited through the removal of resource constraints, improvements in intergovernmental coordination, and effective stakeholder engagements.
• A concrete breakdown of the next steps for the implementation of the NHI programme should be provided.

 

 

6.6 Rural Health Advocacy Project (RHAP)

 

The Rural Health Advocacy Project (RHAP) made the following recommendations in respect of the 2019 MTBPS:

• In order to mitigate the effects of austerity on people living in rural settings, particularly women, a rural adjuster should be included in budgeting guidelines that National Treasury issue to provinces.
• With respect to spending performance against budgeted allocations, the Appropriations Committees should give consideration to how newer policy reforms where there is under-spending, such as the NHI, may benefit from a systematic human resourcing approach, worked out between the relevant sector department and the Department of Public Service and Administration. This could include seconding experienced officials with proven track records, which would also support succession of promising upcoming officials within departments.
• Appropriations Committees should engage National Treasury to request that the strategy to reform health grants prior to implementing the NHI, entails assessing spending performance against key priorities for the department, and includes understanding the driving factors that led to under-spending on the current grants. 
• Employing new community health workers in rural areas should be prioritised and the Appropriations Committees should request both the national and provincial health departments to develop and publish a plan to support their integration into the Primary Healthcare System. 
• The Appropriations and Finance Committees should consider reigniting the Women’s Budget Initiative, that prepared women and children’s budgets.
• The antiretroviral treatment programme is progressing somewhat slower than anticipated, with 4.8 million clients against a target of 5.8 million. The uptake is particularly slow among children and men, compared to women. RHAP recommended that the Appropriations Committees ask the Department of Health what it intended doing to meet the target after declaring under-spending in that programme. 
• That the Appropriations Committees engage National Treasury to request that all health infrastructure projects being considered are published and the Budget Facility for Infrastructure develop a mechanism to prioritise rural infrastructure in order to address infrastructure inequality gap. 

 

6.7 Budget Justice Coalition

 

The Budget Justice Coalition (BJC) focused on an intersectional feminist analysis of the 2019 MTBPS as well issues specific to the recent Gender-Based Violence and Femicide (GBVF) Emergency Plan, indicating that more information was required on how the Plan would be funded. BJC further submitted that, from an intersectional feminist perspective, substantial cuts to provincial and local government transfers would disproportionately affect groups that experience higher levels of discrimination and exclusion through the negative impact on service delivery.

 

BJC made recommendations related to various sectors, as follows:

• In terms of an intersectional feminist approach to the economy, all departments must start to consider the costs to womxn and the benefits to the economy of womxn’s unpaid labour. National budget documents must demonstrate how sectoral investments to stimulate the economy and create jobs also answer the question of gendered inequality in employment in those sectors. Government must take a stronger stance with the private sector regarding employment equity, in particular regarding strategies to address the under-employment of black womxn.
• All Community Health Workers should be fully employed and earning decent wages by the end of the financial year. The Department of Health should explain the high levels of under-expenditure on the NHI Indirect Grant and its plan to tackle it; why the HIV/AIDS treatment target was missed by a million people this year and what measures would address this; and what steps were being taken to address under-expenditure and missed targets on health infrastructure, such as the fact that only seven out of 45 health facilities identified at the start of the financial year for maintenance, repairs or refurbishments, had been completed.
• Drastic steps were needed to ensure that bailouts for state-owned entities cease to divert funds from critical social spending priorities such as basic education. The Committee should evaluate National Treasury’s MTEF projections for basic education funding and insist that the basic education sectoral budget be considered for an annual real increase greater than 0.8 percent in the 2020/21 financial year. The Committee should further request the national and provincial education departments to report on interventions to improve spending and delivery. Clear plans were needed to ensure that cuts to education did not exacerbate barriers of access to girls, gender non-conforming students and learners with disabilities; and stakeholders such as National Treasury provide support to the education departments to strengthen their ability to efficiently spend allocated funds.
• Regarding social development, a Basic Income Grant (BIG) for all (but clawed back from those who did not need it through the tax system) would address the necessity of extending social security coverage to those between 18 and 59 years old. The Child Support Grant (CSG) amount should be increased to at least the food poverty line. Social grants should be reframed as a necessary economic stimulus and the welfare system more fully integrated into economic recovery plans. Increasing the funding to NPOs who provide services on behalf of government, would enable these NPOs to employ the unemployed social work graduates, thereby increasing the workforce for improved services, and providing much needed employment for womxn and youth. The newly created Department of Women, Youth and Persons with Disabilities should include clear indicators and budgeting to address the problems faced by transgender, gender diverse, gender non-conforming and intersex people in South Africa.
• A clear plan should be put in place to mitigate the negative effects of large reductions in planned expenditure for the Department of Home Affairs.
• Arrangements for future decommissioning and decontamination at both Koeberg and Pelindaba should be made transparent to the public and the entities concerned should report on the funding that was ring-fenced for these purposes. Parliament should request National Treasury to present on the project applications made to the Budget Facility for Infrastructure and specifically request clarity on whether the Grand Inga Project has been properly appraised.
• It should be ascertained whether the Department of Environmental Affairs, the Development Bank of Southern Africa (DBSA) or both, was responsible for the spending failure on the Green Fund and, in a transparent manner, due accountability action should be affected for it. Allocations to the Department’s core functions should be increased and a viable source for this increase would be an appropriation from the disproportionate amount allocated to Programme 6 (dedicated to implementing Expanded Public Works and green economy projects in the environmental sector). The Department’s budgeting should be re-orientated to reflect alignment with non-negotiable Departmental mandates, such as ensuring everyone’s Constitutional right to have the environment protected, as a primary point of departure.
• Increased budgetary allocations were needed for land reform, as 1 percent of the national budget was completely insufficient to address this important area or to ensure that land reform created successful redistribution with the wasted opportunity to create a more equitable society and egalitarian economy. Increased post-settlement support should be prioritised in order to ensure more successful land reform projects. The BJC supported the proposals of the Presidential Advisory Panel Report on Land Reform and Agriculture, that 30 percent of the budget be allocated to landless and land-poor households, 30 percent to the smallholder farmers, 30 percent to medium-scale commercial farmers and the remaining 10 percent to large-scale commercial farmers. It was essential that budgetary processes in Land Reform urgently prioritised gender equity.
• A clear directive, particularly at the municipal level, was needed on how to successfully transition to the Upgrading of Informal Settlements Programme, with processes outlined on how to properly mitigate the continuing problems of under-spending, and a lack of regard for the principles of community participation. Under-spending, as well as poor performance on the issuing of title deeds, needed be urgently addressed, especially as these problems had a detrimental impact on access to social delivery and disproportionately so for the poor and oppressed.
• Urgent clarification was needed on how the GBVF Emergency Plan would be funded, specifically where funds would be cut. Treasury should provide a breakdown of the funds, as per the structure of the documents currently provided by the GBVF Interim Steering Committee, with additional information on how the figures provided per intervention area were further divided between different spheres of government, the different departments responsible and under which line items for those departments the allocations could be found. To address access to justice in GBVF cases, it was critical that the SAPS provide a clear budgeted plan to increase the reporting and detection rates for GBVF, so that a higher proportion of cases were referred to the NPA for prosecution. The Committees should find out the reason for the under-spending from the Department of Police and also gain information on how certain spending was being managed to support the GBVF plan, in the face of cuts. In order to improve the quality of prosecutions in GBVF-related matters, the increase should be linked to an increase of experienced prosecutors.

 

 

6.8 WoMin African Alliance and International Rivers

 

WoMin African Alliance and International Rivers made a joint submission and expressed concern about the spending priorities of national government over the 2019 MTEF. The submission focussed specifically on the allocations towards the Department of Minerals and Energy (DME) for the Grand Inga Dam Project. The stakeholders reported that the DME’s budget made no mention of this project, however it would incur expenditure on this due to the Treaty entered into between RSA and the Democratic Republic of Congo; the 2011 Memorandum of Understanding; the 2019 Integrated Resource Plan (IRP), and the Vote 26 allocation towards Foreign Governments and International Organisations (Clean Energy Programme). The stakeholders further submitted that government had committed to this project without there being any independent South African project appraisal and risk assessment. Furthermore, it was submitted that this was not a least-cost electricity generation option, according to IRP 2019. The following recommendations were made in this regard:

 

• That the Committee recommends to the House that the Department of Minerals and Energy disclose which part of its budget is to be spent on the development of the Grand Inga Dam Project before the said funds are approved.
• That the Committee recommends to National Treasury that its Budget Infrastructure Facility conduct a comprehensive project appraisal and rigorously assess the feasibility, risks, and proposed financing arrangements.
• That the Department of Minerals Energy act in a more transparent manner, providing adequate information to the public and Parliament as to its intentions and decisions regarding the proposed infrastructure investments.
• That no funds or loan guarantees be approved for expenditure on the Grand Inga Dam Project until Eskom has demonstrated that it is a financially stable state-owned enterprise.

 

 

6.9 Pietermaritzburg Pensioners Forum

 

The Pietermaritzburg Pensioner’s Forum (PPF) recommended a substantial increase in their monthly state old-age grant (currently valued at R1 780) and further required a bonus in December that was equal to double their monthly pension. They further expressed disappointment at the R80 per month increase in this grant (compared to R100 in the previous year), which they viewed as a sign that government did not take them seriously. The PPF submitted that the R80 increment did not seek to address challenges faced by pensioners like increased VAT and fuel prices; higher food inflation; and unemployment affecting their children. The PPF further submitted that it had made numerous written and oral submissions on the budget to parliamentary committees over the past two years, and had written letters to National Treasury, the President and the ANC Caucus regarding their plight - but all in vain. This was despite a previous Committee Chairperson’s recommendation to the National Treasury to increase the grant substantially through the reprioritisation of expenditure.

 

 

1. Observations and Findings

While considering and deliberating on the proposed division of revenue and conditional grants allocations to provinces and municipalities as contained in the 2019 MTBPS and submissions by stakeholders, the Select Committee on Appropriations observed the following:

1. The Committee observed the overall proposed allocations by government for the 2020/21 medium term period as follows: 48.1 percent of available non-interest expenditure to be allocated to national departments, 43 percent to provinces and 8.9 percent to local government sphere. The Committee further notes that national government resources allocated to these spheres grew as follows: An average 2.3 percent growth for national, while provincial resources grew by 6.1 percent and local government by 6.2 percent.

 

1. The Committee notes that the 2019 MTBPS proposes reductions to the provincial transfers by an overall amount of R20.3 billion over the 2020 MTEF period in the following manner:

 

1. The provincial equitable share (PES) will be reduced by R7.3 billion through a 2 percent reduction per year on all non-compensation spending;
2. Direct conditional grants will be reduced by a net R13 billion, as the reduction of R15.2 billion is partly offset by reprioritisations of R2.2 billion; and  
3. The Committee further welcomes the fact that whilst most conditional grants were affected by proposed budget reductions, the Early Childhood Development Grant (ECDG) and the Learners with Profound Intellectual Disabilities Grant were not affected due to their critical role in society.        

 

1. The Committee notes government’s decision to ensure that programmes funded through some of the under-performing conditional grants would be revised to fit within the available budgets. This includes the Public Transport Network Grant (PTNG), which has been funding the development of integrated public transport networks in thirteen (13) cities over a decade, yet only six (6) cities have launched operations. At least three (3) non-operational cities will be suspended from this Grant and the remaining cities will be required to reduce their costs and demonstrate their effectiveness to remain funded.  

 

1. The Committee noted the restructuring of certain conditional grants including the Human Papillomavirus Vaccination Grant, which will be merged into the HIV, TB, Malaria and Community Outreach Grant, and the fact that from 2021/22 two new components, which include mental health and oncology, will be added to the HIV, TB, Malaria and Community Outreach Grant. However, the Committee is of the firm view that any conditional grant restructuring should not negatively affect service delivery.

 

1. The Committee welcomes the fact that, amid difficult economic growth conditions, fiscal constraints coupled with fiscal consolidation and spending pressures ranging from the SOE bailout packages and increasing debt service costs, government continues to prioritise the pro-poor programmes such as learning and culture and health and social development, as these remain the largest budget allocation, excluding debt-service costs, over the Medium Term Expenditure Framework (MTEF) period.  

 

1.  With respect to the Moloto Rail Corridor, the Committee notes that the project was not part of the revised budget for the 2019/20 financial year and it did not even feature into the 2020/21 proposals for Medium Term Expenditure Framework. The Committee remains concerned about the road carnage currently happening in the area and many lives being lost. Further, the Committee does not agree with the assertion that a rail service for the Moloto Corridor was not affordable, given the amount of bailouts that are issued to SOEs.   

 

1. The Committee notes that the 2019 MTBPS proposes reductions in local government transfers by an overall amount of R20.5 billion over the 2020 MTEF period, in the following manner:

1. The local government equitable share (LGES) will be reduced by R3.2 billion, but this reduction will be absorbed through amounts of R1 billion in 2020/21 and R1.1 billion in 2021/22, set aside as unallocated funds in the 2019 Budget for further increases in bulk electricity costs; and
2.  Direct conditional grants will be reduced by R17.3 billion and these reductions are likely to affect service delivery, particularly through delays in building infrastructure.

 

1. The Committee observed that some of the large urban municipalities continue to under-invest in infrastructure projects primarily because of poor project management, planning and preparation, which leads to cost escalations and non-completion of projects within the project schedule and this ultimately affect delivery of basic services to the people.  

 

1. The Committee welcomes the efforts by government to work with municipalities to increase their revenue-raising potential, through the Municipal Fiscal Powers and Functions Amendment Bill, which will soon be tabled to standardise the regulation of development charges in order for municipalities to recover their capital costs of connecting new developments to infrastructure for water, roads, electricity and other services. These charges have been below cost, reducing their ability to subsidise infrastructure for lower-income residents.

 

1. Given the increasing number of municipalities adopting unfunded budgets, from 74 in 2016/17 to 126 municipalities in 2019/20, the Committee welcomes the revision of mechanisms to address municipal financial performance failures, which has been endorsed by the Budget Council and Budget Forum.  Part of the role of this strategy is to assist municipalities to ensure that their spending plans are adequately funded, budgets are aligned with plans and funds are spent according to approved plans.  

 

1.   The Committee noted the introduction of, and resources earmarked for, a district model, which aims to integrate planning and actions across all spheres of government and ensure that planning is more responsive to citizens’ needs. This will be piloted in the Oliver Regional Tambo District Municipality (OR) in the Eastern Cape and eThekwini Metropolitan Municipality in the KwaZulu-Natal Province.  

 

1.   The Committee noted the view of the FFC, Salga and other stakeholders, that the allocation of only 9 percent of the nationally raised revenue to local government was not sufficient for the sector to perform its mandate; as well as National Treasury’s differing view. The Committee is of the view that a deeper discussion is needed on this issue.

 

1. The Committee noted Salga’s concern about the effectiveness of its participation in the Budget Forum meetings, in terms of influencing budgetary decisions affecting local government.
2. The Committee noted the Financial and Fiscal Commission’s (FFCs) concerns regarding the lack of implementation of its recommendations that government had agreed with.

 

1. Recommendations on the proposed division of revenue and conditional grants for provinces and municipalities

After considering and deliberating on the proposed division of revenue and conditional grants allocations to provincial and municipalities as contained in the 2019 MTBPS and submissions by stakeholders, the Select Committee on Appropriations recommends as follows:

1. Given the current state of the country’s fiscus presented in the 2019 Medium Term Budget Policy Statement (MTPBS), including proposed budget reductions at provincial and local governments levels, who are at the coalface of service delivery, the Committee recommends that the National Treasury together with the Department of Cooperative Governance and Traditional Affairs, alongside with provincial treasuries and provincial Cooperative Governance departments ensure that provinces and municipalities use all the available resources in line with the public financial management prescripts in a manner that reduces waste, eradicates opportunities for corruption, and promotes quality service delivery as envisaged in the National Development Plan (NDP).

 

1. Given the levels of under-investment in infrastructure projects by larger urban municipalities, the Committee recommends that National Treasury and the Department of Cooperative Governance fast-track the following initiatives and provide a progress report to the Committee in the first quarter of the 2020/21 financial year:  

 

1. The tabling of the Municipal Fiscal Powers and Functions Amendment Bill to standardise the regulation of development charges in order for municipalities to recover their capital costs of connecting new developments to infrastructure;
2. Introduction of the dedicated grant funding for large urban municipalities, whereby eligible municipalities will receive co-financing on a declining basis over three years; and
3. Ensure that capacity-building and improvement of municipal systems allocations, such as the Local Government Financial Management Grant and the Municipal Systems Improvement Grant, are effectively and efficiently utilised for their intended purposes. 

 

1. Whilst the Committee understands the need to restructure certain conditional grants, the Committee is of the view that grant restructuring, termination or merging must not affect service delivery objectives and proper assessment or analysis on grant performance ought to be conducted before any restructuring can happen. These include the following affected conditional grants:  The Human Papillomavirus Vaccination Grant, which will be merged into the HIV, TB, Malaria and Community Outreach Grant; and the fact that from 2021/22, two new components, mental health and oncology, will be added to the HIV, TB, Malaria and Community Outreach Grant.

 

1.   With regards to the Moloto Corridor, the Committee believes that the loss of many lives in that area must come to an end. The Committee recommends that National Treasury should consider allocating resources for the development of a Moloto Corridor Rail Project over the 2020/21 MTEF period and make use of all revenue sourcing avenues at its disposal. The argument that a feasibility study found the project to be too expensive was not acceptable given the high levels of road fatalities there, affecting not only the Department of Transport Department, but also the Department of Health, due to the overcrowding in the hospital near the high accident zone.  National Treasury should provide a progress report on this during the tabling of 2020 Budget.  

 

1.   With regards to the municipalities adopting unfunded budgets, the Committee recommends that the National Treasury together with the Department of Cooperative Governance and Traditional Affairs as well as the affected provincial treasuries expedite the implementation of the revised strategy to address municipal financial performance failures, which has been endorsed by the Budget Council and Budget Forum, the respective intergovernmental forums for provincial and local government finances. A progress report hereon should be submitted to the Committee in the first quarter of the 2020/21 financial year.

 

1.   The Department of Minerals and Energy should expedite the completion of an Electrification Master Plan to guide the future allocation of resources between Eskom, municipalities, and non-grid components of the Integrated National Electrification Programme (INEP) and provide a progress report to Parliament in the first quarter of the next financial year. 

 

1.   The Committee recommends that the National Treasury together with the Department of Cooperative Governance and Traditional Affairs and affected treasuries expedite the pilot project of the district models, which will be implemented in Oliver Regional Tambo District Municipality (OR) and eThekwini Metropolitan Municipality, and ensure that resources allocated to this project are effectively and efficiently utilised and value for money is achieved. Upon completion of the pilot project, the Committee expects a report identifying lessons learned during the pilot phase; how resources allocated have been utilised and clear recommendations to improve the programme before it is implemented across the country.   

 

1. National Treasury should review the vertical division of nationally raised revenue, in order to ascertain whether the 9 percent allocation to local government is sufficient for the sector to perform its mandate.

 

1. National Treasury should engage more extensively with the Financial and Fiscal Commission and respond more comprehensively to its recommendations, as a constitutional body. Government, and specifically the Department of Planning, Monitoring and Evaluation, should provide detailed implementation plans, including deadlines, for the recommendations that it does agree with.

 

1. In order to have more effective consultation on budgetary matters, National Treasury and Salga should engage more extensively during the budget planning cycle and not only at the Budget Forum meetings.

 

The Economic Freedom Fighters reserved its position on the Report.

 

Report to be considered.