ATC200714: Report of the Standing Committee on Appropriations on the Division of Revenue Amendment Bill [B9 – 2020], dated14 July 2020

Standing Committee on Appropriations

REPORT OF THE STANDING COMMITTEE ON APPROPRIATIONS ON THE DIVISION OF REVENUE AMENDMENT BILL [B9 – 2020], DATED14 JULY 2020

 

The Standing Committee on Appropriations having considered theDivision of Revenue Amendment Bill [B9-2020] (National Assembly – section 76), reports as follows:

 

1. Introduction

 

The Minister of Finance tabled the Division of Revenue Amendment Bill (henceforth referred to as the Bill) in Parliament on 24 June 2020 during the presentation of the 2020Supplementary Budget. The Bill was tabled in Parliament in terms of section 12(4) of the Money Bills and Related Matters Act No. 9 of 2009 (as amended by the Money Bills Amendments Procedure and Related Matters Act, No 13 of 2018). The Act requires the Minister of Finance to table a Division of Revenue Amendment Bill with a revised fiscal framework if the adjustments budget effects changes to the Division of Revenue Act for the relevant year.

 

The Bill was referred to the Committee on 8 July 2020 after the National Assembly adopted the Revised Fiscal Framework and the Committee received a briefing thereon from the National Treasury on the day. To facilitate public participation, the Committee published adverts in print media in all 11 official languages from 26 June to 2 July 2020. The Congress of South African Trade Unions, C19 People’s Coalition, and Mr MG Buthelezi,made submissions on the Bill in response to the afore-said advertisements. National Treasury briefed the Committee on the Bill in its entirety while the Financial and Fiscal Commission, the South African Local Government Associationand Parliamentary Budget Office were invited to commenton the Bill.

 

The Bill and its annexures address the following matters:

 

• Changes in the equitable division of nationally raised revenue among the spheres of government;
• Changes to provincial grants allocation; and
• Changes to local government grants allocation. 

 

This report focuses on the proposed amendments to the 2020 Division of Revenue Act (Act No 4 of 2020) as tabled by the Minister of Finance and the matters raised during the engagements with the invited stakeholders and the organisations that made submissions in response to the advertisements.

 

1. Division of Revenue Amendment Bill response to Covid-19 pandemic

 

National Treasury submitted that Bill was introduced to fund a response to Covid-19 and the negative impact this had on public finances across government. The increased government spending to respond to Covid-19 was funded in part by increasing the budget deficit and in part by reprioritising resources. The President announced that R130 billion would be reprioritised from which R30 billion would come from provinces (excluding conditional grants).An amount of R100.9 billion is reprioritised in the adjustment budget, including through:

 

• Savings on activities that are not possible due to Covid-19 i.e. travel, venue hire, and catering;
• Unspent funds due to lockdown regulations (e.g. infrastructure grants that could not be spent under level 4 and level 5 regulations);
• Identifying possible underspending (provinces underspent their grants by R3.4 billion in 2019/20, and potential underspending of R5 billion in local government was identified for reallocation in 2019/20); and
• Delays in the implementation of some projects.

 

Provincial governments are responsible for the key services at the frontline of the Covid-19 pandemic response including the public health system, schools, and social welfare services. National Treasury submitted that provincial governments have committed to reprioritise at least R20 billion to fund their Covid-19 responses.

 

Regarding local government, National Treasury submitted that whilst the full impact of Covid-19 on revenue was still uncertain, some municipalities have reported declines in revenue of between 40 and 60 per cent in April 2020. To this end, proposed additions to the local government equitable share should provide some relief for municipalities. Furthermore, National Treasury reported that further funding could be freed up within municipal budgets if SALGA could be exempted from implementing the 2020/21 cost of living adjustment of 6.25 per cent and that a communication has been forwarded to the latter to formally propose this. The reported local government spending pressures as a result of the pandemic include the following:

 

• Impact of increased indigence due to the economic downturn;
• Provision of sanitisation of public transport facilities and vehicles in order to allow the economy to reopen;
• Provision of water, sanitation and waste services at higher frequency in informal settlements and poorly served rural communities in order to enable stay-at-home policies to be implemented; and
• Provision for temporary shelter for the homeless.

 

1. Equitable division of revenue raised nationally among the spheres of government

 

Table 1 below outlines the equitable division of revenue raised nationally among the three spheres of government (National, Provincial and Local). The net effect of the 2020 adjustments is an increase in the 2020/21 budget allocation by R43 180 670 000, increasing the budget allocation from R1 765 994 410 000 to R 1 809 175 080 000.  The R43 180 670 000 adjustment allocation is attributed largely to government’s financial response to the Covid-19 pandemic. The R43 billion additional allocation consists of R11 000 000 000 addition to the local government equitable share and R32 180 670 000 additions to national government to fight the COVID-19 pandemic.

 

Table 1: Schedule 1: Equitable Division of Revenue raised nationally among the Three Spheres of Government

 

Spheres of government	Column A
	2020/21  Main Allocations	Adjustment	2020/21 Adjusted Allocation
	R’000	R’000	R’000
National1, 2	1 152 839 556	32 180 670	1 185 020 226
Provincial	538 471 528	-	538 471 528
Local	74 683 326	11 000 000	85 683 326
Total	1 765 994 410	43 180 670	1 809 175 080

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

Source: National Treasury (2020 Division of Revenue Amendment Bill)

 

1. Changes to provincial government conditional grant allocations

 

The provincial government grants allocation are adjusted downward by a total of R7.2 billion and this is largely attributed to funds that would not have been spent due to the Covid-19 lockdown while other downwards adjustments are due to programmes being delayed or scaled down in order to accommodate government’s response to the Covid-19 pandemic. The following sections provide an overview of the adjustments that were made to provincial conditional grants allocations.

 

1. Agriculture, Land Reform and Rural Development conditional grants

 

A total of R438 million in direct conditional grants to provinces has been reduced from theagriculture, land reform and rural development as follows;

• Comprehensive Agricultural Support Programme Grant:A total of R317 million reduction in the infrastructure component of the comprehensive agricultural support programme grant; and
• Ilima/Letsema Project Grant:A total of R121 million reduction in the direct component of the Ilima/Letsemaproject grant, and these reductions were made in funding that supports subsistence farmers and food security.

 

1. Basic Education conditional grants

 

A total of R2.3 billion in direct conditional grants to provinces has been reduced from the basic education, while an addition R540 million is added to the school infrastructure backlog grant allocation as follows;

• Education Infrastructure Grant: A total of R2.2 billion reduction in the direct component of the education infrastructure grant and provinces will delay new infrastructure projects to accommodate the reductions in education infrastructure allocation;
• HIV and AIDS (Life Skills Education) Grant:A total of R60 million reduction in the direct component of the HIV and AIDS (life skills education) grant and consequently, planned training sessions for over 20 000 educators will be cancelled;
• Maths, Science and Technology Grant:A total of R68 million reduction in the direct component of the maths, science and technology direct grant and planned teacher training will be scaled back or cancelled in for 2020; and
• School Infrastructure Backlogs Grant:A net of R540 million addition to the indirect component of the school infrastructure backlogs grant to provide potable water and safe sanitation for all schools that lack such access.

 

1. Health conditional grants

 

• HIV, TB, Malaria and Community Outreach Grant:A total of R2.8 billion addition to Covid-19 component of the HIV, TB, malaria and community outreach direct grant. This direct grant component fund spending for personal protective equipment (PPE), ventilators, and hiring of additional staff, including the Cuban medical personnel in order to respond to Covid-19 pandemic; and
• National Health Insurance (NHI) Grant:A total of R338 million reduction from the indirect component of theNational Health Insurance (NHI) grant, mainly from the health facility revitalisation component.

 

1. Human Settlement conditional grants

 

• Human Settlement Development Grant:A total of R1.7 billion reduction from the direct component of the human settlement development grant is made because of delays in planned projects due to Covid-19 lockdown;
• Tittle Deeds Restoration Grant:A total of R378 million reduction in the direct component of the tittle deeds restoration direct grant is made due to the reduction on the number of tittle deeds issued and these funds are re-allocated to the direct component of the provincial emergency housing grant; and
• Provincial Emergency Housing Grant:A total of R378 million addition to the provincial emergency housing direct grant for rapid provision of emergency housing solutions in areas where existing housing arrangements do not allow people to socially distance or self-isolate where required.
  1. Sports, arts and culture conditional grants

 

• Community Library Services Grant:A total of R312 million reduction in the direct component of the community library services grant and provinces are required to scale back on the purchase of library materials, the construction of selected new libraries and the upgrading of selected existing libraries in 2020; and
• Mass Participation and Sports Development Grant:A total of R224 million reduction in the direct component of the mass participation and sports development grant due to Covid-19 lockdown and Provinces will use funds from cancelled competitions to compensate the sport sector for the loss of earnings due to the restrictions on economic activity.

 

1. Transport conditional grants

 

• Provincial Road Maintenance Grant:A total of R1.8 billion reduction in the provincial road maintenance grant, consequently, planned maintenance projects will be delayed in 2020.

 

1. Changes to local government equitable share and conditional grants allocation

 

The section below provides an overview of the changes to the local government equitable share allocation as well as the changes to the local government conditional grants allocations. 

 

1. Changes to local government equitable share allocation

 

A total of R11 billion has been added to the local government equitable share through two components of the existing formula, namely;

• Free Basic Services:A total of R7.5 billion addition to the basic services component to increase the provision of free basic services to additional 1.4 million households; and
• Community Services:A total of R3.5 billion addition to the community services component subject to municipal revenue adjustment factor to assists poorer municipalities on the provision of services like environmental health, cemeteries and crematoria.

 

1. Changes to local government conditional grants allocations

 

• Urban Settlements Development Grant:A total of R1.1 billion reduction in the direct component of the urban settlementsdevelopment conditional grant and this will result in delays in planned projects. Funds for the upgrading of informal settlements through secure tenure and the provision of basic services have not been reduced;
• Public Transport Network Grant:A total of R1.9 billion reduction in the direct component of the public transport network grant due to delays in planned construction projects;
• Neighbourhood Development Partnership Grant: A total of R68 million reduction in the direct component of the neighbourhood development partnership grant because of postponement of capital expenditure due to restrictions on economic activity caused by the Covid-19 pandemic;
• Integrated National Electrification ProgrammeGrant:A total of R1billion reduction in the indirect component of the integrated national electrificationgrant due to reduction in bulk infrastructure and household connections in Eskom-licensed areas;
• Integrated National Electrification Programme Grant:A total reduction of R500 million in the direct component of the integrated national electrification programme direct grant due to reduction in bulk infrastructure and household connections in municipal-licensed areas;
• Energy Efficiency and Demand-Side Management Grant:A total of R22 million reduction in the direct component of the energy efficiency and demand-side management direct grant due to decrease in the number of planned energy savings projects;
• Infrastructure Skills Development Grant:A total of R8 million reduction in the direct component of the infrastructure skills development grant in order to align to the request of the special adjustments budget; and
• Municipal Systems Improvement Indirect Grant: A total of R8 million reduction in the indirect component of the municipal systems improvement grant due to reduction in the number of capacity support projects to municipalities.

 

1. Comments and hearings on the Bill with identified stakeholders

 

The section below provides an overview of the comments that were made on the Bill by the invited stakeholders.

 

1. Financial and Fiscal Commission

 

On the overall assessment of the Bill, the FFC submitted that the structure and most aspects of the Bill remained stable and was in support of the technical changes and clauses in the Bill as these enhance accountability flexibility in the implementation and adjustments.The FFC noted the addition of clause 5(3)(b) relating to the transfer of the equitable share allocations to municipalities. However, it was of the view that whilst it would create flexibility in terms of transferring funds, caution should be exercised that the determination of more dates of transfer do not result in inconsistencies in financial processes in place/reporting mechanisms as well as in meeting objectives of how monies ought to be spent.The FFC also noted the substitutions of column A of Schedules 1 and 3, Parts A and B of Schedule 4, Parts A and B of Schedule 5, Parts A and B of Schedule 6, and Part A of Schedule 7 on the amendment bill, due to the adjustments and reprioritisations made in the 2020/21 adjustment budget. However, the FFC reiterated its previous stance on the potential negative consequences created by these reprioritisations on service delivery programmes as well as allocations of over the 2020 MTEF respectively.

 

On changes made in the Bill, the FFC submitted that the local government and national spheres’ shares of nationally raised revenues adjust upwards and provincial shares contract compared to Budget 2020 with national departments gaining R32.6 billion (4.3 per cent); provinces net loss of R4 billion (-0.6 per cent), while local government receive a net increase of R7.4 billion (5.6 per cent). On provincial functions and challenges, the FFC submitted that provinces were responsible for social services, which included education, health, social development and economic services like agriculture and roads and transport and prior to the outbreak of Covid-19 pandemic these provincial functional areas were facing a number of challenges. The FFC submitted that the Covid-19 pandemic has amplified these challenges and has the potential of delaying efforts aimed at addressing existing inequalities especially with respect to access to quality education and healthcare as well as the implementation of reforms such as the National Health Insurance (NHI) and infrastructure projects.

 

On changes to provincial transfers, the FFC submitted that allocations through the Provincial Equitable Share (PES) have not changed, however, provinces have committed to reprioritise R20 billion from the PES to the Covid-19 response from their own budgets given their respective disease profile risks.Furthermore, the FFC submitted that the criteria for reprioritising the R20 billion is not clearly determined and this may result in unevenness in the services delivered by provinces and in the absence of a uniform criteria. To this end, the FFC felt that it was important for provinces to report to Parliament on the reprioritisation criteria used. Furthermore, out of R20 billion, R15 billion (75 per cent) will be reprioritised to health and R5 billion (25 per cent) to other sectors and reprioritisation across all provinces follows this pattern. The FFC submitted that there was no clear criteria followed to determine these uniform proportions given different circumstances of provinces.

 

On changes to provincial grant allocations, the FFC submitted that there have been changes with respect to conditional grants to provinces due to the Covid-19 pandemic. FFC submitted that significant downwards changes have been made on Human Settlements Development grant (-10.40 per cent), Provincial Roads Maintenance grant (-15.15 per cent), Education Infrastructure grant (-20.18 per cent) and the National Health Insurance grant (indirect component) (-14.93 per cent). The HIV, TB, Malaria and Community outreach and Provincial Emergency Housing grants are adjusted upwards by 11.67 per cent and 125.82 per cent respectively to assist in fighting Covid-19. According to the FFC, some of the cuts in conditional grants allocations were due to the government fiscal consolidation initiatives.

 

With regard to local government, the FFC submitted that prior to the Covid-19 outbreak, the South African local government sector was crippled by a myriad of challenges like underspending on capital budgets, lack of institutional capacity, declining own revenue collection, lack of accountability, poor financial management and governance, and generally failing to effectively and efficiently fulfil its constitutional mandate. In addition to the 2018/19 Audit Report where the Auditor General South Africa (AGSA) also underscored the pervasiveness of these challenges and further flagged issues pertaining to poor financial management and non-compliance. The FFC further reported that some municipalities were repeatedly placed under section 139 interventions, but show no signs of improvement after intervention. The FFC was therefore of the view that these challenges should not be overlooked when dealing with Covid-19 as they could hamper the success of the Covid-19 interventions.

 

On local government allocation, the FFC submitted that total allocation to local government has increased over the years, from R102.9 billion in 2016/17 to R132.4 billion in 2020/21. In the Adjusted Budget, the allocations grow by 5.6% and 3.9% in nominal and real terms respectively and the increase is mainly due to the additional R11 billion provided through the Local Government Equitable Share (LGES). The FFC further submitted that while President announced an additional allocation of R20 billion to local government, the Adjusted Budget provides for only R11 billion additional funds, while the remaining amount is secured through repurposing funds within various local government grants.

 

The FFC submitted that while it noted the R11 billion added to local government through the LGES, it views the rationale for this injection to be to compensate municipalities for the loss of revenue due to Covid-19. However, the FFC submitted that allocating this money through the LGES formula may not adequately compensate those municipalities experiencing the deepest revenue shortfalls like metropolitan municipalities. Furthermore, according to the FFC, rural municipalities realise less revenue loses since their own revenue base is very limited while metropolitan municipalities have experienced a disproportionate effect of Covid-19 in terms of revenue loses (as they rely predominately on own revenues); and in terms of Covid-19 induced expenditure needs (emergency shelter, water, health facilities), and as engines for economic growth. The Commission submitted that it is of the view that this allocation should rather have been allocated through a conditional grant that would balance rural-urban needs in the context of the pandemic, and also so that the R11 billion acts a stimulus for cities as engines of growth. Furthermore, the FFC submitted that there is a need to attach conditions to this allocation, in order to ensure that the funds are not used for salaries or other non Covid-19 related expenditure.

 

On conditional grant allocations to local government, the FFC submitted that these declined by 8.9 per cent from R51.4 billion in the 2020 Budget to R46.8 billion in the Adjusted Budget. The FFC submitted that that while it acknowledges the need to make funds available for Covid-19 interventions, it was of the view that the cuts should be targeted at under-performing grants to minimise the effect on services delivery. To that effect, the FFC submitted that recurring reductions in performing grants such as the Urban Settlements Development Grant, Public Transport Network Grant and the Integrated National Electrification Programme Grant (municipalities) were a cause of concern as this has negative effects on project planning, infrastructure maintenance and it creates uncertainties for future growth enhancing projects.

 

In summary, the FFC submitted that it acknowledges that reprioritisation was necessary to make funding available to address challenges associated with Covid-19. However, is of the view that reducing infrastructure grants aimed at rehabilitating and maintaining social and economic infrastructure such as schools and provincial roads would likely exacerbate the deterioration of infrastructure, and potentially escalating costs in the future and affect outcomes. The FFC emphasised that Education Infrastructure grant (reduced by over 20 per cent) is key with respect to reconstruction, maintenance and refurbishment of education and schools and this grant is needed more now than before given the high number of schools vandalised and destroyed during the lockdown period.The Furthermore, FFC recommended that the infrastructure rehabilitation and maintenance be prioritised in the outer years of the 2020 MTEF and that government should provide clear funding and delivery plan for delayed 2020/21 infrastructure projects, and infrastructure maintenance.The FFC also submitted that it has also noted with concern the quality and reliability of data used in calculation of different components of Human Settlements grant (drawn from 2010 Household Survey and 2011 Census) and in transport sector grants and emphasised that this needs to be considered in the review of the provincial equitable share.

 

1.      South African Local Government Association

 

The South African Local Government Association (SALGA) gave an overview of the proposed division of revenue towards the three spheres of government, i.e. national (50.1 per cent), provincial (41 per cent), and local (8.9 per cent) and highlighted the changes in the supplementary budget affecting local government.  SALGA submitted that there is an increase of 5.3 per cent in the overall allocation of the local sphere of government in terms of division of revenue framework. Compared to the February 2020 budget the local government sphere increases from R132.5 billion to R139.9 billion in the Supplementary Budget Review. SALGA submitted that a total of R12.6 billion in conditional grant suspension has been imposed on local government and that is anticipated that more suspensions shall be imposed during the Medium Term Budget Policy Statement (MTBPS). Furthermore, municipalities are expected to adjust their budgets downward as a result of the Covid-19 pandemic due to the decline in anticipated revenue collections.

 

In response to the supplementary budget, SALGA stated that it acknowledged the additional R7 billion or 5.3 per cent upward adjustment of the allocation to the local government in terms of the Division of Revenue Act. SALGA submitted that it resolved to intensify the extraction of accountability from member municipalities. SALGA further acknowledged the additional R11 billion support to local government to support municipalities’ increased expenditures related to the provision of services, including shelter for the homeless. SALGA further submitted that whilst the supplementary budget review recognized that the local government sphere was at the forefront of responses to challenges brought about by the Covid-19 pandemic, it viewed the supplementary budget review as not having gone far enough. The municipalities have reported aggregate revenue losses of up to 60 per cent and thus resulting in an inability to manage positive cash flows as the economy deteriorates. The local sphere of government faced limited tax revenues while rising unemployment increased the number of indigent households resulting in rising debt levels due to Covid-19. Furthermore, municipal consumer debts amounted to R181 billion from which 83 per cent was realistically not collectable. The municipal creditors book was also rising amounting to R49 billion and Eskom reported R36 billion outstanding debt. The aforementioned situation was further exacerbated by retracted economic growth.

 

SALGA expressed concerns at the temporary in-year suspension of conditional grants amounting to R10.8 billion during 2020/21 as part of redirecting funds in response to Covid-19 measures. These suspensions will result in massive delays in projects and will result in significant shortfalls in future revenue that will require a massive reprioritization of funds. With regard to the multi-year wage settlement, SALGA submitted that the 2020/21 financial year was the final year of the agreement with an agreed 6.25 per cent wage adjustment.  It further submitted that pronouncements made outside the South African Local Government Bargaining Council jeopardized and weakened organized local government’s position on the securing another multi-year agreement.

 

SALGA made the following recommendations:

• Revenue under-recovery as a basis for allocation should take into consideration local government’s overall sector not just metropolitan municipalities;
• That an urgent review of the Fiscal Reform for local government be conducted, over and above addressing Covid-19 related pressures;
• The Local Government Equitable Share formula should portray realistic cost differences in municipalities (eliminate single subsidy costing) and address the underfunding of local government; and
• The upcoming October 2020 adjustment budget should consider the impact of the real reduction in municipal revenues and the impact this may have on the local government sector in response to Covid-19 challenges and service delivery.
  1.       Parliamentary Budget Office

 

The Parliamentary Budget Office (PBO) indicated that responding to the COVID-19 pandemic had become government’s central priority, placing huge responsibilities on primary health, mainly provided by provinces; social development, shared by national and provincial government; and peace and security, mainly provided by national government. The provincial equitable share (PES) remained unchanged at R538 472 million, with 3.7 percent, or an amount of R20 billion, being reprioritised; with R15 billion going towards health and R5 billion towards other services, like social development. The PBO further provided a summary of the amounts suspended from provincial and local government conditional grants; as well as of the changes to grant frameworks suggested by National Treasury to accommodate spending on additional COVID-19 needs, like the purchasing of personal protective equipment (PPEs). The PBO indicated that the effect of the suspension of conditional grant funds could not be monitored, because no targets had been set in the grant schedules for 2020/21.

 

The PBO reported the following from its evaluation of conditional grant schedules:

• The performance indicators were mainly output-driven;
• Most frameworks had a large number of outputs, with reprioritisation adding to this;
• A direct link with the budget per output was not possible; making it impossible to determine budget efficiency;
• Performance indicators or outputs were duplicated;
• No impact indicators were included; and
• Improvement of performance was not shown, making it difficult for oversight bodies, like Legislatures to determine the effectiveness of funds spent.

 

The PBO provided a summary of revenue and expenditure outcomes for metros and municipalities as at the end of the third quarter of 2019/20 as well as capital expenditure per province and per metro for the last three years.The PBO reported that not all revisions within the supplementary budget were due to the Covid-19 pandemic, and that the biggest share of nationally raised revenue was allocated to the national sphere, where efficient and effective spending should contribute to stimulate the economy. The PBO further reported that additional funding for Covid-19 did not focus on provincial health and social needs, and that provinces had to reprioritise for this within their own budgets.Additional funding to local government was also not to improve or increase services, conditional grant funding to improve services had in fact been reduced, and this could possibly have a negative impact on the continuity of projects.

 

1. Public submissions on the Bill

 

The sections below provide summaries of the inputs made by organisations and individuals in response to the advertisement calling for submissions from the public on the Bill.

 

1.     Congress of the South African Trade Unions

 

The Congress of South African Trade Unions (COSATU) submitted that it welcomed the additional resources for key frontline departments in the fight against Covid-19, i.e. Health, Transport, Basic Education, Human Settlements and Water and Sanitation. However, it lamented the reprioritization of resources of funds away from key economic departments, i.e. Employment and Labour, Trade, Industry and Competition, and Agriculture Rural Development and Land Reform.

 

In terms of the overall essence of the Bill, COSATU submitted the following:

• Lack of clarity in budget allocations;
• Lack of clarity on the impact of reprioritisations;
• Lack of details on frivolous and wasteful expenditure vis-a-vis infrastructure delays;
• No details on the impact of not filling vacant posts; and
• Lack of details on the scope for permanent reductions in wasteful expenditure vis-a-vis austerity cuts.

 

COSATU highlighted with concerns, the findings of report of the Auditor-General on municipal finances for the 2018/19 financial year and indicated that the Bill was silent on what was being done to address the following:

• Only 20 out of 257 municipalities received clean audits;
• 28 municipalities not audited due to failure to submit financial statements;
• 200 municipalities lost about R2.07 billion over past financial year;
• Irregular spending increased from R24.38bn in 2017/2018 to R32.06bn in 2018/2019;
• Municipalities spent R1.26 billion on consultants;
• Provincial and local government collectively owe Eskom approximately R37 billion; and
• On average 10 per cent of the budget allocation, more than R150 billion is lost to corruption and wasteful expenditure annually.

 

In terms of local government, COSATU submitted that 63 municipal workers have so far died from Covid-19 and 4571 have been confirmed as positive.  COSATU stated that many municipalities were not compliant with Covid-19 regulations by not providing workers with the necessary PPEs and ensuring regular sanitisation of taxi and bus ranks. Regarding public service and local government wage bill proposals, COSATU submitted that a lesson learnt from Covid-19 was that there is an urgent need to capacitate the State. To this end, COSATU urged government to honour the local government wage agreement that was in place and submitted that the plummeting inflation was an opportunity for engagement on the next three-year wage agreement. Furthermore, COSATU proposed for a sliding scale and inflation protection increase and reduction in management packages and political costs, and a single-government collective bargaining process. It further suggested that the Public Investment Corporation should provide home and education loans for public servants.

 

Regarding Basic Education, COSATU emphasized the negative impact of the past neglect of school’s infrastructure especially relating to sanitation. It further expressed concerns at the failure of the Department of Basic Education to ready schools for reopening after the national lockdown due to Covid-19. COSATU’s concerns include:

• Only 54 per cent of schools have sufficient sanitisers;
• Only 43 per cent of schools needing water tanks have received these tanks; 
• Only 27 per cent of schools have two masks for learners and staff;
• 47 per cent of schools do not have sufficient teachers available due to co-morbidities; and
• 31 per cent of schools do not have enough water for washing.

 

Regarding the Heath sector, COSATU questioned whether the reprioritisation of funds towards this sector was sufficient given the magnitude of the challenges caused by Covid-19. It further questioned the reduced allocation towards employment of healthcare personnel and was of the view that more health workers were needed. COSATU further questioned the emphasis on building temporary health facilities at the expense of building permanent health infrastructure, much of which has been neglected for years. Furthermore, COSATU expressed concerns at the lack of a clear health and safety plan for Metro Rail which resulted in most railway lines not being reopened and increase in cable theft. Whilst COSATU noted the need to finalise the R1.1 billion relief fund to the taxi industry, emphasised that it was critical for these funding to be linked to taxi owners becoming complaint with tax, labour, traffic and other laws. Furthermore, these taxi owners need to provide Unemployment Insurance Fund and Compensation Fund registration certificates before being approved for these relief fund.

 

Regarding Human Settlements, Water and Sanitation, COSATU submitted that there was no clear indication of the number of informal settlement areas to be upgraded and the associated time frames and the number of informal settlement areas that still do not have sufficient water and sanitation. According to COSATU, these information was crucial in the fight against the Covid-19 pandemic.

 

1. C19 People’s Coalition

 

The submission by the C19 People’s Coalition, the Cash Transfer Subgroup, forms part of the #PayTheGrants campaign, which was focusing on the just implementation of the promised COVID-19 Social Relief of Distress (SRD) Grant and the building of a broad alliance towards a Basic Income Guarantee for all. The C19 People’s Coalition added that they were of the view that the Government’s Supplementary Budget failed to show solidarity with poor South Africans and the working class. They highlighted that the Supplementary Budget made dramatic cuts in budget areas most crucial for poor and working-class people. They said these included R2 billion cut from Basic Education; R9.9 billion cut from Higher Education and Training; R2.3 billion cut from Human Settlements; R2.4 billion cut from Agriculture, and a R2.9 billion cut from Land Reform and Rural Development. The C19 People’s Coalition argued that the primary concern was the pandemic, yet only R2.9 billion of net additional funding was allocated for the entire Health sector. Which, according to them, was less than half of the new funding allocated to the South African National Defence Force (SANDF) and the South African Police Services (SAPS).

 

On the Stimulus Package, the C19 People’s Coalition submitted that the government promised R50 billion for conditional grants but the Adjusted Budget has decreased it to R41 billion. To clarify this, the C19 People’s Coalition indicated that the adjusted amount is only R26 billion more than what the State would already spend on conditional grants.

 

The Cash Transfer Group was also of the view that the amounts of the current Grants were incredibly insufficient, for example; the Child Support Grant was only R445, despite it being the most effective grant available to reduce food poverty. With severe levels of nutritional stunting in South African children, the Child Support Grant should at the very least, be raised to the food poverty line of R580. Furthermore, the amount of R350 for the Covid-19 Social Relief of Distress (SRD) Grant was also far too low and ensured for a much too limited period of only 6 months.

 

The Cash Transfer Subgroup made the following recommendations with regard to the Covid-19 Social Relief of Distress (SRD) Grant:

• Clear and urgent communication on the state of relief measures in general and in particular on the Covid-19 SRD Grant;
• Drop the unethical exclusion criteria;

• Address the massive shortfall in funding to #PayTheGrants;

• Back payment of all those who applied for the COVID-19 SDR Grant, regardless of when the application was made;
• Commitment to a Basic Income Guarantee for all;
• Fix the patent laws;

• Immediately audit of all public debt; and
• Meaningful redistribution of wealth and income to support social welfare.

 

1.     Mr MG Buthelezi

 

Mr. Buthelezi submitted that there should be no division of revenue, nor an amendment to the Bill and proposed that people should receive transfers in other forms, instead of money. Mr. Buthelezi suggested that people should be compensated with food, clothing, houses, rights to consult doctors without paying and travel tickets (i.e. for buses, trains, flights, boats and taxis). He championed for the return of the barter system i.e. trade by exchanging one commodity for another without involvement of money. Lastly, Mr. Buthelezi submitted that land should be returned to its rightful owners so that they can use it to produce food and everything else required for survival.

 

1.    Committee findings and observations

 

Having deliberated and considered all the submissions made by the above stakeholders on Division of Revenue Amendment Bill (B9-2020), the Standing Committee on Appropriations makes the following findings and observations:

 

1. The Committee notes and welcome that the Bill was introduced to fund a response to Covid-19 and the negative impact this has had on public finances across government, while also noting that these proposed increases in government spending to respond to Covid-19 was funded in part by increasing the budget deficit and in part by reprioritising resources.
2. The Committee welcome that the Bill protects the equitable sharesto provide a level of budget stability and the Local Government equitable share is increased by R11 billion to compensate for lost revenue and support COVID-related spending.
3. The Committee notes that provincial grants are adjusted downwards by R7.2 billion and local government conditional grants by R3.6 billion whilst R16 billion has been reprioritised within the conditional grants to be used as part of the Covid-19 response.
4. The Committee notes the submission by FFC that provinces were mainly responsible for social services, which included education, health, social development and economic services like agriculture and roads and transport and prior to the outbreak of Covid-19 pandemic these provincial functional areas were facing a number of challenges and the Covid-19 pandemic has amplified these challenges.
5. The Committee notes the reported financial pressures being experienced at the local government level, mainly due to significantly lower than expected revenue collections due to negative impact of Covid-19 lock-down on the economy.
6. The Committee notes that National Treasury has requested to SALGA to formally propose getting an exemption from implementing the 2020/21 cost of living adjustment of 6.25 per cent in order for more funding to be freed up within municipal budgets and be directed at fighting Covid-19. The Committee is however of the view that stability at the local sphere of government is of paramount importance and should not be compromised, particularly at this time when municipalities are at the forefront of the fight against the Covid-19 pandemic.
7. Whilst the Committee notes the proposal that certain Conditional Grant be suspended, it is of the view that requisite research should be undertaken into the financial and socio-economic impact of these suspensions.
8. The Committee notes with concern the FFC’s submission that local government was crippled by a myriad of challenges like underspending on capital budgets, lack of institutional capacity, declining own revenue collection, lack of accountability, poor financial management and governance, and generally failing to effectively and efficiently fulfil its constitutional mandate. The 2018/19 Audit Report of the Auditor General South Africa (AGSA) also underscored the pervasiveness of these challenges at local government level.
9. Whilst the Committee acknowledges the need for additional funding to respond to the Covid-19 pandemic especially at local government level, it is concerned about the current financial management system’s readiness to safeguard such additional resources from fraud and corruption. An example of this is the reported R3 million that was wasted by the OR Tambo District Municipality on a door-to-door campaign to inform communities about Covid-19. The Committee is of the view that National Treasury must be always vigilant on the use of Covid-19 funds and must decisively seek answers and immediately act where there is evidence of abuse of these needed resources.
10. The Committee is concerned about the lack of consequence management for financial mismanagement especially at local government as well as the perennial under expenditure of resources often resulting in funds being reprioritised away from important social service sectors thus directly negatively affecting the poor. The Committee is of the view that CoGTA and SALGA should actively assist a municipality where there is evidence of capacity constraints.
11. The Committee notes the pronouncement made by the President that emphasis would be placed on infrastructure investment and development as a means of stimulating economic growth and job creation. However, the Committee feels there appears to exist a contradiction between these pronouncementsby the President and the Bill due to the significant reduction of infrastructure related conditional grants. The Committee however notes the perennial under expenditure in some of these conditional grants that are reduced, while also noting the need for government to make funding available for Covid-19 related expenditure andalso maintaining government fiscal prudence.
12. Whilst the Committee notes the reasons for the reduction on the Urban Settlements Development Grant (USDG), it is of the view that funds allocated trough this grant are meant to improve the lives of people, especially the vulnerable and poor of South Africa. The Committee therefore implores that due consideration to this be given before funds are reprioritised away from the USDG and that more emphasis should be placed on enhancing capacity to spent these funds.
13. The Committee notes with concern that government is being charged exorbitant prices by service providerswho often collude with public officials. The Committee is of the view that this results in government’s limited resources not to be used in an economic, effective and efficient manner, resulting in government not deriving value-for-money from services provided. The Committee strongly urges the three spheres of government to ensure that the intended beneficiaries receive what is due to them and that corruption be punished, irrespective of who is involved.

1. Recommendations

 

The Standing Committee on Appropriations, having considered submissions from various stakeholders on the Division of Revenue Amendment Bill [B9-2020], recommends as follows:

 

1. That the Minister of Finance ensures that National Treasury provide a socio-economic and service delivery impact assessment of the overall suspensions of grants before the tabling of the 2020 Medium Term Budget Policy Statement.
2. The Minister of Finance ensures that National Treasury provides a comprehensive report on how National Treasury plans to fund infrastructure spending aimed at reconstruction, rehabilitating and maintaining social and economic infrastructure such as schools, roads and other government infrastructure assets post Covid-19. The Committee is concerned that a lack of a detailed and proper infrastructure recovery plan will lead government to the same path as is currently experiencing with Eskom infrastructure maintenance related challenges. This plan should signal National Treasury’s commitment on funding public infrastructure for reconstruction, maintenance and rehabilitations, while also outlining potential future costs escalations due to delays in funding these key government infrastructure activities and estimated costs overruns of delayed infrastructure projects.  This report should be submitted to the Committee before the tabling of the 2020 Medium Term Budget Policy Statement.
3. In line with the pronouncements made by the President on infrastructure investments for both economic growth stimulation and job creation, the Minister of Finance should ensure that National Treasury provide a comprehensive report on how this Bill respond to the pronouncements made by the President on infrastructure investment. This report should be submitted to the Committee before the tabling of the 2020 Medium Term Budget Policy Statement.
4. The Minister of Basic Education ensure that that the Department of Basic Education submit a detailed report to the Committee on the impact of reduction of education infrastructure grant and detailed recovery plan for school infrastructure reconstruction, rehabilitation and maintenance. Given the reports on the number of schools vandalised and destroyed during the lockdown period, the department must also include a detailed lists of these schools per province and present a detailed maintenance recovery plan of these schools.  
5. That the Minister of Finance and the Minister of Cooperative Governance and Traditional Affairs facilitates and ensure engagements between National Treasury and the South African Local Government Association so as to resolve the revenue and capacity challenges at local government level. The Committee should be provided with a report on the outcomes of these  engagements before the tabling of the 2020 MTBPS.
6. That the Minister of Finance jointly with the Minister of Cooperative Governance and Traditional Affairs provide a comprehensive report on how all the municipalities placed under section 139 interventions were monitored and assisted in responding the Covid-19 pandemic. Considering that some of these municipalities were showing slow to no signs of improvements, this report must be submitted to the Committee before the tabling of the 2020 Medium Term Budget Policy statement.
7. That National Treasury reconsiders the approach of reprioritisation of funds away from especially the Urban Settlements Development Grant and focus more on enhancing the capacity at local government level to effectively, efficiently and economically spend the grant allocations.
8. That the relevant Parliamentary Portfolio Committees should also follow up on issues of poor performance and underspending on key infrastructure grant allocationswhich have been raised in this report.

 

1. Committee Recommendation on the Bill

 

The Standing Committee on Appropriations, having considered the Division of Revenue Amendment Bill [B9-2020] (National Assembly) referred to it and classified by the Joint Tagging Mechanism (JTM) as a Section 76 Bill, recommends that the Bill be adopted, without amendments.

 

The Economic Freedom Fighters abstained from voting on the report.

 

Report to be considered.