ATC201117: Report of the Standing Committee on Appropriations on the Division of Revenue Second Amendment Bill [B24 – 2020], Dated17 November 2020

Standing Committee on Appropriations

REPORT OF THE STANDING COMMITTEE ON APPROPRIATIONS ON THE DIVISION OF REVENUE SECOND AMENDMENT BILL [B24 – 2020], DATED17 NOVEMBER 2020
 

The Standing Committee on Appropriations having considered theDivision of Revenue Second Amendment Bill [B24-2020] (National Assembly – section 76), reports as follows:

 

1. Introduction

 

The Minister of Finance tabled the Division of Revenue Second Amendment Bill (hereafter referred to as the Bill) in Parliament on 28 October2020 during the presentation of the 2020Medium Term Budget Policy Statement (MTBPS). The Bill was tabled in Parliament in terms of section 12(4) of the Money Bills Amendment Procedure and Related Matters Act No. 9 of 2009 (as amended by the Money Bills Amendments Procedure and Related Matters Amendment 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 11 November 2020 after the National Assembly adopted the 2020 Second Revised Fiscal Framework. The Committee received a briefing from National Treasury on the Bill in its entirety on 12 November 2020. To facilitate public participation, the Committee published adverts in print media in all 11 official languages from 30 October to 6 November 2020. The Congress of South African Trade Unions, Pay the Grants Campaign, and Equal Educationmade submissionson the Bill in response to the afore-said advertisements. The Financial and Fiscal Commission, Parliamentary Budget Office and the South African Local Government Associationwere invited to commenton the Bill.

 

The Bill and its annexures address the following:

 

• Changes to provincial allocations;
• Changes to local government allocation; and
• Changes to gazetted conditional grant frameworks and allocations

 

 

This report focuses on the proposed amendments to the 2020 Division of Revenue Amendment Act (Act No 10 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 Second Amendment Bill response to the Covid-19 pandemic

 

A proposed total of R500 million is added to the 2020 provincial baseline to provide for food relief in response to the impact of Covid-19 to mitigate the adverse effects of hunger and these allocations to provinces are determined in line with the provincial equitable share formula. Furthermore, as part of the Presidential employment initiatives, a proposed R6 998 800 000 is added to the 2020 provincial baseline allocations to employ education assistants at schools (e.g. classroom assistants, cleaners, screeners, reading assistants, after school assistants) and to save school governing body posts at fee paying schools and government subsidised independent schools and proposed allocations per province were determined in terms of applications received per province.

 

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 2020second adjustments is a decrease in the 2020/21 budget allocation by R3 416 640 000, decreasing the adjusted budget allocation from R1 809 175 080 000 to R 1 805 758 440 000 in the second adjustment budget.  The (R17 754 507 000) net reduction on provincial allocation is attributed to the (R25 253 307 000)that is reduced from the 2020 baseline as part of the reduction of R160 billion to the growth of the public service wage bill.

 

 

 

 

 

 

 

 

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	1st Adjustment	2nd Adjustment	2020/21 Adjusted Allocation
	R’000	R’000	R’000	R’000
National1, 2	1 152 839 556	32 180 670	14 337 867	1 199 358 093
Provincial	538 471 528	-	(17 754 507)	520 717 021
Local	74 683 326	11 000 000	-	85 683 326
Total	1 765 994 410	43 180 670	(3 416 640)	1 805 758 440

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 Second Amendment Bill)

 

1. Changes to provincial governmentallocations

 

1. Additional allocations to support the presidential employment initiative

 

In response to job losses resulting from the Covid-19 pandemic, an additional R1.5 billion is allocated as part of the stimulus package to create jobs through labour intensive projects. These additional allocations are made through conditional grants and the provincial equitable share as follows;

• HIV, tuberculosis, malaria and community outreach grant: community outreach services component:A total of R213 million is added to grantfor recruitment, training and procurement of  personal protective equipment for 1 250 community health workers and 2 000 outreach team leaders and the procurement of backpack kits for existing and recruited community health workers andoutreach team leaders;
• Statutory human resources, training and development grant: A total of R180 million is addedfor the appointment of 1 045 enrolled nurses and 1 236 assistant/auxiliary nurses;
• Early childhood development grant: A total of R496 million is added to this grant to provide unemployment risk support to 83 333 early childhood development related workers for six months and top-up payments to 25 500 already employed early childhood development workers to take on compliance support duties; and
• Provincial roads maintenance grant: A total of R630 million is added to this grantfor the creation of 50 000 jobs through maintenance of provincial roads using the S’hamba Sonke Programme.

 

1. Additions to the provincial equitable share

 

• Provincial equitable share: A total of R7 billion is added to the provincial equitable shareto employ education assistants at schools and to save school governing body posts at fee paying schools and government-subsidised independent schools where employees have been furloughed or had salaries cut due to reduced income from school fees and fund raising initiatives that have been curtailed due to Covid-19 related precautionary measures. School governing bodies will appoint education assistants and decide on the specific duties of these assistants (e.g. reading assistants, classroom assistants, after school assistants, screeners, cleaners) depending on the needs of the school; and
• Provincial equitable share: A total of R500 million is added to the provincial equitable for providing food relief in response to the impact of Covid-19 to mitigate the adverse effects of hunger.

 

1. Roll-over funds from provincial grant allocations

 

A total of R475 million is rolled over for the school infrastructure backlogs grant for the completion of projects that are part of the Sanitation Appropriate for Education (SAFE) initiative, which deals with the replacement and removal of inappropriate and unsuitable sanitation, including pit toilets, at schools. The funds are for schools in Eastern Cape, KwaZulu-Natal and Limpopo

 

1. Reductions to provincial grants allocation

 

In order to provide for the SAA business rescue plan which required R10.5 billion, reductions were made uniformly across programmes falling within national department, including provincial grants allocation. A total of R1.3 billion reduction on provincial conditional grants is proposed as follows:

 

Schedule 4, Part A of the Bill

• A total of R56 million reduction from the national tertiary services grant;

 

Schedule 5, Part A of the Bill

• A total of R14 million reduction from community library services grant;
• A total of R14 million reduction from thecomprehensive agricultural support programme grant;
• A total of  R52 million reduction from the health facility revitalisation grant;
• A total of R224 million reduction from the HIV, TB, malaria and community outreach grant;
• A total of R5 million reduction from the ilima/letsema projects grant;
• A total of R980 000 reduction from the land careprogramme grant;
• A total of  R4 million reduction from the mass participation and sport development grant;
• A total of R42 million reduction from thenational health insurance grant;
• A total of R26 million reduction from thestatutory human resources, training and development grant;
• A total of R37 million reduction from the title deedsrestoration grant;

 

Schedule 6, Part A of the Bill

• A total of R336 million reduction from the school infrastructure backlogs grant;
• A total of R240 million reduction from the national health insurance: indirect grant; and

 

Schedule 7, Part A of the Bill

• A total of R273 million reduction from the provincial emergency housing grant.

 

1. Reduction to the provincial equitable share

 

A total of R25.3 billion reduction from the provincial equitable share is proposed because reductions were not includedin the calculations of the allocations to provincial government at the time the budget was tabled. This is partof the reduction of R160billion to the growth of the public-service wage bill that was announced in theBudget tabled in February 2020.

 

1. Changes to local government conditional grants allocation

 

The section below provides an overview of the proposed changes to the local government conditional grants allocations. 

                                              

1. Roll-over funds from local government grants allocation

 

Schedule 4, Part B of the Bill

• A total of R390 million is rolled over in the urban settlements development grant to fund commitments for bulkinfrastructure related projects in Nelson Mandela Bay Metropolitan Municipality;

 

Schedule 5, Part B of the Bill

• A total of R98 million is rolled over in the public transport network grant to continue with the rollout of the integrated public transport network(IPTN) for public and non-motorised infrastructure in Nelson Mandela Bay Metropolitan Municipality; and

 

Schedule 6, Part B of the Bill

• A total of R307 million is rolled over in the regional bulk infrastructure grant for drought and Covid-19 water andsanitation interventions nation-wide.

 

1. Additions to local government conditional grants allocations

 

A total of R12 million has been reprioritised from the department’s budget into the indirect component of the water services infrastructure grant for implementation of various water services interventions

 

1. Reductions to local government conditional grants allocations

 

In order to provide for the SAA business rescue plan which required R10.5 billion, reductions were made uniformly across programmes falling within national department, including local government conditional grants allocation. A total of R613million reduction in local government conditional grants allocation is proposed as follows:

 

 

Schedule 4, Part B of the Bill

• A total of R4 million reduction from the integrated city development grant;

 

Schedule 5, Part B of the Bill

• A total of R2 million reduction from the infrastructure skills development grant;
• A total of R12 million reduction from theintegrated urban development grant;
• A total of R180 million reduction from themunicipal infrastructure grant;
• A total of R12 million reduction from the neighbourhood development partnership grant;
• A total of R253 million reduction from the public transport network grant;
• A total of R78 million reduction from thewater services infrastructuregrant;

 

Schedule 6, Part B of the Bill

• A total of R18 million reduction from the integrated national electrification programme (Eskom) grant; and
• A total of R55 million reduction from the regional bulk infrastructure grant.

 

1. Corrections to gazetted frameworks and allocations

 

• National health insurance indirect grant: health facility revitalisation component is amended to correct for an allocation earmarked for Limpopo Academic Hospital. The allocation is being corrected from R653 million to R454 million, as R198 million was shifted to the health facility revitalisation grant during the February 2020 Budget;
• Rural roads asset management systems grant: The grant framework is amended to correct for the due date of the submission of road condition data that was erroneously captured as 31 September 2020 instead of 30 September 2020. This correction is needed as 31 September 2020 does not exist in the calendar.
• Municipal infrastructure grant: To correct allocations for ring-fenced sport projects in the municipal infrastructure grant, R25 million is proposed to be shifted to Polokwane Local Municipality from Musina Local Municipality and R9 million is proposed to be shifted to Swellendam Local Municipality from Mossel Bay Local Municipality. The amounts for each project are corrected in the gazetted list of the municipal infrastructure grant ring-fenced funding for sport infrastructure and allocations in the municipal infrastructure grant. This correction will ensure that sufficient funds are made available to complete planned sport infrastructure projects in all the affected 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

 

The Financial and Fiscal Commission (FFC) submitted that government’s Economic Reconstruction and Recovery Plan (ERRP) strengthened the continuity and consistency of the position taken in the 2019 Strategy document: Economic Transformation, Inclusive Growth and Competitiveness.  Whilst it appreciated the aforementioned, it argued that consistency should not be confused with repetitions without proof of real reforms, impacts and outcomes, for it may lose even more credibility of policy and that of implementation of government programmes.

 

The FFC further reiterated what was stated in its 2021/22 Annual Submission for the Division of Revenue with respect to economic and social development in the context of Covid-19, as follows:

• After reviewing the economic situation leading up to the Covid-19 crisis, the FFC is convinced that a fundamental structural transformation of the economy is inevitable.
• Therefore, the ministers of finance, of economic development and trade and industry, and of labour should jointly address the economic barriers, social inequality, and societal polarisation by adopting a localised product value chain approach.
• The expression of this approach should be found in the incentive grants frameworks of both provincial and local conditional grants, as hard conditions to permitprocurement of goods only if they are made or assembled locally within the South African borders, to stimulate the domestic economy and encourage job growth while taking international trade agreements into account.

 

Regarding Local Government, the FFC submitted that a significant proportion of municipalities were distressed and dysfunctional and that the fiscal health of many municipalities has deteriorated over the past few years. The FFC therefore implored government to prioritise local government and by implication, the poor households. It also emphasized the point that allocations to municipalities should be deployed and used efficiently and effectively. The FFC reported that local government was set to receive a total allocation of R434.3 billion over the 2021 MTEF. This projected allocation was R17.7 billion less than what was announced in the 2020 budget by the Minister of Finance.

 

The FFC expressed concerns about the effect of the reductions to local government on service delivery, given the increasing bulk costs for water and electricity, and declining own revenue collection. The FFC submitted that it remained concerned about the expected progressive decline in the real growth rates of the LGES.

 

The FFC highlighted that local government conditional grants were reduced in the 2020/21 supplementary budget by R3,7 billion with further proposed reductions of R569 million in the 2020 Division of Revenue Second Amendment Bill. These reductions were made to make funds available for the SAA business rescue plan among other things, over the 2021 MTEF. The FFC submitted that it seriously was concerned that the reprioritisation of local government funds was meant to fund SOEs. The local sphere was also currently under fiscal stress due to the Covid-19 induced decline in revenues on one hand, and the increase in demand for infrastructure for basic services, on the other. The FFC also submitted that the proposed reductions on conditional grants were in contrast of the infrastructure investment objective which underpinned government's ERRP. Furthermore, the FFC asserted that repeated baseline cuts would have a negative effect on service delivery, infrastructure investment, repairs and maintenance. The FFC was of the view that government should assess the effect of baseline reductions, before implementing the planned reductions over the MTEF period.

 

Regarding the Covid-19 economic relief package, the FFC submitted that provinces committed to reprioritise R20 billion from the PES to the Covid-19 response from their own budgets.  However, the PES will have a negative real growth over the 2021 MTEF and the FFC expressed concern that the reduction which was likely to have a serious negative effect on service delivery. 

 

In terms of the local government and Covid-19 relief, the FFC submitted that while the announced additional allocation to the local government was aimed at assisting municipalities to address Covid-19, the associated costs amounted to R20 billion. The first adjusted budget only provided for only R11billion additional funds, while the remaining amount was secured through repurposing funds within various local government grants. The FFC indicated that it supported the distribution of the Covid-19 funds as metros were the epicentres of the disease. The FFC proposed that Parliament should receive detailed reports from government on how the remaining Covid-19 relief funds would be appropriated. It also recommended that government should invest in reporting systems to ensure accurate and timely monitoring of the Covid-19 relief package.

 

 

 

1. South African Local Government Association

 

The South African Local Government Association (SALGA) acknowledged that current gloomy economic and fiscal outlook, and accepted the significant negative impact that Covid-19 has had on the economy. It further supported the active management of government debt in order for the debt burden not to spiral out of control. SALGA stated that, the difficult decision of budget reductions was necessary, even though there were vast challenges on the ground around poverty, basic service delivery, health and education. It argued that tough decisions have to be taken in order to ensure the sustainability of the country in the long term. Decisions have to be taken in a manner that is fair and equitable across the entire public sector and has the most minimal impact possible on Local government as it is the closest sphere providing service delivery to people. SALGA stated that the State’s capacity to provide social assistance and free basic services needs will be adversely affected within the constraints of the current economic and operating environment. It further submitted that the debt owed to local government was approximately R191.5 billion as at 30 June 2020 and the current prevailing operating environment was leading to even more difficulty for municipalities to collect revenue.

 

SALGA commented that the potential impact of the local government budget cuts through the 2020 MTBPS were likely to cause further economic deterioration for municipalities. This may be exacerbated by the phenomenon of unfunded mandates within local government. SALGA submitted the responsibility to fulfil the functions would still remain at the local sphere of government regardless of lack of funds. Moreover, SALGA submitted that the financial sustainability will be likely negatively impacted.

 

Key concerns raised by SALGA included, the reduction of local government conditional grants by R613 million in order to contribute towards funding the R10,5 billion rescue plan for South African Airways. SALGA stated that it is strongly disagreed with funds being reprioritized from local government in order to fund SAA. It argued that should government wish to bail out SAA, then the funds need to be reprioritised at the national sphere of government and more specifically within the National State Owned Entity space.

 

SALGA added that the Auditor General 2018/19 Municipal Audit Outcomes confirm that the financial statements show increasing indicators of a collapse in local government finances, in that 79 per cent or 203 out of 257 municipalities were ina precarious or vulnerable financial health status. Just under a third of the municipalities were in a particularly vulnerable financial position. Under these circumstances, SALGA submitted that it defeats logic to reallocate funding away from local government to national government. The local government budget cuts will further constrain the planned economic stimulus proposed by government. Moreover, cutting funds at the coal face of service delivery will have an adverse impact on local economic employment, wealth and the social well-being of local communities.

 

1.  Parliamentary Budget Office

 

The Parliamentary Budget Office provided summaries of the division of revenue across the three spheres of government including the changes to provinces and local government equitable share and conditional grants. The PBO also highlighted that the adjustments as tabled with the MTBPS also affected the division of revenue, which is now appropriated in the following manner:

 

• National: 51.2 per cent estimated at 49.2 per cent in the 2020 Budget;
• Provincial: 39.9 per cent estimated at 42.2 per cent in the 2020 Budget; and
• Local: 8.9 per cent estimated at 8.6 per cent in the 2020 Budget.

 

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 the underlying causes to the fiscalcrises were corruption and wasteful expenditure; the impact of state capture on SARS; endless State Owned Enterprises bail-outs; a stagnant economy and declining tax revenues. COSATU further pointed out that the 2020 MTBPS was silent on the key causes of the fiscal crises. It further added that the lazy fixation on the public sector wage bill was unhelpful. That said, COSATU stated that it agrees with the need to effectively manage South Africa’s debt trajectory.

 

On averting corruption, COSATU proposed that the state must ban politically exposed persons (PEPs), spouses and children of politicians from doing business with government through the tender system. COSATU also proposed that there was a need for rapid response anti-corruption courts to deal with corruption cases. Furthermore, COSATU highlighted that in order to properly manage public finances, there was a need to utilize Audit Amendment Act to hold offending politicians and managers financially liable for corruption and wasteful expenditure. Over and above that, COSATU submitted that compromised politicians and managers must be removed from the government systems. Other initiatives proposed by COSATU include capacitation of South African Revenue Services and Customs Enforcement; open online procurement system for entire state and centralized public procurement of large-scale items.

 

On the public sector wage bill reduction, COSATU strongly submitted that government must engage in the Public Service Coordinating Bargaining Council in good faith and not sneak the wage bill matters through Parliament. COSATU added that government must honour the 2020 wage agreement and fast track the next three-year wage agreement. COSATU recommended that there was a need for a single collective agreement for the entire state; reduction of Office Bearers’ exorbitant packages by 305; scrap of the Ministerial Handbook, overseas and business class tickets and travel allowances. Other proposals include, reduction of public service management packages, placement of the salary caps that exist in the public service on managers at all SOEs and public entities; ensuring that public servants, especially lower and middle income earners are protected from inflation.

 

On budget reductions, COSATU indicated that they appreciate the need for budget shifts to allocate massive resources to fight Covid-19; to provide economic and social relief; and support economy’s reconstruction and recovery. However, COSATU raised a concern regarding silence of the Division of Revenue Second Amendment Bill on the possible negative impacts of expenditure cuts, in particular the R17.75 billion reduction in local government grants on their ability to invest in infrastructure.

 

COSATU welcomed the shift of funds to Early Childhood Education (R500 million)andSchool Sanitation (R700 million). COSATU also expressed appreciation with the proposal by government to employ 3250 community health workers, 2200 nurses, and the proposal to create 50 000 road maintenance job opportunities. The setting aside of R7 billion for employment of teacher assistants was also welcomed. COSATU also welcomed the extension of R350 Long Term Unemployment Grant and indicated that it should be extended to beyond January 2021. COSATU also expressed appreciation that National Treasury agreed with the pension fund withdrawal proposal for distressed workers. COSATU stated that the Pension Funds Withdrawal Bill should be introduced in February 2021 and enacted by October 2021. 

 

 

1. Pay the Grant Campaign

 

Pay the Grant Campaign, a subgroup of the C19 People’s Coalition Movement, submitted that in the proposed Bill, R25.3 billion was reduced from the public service wage bill under the PES and it was unclear how this will affect provincial budgets. Itwas of the view that a lack of detailed information on the nature of these wage cuts demonstrated a lack of rigour, insofar as the budgeting processes.  It also highlighted that government has indicated that the aim was to effect the majority of its wage cuts in labour intensive sectors such as learning and culture. Pay The Grant Campaign argued that these sectors are overwhelmingly staffed by black women. As a result, if the proposed wage bill reductions were effected by reducing teachers’ wages, this will disproportionately harm black women and further exacerbate the racial and gendered impacts of the pandemic.

 

Furthermore, it added that if public sector wage bill reductionswere effected by reducing or freezing teacher posts, there will be overwhelming impact on poor black children, as the class sizes continue to increase. Increasing class sizes are a direct consequence of government deprioritising basic education funding over the past five years. When taking into account inflation, the total spend on education has declined year-on-year for the last four years, while spending per learner declined by 2.3 per cent between 2009 and 2018. Within this context, such wage bills cuts may undermine the right to education. An estimated 600,000 children with disabilities were not in school but the Bill does not make an allocation to the Learners with profound intellectual disabilities grant. Moreover, they stated that further to this, approximately 1.6 million children without documentation (mostly in rural areas) have not been able to access schooling.

 

They acknowledged that the Bill increases the PES for the Presidential Employment Initiative/ Education Employment Initiative concentrated in Kwa-Zulu Natal (approx. 1.4 billion); Eastern Cape (approx. 1.2 billion), and Gauteng (approx. 1 billion). They commented that in light of volatile labour market dynamics that the Covid-19 has brought about, the allocations of these funds should be proportional to the number of those out of the labour market. They argued further that the reason why the allocations have been made in the current form needs to be expanded on, and adjusted to reflect the number of unemployed and discouraged work-seeking people. 

 

On Provincial Conditional Grants, The Pay the Grants Campaign highlighted that as part of a response to the Covid-19 pandemic, R213 millionwas added to the HIV, tuberculosis, malaria and community outreach grant: community outreach service component. They said this refers to an addition within Programme 3 (Communicable and non-communicable diseases) of Vote 18: Health, but what this doesn’t mention is that, within this same grant, there are virements, shifts and adjustments. That according to the Pay the Grant Campaign, actually see this grant face an overall reduction of R89 million, including an overall reduction of R10.6 million from provinces allocations meant for front-line service delivery programmes. Furthermore, they highlighted that R180 million addition to the statutory human resources, training and development grant: statutory human resources component for the appointment of approximately 1000 nurses and 1000 assistant nurses was appreciated.  On the other hand, they pointed out that what this allocation doesn’t mention is that the training and development componentof this same grant is taking a cut of R26 million, meaning a smaller overall increase from what’s stated at R154 million and a potentially worrying neglect of training and development at a time when we should undoubtedly be prioritising the strengthening of health systems. 

 

The addition of R496 million to the Early Childhood Development (ECD) grant for primarily to support early childhood development workers was welcome. However, they added that it was greatly concerning that despite the urgent context of Covid-19, the only changes/emergency measures being implemented for Vote 19: Social Development, other than the inadequate extension of the Social Relief of Distress (SRD) grant until the end of January 2021. It expressed concern at the persistence of the insufficient grant amount, the period of extension and the inadequate implementation of the SRD grant. Pay the Grant Campaign submitted that the withdrawal of the Caregiver Grant displays contempt for women and children. They also stated that the Caregiver Grant provided crucial support to women as the gender wage gap has worsened. The absence of the Caregiver Grant make women, in particular, more vulnerable to the blows of poverty and the negative effects that arise from parts of the MTBPS

 

Moreover, Pay The Grant Campaign commented that there was also R630 million for the creation of 50 000 jobs that was supposedly added to the Provincial Roads Maintenance Grant. However, it was not mentioned that this is an addition after this grant was gutted by a reduction of R1.7 billion in the 2020 Special Adjusted Budget, meaning an overall reduction to this grant in 2020 of R1.1 billion. Added to that, Pay the Grant Campaign submitted that there was a R475 million roll over for the School Infrastructure Backlogs Grant, which highlighted the positive impacts of this grant. However, what was concerning was that this roll over was actually reduced by R336 million. It further stated that the provincial conditional grants were reduced by R1.3 billion in order to finance the rescue plan for SAA. This was happening at a time when people were being subjected to slow starvation, and were told that there was no money to adequately redress poverty and inequality, this exponentially aggravated by the Covid-19 pandemic.

 

On changes to the local government allocations, Pay the Grant Campaign expressed concerns about the high rollovers within the municipalities. Specific reference was made to the Nelson Mandela Bay Metropolitan Municipality (NMBMM), which included: R390 million in the Urban Settlements Development Grant and R98 million in the Public Transport Network Grant. The indirect component of the Water Services Infrastructure Grant is allocated R12 million, which is reprioritised money from within the Department of Water and Sanitation.  

 

With regard to roll-overs, Pay the Grant Campaign expressed particular concern about the R307 million rolled over under the Regional Bulk Infrastructure Grant. Furthermore, there was a substantial underspending for drought and Covid-19 water and sanitation interventions nation-wide, a situation which can only be further worsened by the R55 million reduction to this grant and a reduction of R78 million from the Water Services Infrastructure Grant. Pay the Grant Campaign submitted that, local government conditional grants were particularly affected by reductions amounting to R613 million, in order to fund the rescue plan for SAA.   

 

1. Equal Education

 

Equal Education submitted that the 2020 MTBPS saw the same regressive funding trends and de-prioritisation of social spending that was seen in the Supplementary Budget. Most devastating for the basic education sector was that the cuts made in the Supplementary Budget have not been reversed and instead extended over the medium term.

 

Equal Education asserted that the MTBPS also highlighted that:

• The R2.2 billion reduction made to the Education Infrastructure Grant (EIG) in the June 2020 SupplementaryBudget was not reversed.
• R475 million has been rolled over from 2019/20 financial year towards the national SchoolInfrastructure Backlogs Grant (SIBG) in order to provide sanitation in Limpopo andKwaZulu-Natal. However, funding was reduced elsewhere in the same budget, including funding forthe Eastern Cape, resulting in the national grant increasing by only R139 million.
• The budget reductions made in the Supplementary Budget to programmes aimed at improving maths,science and technology in schools and preventing HIV and AIDS, amounting to R128 million,were not reversed.
• No additional money was allocated towards the National School Nutrition Programme (NSNP).

 

Equal Education seriously questioned government’s decision to prioritise bailing out State Owned Enterprises (SOEs) over essential social spending. Despite the impact of the Covid-19 pandemic on lives and livelihoods, the 2020 MTBPS allocated R10.5 billion to rescuing SAA. This money has been taken directly from different departmental budgets with R276 million taken directly from the Department of Basic Education’s budget.

 

Equal Education submitted that with the continuation of decreased funding over the next three financial years, there may be a reversal in the progress made in the delivery of school infrastructure. The EIG has seen 1 938 essential school construction projects stopped or delayed due to these cuts, including maintenance projects. Not only will the realisation of the Norms and Standards for School Infrastructure be delayed, there could also be a deterioration of school infrastructure gains. With regards to the NSNP, it expressed concerns that the programme was not sufficiently funded to meet the growing crisis of hunger facing learners due to the pandemic.

 

Equal Education asserted that funding decisions contained the MTBPS were symptomatic of government’s commitment to austerity budgeting despite a massive socio-economic crisis. Cuts to education funding will have an impact on the right to basic education and equality for learners across the country for years to come.

 

Equal Education recommended that the Committee should consider:

• Ensuring that the basic education sectoral budget increases in line with inflation;
• Ensuring that National Treasury reverses budget cuts to the EIG to enable the realisation of the Norms and Standards for School Infrastructure;
• Ensuring that the National School Nutrition Programme is provided with additional funding needed to feed learners who qualify for it – while schools are open and in cases where learners are not in classrooms every day; and
• Requesting that National Treasury classify the Department of Basic Education as a frontline department in the fight against Covid-19.

 

1.    Committee findings and observations

 

Having deliberated and considered all the submissions made by the above stakeholders on Division of Revenue Second Amendment Bill (B24-2020), the Standing Committee on Appropriations makes the following findings and observations:

 

1. The Committee notes and welcome that the Bill does respond to the negative impact of Covid-19 on the livelihoods of many South Africans through the proposed additional R7 billion allocation that is added to the provincial equitable share to employ education assistants at schools and to save school governing body posts at fee paying schools and government-subsidised independent schools where employees have been furloughed or had salaries cut due to reduced income from school fees and fund raising initiatives that have been curtailed due to Covid-19 related precautionary measures. The Committee views this allocation as an important initiative by government in creating and saving jobs for those who have been financial impacted negatively by the Covid-19 pandemic;
2. The Committee notes and the welcome the proposed R1.5 billion additional allocations to provincial conditional grants to create labour intensive projects in response to job losses resulting from the Covid-19 pandemic through the presidential employment initiative;
3. The Committee notes and welcome the proposed additional R500 million that is added to the provincial equitable share for providing food relief in response to the impact of Covid-19- to mitigate the adverse effects of hunger. However, the Committee encourages provincial treasuries to ensure that the procurement processes and the delivery of food parcels is done in a manner that is line with South African procurement laws and prevent any form of corruption that disadvantages the most vulnerable;
4. The Committee notes and welcome the proposed R475 million that is rolled over for the school infrastructure backlogs grant for the completion of projects that are part of the Sanitation Appropriate for Education (SAFE) initiative in Eastern Cape, KwaZulu-Natal and Limpopo. The Committee has always emphasised on the need to speedily remove all inappropriate and unsuitable sanitation, including pit toilets, at schools. The Committee views the provision of appropriate sanitation at all schools as a rights issue and an issue that borders on the dignity of learners and an issue that must be prioritised;
5. The Committee notes with concerns the proposed R1.3 billion reduction on provincial conditional grants to provide for the SAA business rescue plan which required R10.5 billion. Even though government had to fund the SAA business rescue plan, the Committee is concerned about the uniform manner in which the conditional grants to provinces are reduced. The Committee is of the view that this action sends a wrong message to South Africans, the tax payers in particular that whenever there is mismanagement of State Owned Companies, at all costs business rescue funding requirements will be funded though uniform budget cuts across government programmes. The Committee views all the conditional grants as a key vehicle to provide critical services to the communities, however, the continued reduction of education, health and agriculture grants is a serious concerns to the Committee that requires serious consideration and engagements between the Committee and National Treasury;
6. The Committee notes the proposed R25.3 billion reduction from the provincial equitable as part of the reduction of R160.2 billion to the growth of the public-service wage bill. However, the Committee is still not convinced that this is the best approach considering that the negotiations on public service salary increases has not been concluded at the PSCBC and there are already court proceeding on this matter. The Committee is of the view that this move by National Treasury is pre-emptive and should have waited for the courts and the negotiations with public sector labour representative to be concluded; and
7. The Committee notes with concerns the proposed R613 million reduction in local government conditional grants to fund the SAA business rescue plan which required R10.5 billion. The importance of local government in providing services to the people cannot be overemphasised and the continuous reduction of local government grants, infrastructure grants in particular is unacceptable to the Committee. The Committee is concerned about the uniform manner in which these grants are reduced and the long term consequences and implications that this will have on municipalities and their ability to deliver services. The Committee and National Treasury are both aware of the state of infrastructure in many municipalities, particularly those in rural areas, and the continuous reduction of infrastructure related allocations to municipalities is a cause of concern to the Committee made worse by the fact that these allocations are reduced to fund SAA which is a national government competency to manage that entity. It is incomprehensible to the Committee as to why municipalities, considering all the know challenges facing municipalities, they now fund a SAA business rescue plan;

 

1. Recommendations

 

The Standing Committee on Appropriations, having considered submissions from various stakeholders on the Division of Revenue Second Amendment Bill [B24-2020], recommends as follows:

 

 

1. In relation to the proposed R1.3 billion reduction in provincial conditional grants allocation to fund the SAA business rescue plan, the Minister of Finance must ensure that National Treasury provide the Committee with an impact assessment report on all provincial conditional grants allocations which were reduced to fund the SAA business rescue plan. The report must highlight the service delivery implications for these proposed grants allocation reductions;
2. Similarlyto 10.1 above and in relation to the R613 million proposed reduction on local government conditional grants allocation, the Minister of Finance must ensure that National Treasury provide the committee with a comprehensive impact assessment report on each of the local government conditional grants allocations that were reduced to accommodate the SAA business rescue plan . In that report, service delivery implications must be highlighted per conditional grant. The Committee wants to evaluate the impact of these reductions on both service delivery and the intend recipients of the services offered through these grants. The Committee also want to evaluate the scientific manner in which these budget reductions were effected;
3. The Minister of Finance must ensure that National Treasury provide the Committee with a detailed reportof all the municipalities whose conditional grants allocation were reduced to fund the SAA business rescue plan. In that report, National Treasury must indicate how much each of these affected municipalities owes Eskom for electricity services and the Water Boards for water; and
4. All the reports requested above be submitted to the Committee before the tabling of the 2021 budget to allow the Committee sufficient time to analyse these information before the consideration and reporting on the 2021 budget bills.

 

1. Committee Recommendation on the Bill

 

The Standing Committee on Appropriations, having considered the Division of Revenue Second Amendment Bill [B24-2020] (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.

 

 

Report to be considered.