ATC201125: Report of the Select Committee on Appropriations on the Division of Revenue Second Amendment Bill [B24 – 2020], Dated 25 November 2020

NCOP Appropriations

REPORT OF THE SELECT COMMITTEE ON APPROPRIATIONS ON THE DIVISION OF REVENUE SECOND AMENDMENT BILL [B24 – 2020], DATED 25 NOVEMBER 2020

 

The Select Committee on Appropriations having considered the Division 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[B24 – 2020](hereafter referred to as the Bill) in Parliament on 28 October 2020 during the presentation of the 2020 Medium Term Budget Policy Statement (MTBPS). The Bill was tabled in terms of section 12(4) of the Money Bills and Related Matters Act No. 9 of 2009 (as amended by the Money Bills 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 transmitted to the National Council of Provinces (NCOP) and referred to the Committee on 20 November 2020 after the National Assembly adopted it. The Committee received a briefing from National Treasury on the Bill in its entirety on 12 November 2020. Provinces were invited to this meeting and were also individually briefed by Permanent Delegates on 23 November 2020. Negotiating mandates were submitted and considered on 24 November, and final mandates on 25 November 2020.

 

The Bill and its annexures address the following:

 

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

 

To facilitate public participation, the Committee published adverts, calling for public comment on the Bill, in print media in all 11 official languages from 30 October to 6 November 2020. In response, written submissions were received from the Congress of South African Trade Unions(COSATU), Equal Education and the Pay the Grants Campaign. COSATU and the Pay the Grants Campaign also made oral presentations during a public hearing on 13 November 2020. In compliance with section 214(2) of the Constitution and Section 10(4) of the Intergovernmental Fiscal Relations Act No.97 of 1997, the Committee consulted the Financial and Fiscal Commission (FFC) and the South African Local Government Association (Salga) on the Bill. The Committee was also briefed by the Parliamentary Budget Office.

 

1. Division of Revenue Second Amendment Bill [B24 – 2020]

 

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 and these allocations are determined in line with the provincial equitable share formula. Furthermore, as part of the presidential employment initiatives, a proposed R7 billion is added to the 2020 provincial baseline allocations to employ education assistants, such as classroom assistants, cleaners, screeners, reading and after school assistants, and to save school governing body posts at fee-paying schools and government subsidised independent schools. The proposed allocations per province were determined in terms of applications received.

 

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

 

Table 1 below outlines the equitable division of revenue raised nationally among the three spheres of government. The net effect of the adjustments is a decrease in the 2020/21 budget allocation by R3.4 billion, from R1.809 trillion to R 1.806 trillion. 

 

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 government allocations

 

There is a reduction ofR17.8 billion in the original provincial allocation of R538.5 billion in February 2020, to R520.7 billion. This is the net effect of the following additions and reductions to the provincial equitable share:

 

• Additional R7 billion for the education employment initiative;
• Additional R500 million for food relief to mitigate the effects of COVID-19; and
• Reduction of R25.3 billion that forms part of the R160 billion public wage bill reduction.

 

Table 2 shows the breakdown of the proposed additions and reductions to the provincial

equitable share of each Province.

 

Table 2: Proposed adjustments per province

Province R’000	2020/21 allocation	Proposed adjustments			Net adjusted amount	2020/21 adjusted allocation
		Provincial employment initiative (addition)	Food relief (addition)	Public Service Wage Bill (reduction)
Eastern Cape	71 415	1 191	66	-3 477	-2 220	69 195
Free Sate	30 017	412	28	-1 523	-1 083	28 934
Gauteng	112 118	1 086	104	-4 998	-3 808	108 310
KwaZulu-Natal	111 442	1 424	104	-5 362	-3 834	107 608
Limpopo	62 329	988	58	-3 076	-2 030	60 299
Mpumalanga	44 105	491	41	-2 000	-1 468	42 637
Northern Cape	14 290	148	13	-702	-540	13 750
North West	37 548	445	35	-1 721	-1 240	36 308
Western Cape	55 208	814	51	-2 396	-1 531	53 677
Total	538 472	6 999	500	-25 253	-17 755	502 717

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

 

 

1. Additional allocations to support presidential employment initiative

In response to job losses resulting from the COVID-19 pandemic, an additional R8.5 billion is allocated as part of the stimulus package to create jobs through labour intensive projects. These additional allocations are made through the provincial equitable share (R7 billion) and conditional grants (R1.5 billion), as follows:

 

• A total of R213 million is added to the HIV, Tuberculosis, Malaria and Community Outreach Grant: Community Outreach Services Component, for recruitment, training and procurement of personal protective equipment (PPE) 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 and outreach team leaders.
• An amount of R180 million is added to the Statutory Human Resources, Training and Development Grant, for the appointment of 1 045 enrolled nurses and 1 236 assistant/auxiliary nurses.
• R496 million is added to the Early Childhood Development (ECD) Grantto provide unemployment risk support to 83 333 ECD-related workers for six months and top-up payments to 25 500 already employed ECD workers to take on compliance support duties.
• A total of R630 million is added to the Provincial Roads Maintenance Grantfor the creation of 50 000 jobs through maintenance of provincial roads using the S’hambaSonke Programme.

 

1. Additions to provincial equitable share

 

R7 billion is added to the provincial equitable share (PES)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 fundraising 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, depending on the needs of the school. In addition, a sum of R500 million is added to the PES for providing food relief in response to the impact of COVID-19.

 

1. Reductions to provincial grant allocations

 

In order to provide R10.5 billion for the funding of the SAA business rescue plan, reductions were made across programmes falling within national departments, including provincial grant allocations. A total reduction of R1.3 billion in provincial conditional grants is proposed, as follows:

 

• The National Tertiary Services Granthas been reduced by R56 million;

• The Community Library Services Granthas been reduced by R14 million;
• The Comprehensive Agricultural Support Programme (CASP) Granthas been reduced by R14 million;
• The Health Facility Revitalisation Granthas been reduced by R52 million;
• The HIV, TB, Malaria and Community Outreach Granthas been reduced by R224 million;
• The Ilima/Letsema Projects Granthas been reduced by R5 million; 
• The Land Care Programme Grant has been reduced by R980 000;
• The Mass Participation and Sport Development Grant has been reduced by R4 million;
• TheNational Health Insurance (NHI) Grant has been reduced by R42 million;
• The Statutory Human Resources, Training and Development Grant has been reduced by R26 million;

• The Title Deeds Restoration Granthas been reduced by R37 million;
• The School Infrastructure Backlogs Grant, a schedule 6 grant, has been reduced by R336 million;
• The NHI Indirect Grant, a schedule 6 grant,has been reduced by R240 million; and
• The Provincial Emergency Housing Grant, a schedule 7 grant, has been reduced by R273 million.

 

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 the Eastern Cape, KwaZulu-Natal and Limpopo.

 

1. Reduction to provincial equitable share 

 

A reduction of R25.3 billion from the PES is proposed. This is due to reductions not included in the calculations of the allocations to provincial government at the time the budget was tabled. This is part of the reduction of R160billion in the growth of the publicservice wage bill that was announced in the February 2020 Budget.

 

5. Changes to local government conditional grant allocations

                                              

5.1 Roll-overs

 

• A total of R390 million is rolled over in the Urban Settlements Development Grant to fund commitments for bulk infrastructure-related projects in Nelson Mandela Bay Metropolitan Municipality.

• A total of R98 million is rolled over in the Public Transport Network Grant to continue with the roll-out of the Integrated Public Transport Network for public and non-motorised infrastructure in Nelson Mandela Bay Metropolitan Municipality.
• A total of R307 million is rolled over in the Regional Bulk Infrastructure Grantfor drought and COVID-19 water and sanitation interventions nationwide.

 

5.2 Additions

 

A total of R12 million has been reprioritised into the indirect component of the Water Services Infrastructure Grant for implementation of various water services interventions.

 

5.3 Reductions

 

In order to provide R10.5 billion for the funding of the SAA business rescue plan, reductions were made across programmes falling within national departments, including local government conditional grant allocations. A total reduction of R613 million is proposed, as follows:

 

• R4 million from the Integrated City Development Grant;
• R2 million from theInfrastructure Skills Development Grant;
• R12 million from the Integrated Urban Development Grant;
• R180 million from the Municipal Infrastructure Grant;
• R12 million from the Neighbourhood Development Partnership Grant;
• R253 million from the Public Transport Network Grant;
• R78 million from the Water Services Infrastructure Grant;

• R18 million from the Integrated National Electrification Programme (Eskom) Grant; and
• R55 million from the Regional Bulk Infrastructure Grant.

 

6. Corrections to gazetted frameworks and allocations

Government also requested the Parliament to approve the following corrections to gazetted framework and allocations:

 

• The health facility revitalisation component of the NHI Indirect Grant is amended to correct an allocation earmarked for the Limpopo Academic Hospitalfrom R653 million to R454 million, as R198 million was shifted to the Health Facility Revitalisation Grant during the February 2020 Budget.

 

• The framework of the Rural Roads Asset Management Systems Grant is amended to correct the due date for the submission of road condition data that was erroneously captured as 31 September 2020 instead of 30 September 2020.

 

• To correct allocations for ring-fenced sport projects in the Municipal Infrastructure Grant (MIG). 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. This correction will ensure that sufficient funds are made available to complete planned sport infrastructure projects in all the affected municipalities.

 

7. Stakeholder submissions

 

7.1 Financial and Fiscal Commission (FFC)

 

While the Financial and Fiscal Commission (FFC) appreciated 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; it argued that consistency should not be confused with repetitions without proof of real reforms, impacts and outcomes, which may lead to lost credibility.

 

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, economic development and trade and industry, and 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.

 

With regard to local government, the FFC submitted that a significant proportion of municipalities were distressed and dysfunctional and that the fiscal health of many municipalities had deteriorated over the past few years. The FFC therefore implored government to prioritise local government and, by implication, poor households. It also emphasised 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.

 

The FFC expressed concernover the effect of the above reduction on service delivery, given the increasing costs of bulk water and electricity, and declining own revenue collection. The FFC submitted that it remained concerned about the expected progressive decline in the real growth rate of the local government equitable share (LGES).

 

The FFC highlighted that local government conditional grants had been reduced in the 2020/21 supplementary budget by R3,7 billion with further proposed reductions of R569 million in the Bill. These reductions were made to make funds available for the SAA business rescue plan, among other things. The FFC expressed serious concern over the reprioritisation of local government fundingto fund state-owned entities (SOEs). This while the local sphere was also under fiscal stress due to the COVID-19 induced decline in revenues on the one hand, and the increase in demand for infrastructure for basic services, on the other. The FFC also submitted that the proposed reductions in conditional grants were in contrast to 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 had committed to reprioritise R20 billion from their ownprovincial equitable share (PES) to the COVID-19 response.  However, the PES will have a negative real growth rate over the 2021 MTEF and the FFC expressed concern that the reduction was likely to affect service delivery negatively. 

 

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

 

7.2 South African Local Government Association (Salga)

 

The South African Local Government Association (Salga) acknowledged the current gloomy economic and fiscal outlook, and accepted the significant negative impact ofCOVID-19 on the economy. It further supported the active management of government debt in order for the debt burden not to spiral out of control. Salgafurther acknowledged 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 had to be taken in order to ensure the sustainability of the country in the long term. Decisions had to be taken in a manner that was fair and equitable across the entire public sector and had the least possible impact on local government as it was the sphere closest to the people. Salga stated that the State’s capacity to provide social assistance and free basic services would be adversely affected within the constraints of the current economic and operating environment. It further submitted that the debt owed to local government had been approximately R191.5 billion at 30 June 2020 and the current prevailing operating environment was making revenue collection even more difficult for municipalities.

 

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 that the responsibility to fulfil the functions would still remain at the local sphere of government regardless of the lack of funds; and financial sustainability would likely be negatively impacted.

 

Key concerns raised by Salga included the reduction in local government conditional grants by R613 million in order to contribute towards the R10.5 billion to fund the SAA business rescue plan. Salga strongly disagreed with funds being reprioritised from local government in order to fund SAA. It argued that, should government wish to bail out SAA, the funds should to be reprioritised at the national sphere of government and more specifically within the SOE space.

 

Salga indicated that the Auditor-General’sReport on Municipal Audit Outcomes for 2018/19 confirmed that the financial statements showed increasing indicators of a collapse in local government finances; in that 79 percent, or 203 out of 257 municipalities, were in a precarious or vulnerable financial state. Just under a third of the municipalities were in a particularly vulnerable financial position. Under these circumstances, Salga submitted that it defeated logic to reprioritise funding away from local government to national government. The local government budget cuts would further constrain the planned economic stimulus proposed by government. Moreover, reducing funds at the coal face of service delivery would have an adverse impact on local economic development, employment and the social wellbeing of communities.

 

7.3 Parliamentary Budget Office (PBO)

 

The Parliamentary Budget Office (PBO) provided summaries of the division of revenue across the three spheres of government including the changes to the provincial and local government equitable share and conditional grants. The PBO highlighted that the adjustments tabled with the 2020 MTBPS affected the division of revenue, which was now appropriated in the following manner:

 

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

 

7.4 Congress of South African Trade Unions (COSATU)

 

The Congress of South African Trade Unions (COSATU) submitted that the 2020 MTBPS was silent on the underlying causes of the fiscal crises, which it listed as corruption and wasteful expenditure; the impact of state capture on the South African Revenue Service (SARS); endless SOE bail-outs; a stagnant economy and declining tax revenues.While agreeing with the need to effectively manage South Africa’s debt trajectory, COSATU was of the opinion that the lazy fixation on the public sector wage bill was unhelpful.

 

On fighting corruption, COSATU proposed that the state ban politically exposed persons (PEPs) and spouses and children of politicians from doing business with government through the tender system. COSATU further proposed the establishment of rapid response anti-corruption courts to deal with corruption cases. COSATU also submitted that, in order to properly manage public finances, there was a need to utilise the Public Audit Amendment Act to hold offending politicians and managers financially liable for corruption and wasteful expenditure. In addition, COSATU indicated that compromised politicians and managers should be removed from the government system. Other initiatives proposed by COSATU, included capacitation of SARS and customs enforcement; an open online procurement system for the entire state and centralised public procurement of large-scale items.

 

With regard to the proposed public sector wage bill reduction, COSATU strongly submitted that government should engage in the Public Service Coordinating Bargaining Council (PSCBC) in good faith and not sneak wage bill matters through Parliament. COSATU wanted government to honour the 2020 wage agreement and fast-track the next three-year wage agreement. COSATU recommended a single collective agreement for the entire state; reduction of Office Bearers’ exorbitant packages by 30%; scrapping the Ministerial Handbook, overseas and business class tickets and travel allowances; reduction of public service management packages; placing the public service salary caps on managers at all SOEs and public entities; and ensuring that public servants, especially lower and middle income earners, are protected from inflation.

 

While appreciating the need for budget shifts to allocate resources to fight COVID-19; provide economic and social relief; and support the economy’s reconstruction and recovery; COSATU expressed concern over the Bill’s silence on the possible negative impact of expenditure cuts, in particular the effect of 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 Development (R500 million) and School Sanitation (R700 million); as well as the proposal to employ 3250 community health workers and 2200 nurses; to create 50 000 road maintenance job opportunities; and the setting aside of R7 billion to employ teacher assistants. While COSATU also welcomed the R350 Long Term Unemployment Grant, it indicated that it should be extended beyond January 2021. COSATU expressed appreciation that National Treasury agreed to the pension fund withdrawal proposal for distressed workers; indicating that the Pension Funds Withdrawal Bill should be introduced by February 2021 and enacted by October 2021. 

 

7.5 Pay the Grant Campaign

 

The Pay the Grant Campaign (PGC), a subgroup of the C19 People’s Coalition Movement, submitted that it was unclear how the proposed R25.3 billion reduction from the public service wage bill under the PESwould affect provincial budgets. PGC was of the view that this lack of detailed information demonstrated a lack of rigour in the budgeting processes. PGC further highlighted government’s indication that the aim was to effect the majority of its wage cuts in labour intensive sectors such as learning and culture. PGC argued that these sectors were overwhelmingly staffed by black women, who would be disproportionately harmed, further exacerbating the racial and gendered impacts of the COVID-19 pandemic.

 

PGC further submitted that, if public sector wage bill reductions were effected by reducing or freezing teacher posts, there would be an overwhelming impact on poor black children, as the class sizes continued to increase as a direct consequence of government deprioritising basic education funding over the previous 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 percent between 2009 and 2018. Within this context, such wage bill cuts may undermine the right to education. PGC reported that an estimated 600000 children with disabilities were not in school, but the Bill made no allocation to the Learners with Profound Intellectual Disabilities Grant. In addition, approximately 1.6 million children without documentation (mostly in rural areas) had not been able to access schooling.

 

While acknowledging the increase in the PES for the presidential employment initiative/education employment initiative, concentrated in Kwa-Zulu Natal,the Eastern Cape and Gauteng, PGC proposed that the allocation of these funds should be proportional to the number of those out of the labour market; in light of the dynamics brought about by the COVID-19 pandemic. They argued that the reason why the allocations had been made in the current form, needed to be expanded on, and adjusted to reflect the number of unemployed and discouraged work-seeking people. 

 

With regard to provincial conditional grants, PGC highlighted that, while R213 million was added to the community outreach service component of the HIV, TB, Malaria and Community Outreach Grant; no mention was made of the virements, shifts and adjustments within this same grant, that actually see this grant face an overall reduction of R89 million, including an overall reduction of R10.6 million from provinces, who were responsible for front-line service delivery programmes. PGC appreciated the R180 million addition to the statutory human resources component of the Statutory Human Resources, Training and Development Grant for the appointment of approximately 1000 nurses and 1000 assistant nurses. However, they pointed out that the training and development componentof this same grant was being reduced by R26 million, bringing the overall increase to only R154 million. They expressed concern over the potential neglect of training and development at a time when the strengthening of health systems should be prioritised. 

 

While welcoming the addition of R496 million to the Early Childhood Development (ECD) Grant to support ECD workers, PGC expressed great concern that, despite the urgent context of COVID-19, this was the only emergency measure 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. They further expressed concern over the insufficiency of the SRD Grant amount and the period of extension, as well as its inadequate implementation. PGC further submitted that the withdrawal of the Caregiver Grant displayedcontempt for women and children, as this grant had provided crucial support to women as the gender wage gap worsened. The absence of this grant would make women, in particular, more vulnerable to the blows of poverty and the negative effects of the 2020 MTBPS.

 

PGC further pointed out that, while R630 million was added to the Provincial Roads Maintenance Grantfor the creation of 50 000 jobs; no mention wasmade of the reduction of R1.7 billion in this grant in the 2020 special adjustments budget, meaning an overall reduction of R1.1 billion this year. PGC submitted that, while the R475 million roll-over for the School Infrastructure Backlogs Grant highlighted the positive impacts of this grant, it was concerning that this roll-over was actually reduced by R336 million. PGC expressed outrage over the fact that provincial conditional grants were reduced by R1.3 billion in order to finance the rescue plan for SAA, at a time when people were being subjected to slow starvation, and told that there was no money to adequately redress poverty and inequality, which had been exponentially aggravated by the COVID-19 pandemic.

 

With regard to local government allocations, PGC expressed concern over the high roll-overs within 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 was reprioritised money from within the Department of Water and Sanitation. PGC further expressed concern over the R307 million rolled over under the Regional Bulk Infrastructure Grant and the substantial under-spending for drought and COVID-19 water and sanitation interventions nationwide - a situation which could only be further worsened by the R55 million reduction to this grant and a reduction of R78 million from the Water Services Infrastructure Grant. PGC lamented the R613 million reduction in local government conditional grants in order to fund the rescue plan for SAA.   

 

7.6 Equal Education

 

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

 

Equal Education specifically highlighted the following:

• The R2.2 billion reduction to the Education Infrastructure Grant (EIG) in the June 2020 supplementary budget was not reversed.
• R475 million had been rolled over from 2019/20 financial year towards the national School Infrastructure Backlogs Grant (SIBG) in order to provide sanitation in Limpopo and KwaZulu-Natal. However, funding was reduced elsewhere in the same budget, including funding for the Eastern Cape, resulting in the national grant increasing by only R139 million.
• The 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 outSOEs over essential social spending; and that, despite the impact of the COVID-19 pandemic on lives and livelihoods, the 2020 MTBPS allocated R10.5 billion to rescue the SAA. This money had been taken directly from different departmental budgets with R276 million coming from the Department of Basic Education.

 

Equal Education submitted that, with the continuation of decreased funding over the next three years, there could be a reversal in the progress made in the delivery of school infrastructure. They reported that the EIG had seen 1 938 essential school construction projects, including maintenance, stopped or delayed due to these cuts; which could lead to the realisation of the Norms and Standards for School Infrastructure being delayed. Equal Education expressed concern that the NSNP was not sufficiently funded to meet the growing crisis of hunger facing learners due to the pandemic.

 

Equal Education asserted that funding decisions contained in the 2020 MTBPS were symptomatic of government’s commitment to austerity budgeting despite a massive socio-economic crisis. Cuts to education funding would 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 increased in line with inflation;
• Ensuring that National Treasury reversed budget cuts to the EIG to enable the realisation of the Norms and Standards for School Infrastructure;
• Ensuring that the National School Nutrition Programme was provided with additional funding needed to feed learners who qualify for it – both while schools were open and in cases where learners were not in classrooms every day; and
• Requesting that National Treasury classified the Department of Basic Education as a frontline department in the fight against COVID-19.

 

8.Provincial mandates

The Committee met on 24and 25 November 2020 to consider negotiating and final mandates from provinces.

8.1   Negotiating mandates

8.1.1 Eastern Cape supported the Bill and raised concerns.

8.1.2 Free State did not submita negotiating mandate.

8.1.3 Gauteng supported the Bill and made recommendations.

8.1.4 KwaZulu-Natal supported the Bill.

8.1.5 Limpopo did not submita negotiating mandate.

8.1.6 Mpumalanga supported the Bill and made recommendations.

8.1.7 Northern Cape supported the Bill and made recommendations.

8.1.8 North West supported the Bill and made recommendations.

8.1.9 Western Cape did not support the Bill.

 

8.2Final mandates

8.2.1. Eastern Cape supported the Bill.

8.2.2. Free State did not submit a final mandate.

8.2.3. Gautengsupported the Bill.

8.2.4. KwaZulu-Natal supported the Bill.

8.2.5. Limpopo did not submit a final mandate.

8.2.6. Mpumalanga supported the Bill.

8.2.7. Northern Cape supported the Bill.

8.2.8. North West supported the Bill.

8.2.9. Western Cape did not support the Bill.

9.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 Select Committee on Appropriations made the following findings and observations:

 

1. The Committee notes government’s proposalfor Parliament to approve correctionstothe frameworks and allocations of the following conditional grantsto be gazetted:

 

• The health facility revitalisation component of the NHI Indirect Grant;
• The framework of the Rural Roads Asset Management Systems Grant; and
• Allocations for ring-fenced sport projects in the Municipal Infrastructure Grant (MIG).

 

1. The Committee remained very concernedabout the fact that government had to make budget reductions across government programmes in order to provide R10.5 billion for the South African Airways (SAA) business rescue plan. These reductionsaffected national departments and provincial and local government conditional grant allocations. Furthermore, the Committee isconcerned over the state of financial mismanagement and maladministration in the state-owned entities (SOEs). The SAA is a national competency and therefore the Committee believesit is not fair for provincial and municipal spheres to be expected to bailout the entity at the expense of service delivery; particularly rural municipalities operating on a low revenue base in the midst of poverty and inequities.

 

1. Whilst the Committee welcomes the additional R8.5 billion allocated as part of the stimulus package to create jobs through labour intensive projects through the provincial equitable share (PES) and conditional grants, as a progressive interventionfor job losses resulting from the COVID-19 pandemic; the Committee is concerned about the culture of poor planning and slowspending and uptake for such initiatives, as has been evident in theJobs Fundwhich has not been performing well since its launchby National Treasuryin June 2011 to achieve a similar purpose.

 

1. Whilst the Committee remains concerned about the lack of proper financial management, internal control systems and non-compliance in some provinces as reflected in numerous reports of the Auditor-General of South Africa (AGSA), it welcomes the additional R7 billion into the PES to employ education assistants at schools and to save school governing body posts at fee-paying schools and government-subsidised independent schools where employees may have had their salaries cut due to reduced income from school fees and fundraising initiatives that have been curtailed due to COVID-19 related precautionary measures. In addition, the sum of R500 million added to the PES for providing food relief in response to the impact of COVID-19 is welcomed.

 

1. Regarding the COVID-19 economic relief package, the Committee is mindful that the provincial sphere has committed to reprioritise R20 billion from its own PES to the COVID-19 response; however, it remains concerned about the negative real growth rate of provincial budgets over the 2021 MTEF period and its potential negative impact on service delivery programmes in the long run.

 

1. The Committee believes that infrastructure is a cornerstone to realise the economic reconstruction and recovery plan, and therefore notes with concern the lack of expenditure in some critical infrastructure programmes, which resulted in funds ofthe following infrastructure grants being rolled over by provincial and local government from the last financial year:

 

• The School Infrastructure Backlogs Grant for the completion of projects that are part of the Sanitation Appropriate for Education (SAFE) initiativeearmarked for Eastern Cape, KwaZulu-Natal and Limpopo schools;
• The Urban Settlements Development Grant to fund commitments for bulk infrastructure-related projects in the Nelson Mandela Bay Metropolitan Municipality;
• The Public Transport Network Grant to continue with the roll-out of the Integrated Public Transport Network infrastructure in the Nelson Mandela Bay Metropolitan Municipality; and
• The Regional Bulk Infrastructure Grant for drought and COVID-19 water and sanitation interventions nationwide.

 

1. Whilst the Committee acknowledges the urgent need to balance fiscal consolidation with economic recovery from the global recession triggered by the pandemic, it is concerned about the impact of the proposed reduction of R25.3 billion from the PES as part of the overall reduction of R160 billion in the growth of the public service wage bill, on service delivery andon attracting and retainingproperlyqualified expertise in the public sector, especially for the frontline service delivery programmes.

 

1. Given the water crisis and the impact of the drought in some provinces, the Committee welcomes the allocation of R12 million which has been reprioritised into the indirect component of the Water Services Infrastructure Grant for implementation of various water services interventions. However, further resources are needed for the Department of Water and Sanitation and the Department of Agriculture, Rural Development and Land Reform to address the continuous water crisis and drought across affected provinces to protect food security.

 

1. The Committee is further concerned about the delay in the tabling of the Public Procurement Bill; which should assist in the localisation ofthe product value chain; empower small and medium sized local businesses; reduce inequalities and create production opportunities for South Africans to participate in the economic mainstream. Part of this includes the slow pace of addressing economic barriers and collusion cartels and the lack of enforcement mechanismsto ensure that inclusive economic growthis achieved without delay.

 

1. The Committee remains concerned about the proposed R17.7 billion reduction in municipal allocations over the 2021 MTEF;given the fact that a significant proportion of municipalities are financially distressed and dysfunctional and that their fiscal health hasfurther deteriorated or worseneddue to COVID-19 and the culture of non-payment for basic services. The Committee is further concerned over the effect of the above reduction on basic service delivery, given the increasing costs of bulk water and electricity, and declining municipal revenue collection streams.The Committee is of the view that such proposed reductions have the potential to hamper the ability of municipalities to pay outstanding debts including that to Eskom and water boards.

 

1. The Committee welcomes the distribution of the COVD-19 funds, especially at metros, which areregarded as the epicentres of the disease due to the influx and movementof people; but remains concerned about the lack of detailed expenditurereports in this regard and how the remaining funds will be appropriated going forward, given the alleged corruption and malfeasance during PPE procurement processes, and whether lessons have been learnt to strengthen internal controls.

 

1. In light of the need to address the negative impact ofCOVID-19on poor and vulnerable households, the Committee welcomes the proposed employment of1 250 community health workers and 2 281 nurses; the creation of 50 000 road maintenance job opportunities, the R350 Long Term Unemployment Grant as well as the shift of funds to Early Childhood Development (R496 million) and School Sanitation (R475 million), where resources are mostly needed.

 

1. The Committee notes the proposal made by COSATU that the state should not allow politically exposed persons (PEPs), spouses and children of politicians to do business with government through the tender system, as part of the mechanisms to fight corruption.

 

10. Recommendations

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

 

1. The Minister of Finance should ensure that National Treasury gazettes the corrections to the following conditional grant frameworks, as set out in the Bill in accordance with section 16(4) of the Division of Revenue Act, 2020 as soon as possible:

• The health facility revitalisation component of the NHI Indirect Grant;
• The framework of the Rural Roads Asset Management Systems Grant; and
• Allocations for ring-fenced sport projects in the Municipal Infrastructure Grant (MIG).

 

1. The National Treasury, together with the Department of Cooperative Governance and Traditional Affairs, should conduct a service delivery impact assessment emanating fromthe proposed budget cuts in local and provincial government to raise R10.5 billion for the SAA business rescue plan. This shoulddemonstrate how these cuts willaffect the implementation of the National Development Plan (NDP) andthe Medium Term Strategic Framework, and poor and vulnerable South Africans. This report should include measures taken by government to mitigate thepossible impacton the poor and vulnerable. Furthermore, the Minister of Finance,together with Cabinet, should ensure that appropriate measures are taken to prevent the movement of funds from already distressed and dysfunctional municipalitiesand infrastructure programmes to bail out mismanaged state-owned entities at the expense of service delivery. The movement of funds should not infringe on the Constitutional rights of poor and vulnerable South Africans. National Treasury should report on this during the 2021 budget tabling.

 

1. Whilst the Committee welcomes the additional R1.5 billion in response to job losses resulting from the COVID-19 pandemic, allocated as part of the stimulus package to create job opportunities through labour intensive projects; the Committee is of the view that the culture of poor planning,the lack of clear reportingframeworks and of timeous expenditure in such initiatives should be urgently addressed by government to avoid a repeatof the challenges reported in the Jobs Fund.The Committee is of the view that lessons learned from the nine years of implementing the Jobs Fund can assist to improve the work of the Presidential Employment Initiative (PEI) to achieve better results.Parliament and provincial legislatures will continue to monitor progress.

 

1. In order to prevent wasteful and fruitless expenditure,the Minister of Finance, together with the Minister of Basic Education and the affected provincial departments of education and  provincial treasuries, should ensure that concrete steps are taken to build and demonstrate the required capacity to spend the proposed addition of R7 billion to the PES to employ education assistants at schools and to save governing body posts, as well as the R500 million added for food relief in response to COVID-19. These steps should include developing clear systems to monitor and evaluate such expenditure to ensure that unnecessary problems are eliminated during food parcel distribution.National Treasury should report on this during the tabling of the 2021 budget.

 

10.5 With regards to the COVID-19 economic relief package, the Committee is mindful that the provincial sphere has committed to reprioritise R20 billion from its own PES to the COVID-19 response. However, the Committee strongly recommends that all healthcare and frontline services budgets should be protected and provincial treasuries should put in place clear monitoring and evaluation mechanisms for expenditure and performance, to ensure thatmismanagement of funds is prevented at all times. Parliament, together with provincial legislatures, should monitor progress through effective oversight and in-year monitoring. National Treasury should report on this during the tabling of the 2021budget.   

 

10.6 The Minister of Finance should ensure that National Treasury approves the roll-overs for the following provincial and local government grantscontained in the Bill for all projects near completion timeously, in accordance with the necessary financial management prescripts:

• The School Infrastructure Backlogs Grant for the completion of projects that are part of the Sanitation Appropriate for Education (SAFE) initiative earmarked for Eastern Cape, KwaZulu-Natal and Limpopo schools;
• The Urban Settlements Development Grant to fund commitments for bulk infrastructure-related projects in the Nelson Mandela Bay Metropolitan Municipality;
• The Public Transport Network Grant to continue with the roll-out of the Integrated Public Transport Network infrastructure in the Nelson Mandela Bay Metropolitan Municipality; and
• The Regional Bulk Infrastructure Grant for drought and COVID-19 water and sanitation interventions nationwide.

 

10.7 Whilst the Committee has noted the proposed reduction of R25.3 billion as part of the overall wage bill reduction of R160 billion to ensure fiscal consolidation and economic reconstruction and recovery; the Committee recommends that the issueof the public wage bill should be discussed andconcluded fairlyand amicably in the Public Service Coordinating Bargaining Council, as the most appropriate platform; and that such reductions should not affect the frontline service delivery workers, especially in poor municipalities and the departments of health, education and social development.

 

10.8 While the allocation of R12 million, reprioritised into the indirect component of the Water Services Infrastructure Grant, for the implementation of various water services interventions, is a step in the right direction; the Committee recommends that more resourcesshould be found for the Department of Water and Sanitation and the Department of Agriculture, Rural Development and Land Reform to address the persistent water crisis and drought affecting some provinces,in order to protect food security.

 

10.9 Thefinalisation of the draft Public Procurement Billshould be expedited to ensure that the majority of South Africans participate in the economic mainstream. The Minister of Finance, together with the Ministers of Economic Development; Trade, Industry and Competition and Employment and Labour, should address the economic barriers, social inequality, and societal polarisation by adopting a localised product value chain approach. The expression of this approach should also be found in the incentive frameworks of both provincial and local conditional grants as hard conditions to permit procurement of goods only if they are made or assembled locally within the South African borders; to stimulate the domestic economy and inclusive growth and encourage local opportunities while taking international trade agreements into consideration.

 

10.10 The Committee appeals to National Treasury, the Department of Cooperative Governance and Traditional Affairs and the South African Local Government Association (Salga) to continue to support municipalities to resolve the Eskom and water boards debt issue; and to ensure that the matter of provincial and national departments owing municipalities are also expeditiously addressed to bolster municipal finances, as opposed to implementing budget cuts in local government.  They should further ensure that municipalities create credible credit control measures, debt management policies and effective revenue collection strategies; and should providea progress report in this regard during the tabling of the 2021 budget.

 

10.11 The Minister of Finance and Cabinet should take concrete steps to prevent the mismanagement ofCOVID-19 funds and to ensure that consequence management is enforced for corruption and malfeasance during PPE procurementprocesses. National Treasury, together with the Department of Health, should table a detailed COVID-19 expenditure and performance report in Parliament, including how the remaining funds will be appropriated. The Minister of Finance and other Ministers should also ensure that National Treasury and other departments avail the necessary performance information when requested by oversight and government advisory bodies, such as the Financial and Fiscal Commission (FFC), to conduct impact assessments.

 

10.12  The Ministers of Social Development and Basic Education,together with the Minister of Finance, should ensure that proper financial management mechanisms are put in place to prevent wastage and fruitless expenditure of the funds allocated to Early Childhood Development (R496 million) and School Sanitation (R475 million);and further explore ways to retain the Long Term Unemployment Grant of R350 for unemployed individuals between the ages of 18 and 59. This could provide a safety net for the poorest of the poor, even though it will never be enough to cater for all, considering the current economic situation acrossSouth Africa.

 

10.13 Given the current economic situation, with declining revenue collection and a rising budget deficit, the Committee recommends that government shouldcontinue to make use of all legislative measures at its disposal to fight corruption, including recovering monies which have been lost as a result of wrongdoing, whether in State Capture, PPE procurementprojects orgovernment officialswho contravene public finance management and supply chain management prescripts.

 

10.14 Whilst the Committee appreciates that COVID-19 challenges led to the MTBPS being introduced in Parliament a week later, it has meant that the usual tight time frame for processing the Bill was intensified this year, and the Committee and the provincial legislatures would have wanted to give more rigorous attention to the Bill. We urge the Minister of Finance to introduce the Medium Term Budget Policy Statement (MTBPS) timeously in future. The Committee believes that the House Chairpersons of both the National Assembly and the NCOP need to look into the possibilities of giving the NCOP more time and space to process the MTBPS in future.

 

10.15 While recognising the specific time constraints this year, and other stresses of National Treasury, the Committee believes that National Treasury’s responses to the concerns of the provincial legislatures were inadequate and recommends that Treasury provide more effective responses in future.

 

10.16 The Committee believes that the reviews of the provincial and local government equitable shares need to be finalised urgently, as it has been on the agenda for a long time and numerous recommendations have repeatedly been made by the Committee, Salga, the FFC and other stakeholders. The matter is now even more urgent, given the impact of COVID-19 on the provinces and, particularly local government, whose finances are in a perilous state anyway. These reviews need to involve all three spheres of government and other relevant stakeholders, as well as independent technical experts. 

 

11. Committee Recommendation on the Bill

 

The Select 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.

The Democratic Alliance (DA), the Economic Freedom Fighters (EFF) and the Freedom Front Plus (FF+) reserved their positions on this Report.

 

Report to be considered.