ATC221115: Report of the Standing Committee on Appropriations on the Division of Revenue Amendment Bill [B22 – 2022], Dated 15 November 2022

Standing Committee on Appropriations

Report of the Standing Committee on Appropriations on the Division of Revenue Amendment Bill [B22 – 2022], Dated 15 November 2022

The Standing Committee on Appropriations having considered the Division of Revenue Amendment Bill [B22-2022] (National Assembly – section 76), reports as follows:

Introduction

The Minister of Finance tabled the Division of Revenue Amendment Bill (hereafter referred to as the Bill) in Parliament on 26 October 2022 during the presentation of the 2022 Medium 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 affects changes to the Division of Revenue Act for the relevant year.

The Bill was referred to the Committee on 9 November 2022 after the National Assembly adopted the 2022 Revised Fiscal Framework. The Committee received a briefing from National Treasury on the Bill in its entirety on 2 November 2022. The Financial and Fiscal Commission, Parliamentary Budget Office and the South African Local Government Association were also invited by the Committee to comment on the Bill. To facilitate public participation, the Committee published adverts in print media in all 11 official languages from 27 to 30 October 2022. The following stakeholders made submissions:

Amandla.Mobi;
Rural Health Advocacy Project;
TB Advocacy and Accountability Consortium
Section 27; and
Congress of South African Trade Unions.

The Bill and its annexures address the following:

Changes to schedules;
Changes to provincial allocations;
Changes to local government allocation;
Changes to gazetted conditional grant frameworks and allocations; and
Changes to Bill clauses.

This report focuses on the proposed amendments to the Division of Revenue Act (Act No 5 of 2022) 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.

Summary of changes in the 2022 Division of Revenue Amendment Bill

An adjustments budget provides for unforeseen and unavoidable expenditure; appropriation of monies already announced during the tabling of the annual budget (but not allocated at that stage); the shifting of funds between and within votes where a function is transferred; the utilisation of savings; and the roll-over of unspent funds from the preceding financial year.

Conversion of disaster response grants

In response to the April 2022 floods that affected parts of the Country, funds were shifted between disaster grants in August 2022 and Parliament is requested to approve these shifting of funds as follows (Schedule 7, Parts A and B of the Bill):

A proposed total of R145 million was shifted from the provincial disaster response grant to the municipal disaster response grant.
A proposed total of R120 million was shifted from the municipal emergency housing grant to the provincial emergency housing grant.

Additional funding for disaster response grants

As a consequence of the disasters that have occurred in the country, National Treasury has reported that most of the disaster funding have been depleted. However, in order to allow government to respond to other disasters that may occur during the remaining months of the 2022/23 financial year, the Bill proposes additional allocations to disaster grants as follows:

A proposed total of R97 million is added to the provincial disaster response grant.
To enable for response to a housing emergency as a result of a disaster occurring, a proposed total of R350 million is added to the provincial emergency housing grant to replenish the grant.
A proposed total of R248 million is added to the municipal disaster response grant.

Additional funding for disaster reconstruction and rehabilitation

In addition, the Bill further proposes additional funding for the reconstruction and rehabilitation of provincial infrastructure damaged by the December 2021 and April 2022 floods as follows (Schedule 2; Schedule 4, Part A; Schedule 5, Part B and Schedule 7, Parts A and B of the Bill):

For the reconstruction and rehabilitation of schools damaged by floods in December 2021 and April 2022, a proposed total of R117 million is added to the education infrastructure grant for schools in the Eastern Cape and KwaZulu-Natal provinces.
A proposed total of R1 billion is added to the provincial roads maintenance grant for the Eastern Cape, KwaZulu-Natal and North West provinces for the repair of provincial roads damaged by the April 2022 floods.
For the reconstruction and rehabilitation of municipal infrastructure damaged by floods in the Western Cape (Overberg District Municipality, Cape Winelands District Municipality and Garden Route District Municipality) in December 2021 and the April 2022 floods in the Eastern Cape (Winnie Madikizela-Mandela Local Municipality) and KwaZulu-Natal (eThekwini Metropolitan Municipality, uMhlathuze Local Municipality, uThukela District Municipality, uMgungundlovu District Municipality and iLembe District Municipality), a proposed total of R3.3 billion is added to the municipal disaster recovery grant. This funding allocation is divided per province as follows:

A proposed total of R34 million is allocated to the Eastern Cape Province (Winnie Madikizela-Mandela Local Municipality).
A proposed total of R3 billion is allocated to KwaZulu-Natal Province (municipalities).
A proposed total of R290 million is allocated to the Western Cape Province (district municipalities).

Funding for the protection and care of flood victims

To continue with the care and protection of April 2022 flood victims placed in shelters in KwaZulu-Natal, R49 million is added to the provincial equitable share. These funds will be used for the provision of formula and disposable nappies for babies, provision of meals for people in the shelters, payment of shelter-based social workers and social worker supervisors and for the payment of the system used by shelters to track progress of people within the shelters.

Purchasing of land for the relocation of flood victims

A proposed total of R92 million is added to the informal settlements upgrading partnership grant for eThekwini Metropolitan Municipality for the purchase of land identified for the relocation of flood victims who were previously residing in informal settlements that were washed away by April 2022 floods.

Equitable division of revenue raised nationally among the three 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 2022 adjustments is an increase in the 2022/23 budget allocation by R48 888 646 000, increasing the 2022 budget allocation from R1 972 256 520 000 to R 2 024 145 166 000. A proposed total of R48 840 146 000 is added to the national government equitable share, whilst a proposed total of R48 500 000 is added to the provincial government equitable share (Schedule 1 of the Bill).

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

Spheres of government	Column A
Spheres of government	2022/23 Main Allocations	Adjustment	2022/23 Adjusted Allocation
	R’000	R’000	R’000
National1, 2, 3	1 327 188 238	48 840 148	1 376 028 384
Provincial	560 756 789	48 500	560 805 289
Local	87 311 493	-	87 311 493
Total	1 975 256 520	48 888 646	2 024 145 166

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
The direct charges for the provincial equitable share are netted out

Source: National Treasury (2022 Division of Revenue Amendment Bill)

Changes to provincial government allocations

In order to assist with the movement of people in rural areas, the Bill proposes funding allocation for the construction of modular steel bridges under the Welisizwe Rural Bridges Programme. These bridges are required to ensure that communities in these rural areas are able to access schools, clinics and other government services. A proposed total of R389 million is added through the provincial roads maintenance grant for the Eastern Cape and Limpopo Provinces as follows (Schedule 4, Part A of the Bill):

A proposed total of R308 million is allocated to the Eastern Cape Province.
A proposed total of R81 million is allocated to the Limpopo province.

Changes to local government allocations

The section below will provide an overview of the proposed roll-overs and reprioritisation of funds within local government.

Roll-over(s)

A proposed total of R1 million is rolled over in the integrated national electrification programme (municipal) grant to fund 50 electrification connections in Sewendelaan in Dikgatlong Local Municipality (Schedule 5, Part B of this Bill).
A proposed total of R15 million is rolled over in the indirect regional bulk infrastructure grant to fund operational payments for the Vaal River pollution remediation project in Emfuleni Local Municipality (Schedule 6, Part B of this Bill).

Reprioritisation in the neighbourhood development partnership grant

A proposed total of R100 million of the neighbourhood development partnership grant is shifted from (Schedule 5, Part B (direct) to Schedule 6, Part B (indirect)) to fund project preparation, planning and implementation for municipalities that are having administrative and financial challenges that are affecting project implementation. These proposed allocations will be used for projects that they were allocated for in the direct component. The affected municipalities are Mogale City Local Municipality, KwaDukuza Local Municipality and Emfuleni Local Municipality.

Changes to gazetted frameworks

Section 15(4) of the Division of Revenue Act, 2022, requires National Treasury to consult Parliament on any proposed changes to a conditional grant framework for the purposes of correcting an error or omission, as envisaged in Section 15(2) of the Division of Revenue Act, 2022.

Provincial roads maintenance grant: it is proposed that the grant framework be amended to allow for spending to respond to the disaster that occurred in April 2022; and to also allow for spending on rural bridges under the Welisizwe Rural Bridges Programme.
Education infrastructure grant and the municipal disaster recovery grant: it is proposed that these grant frameworks be amended to allow for spending to respond to the disasters that occurred in December 2021 and April 2022.
Informal settlements upgrading partnership grant: municipalities: it is proposed that this grant framework be amended to ring-fence funds for the purchase of identified land for the relocation of flood victims who were previously residing in informal settlements that were washed away by April 2022 floods in eThekwini Metropolitan Municipality.
A proposed change of the name of engcobo local municipality in the Eastern Cape to Dr. A.B. Xuma Local Municipality as per the Gazette published in terms of section 12 of the Local Government: Municipal Structures Act, on 30 May 2022

Correction of errors in the Municipal Disaster Recovery grant framework and allocations to municipalities

The National Disaster Management Centre (NDMC) has requested changes to the in-year allocations for the municipal disaster recovery grant in the tabled Division of Revenue Amendment Bill. This is a consequence of part of the funding allocated to uThukela and iLembe district municipalities being allocated to Alfred Duma and KwaDukuza local municipalities, respectively. National Treasury submitted that the error was made by the KwaZulu-Natal Disaster Management Centre which submitted applications for roads; storm water; and water and sanitation infrastructure recovery projects to the NDMC as requests made by the district municipalities, which in turn, submitted the incorrect requests to the National Treasury.

National Treasury further submitted that NDMC is checking the assignment of the respective functions to determine what amounts need to be allocated to the respective local and district municipalities and is expected to write to the National Treasury to request that these allocations be corrected before the allocations per municipality are gazetted. These corrections also affect the ring-fencing in the MDRG framework. Therefore, Parliament is requested to approve that National Treasury corrects the allocations and effect the required changes to the MDRG framework (and corrected as part of s15(1) process) to ensure that MDRG allocations are correctly allocated to the municipalities assigned for the functions.

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.

Financial and Fiscal Commission

The Financial and Fiscal Commission (FFC) submitted that over the 2023 MTEF, the average growth in the total allocation for provinces shall remain at 2.8 per cent. A decrease of 0.03 per cent between 2022/23 and 2023/24 and marginal growth of 2.8 per cent over the MTEF. The FFC was of the view that this will negatively impact provinces as provincial funding has been affected by fiscal consolidation in recent years. The FFC further submitted that the equitable share to provinces was expected to decrease from R560.8 billion in 2022/23 to R556.4 billion in 2023/24, a decrease of 0.8 per cent. On the other hand, the equitable share to provinces was projected to increase by 2.5 per cent in nominal terms over the 2023 MTEF, which was insignificant and would negatively affect the provinces' finances.

The FFC submitted that over the 2023 MTEF, provincial conditional grants will increase and reach R401.4 billion in 2025/26. On average, the conditional grants’ growth rate was expected to increase marginally by 4.3 per cent in nominal terms over the MTEF. An additional R116.8 million has been made available to the Eastern Cape and KwaZulu-Natal provinces through the education infrastructure grant for repairs to schools that were affected by natural disasters. Furthermore, an additional R1 billion has been allocated through the provincial roads maintenance grant to repair roads infrastructure damaged by floods. While the FFC supported additional funding to restore essential and basic infrastructure, it emphasised the need to develop or update climate change and adaptation strategies, particularly for provinces and areas prone to natural disasters.

Regarding local government, the FFC submitted that it was important to note that multiple risks impacted on municipalities’ ability to deliver services. These challenges were further exacerbated by COVID-19, which related to access to basic services and highlighting fiscal gaps. The FFC made reference to research conducted by the Bureau of Economic Research (BER) and submitted that during 2022, government has focused on improving the challenges experienced by local governments and develop key policy recommendations. To achieve the objectives of local economic development and improve municipal service delivery, it requires that municipalities focus on strengthening municipal finance and investments. These underpin the ability to broaden economic activity and reverse unemployment trends by creating a conducive economic environment to facilitate and promote social and economic development activities. The FFC submitted that it welcomed the approval of the Municipal Powers and Functions Amendment Bill as it will strengthen the municipal revenue through development charges which play a critical role in financing infrastructure-related projects and thereby boost economic growth.

Given the insufficient capacity and challenges faced by municipalities in fulfilling their mandates, the FFC welcomed the review of the conditional grant system concerning infrastructure development, building capacity and providing operational support. These reviews will enhance municipal performance and capabilities if they were to be comprehensively applied. For the 2022 MTEF, local government was expected to receive a total of R523 billion from the nationally raised revenue. The total allocation to local government therefore increases by an average growth rate of 6 per cent over the MTEF. The FFC noted the additional allocations to local government, however, it emphasised the importance of strengthening its municipal revenue through improved revenue management and reviewing alternative revenue streams.

The FFC submitted that the LGES allocation is estimated to receive R306.9 billion over the 2022 MTEF, with the unconditional part of the allocation increasing by about 3 per cent. The FFC noted the proposed increase in the total allocation to the local government's equitable share over the medium term. However, the marginal increase placed added pressure on municipalities' ability to deliver services given the economic backdrop. In addition, the sufficiency of the allocations becomes a concern, with many cost drivers of service delivery increasing by more than inflation.

The FFC welcomed the sharp increase in conditional grants in the year 2022/23, given that bulk of conditional grants in the local government are for infrastructure-related projects and programmes. According to the FFC this approach is in line with government economic growth and development strategies. However, this process will be short-lived as conditional grants exhibited downward trends and negative growth rates over the 2022 MTEF. While it supported, in principle, the additional disaster grants funding through the shifting of funds away from the provincial disaster response grant and the municipal emergency housing grant, the FFC cautioned that this process does not resolve challenges facing the financing and management of disasters in the intergovernmental relations system, as conditional grants for disasters are ex-post allocations. Considering the recent floods, the FFC reiterated its previous recommendation, which indicated that for government should consider providing municipalities with performance-based conditional grants which reward or incentivise actions that are environmentally efficient and responsive to the adaptation and mitigate challenges of climate change. The FFC noted with concern the reprioritisation and the shifting of the R100 million from the neighbourhood development partnership grant direct component to the indirect component of the grant. The FFC re-emphasised its previous stance on this matter, highlighting the need for principles in place and a systematic and transparent process to guide the reclassification and shifting of grants from direct to indirect (and vice versa).

The FFC made the following recommendations in respect of the Bill:

For Provinces:

The Commission reiterated its recommendation made in its 2021 MTBPS submission that given expenditure moderation, comprehensive reports should be compiled by affected government departments indicating how such moderation is likely to affect the delivery of basic services and how tighter budgets would be managed.
Though the Commission supported the 2022 Division of Revenue Amendment Bill amendments for provinces, it recommended that the grant framework for Part A of schedule 7 grant: Provincial Disaster Response Grant be examined to improve its grant efficiency, appropriateness and effectiveness, in light of the recent flood disasters.

For Local Government:

That a fundamental review be conducted in respect of local government transfers, especially from a vertical perspective of division of revenue, taking into account the factors of geography, rurality and the people i.e. the nature of local development to ensure proper equitable sharing of nationally raised revenue amongst the three spheres of government towards local government. This must include a proper re-examination of the assumptions used in the local government White Paper.
The FFC re-emphasised its previous recommendations for government to develop a policy framework for municipal disaster risk financing. It supported and recommended a systematic review and process in the design of conditional grants based on an assessment of respective municipalities.

South African Local Government Association

The South African Local Government Association (SALGA) indicated that public sector capital investment remained below the 20 per cent target of the National Development Plan (NDP). SALGA further reported that higher inflation levels would negatively affect municipal revenue collection with households compelled to prioritise food consumption over payment of municipal services. SALGA was concerned that the MTBPS made little mention of the critical network of infrastructure municipalities were responsible to uphold, despite the fact that electricity supply was deemed a growth priority reform. While the MTBPS outlined fiscal risks at national and provincial levels, those risks had the most detrimental effect on municipalities and their ability to deliver on their constitutional mandate to provide basic services.

SALGA welcomed the 2.4 per cent upward adjustment of the gross allocation to local government for the 2022/23 financial year; as well as the upward adjustments of 2.7 per cent and 2.6 per cent in the 2023/24 and 2024/24 financial years, respectively. However, it was concerned about the 0.1 per cent decrease in the local government share of nationally raised revenue in the 2023/24 financial year when compared to the 2022 Budget. SALGA indicated that there was disequilibrium in the allocation of resources versus the allocation of functions; quoting a study by the Public Affairs Research Institute, which found that local government was under-funded by an inflation-adjusted amount of approximately R67.1 million (lower shortfall) and R81.5 million (upper shortfall) for the 2022/23 financial year. SALGA supported the refinement of the local government equitable share (LGES) formula in an effort to arrive at a cost-reflective basis for rendering basic services as articulated in the 2022 MTBPS; and indicated that by the end of the third quarter of 2021/22, 43 municipalities had been experiencing financial and service delivery crises.

SALGA made the following recommendations:

Government should implement economic recovery strategies that assist businesses in distress and address the Eskom crisis.
The Ease of Doing Business reform project should be rolled out to other non-metropolitan municipalities.
Any envisaged bail-out to Eskom should be comprehensive enough to also consider the debt owed by municipalities to the entity. In the 2023 Budget, government should consider offsetting any Eskom debt of municipalities in financial distress against any bail-out appropriated to Eskom with conditions.
A concerted effort, similar to SOE bail-outs, should be made to alleviate the challenges experienced by municipalities in financial distress. A portion of the higher-than-anticipated revenues should be utilised to alleviate financial pressures for those municipalities. Such an intervention should be accompanied by stringent conditions.

Parliamentary Budget Office

The Parliamentary Budget Office (PBO) provided an overview of the equitable share of revenue at 49.7 per cent (national sphere), 41.2 percent (provinces) and 9.1 percent (municipalities) to fulfil their respective responsibilities. It further noted that compared to the municipalities, government effected a proportional increase of spending on both the national and provincial spheres of government. In spite of the proportional increase in the allocations to provinces, the PBO submitted that there will be a decline in the spending over the MTEF in the allocations to provinces. The PBO also noted that there was an average nominal growth of 1.0 percent over the 2022 MTEF whilst there was about 2.4 per cent annual average growth over the period. This was worrying to the PBO as the projected growth was still below the projected average of 5.5 per cent of CPI.

In its submission, the PBO further mentioned that spending per capita declined in the medium term. To illustrate this, PBO showed that the 2016/17 total real expenditure per capita was R23 116, and it is projected to decline to R22 964 by 2025/26. Health and education were cited as areas that would be prioritized but the PBO expressed the view that there will be a decline over the medium term for health and education.

The PBO submitted that there was a shifting of funds in the grants that were meant to assist in the response to the April 2022 floods. Examples of such shifts included the shifting of R145 million from the provincial disaster response grant to the provincial emergency housing grant. In addition to the shifting of grants, there were additions to the grants in order to leverage adequate response to the disaster. For example, R97 million was added to the provincial disaster grant and R248 million was added to the municipal disaster response grant. This was principally to enable provinces and municipalities to respond adequately should additional disasters occur.

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.

Amandla.Mobi

The Amandla.Mobi community welcomed the year-long extension of the R350 SRD grant to March 2024. It commented that this intervention, even though not enough, showed that the demands of the people were taken into consideration by government. The Amandla.mobi community argued that government saw it important to find a budget of R23 billion to pay off South African National Roads Agency's (Sanral) e-tolls debt but failed to find the budget to increase the R350 grant. Amandla.mobi added that this was not a matter of whether there was money or not; it was simply a lack of political will. Furthermore, Amandla.mobi expressed its disappointment that there was no intention to convert the R350 grant into a permanent Basic Income Grant (BIG).

In addition, Amndla.mobi expressed displeasure to the fact that the Minister of Finance did not mention the intention to increase taxes for the rich. Moreover, the acting Director-General has even denied that a wealth tax would raise enough money to help fund the BIG. Instead, National Treasury proposed increases to the Value Added Tax (VAT) or Personal Income Tax (PIT). Amandla.mobi further argued that VAT increases would hurt the poor, as they were already struggling.

Rural Health Advocacy Project

The Rural Health Advocacy Project (RHAP) submitted that health care services were funded primarily through provincial equitable share (PES) allocations. RHAP noted that PES allocations rose in the outer years after a reduction in the 2023/24 financial year. However, it suggested that service capacity in health departments might decline further if economic conditions continued to deteriorate and public sector wages increased above 3 per cent. The Constitution required the State to progressively expand access to health care and Parliament had a duty to protect access to health, especially in times of fiscal constraints. The RHAP called for better investment in primary healthcare (PHC) services and focus on rural areas, which suffered historical and ongoing low service coverage. In order to improve the country’s universal health coverage (UHC) and attain the goal of full coverage by 2030, the RHAP was of the view that South Africa needed a human rights budgeting framework. This would require immediate steps towards realising ethical and efficient budget prioritisation.

RHAP submitted that South Africans’ access to healthcare was profoundly unequal, due not only to resource constraints, but also to highly skewed resource distribution, both between the public and private sector, and within the public sector. Internal distributive disparities created substantial inefficiencies due to little correlation between budget allocations and local population needs, driving inequity in access to healthcare and health outcomes. The impact of and response to the COVID-19 pandemic had illustrated that without having built a more equitable health system prior to the pandemic, and in the absence of effective regulation, inequality of access had defined the COVID-19 response; including diagnoses, treatment, and mortalities. Once set, unequal resource distribution would not naturally shift towards equity and efficiency. In light of this, the RHAP recommended as follows:

A joint committee should be set up temporarily to review and interrogate provincial departments’ budgetary decisions for 2022/23, in accordance with most optimally aligning allocation of available resources to meeting existing needs.
This committee should be jointly comprised of the national Department of Health, the Portfolio Committee on Health, the National Council of Provinces, and civil society actors in the scope of health.
Appropriate representatives from provincial departments, such as the heads of department, should engage with this committee to explain how their allocations and their annual performance plan intentionally prioritised efficient coverage for the most vulnerable.

TB Advocacy and Accountability Consortium

The TB Advocacy and Accountability Consortium (TBAAC) reported that the COVID-19 pandemic had had a negative impact of on TB programmes globally. In South Africa TB testing had declined by 23 per cent and the number of laboratory-diagnosed individuals by 25 per cent. In 2020, only 41 per cent of the estimated 328 000 patients had been successfully treated, and almost 120 000 people with TB had not been diagnosed or started on treatment while 73 000 had failed to complete their treatment. The TBAAC submitted that TB mortality has increased for the first time since 2005. In response to this crisis, the Department of Health, prompted by civil society, has released a TB recovery plan to reverse the losses incurred during the pandemic and to accelerate efforts towards attaining its targets.

The TBAAC was of the view that the implementation of this recovery plan was at risk. As compensation of employees (COE) accounted for between 60 and 70 per cent of provincial health budgets, paying for increases from existing allocations would reduce funding for service delivery. TB case finding and retention required sufficient health workers at the appropriate level of care; but current funding allocations maintained, rather than expanded, the existing health workforce despite an estimated 28 000 health vacancies. Increasing COE and medico-legal settlements could impact on the consistent availability of medicines required to achieve the recovery plan targets.

In order to address ongoing inequalities and inefficiencies in health spending, TBAAC made the following recommendations:

Parliament should ensure that existing publicly funded health care capacity is optimised and prioritises those with the greatest need; as well as encourage provinces to ensure that the TB recovery plan is fully funded and implemented.
A joint committee should be set up temporarily to review and interrogate provincial departments’ resource allocation decisions for 2022/23/24/25 to ensure that strategies are in place to ensure that priority health services like TB are not compromised by the fiscal squeeze.
This committee should be comprised of the Standing Committee on Finance; the Standing Committee on Appropriations; the National Council of Provinces and the Portfolio Committee on Health.
Appropriate representatives from provincial departments, such as the heads of department, should engage with this committee to explain how their allocations and their annual performance plans prioritised coverage for the most vulnerable.
This committee should invite submissions from the National Institute of Communicable Diseases to gain insights into what is needed to strengthen data access and use for decision making and oversight; as TB data is currently recorded on two separate systems, making it difficult to track patients.

SECTION27

SECTION27 submitted that gender implications of the Budget continued to be ignored, with no mention made outside of referencing Gender-based Violence (GBV). Neither are adjustments to the PES and conditional grants made in a gender responsive manner.

SECTION27 also commented on health expenditure by stating that the Bill does not propose upwards adjustments to remedy the real decline in Health expenditure. For example, spending per healthcare user was cut from R5 267 in 2021/22, to R5 036 per user in 2022/23. In addition, with regard to Health Grants, SECTION27 lamented that the Bill made no additional funding available to the following Grants:

The national tertiary services grant remains unadjusted, exacerbating the real terms cuts and restricting the provision of Tertiary Health Services.
No additions were proposed for the health facility revitalisation grant to repair health facilities destroyed by floods. For example, in the KwaZulu-Natal Province, around 85 health facilities were destroyed by the flood. Despite this level of destruction, the province’s Department of Health received no additional funds from the National Treasury and were forced to re-prioritise an estimated R200 million of its funds intended for other health priorities. The Eastern Cape Province also had 12 health facilities destroyed, but receive no explicit additional allocations as per this MTBPS to support recovery of these facilities.
No additions were proposed for the district health programmes grant, to equip the provinces to achieve HIV/AIDS and TB targets, and address backlogs in oncology.

SECTION 27 welcomed the 2022 MTBPS’s reprioritisation on Core Health Services, and addressing accumulated backlogs occasioned by the response to the COVID-19 pandemic. However, it noted that this reprioritisation was not evident in the adjusted figures reflected in the Bill, for the current financial year. Furthermore, the Bill made no changes in the allocation to the ‘Human Resources for Health’ sub-programme for the current financial year. Additional funding commitments for the Healthcare Personnel was deferred to 2023/24, particularly for increasing their headcounts. According to SECTION 27, this deferral was likely to exacerbate the chronic Human Resource shortages currently being experienced in healthcare facilities across the provinces.

SECTION27 recommended that expenditure allocations to health care and basic education must align with combined CPI inflation and service user growth. This equated to budget growth of 6.8 per cent in 2022/23, 4.6 per cent in 2023/24 and 4.6 per cent in 2024/25 plus an additional 1.2 per cent for service user growth in health and 1.4 per cent growth in enrolled learners in basic education. Secondly, SECTION27 proposed that Parliament should reject further cuts to overall basic education and health care funding until it is satisfied that government has undertaken participatory human rights impact assessments of its decisions to cut funding for fundamental rights. These assessments must show that such measures are necessary and justified and have been taken with all constitutional implications considered. Added to that, Parliament must insist that the Bill and related documents adhere to the Cabinet approved Gender Responsive Planning, Budgeting, Monitoring, Evaluation and Auditing Framework (GRPBMEAF). SECTION27 emphasised that National Treasury must abide by the FFCs recommendations addressing gender inequality in this current Bill.

SECTION27 further recommended that allocations to compensation budgets should keep up not only with inflation, but projected increases in demand for healthcare services. That a clear, balanced and reasonable political position to be agreed upon and articulated on the proposed way forward regarding the public wage bill and the lagging headcounts. Either ring-fenced relief should be granted to ensure that health facilities affected by floods can be repaired or the healthcare facility revitalisation grant should be adjusted upwards to account for impact of extreme weather events in KZN and the Eastern Cape provinces. Patients reliant on time-sensitive oncology treatments cannot wait until the February budget for bottlenecks in cancer care to be resolved. SECTION27 submitted that immediate plans and budgets must be developed to fix problems in cancer care.

On Basic Education expenditure, SECTION27 recommended that Parliament rejects proposed real term cuts to basic education sector funding in the current financial year and over the MTEF. These cuts will hamper the ability of provinces to deliver improved public schooling, infrastructure, provide adequate portions of nutritious meals to learners daily, and rollout quality and universal early childhood development programmes. SECTION27 also submitted that teaching posts must be protected and expanded, coupled with additional support to be allocated to the Funza Lushaka Bursary to counteract the burgeoning teacher retirement crisis. Increased allocations to the education infrastructure grant (Schedule 4, Part A, page 5), in addition to rectifying historical reductions in spending to education infrastructure, must be increased further to support all disaster-struck schools. SECTION27 further submitted that the National School Nutrition Programme be linked to food inflation, estimated at an annual 8.5 per cent average.

Congress of the South African Trade Unions

The Congress of South African Trade Unions (COSATU) submitted that they were deeply concerned by the lukewarm MTBPS and the accompanying Bill tabled by the Finance Minister. This was considering the fact that the South African economy has been stagnant for over a decade and the country was experiencing periodical riots because of desperation and hopelessness. COSATU commented that they were hoping for a bold MTBPS and the Bill that would protect workers from inflation, rebuild the state, decisively tackle corruption, provide relief to the unemployed and put measures to stimulate the economy. However, COSATU acknowledged that there were positive interventions in the policy statement but on a macro level, the MTBPS still failed to address the biggest challenge of economic stagnation which has led to the seven-fold increase in the public debt over the past decade.

COSATU submitted that suffocating the economy through budget cuts and scapegoating public servants has not worked. According to COSATU, government needed to focus more on addressing the fundamental causes of the fiscal crisis, namely a stagnant economy, rampant corruption, massive unemployment, load-shedding and limping SOEs. COSATU welcomed the additional allocation of R37 billion to help key frontline service departments, social security and SOEs. However, COSATU indicated that they were worried about an underspending of R5.8 billion in a climate of scarce resources.

COSATU viewed the MTBPS as a missed opportunity and made the following comments and proposals with regard to the Bill:

Public Sector Wage Bill	COSATU expressed their displeasure by government’s decision to announce public sector wage offer outside Public Service Coordinating Bargaining Council (PSCBC). COSATU highlighted the rapid shrinking headcount of South African Police Service, which has moved from 208 000 in 2010 to 172 000 in 2022, with a further 10 000 expected to retire this year. In addition to the above, there might be resignations and deaths, and that could make the number even higher. COSATU argued that the country remained far behind on infrastructure roll-out programmes.
Provincial and Local Government	COSATU was concerned that the provincial governments had spent only 40 percent of their allocated budgets halfway through the financial year. Furthermore, the Auditor-General of South Africa (AGSA) flagged the rapid decline in the functioning of municipalities, yet the Bill and MTBPS provide no details on what is being done to halt this. The number of financially distressed municipalities has risen from 10 to 90 percent, over the past decade. In addition, a number of municipalities failing to pay workers on time as legally required is also increasing. Furthermore, non-payment to medical aids, pension funds, tax authorities of monies deducted from workers was a criminal offence and those responsible must be arrested and charged for fraud and theft. Parliament needs to hold these offending municipalities and the non-responsive Department of Cooperative Governance and Traditional Affairs accountable.
Damage caused by floods in KZN, EC and other provinces	COSATU welcomed the additional allocations adjustments of revenue to accommodate the massive damage caused by floods in 2022 in large parts of KwaZulu-Natal and the Eastern Cape as well as other floods experienced in the North West and the Western Cape previously. Whilst welcoming the relief revenue adjustments to affected provinces and municipalities, COSATU was concerned by continuous reports of monies not reaching provinces and municipalities timeously or filtering down to persons, families and communities affected by the floods. COSATU argued that government has not been effective in communicating what relief was provided, how and to whom and how to access it. In the era of state capture and corruption this feeds into a culture of distrust. This is worsened by the easy dissemination of fake news over social media.
Departmental Allocations	The projected below inflation increases in expenditure to key frontline service departments, in particular Basic Education, Health, SAPS, Justice, Agriculture, and Employment and Labour; framework was alarming and would continue to cripple government’s ability to provide quality public services that workers and the economy depend upon. Most worrying indicators show that some state departments were struggling to meet their targets halfway through the financial year, these include: Basic Education, Higher Education and Training, NPA, CCMA, Human Settlements, Mineral Resources and Energy, Small Business Development, Transport, and Water and Sanitation.
Presidential Stimulus Package	Government’s failure to commit to an increase in the funding for the Presidential Employment Stimulus was a let-down to the millions of unemployed young people. This also applies to the National Treasury’s failure to intervene with the banks to resolve the impediments that have led to less than 2 per cent of the Bounce-Back Scheme funds allocated to Small Medium and Micro Enterprises.
SRD grant	COSATU submitted that they were pleased that the government has agreed to the demand for an extension of the SRD Grant that has provided relief to about 10 million people.

Committee findings and observations

Having deliberated and considered all the submissions made by the above stakeholders on Division of Revenue Amendment Bill [B22-2022], the Standing Committee on Appropriations makes the following findings and observations:

10.1 The Committee notes and welcomes the proposed R145 million was shifted from the provincial disaster response grant to the municipal disaster response grant. Furthermore, the Committee notes and welcomes the proposed total of R120 million was shifted from the municipal emergency housing grant to the provincial emergency housing grant. The Committee welcomes government response to quickly shift funding within disaster grants to ensure adequate response to the April 2022 floods. Furthermore, the Committee would like to implore on government to ensure speedily distribution of these fund to the affected areas in order to ensure that intended beneficiaries receives the required assistance timeously.

10.2 The Committee notes and welcomes the proposed allocation of R695 million added to the disaster grants to allow government to quickly respond to other disasters that may occur during the remaining months of the 2022/23 financial year. The Committee is encouraged by government’s forward thinking and is of the view that its quick response to natural disasters minimise its negative impact.

10.3 The Committee notes and welcomes the proposed additional R117 million for the reconstruction and rehabilitation of schools damaged by floods in December 2021 and April 2022 in the Eastern Cape and KwaZulu-Natal provinces. However, given the nature and state of some public schools in these provinces, the Committee implores the Department of Basic Education to speedily expedite the rehabilitation and reconstruction of these affected schools.

10.4 The Committee notes and welcomes the proposed additional R1 billion to the provincial roads maintenance grant for the Eastern Cape, KwaZulu-Natal and North West provinces for the repair of provincial roads damaged by the April 2022 floods. The Committee views roads as a crucial infrastructure and a key driver of economic growth through speedily and seamless movement of goods and people. The Committee supports the speedily reconstruction and rehabilitation of public roads due to its long term benefit to the economy and the livelihood of individuals.

10.5 The Committee notes and welcomes the proposed additional allocation of R3.3 billion allocated to municipal disaster recovery grant for the reconstruction and rehabilitation of municipal infrastructure that was damaged by the December 2021 and April 2022 floods. The Committee has always held the view that if government has to realise its objectives of reducing unemployment, poverty and inequality, municipalities are at the centre and are a critical vehicle in delivering these goals due to their close proximity to the people. Therefore, any form of government investments in municipal infrastructure is supported by the Committee.

10.6 The Committee notes and welcomes the proposed additional allocation of R49 million to the PES for the provision of formula and disposable nappies for babies, provision of meals for people in the shelters, payment of shelter-based social workers and social worker supervisors and for payment of the system used by shelters to track progress of people within the shelters. The Committee welcomes government’s continuous support to the vulnerable during this hour of need. However, the Committee would like to encourage the affected provinces to treat this proposed allocation with the urgency that it deserves and never allow individuals to misuse this allocation.

10.7 The Committee notes and welcomes the proposed additional allocation of R92 million to the informal settlements upgrading partnership grant for eThekwini Metropolitan Municipality for the purchase of land identified for the relocation of flood victims who were previously residing in informal settlements that were washed away by April 2022 floods. The Committee would like to encourage the Department of Cooperative Governance and Traditional Affairs to ensure that eThekwini Metropolitan Municipality speedily procure this identified land to ensure that flood victims are speedily assisted to ensure that their lives and livelihoods returns to normal.

10.8 The Committee notes and welcomes the proposed additional allocation of R389 million through the provincial roads maintenance grant for the Eastern Cape and Limpopo for the construction of modular steel bridges under the Welisizwe Rural Bridges Programme. The Committee is encouraged by government’s consideration to invest in rural infrastructure in order to ensure that infrastructure investment is even across the country.

10.9 The Committee notes and supports National Treasury’s proposed changes to the conditional grants framework in line with Section 15(2) of the 2022 Division of Revenue Act.

The Committee notes and supports the request by the National Disaster Management Centre (NDMC) to change the in-year allocations for the Municipal Disaster Recovery Grant (MDRG) in the tabled Bill.

The Committee notes and welcomes the recommendation by the FFC that that given expenditure moderation, comprehensive reports should be compiled by affected government departments indicating how such moderation is likely to affect delivery of essential services and how tighter budgets would be managed. The Committee is of the view that if this exercise is conducted, government department will be better prepared for any budget unanticipated budget reduction caused by any exogenous risks.

The committee notes and welcomes the recommendation by the FFC that there is a fundamental need to review the local government transfers, especially from a vertical perspective of division of revenue, taking into account the factors of geography, rurality and the people i.e. the nature of local development to ensure proper equitable sharing of nationally raised revenue amongst the three spheres of government towards local government. The Committee has always emphasised that the sharing of nationally raised revenue should largely be based on proper need assessment if the country has to deal with the triple challenge of poverty, unemployment and inequality.

The Committee notes with serious concern the recommendation by SALGA that any envisaged bail-out to Eskom must also consider the debt owed by municipalities and the 2023 budget should consider offsetting debt owed by municipalities to Eskom. The Committee is always concerned when considering any passage of bailouts. The Committee holds the view that these financial challenges faced by SOE’s and some municipalities are self-inflicted. Bail-outs create a problem of moral hazard. Furthermore, this will create complacency in all government institutions knowing that should anything go wrong, government will be there to bail them out. Municipalities have many revenue streams, SALGA should focus on capacitating these municipalities to allow them to capitalise on these revenue streams and settle their debts to Eskom.

The Committee notes and supports the submission by the PBO that while the 2022 MTBPS proposes R6.1 billion in disaster relief funding, government should work more on its preparedness and responsiveness to these disasters. The Committee is of the view that these will minimise both the social and economic impact of these natural disasters.

The Committee notes with serious concern the submission by COSATU that disaster relief funds were not reaching provinces and municipalities timeously or filtering down to persons, families and communities affected by the floods. This includes the submission by COSATU that government has not been effective in communicating what relief was provided, to whom and how to access it. The Committee views this as a very serious matter that in part demonstrates government’s willingness and commitment to assist victims of these disasters in their critical times of need.

The Committee notes with serious concern the report by COSATU that the number of financially distressed municipalities has risen from 10 to 90 per cent over the past decade. In addition, a number of municipalities failing to pay workers on time as required by law was also on the increase. The Committee views the non-payment of salaries as well as payments to medical aids, pension funds, tax authorities of monies deducted from workers as a criminal offence and those responsible must be held accountable criminally and charged accordingly.

Recommendations

The Standing Committee on Appropriations, having considered submissions from various stakeholders on the Division of Revenue Amendment Bill [B22-2022], recommends as follows:

That the Minister of Finance ensures that National Treasury corrects its proposed changes to the conditional grants framework in line with Section 15(2) of the 2022 Division of Revenue Act.

That the Minister of Cooperative Governance and Traditional Affairs ensures that the National Disaster Management Centre amend the in-year allocations for the Municipal Disaster Recovery Grant in the tabled Bill.

The Minister of Cooperative governance and Traditional Affairs ensures that disaster Management Centre closely monitor funding allocated for disaster relief and ensures that these relief packages are clearly communicated to affected communities.

The Minister of Cooperative Governance and Traditional Affairs must ensure that the eThekwini Metropolitan Municipality effectively and speedily spend the proposed R92 million towards the procurement of identified land for the relocation of floods victims who were previously residing in informal settlements that were washed away by the April 2022 floods.

The Minister of Cooperative Governance and Traditional Affairs and the Minister of Public Works and Infrastructure ensures that both the Department of Public Works and Infrastructure and the Department of Cooperative Governance and Traditional Affairs assess available government land that can be used for the relocation of the April 2022 floods and report to Parliament.

The Minister of Finance, working with all affected stakeholders, ensures that National Treasury speedily releases disaster relief funding in order to minimise the social and economic impact of affected communities.

The Minister of finance ensures that National Treasury periodically audit how disaster relief funds are spent, and or whether these funds are efficiently utilised for the benefit of affected communities. Given the number of recent disasters and the funds allocated towards disaster relief, the Committee is concerned and doesn’t want to again be informed of any level of corruption like what was found during the COVID-19 related funding. Where there is a suspicion of corruption elements, National Treasury should quickly intervene and immediately report such to the law enforcement agencies.

The Minister of Basic Education ensures that the Department of Basic Education closely monitor the reconstruction and rehabilitation of public schools that were affected by the December 2021 and April 2022 in the Eastern Cape and KwaZulu-Natal Provinces. The Minister must ensure that the Department provides quarterly expenditure and progress report on the reconstruction and rehabilitation of these affected schools.

The Minister of Transport ensures that the Department of Transport closely monitor the proposed R1 billion allocation for the provincial roads maintenance grant for the repairs of provincial roads that were affected by the April 2022 floods and quarterly report to the Committee on progress made with regard to the repairs of the affected roads in Eastern Cape, North West and KwaZulu-Natal Provinces.

Committee Recommendation on the Bill

The Standing Committee on Appropriations, having considered the Division of Revenue Amendment Bill [B22-2022] (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.

Conclusion

The responses to the recommendations as set out in section 11 above must be sent to Parliament as well as the Committee by the relevant Executive Authorities within 60 days of the adoption of this report by the National Assembly.

Report to be considered.

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