Division of Revenue Bill [B2-2016]: National Treasury briefing

Standing Committee on Appropriations

26 February 2016
Chairperson: Mr N Gcwabaza (ANC)
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Meeting Summary

At the outset, the Democratic Alliance Members raising concerns whether this meeting was properly called, in terms of the Constitution and the Money Bills Amendment Procedure and Related Matters Act (the Money Bills Act). They asserted that Parliament should only consider the Division of Revenue Bill after the adoption of the fiscal framework. Although this meeting had been ATC'ed as being constituted in terms of Joint Rule 159, the DA Members also asserted that this was inconsistent because the Rule referred to consideration of a draft Bill and the Division of Revenue Bill (DORB) was a tabled Bill. Members asked that this meeting be postponed until after the adoption for the fiscal framework and if the Committee was determined to proceed, then they wished to be provided with the draft Bill to consider. Other Members held that this was not a formal consideration, merely a briefing by National Treasury (NT) intended to provide Members with sufficient information to do their work. The provincial legislatures; representatives were present; and this day was chosen by convention to ensure that all NT officials were still present after presenting the budget. A Parliamentary Legal Adviser gave his view that no “consideration” was in fact taking place today; this was a briefing only and as such did not offend against any laws. The Acting Chairperson ruled that the meeting should continue.

National Treasury (NT) provided an extensive briefing on the DORB. Firstly, a breakdown of the total division of revenue was presented. National government departments received an average increase of 5.3%, provinces received an average increase of 7.3% and local government received the highest growth increase at 8.1%. However, the total share of revenue received by national departments is set to shrink over the MTEF from 48.9% to 47.4% by 2018/19, whilst the provincial and local government shares would grow, respectively to 43.3% and 9.3%.

The changes to the current DORB from the previous one were then summarised, and it was noted that these included:
- Gazetting of human settlements allocations to cities, particularly those with levels 1 and 2 accreditation. Clause 10(10) required provincial departments receiving grants from the national level to gazette transfers, before the transfer of that grant, to ensure that municipalities will receive the benefit of a three-year allocation, allowing for greater certainty in planning.
- Clauses were included dealing with responses to disaster relief, particularly the drought, to allow for reprioritisation of funds within the same grant, provided it did not undermine existing commitments
- A clause aimed to respond to failure to comply with procurement procedures, particularly stating that where municipalities had failed to adhere to the Municipal Finance Management Act, the allocation could be converted from a direct or indirect grant, allowing national government to implement the projects
- A clause made provision for what would happen if municipal elections occurred after 1 July, to allow National Treasury to re-gazette portions of allocations
-Provisions for withholding or stopping allocations were clarified.

The Provincial Budget framework was outlined, and the data aspects used to populate the equitable share formula were explained. These included the poverty component, based on StatsSA data, and mid-year population estimates. In this year, Kwa-Zulu Natal and the Free State experienced the biggest decreases, of 0.06% and 0.05%. While Gauteng and Mpumalanga experienced the largest increases, at 0.14% and 0.02% respectively. There was a net increase in conditional grants to provinces of R1.4 billion. Cost-containment measures were explained, emphasising headcount and performance rather than exercises to determine capacity.

The Local Government Budget Framework was described, and NT noted the additional assistance and measures put in place to deal with the re-demarcation of municipal boundaries, including a R409 million allocation and the setting up of transitional committees to assist with administrative challenges.

Local government’s share of the division of revenue increased from 8.9% to 9.3 %. The equitable share was the largest portion of the framework. R37 billion was allocated to free basic services, with a subsidy of R345 per month for all households with an income below the sum of two old-age pensions. R10.2 billion was been allocated towards institutional costs and community funding, only payable for the poorer and more rural municipalities. There was a move to consolidation of infrastructure grants, and the sports infrastructure funding was described.

The National Treasury then briefed the Committee on its responses to matters that had been raised in relation to the last DORB, which had included a call to NT to ensure that the budgets of the spheres are aligned with priorities, the need for NT to take innovative steps to overcome concerns about reductions in conditional provincial grants, with greater flexibility now introduced. Parliament had been particularly concerned about withholding of funding and municipal debt, and NT, having held consultations, was now drafting a report for tabling by the Minister.

The NT also outlined its responses to the Financial and Fiscal Commission (FFC), whose part in the budget process was outlined. FFC had recommended that, for better management of grants,  government should consider conditional grants only as a last measure, should develop clear criteria that will guide the scheduling of conditional grants and develop an accountability framework from indirect infrastructure grants. It had made suggestions around the financing of Early Childhood Development, including a capital subsidy for facilities, and here NT conceded that there were a number of issues around responsibilities. FFC asked government to implement the framework on measuring productivity, and NT would be doing that.

Members sought clarity on several points. They asked about the monitoring of the provincial and local government use of funds, asked for clarification on local government's role in economic development, and examined a number of issues around ECD, with Members being urged to visit centres in their provinces and constituencies. The principle of cushioning and phased-in allocations was explained. Suggestions were made on the undesirability of withholding of the equitable share, the problems around water and electricity theft, free basic services and sports funding, and the need to track how this money was reaching the communities, and the role of the MECs in cases of dispute. One Member was concerned about the duplications that occurred through the need to check on the lower levels who were not performing. A question was asked whether corruption was invariably seen at local level,   but money paid for constituency work of political parties also had to be tracked. Another Member urged that NT must communicate regularly with local and provincial departments, and not rely solely upon the Auditor General's reports, useful as they were, because of the time-lags, but rather to take proactive steps. Key points were raised  around the tightening of inter-governmental reporting and fiscal relations and the need to ensure that there was capacity for local government to improve. Members noted that municipalities should be providing for local economic growth, although the budget did not make this abundantly clear, and it must be remembered that the Municipal Finance Management Act required other levels also to support local government. The FFC was asked to expand and explain its recommendations in relation to ECD, since they seemed to suggest that NT should not be playing an active role, but the FFC said that its report had highlighted confusion around assignment of the function. It was suggested that perhaps outside funding should be sought. Members urged NT to alert the Committee of any suspicions, and to try to adopt more stringent preventative measures, and also urged Members to act positively and proactively. 

Meeting report

2016 Division of Revenue Bill: National Treasury Briefing

The Acting Chairperson welcomed Members, members of the Provincial Legislature and The Acting Chairperson of the Financial and Fiscal Commission (FFC).

Mr D Maynier (DA) addressed the Acting Chairperson on a matter of procedure. On 24 February Mr J Steenhuisen (DA), the DA's Chief Whip, wrote to the Speaker of the National Assembly regarding the programming of the Budget. In that letter he made the point that Parliament’s actions must be consistent with the Constitution and National Legislation. The DA would argue that if the present meeting went ahead it would be inconsistent with both of those. 

He noted that the Money Bills Amendment Procedure and Related Matters Act (Money Bills Act) clearly stated that “after the adoption of the fiscal framework the Division of Revenue Bill must be referred to the Committee on Appropriation of the National Assembly for consideration and report”. The operative word was “after”, because section 9(4) read “any amendment of the Division of Revenue Bill must be consistent with the adopted fiscal framework”. Although a briefing had taken place on the fiscal framework, no public hearings and deliberations on the fiscal framework had yet begun in the National Assembly or National Council of Provinces. Further, no fiscal framework has been adopted. Therefore, the DA believed the present meeting is not consistent with the Money Bills Act.

In order to try and circumvent the provision in section 9(1) of the Money Bills Act, Parliament was claiming that this meeting was to take place under Joint Rule 159 of Parliament, which made provision for the tabling of a draft Bill. This rule was intended to assist the Committee and legislature in planning, and to assist Members to acquaint themselves with the legislation. However, the DA believed that this meeting also fell foul of that rule. Joint Rule 159(2) made provision for Members to acquaint themselves with a Bill, but that did not amount to a formal briefing on the Division of Revenue Bill (DORB). Finally, he also would argue that the DORB is not a draft Bill for it was officially tabled by the Minister of Finance on 24 February 2016. National Treasury (NT) is thus briefing the Committee not on a draft, but on the actual DORB 2016. He therefore proposed that this meeting should not proceed. He called upon the Acting Chairperson to postpone the meeting. The Committee must act in a manner which is consistent with the Constitution and the Money Bills Act. There was no reason to rush this process; Parliament had time and the fiscal framework would be adopted by 17 March 2016, with the DORB to be adopted only by 12 May 2016.

Mr C de Beer (ANC, Northern Cape) said Mr Maynier was correct. Since the adoption of the Money Bills Act in 2009 it had been a practice that on the Friday after the National Budget is tabled, the Appropriations Committees would meet to consider the Division of Revenue Bill. The reason was that the staff of National Treasury would still be in Cape Town. Parliament has never rushed a DORB and it comes to Parliament in the form seen at the present meeting. It will not be rushed. He explained that it is going through a six week cycle in the National Council of Provinces (NCOP) and it will deal with that cycle on the formal tabling of the Bill as announced in the ATC. During the week of 15-18 March provincial briefings would be done, on a date set by the provincial legislatures, as passed on to the NCOP. Negotiating mandates will come from the Provinces within a specific timeframe according to the Act, as well as final mandates on the DORB. Only after that will the Bill be considered and adopted by the NCOP.

Mr Niels Van Rooyen, Chairperson of the Finance Committee of the Free State Provincial Legislature, agreed with Mr de Beer’s explanation regarding the six week cycle. He emphasised that this meeting had been taking place regularly on the Friday following the tabling of the DORB each year  by the Minister. His problem was that the provinces have sent people to listen to NT's briefing so that they could return to the provinces fully understanding what the division of revenue for this year will be. If this meeting did not go ahead, there would be fruitless expenditure on the part of the provinces. For this reason he appealed that the meeting should proceed to the briefing; it was only a briefing and there was nothing sinister or final about it.

Ms T Motara (ANC, Gauteng) said her understanding was that this was to be an informal briefing by National Treasury. It was not in contravention of any legislation for it was simply an opportunity for the Provincial Legislatures to interact while NT officials are still present. As explained by Mr de Beer, there would be nothing contrary to the Money Bills Act and she would support the briefing proceeding.

Mr M Figg (DA) said this was not an informal briefing, as some Members suggested. He took the point about the need to save costs, but that would not be reason for Members to act unlawfully. The programme did not suggest that this was an informal meeting, and Members had to ensure that any meetings would be in line with the Money Bills Act. There is no need to rush this process; the Committee had time until 12 May 2016. It would be unacceptable for the meeting to proceed, for the reasons outlined by Mr Maynier. The DA would not consider anything illegal. Whilst he understood that it was difficult for some people to get to Parliament from the provinces, the correct procedure should be followed under the legislation.

Ms C Madhlopa (ANC) said it would important for Members to get information as early as possible so that they can look into the gaps around the DORB. She did not think it was correct to suggest that there was something illegal about getting information. The information would assist Members to understand the legislation and identify any gaps. She agreed that it would be wasteful expenditure for the provinces if the Committee decided to postpone the meeting. She would argue that the meeting should continue, and reiterated that the giving of information in no way was illegal and merely permitted Members to prepare themselves.

Mr Maynier wanted to deal with these arguments in turn. In relation to the suggestion that there could be wasteful expenditure, he pointed out that the Programming Committee had been aware of this issue for weeks and should be held responsible. The suggestion that the Committee should proceed because by convention the Committee had always sat on the Friday after the budget was not a response; that did not excuse any illegality and raised the question as to why this happened. Nobody had answered him on his difficulty with Joint Rule 159 and the fact that this is not a draft Bill and this briefing is on a tabled version, not a draft. Even if the Committee chooses to proceed in a manner which is inconsistent with the Money Bills Act, it will still also be acting inconsistently with the Joint Rules of Parliament. Finally, to claim that this is not a formal briefing was ridiculous, because NT had prepared a detailed document and it would be a formal briefing on a Bill. He urged that “it is time for Parliament to get its Act together” and act in terms of the Rules and legislation.

The Acting Chairperson said this is an information session and no report would be adopted. He said that there would not be a change of dates by which the Bill must be adopted. He wanted Members to note that this was simply an information session, to allow Members to receive information so that when they started with the actual procedure for the DORB, they would be prepared.

Ms S Shope-Sithole (ANC) pleaded that the meeting go on. The Minister of Finance had asked that things be done differently in Parliament. The economic climate in the country and the world was not very favourable and Members needed to understand how they will hold the executive to account, and the more briefings, the better if they helped Members to know what was happening when dealing with the fiscus and scarce resources. She understood Mr Maynier's points, but pragmatically, the provincial representatives were present and they too needed the information timeously, so that they can research and ask the necessary questions, in order to do what would be prudent when applying their minds to the Bill.

Mr V Mtileni (EFF) said if this was really an information sharing session, he would agree to proceed. However, at some point the Committee would be expected to interact with the presentation and this may lead to proposals being debated or agreed upon. Once these types of interactions happened, then clearly the session was not solely for information sharing. If no decisions would be taken, he would not object to the meeting proceeding.

The Acting Chairperson said any information session included clarity seeking questions, but not decision taking.  Seeking clarity on issues being discussed does not override any procedural requirements. He called for legal advice so that the meeting could proceed.

Mr Maynier asked for confirmation whether the meeting was sitting under Joint Rule 159. If so, then he wanted to have the draft Bill to be considered.

The Acting Chairperson said Mr Maynier should not raise purely technical points. He had a Bill in front of him already.

Mr Maynier replied that seeing that this was so, the meeting could not be said to be taking place under Joint Rule 159.

Mr de Beer supported the motion that the meeting proceed. He asked Members to note that there would be public hearings on the DORB on 12 April 2016. As part of the NCOP process, negotiating mandates must be in on 19 April, with final mandates set for presentation on 26 April. The NCOP would take a decision on the DORB on 28 April. No legislation was being rushed and Members should stick to the programme, as adopted by the Programming Committee. He proposed that the Committee should hear the legal advice.

Adv Frank Jenkins, Senior Parliamentary Legal Advisor, said many correct points were raised. The purpose of the meeting was to receive a briefing on the DORB. In his view this was in accordance with the powers of committees in the National Assembly and NCOP, as they are empowered to receive representations and submissions within their mandates. In other committees, briefings had been given on proposals or policy issues that had not even been put into draft Bill format, and National Assembly Rule 138 and NCOP Rule 103 did give committees the power to receive such briefings, submissions or representations. He would not even go to Joint Rule 159.

Mr Maynier said that was the rule under which this meeting had apparently been constituted, according to the ATC. He repeated that if this was so, then he wanted to see the draft Bill.

Adv Jenkins said that the ATC refers to the referral of the draft Bill, and there is a purpose for that under the Rules of the National Assembly. Very seldom, in his experience, will there be a briefing to discuss a draft Bill, because the draft Bill is there, as set out in the Rules, to aid the Committee in planning and for Members to familiarise themselves with it. The present briefing, according to the Z-list, which is part of the ATC, is in the nature of a submission to the Committee.

He commented on the Money Bills Act procedure. The DA was arguing that the Committee cannot consider the DORB, because it has not been referred, and this could happen only once the fiscal framework is approved by both Houses. That argument is correct, but then it is necessary to decide what “consideration” means. In his view, consideration implied the Committee going through the Bill, with a view to adopting the clauses, making decisions that will lead to a report. The Money Bills Act did say that “consideration”  - a formal consideration of the division of revenue and writing of the Report - would only happy after approval of the fiscal framework. In his view it was lawful for the Committee to receive a briefing from National Treasury, or even to hold public hearings. Some might disagree, but he was not convinced that there was any problem, because of the broader power in the Rules to receive submissions on Bills which have been published. It must be remembered that the Bill has been introduced, and therefore it is public knowledge, and the public can make submissions on that. In sum, he did not feel the Committee was hampered by any legal issue from proceeding in line with the Z-list.

Mr Maynier asked for Adv Jenkins to clarify that he had said that the Committee cannot sit to consider or report on the DORB, because it would be inconsistent with the Money Bills Act. However, the Committee can presumably meet under Joint Rule 159 to consider a draft Bill.

Adv Jenkins said that was true, but he then asked why a Committee would want to consider a draft Bill, instead of using this time to programme and prepare itself for an upcoming Bill. He repeated that the meaning of “consider” meant having something in front of the Committee, on which it must make decisions. That was part of the legislative process. The present meeting was not considering a draft Bill. It was a briefing on a Bill. The Committee would not, however, be proceeding formally to “considering” the issues of the Bill. He reminded the Members that the legislative process is partly written and partly unwritten. The latter involves going to caucuses and discussing the content of legislation, in preparation for the formal consideration. That was not prohibited by the Money Bills Act either.

Mr Maynier said if the Committee was not meeting under section 9 of the Money Bills Act and it was not meeting under Joint Rule 159, then he wanted to know what legal authority and under what rule  this Committee was meeting.

Adv Jenkins said he would argue that it is under NA rule 138 and NCOP rule 103. This was a joint meeting by virtue of the rules allowing Members from different Houses to confer; that was set out in both NA rule 139 and NCOP rule 105. He would interpret that the Committees can, on instruction of the House, sit together and that was what is on the Z-list. NA rule 138 reads: “Committees may receive petitions, representations or submissions from interested persons or institutions and it may permit oral evidence on petitions, representations or submissions”. As the NCOP has a similar provision he would argue that that allows the Committee to proceed.

The Acting Chairperson ruled that, having listened to the submissions by the Members and the legal advice, the meeting should proceed. The briefing should be received, clarity sought where necessary, but no decisions would be taken, because this is an information session which will aid Members with the navigation through the formal adoption procedure.

Mr Maynier asked for the DA’s objection to be recorded. The DA believed the procedures to be irregular and would not participate.

The Acting Chairperson said the objection would be recorded, and it is the DA’s right not to participate.

National Treasury briefing
Ms Malijeng Ngqaleni, Head: Inter-governmental Relations, National Treasury, gave the background to the Division of Revenue Bill over the Medium Term Expenditure Framework. The DORB is drafted in fulfilment of the equitable division of nationally collected revenue under section 241(1) of the Constitution. The Intergovernmental Fiscal Relations Act requires the memorandum to the DORB to include a statement of how account is taken of the matters in section 241(2)(a) to (j), the extent to which the Financial and Fiscal Commission’s recommendations were taken into account, and to set out any formulae used to determine equitable shares.

Ms Ngqaleni spoke to a table highlighting the division of revenue between the three spheres of government. National government departments received an average increase of 5.3%, provinces received an average increase of 7.3% and local government received the highest growth at 8.1%. The total share of revenue received by national departments is set to shrink over the MTEF from 48.9% to 47.4% by 2018/19, while the provincial share is set to grow from 42.2% to 43.3% and the local government share grows from 8.9% to 9.3%.

She then spoke to a chart which showed the reductions, since the Medium Term Budget Policy Statement (MTBPS) framework, which was set to allow for the reprioritisation of funds towards emerging priorities and fiscal consolidation. The provincial equitable share was initially R49.1 billion above the 2015/16 baseline, but this was reduced by R14.9 billion. The conditional grants to provinces were cut by R3.3 billion. The local government equitable share was increased by R6 billion in the MTBPS, but this was reduced by R1.8 billion. Local government conditional grants were reduced by R1.8 billion. The framework reflects R17.8 billion which could be allocated in 2017/18, and the decisions around the allocations would be made during the 2017/18 budget process. R5.8 billion and R4.5 billion were allocated to provinces and local government respectively.

Ms Ngqaleni turned to the net changes to transfers post-MTBPS for provinces and local government. There would be a net addition of R33.7 billion to the provincial equitable share. Changes to conditional grants included the following: additional funding to support TB treatment, the roll out of Ideal Clinics and improved IT systems in NHI pilot sites. There is also a new grant to fund early childhood development (ECD) in 2017/18, with 2016/17 being used for preparation. Further, there is a planned merger of the indirect grant for school infrastructure with the direct grant for basic education infrastructure. Lastly, there are incentives for road maintenance aimed at improving its spending. 

In relation to local government grants, there is a net addition of R4.2 billion to its equitable share. There is a change in the demarcations which will come into effect after the elections and therefore the allocations have been aligned to the new boundaries. An allocation of R409 million was made for the municipal demarcation transition grant. Various reforms are proposed to the infrastructure grants for local government, including allowing for greater emphasis on refurbishment and sustaining infrastructure, consolidating water sector grants and enhancing differentiation between urban and rural grants.

Ms Ngqaleni said that because there have been cuts to the allocations post-MTPBS, there will be some pressure on local government and the provinces, because the growth in the allocations will not be high enough relative to the growth in costs. This therefore calls for increased efficiency in those spheres of operations. Some of the agreements reached between the Ministers and MECs will be reflected in the provincial budgets, such as moving to capping costs and not impacting core service delivery, but addressing waste in the system. Some of the measures agreed upon will include continuing to control the number of employees appointed for non-frontline services. Part of the cuts will come from a reduction in the wage bill, but there will also be a review the numbers to ensure there are no ‘ghosts’ in the system and to deal with incapacities, in a move towards greater efficiency. Further measures will include reviewing and rationalising provincial public entities, making further reductions in non-core goods and services, and reducing transfers to provincial public entities. There may be delays in some infrastructure projects, to ensure maximum efficiency in the spend. While there are cuts to infrastructure budgets, there has also been under spending, which is greater than the value of the cuts.

There were also be greater efforts to improve billing and revenue collection, because this is one area where municipalities are losing money. Investments in repairs and maintenance will help, because municipalities lose money through loss of water and electricity, which are critical resources and a revenue source. There is also a call to have their budgets and spending plans properly aligned to their staffing requirements, as this pertains to the service delivery functions. Some of the municipalities’ viability problems are due to the high costs embedded in their bloated organisational structures, which are not fit for purpose. Therefore, NT needs to look at their organisational structures to see where costs can be saved, as is being done at the national level. Another area will be cost containment measures.

Layout and Changes to the Clauses of the Division of Revenue Bill
Ms Ngqaleni moved on to the layout of the DORB, saying the Bill has three parts. The first part contains the clauses and the various schedules, which will be enacted into an Act. The second part is  an explanatory memorandum. The third part sets out the conditional grants framework and annexures with allocations by municipality. These last two parts would not be included in the final Act. The conditional grants framework and annexures will be given legal force by being gazetted separately.

Ms Ngqaleni then highlighted important clauses in the DORB.  The DORB sets the rules for transfers to provinces and municipalities. The draft DORB 2016 was circulated twice to national departments, provinces, South African Local Government Association (SALGA) and the FFC. A large part of the Bill remains the same annually, but some changes are made in light of policy revisions, as will be  necessary to improve the performance and management of the grants.

The first change was the gazetting of human settlements allocations to cities - particularly those which have received level one and level two accreditation. Clause 10(10) requires provincial departments who receive the grants from national departments to gazette the transfers for the Human Settlements Development Grant (HSDG). This must be done before the grant can be transferred to provinces. It will ensure that municipalities receive the benefit of the three year allocations, and provides more certainty, allowing them to plan better, and hopefully then also to achieve better performance. It will also give effect to the level two accreditation which gives municipalities the responsibility for planning, prioritisation and project management.

The second change is that there are now clauses which deal with responses to disaster relief, as a result of the drought. This will allow for the reprioritisation of funds within the same grants. The National Disaster Management Centre will have to agree that such reprioritisation is necessary, and NT approves it. NT will have to ensure that the reprioritisation does not undermine existing commitments.

The third change is a clause aimed at responding to failures to comply with the procurement procedures. It specifically applies to municipalities. Where they fail to adhere to the Municipal Finance Management Act (MFMA) that allocation can be converted from a direct or indirect grant. This therefore allows national government to implement the projects on behalf of the municipalities.

The fourth change was a clause inserted to deal with the municipal elections, because NT is unsure that the elections will take place. Allocations in the Bill were to be in line with the new demarcations, but these will only take effect after the elections. If the elections happen on 1 July 2016, the clause allows Treasury to re-gazette portions of the allocations toward the current municipal demarcations in the interim.

Finally, NT had clarified the provisions for withholding and stopping of allocations. This links the provisions to the Constitution and provisions of the MFMA.

Provincial Budget Framework
Ms Dumebi Ubogu, Director: Provincial Policy and Planning, National Treasury, said  there has been a net increase to provincial equitable shares over the MTEF, of R33.7 billion. This is R14.9 billion lower than the 2015 MTBPS estimates. R3.3 billion has been reprioritised to fund emerging priorities and R11.6 billion trimmed to support fiscal consolidation. Taking the equitable share and conditional grants together the total transfer to provinces is R499.8 billion.

Ms Ubogu moved on to the components and weights of data used to determine the changes to each province’s equitable share every year. Education, at 48%, and health, at 27% , take up the largest portions. The education component is informed by the school going age population and school enrolment figures received from the Department of Basic Education (DBE). Health is adjusted through data received from the Department of Health (DOH) and risk adjustment data held by National Treasury. The basic component at 16% is determined using the mid-year population estimates. The institutional component is to deal with administrative costs and is divided equally among all provinces. The poverty component reflects where the poorest population in South Africa is, based on Statistics SA data and the mid-year population estimates. Lastly, the economic component, accounting for 1%, is based on regional GDP across provinces.

Ms Ubogu spoke to a table listing the equitable shares for all provinces, adjusted in line with the latest data. The distribution of the equitable shares is by component and is then calculated into a weighted average, giving the provinces a weighted average equitable share. However, NT are cognisant that for planning purposes there needs to be a form of transition to the new equitable shares, especially if they are changing rapidly. Therefore, there is a three year phasing in period to get to the new equitable shares. For example the 0.1% reduction in the equitable share for the Eastern Cape will be phased in over three financial years. At time of most recent data updates to the components, the biggest changes under the education component were Gauteng increasing by 0.13% and Kwa-Zulu Natal decreasing by 0.16%. This was done for all the components. The overall impact of the change in equitable share shows Kwa-Zulu Natal and the Free State experiencing the biggest decreases at 0.06% and 0.05% respectively, and Gauteng and Mpumalanga experiencing the largest increases, at 0.14% and 0.02% respectively. 

Ms Ubogu moved on to a breakdown of the provincial conditional grants, saying there is a net increase in direct and indirect grants of R1.4 billion. The scope of the Comprehensive HIV/AIDS Grant has been expanded to cover the treatment of tuberculosis. The National Health Insurance (NHI) Indirect Grant was expanded to fund clinic upgrades. Incentives were introduced into the Provincial Roads Maintenance Grant to reward best practice. The indirect School Infrastructure Backlog Grant is to be merged into the direct Education Infrastructure Grant from 2017/18. A new conditional grant is being introduced in 2017/18 to improve early childhood development (ECD) services, and this is valued at R813 million over the MTEF.

She turned to the reduction of certain grants, saying grants in the human settlements have been reduced by R1.6 billion in 2016/17, over a base allocation of R18.3 billion in the same year, and R350 million is being used to eradicate the bucket system. The Comprehensive Agricultural Support Programme is to be reduced by R210 million over the MTEF, from a baseline allocation of R5.2 billion. The Health Facility Revitalisation Grant will be reduced by R365 million over MTEF, which is about a 2% reduction and is in line with previous underspending. She then spoke to a detailed table depicting a breakdown of the total allocation of approximately R90 billion for 2015/16, per grant.

Ms Ubogu turned to interventions by provinces to implement cost containment measures, in line with the adjustments to the MTBPS baselines. The staff headcount had dropped by about 21 000 since 2012. Non-core and non-capital expenditure had been reduced, with a nominal 2.4% reduction in travel costs and 26.75 on hiring and rentals between 2012/13 and 2015/16. Provinces had made commitments to improve not only the composition of spending but also to deliver services more efficiently. This includes making use of head counts, rather than payroll exercises, to eliminate inefficiencies and the rationalisation of public entities and small departments. There has been a commitment to improve and incentivise revenue collection.

Local Government Budget Framework
Mr Steven Kenyon, Director: Local Government and Budget Framework, National Treasury, spoke to the changes in demarcations, which would be a major event for the allocations this year. Aside from the headline-grabbing changes to municipal boundaries, there are also a number of smaller changes. All of the data used in the allocation formula have been changed. StatsSA had looked at the census information and reallocated the population according to the new demarcations. In the equitable share formula, the updated data was being used to determine the allocations. There had been additional assistance of R409 million allocated to the municipal demarcation transition grant in 2016/17, to assist with any difficulties. The provincial Departments of Cooperative Governance and Provincial Treasuries are working together to determine assistance on a case by case basis.

He pointed out that it was a major task to merge two municipalities, bringing all the property valuation roles, organograms and other aspects together, and this was what the R409 million would be used for. All of the allocations have been updated and NT has tried to be as generous as possible to those re-demarcated municipalities. In the equitable share there is usually a guarantee that the recipients should get at least 90% of what was indicated in the previous year’s Bill, but this has been raised to 95% for 2016/17. The councillor remuneration subsidies have also been recalculated, to be as generous as possible. The new clause 38 is designed specifically to take into account that the re-demarcations will take place following a municipal election, after the start of the financial year.

He explained that the allocations in the Bill  have been done according to the new municipal boundaries. For example, Camdeboo is usually the first municipality listed, but this year it will absorbed into neighbouring municipalities and there will simply be a new code for that area, which is EC101. If the election takes place after 1 July, then all the existing municipalities will remain in place between 1 July and the elections. Section 38 allows NT to re-gazette allocations for that period and requires the shares to be pro rata. NT will have to determine what portion of the households of the old municipality live in the new municipality and were processed through the equitable share formula for the time that had lapsed since the beginning of the new financial year. The proposed section also provides for change management committees, which have been set up in affected areas to do the preparatory work and to submit draft business plans, so the municipalities can receive conditional grants. NT has tried to do as much as possible in the DORB to allow work to continue and the municipalities to be functional from day one.

Mr Kenyon spoke to a table depicting the local government budget framework. There was still quite strong growth over the MTEF period, with local government’s share of the division of revenue increasing from 8.9% to 9.3 %. The equitable share is the largest portion of the framework, allocated through a formula to ensure fairness. 2016/27 is the second last year of a five year phasing in period for the present formula. R37 billion is allocated to free basic services, with a subsidy of R345 per household per month for all households with an income of less than two old age pensions. R10.2 billion has been allocated towards institutional costs and community funding.  That is only allocated to poorer and more rural municipalities. There have been reductions in the equitable share since the MTBPS. In 2016/17 there is a reduction of R300 million, which is only 0.6% of the value of the formula. NT noted in the budget review that this could easily be made up through improved efficiency in municipalities. If the eight metros alone reduced their water and electricity losses by 4.5% this would make up that amount. The allocations still increase in the outer years by R1.5 billion in 2017/18 and R3 billion in 2018/19, to assist with the rise of basic services. These are set to increase sharply, for example bulk electricity and water increases of approximately 8% per annum.  As cost pressures grow faster than the total allocation, NT has consulted with the South African Local Government Association (SALGA), Department of Cooperative Governance and Traditional Affairs (COGTA) and the FFC to ensure the shortfall is spread fairly. Lastly, he noted that while the equitable share funds services for 9.2 million households, only 5.3 million reportedly receive free basic water, according to StatsSA's non-financial census.

Mr Kenyon said some of the changes as a result of the local government infrastructure grants review were announced during the MTBPS. The review was conducted by NT, SALGA, COGTA and the FFC. Changes in the 2016 DORB noted by the Minister included allowing municipalities to use conditional grant funds, such as the Municipal Infrastructure Grant (MIG) to refurbish existing infrastructure. There is also a move, particularly around water grants, towards grant consolidation, because the FFC has noted that there has been “grant proliferation” in the past. In future, there will only be two water and sanitation grants: one for bulk, and one for reticulation and on-site services. There is also a move towards increased differentiation, such as allowing aspirant second cities to apply to be on a different planning regime, giving them the flexibility to respond to urban development issues. Thirdly, a new formula has been introduced for the Public Transport Network Grant, which brings a much clearer ideas of what cities’ planning envelopes are. The old formula had incentivised cities to plan expensive systems in the hopes of receiving funding. This will allow cities to plan more sustainable and affordable infrastructure upgrades.

Mr Kenyon said funding for sport infrastructure has been contentious for a while and the P-component comprising 15% of the MIG had been ring-fenced for this purpose. None of the stakeholders, including the Portfolio Committee on Sport and Recreation, were very happy with the way this approach had been implemented. NT had agreed with the Department of Sport and Recreation (SRSA) and COGTA on a new approach which allows R300 million to be ring-fenced and allocated separately to the MIG. The money is still part of the MIG, but is allocated separately to projects identified by SRSA. These are spread throughout the country and listed in an appendix to the DORB. It is in the framework of the MIG that municipalities are to use transversal contracts to be set out by SRSA. There is still a portion of the P-component which must be used for sport infrastructure projects identified in municipal integrated development plans (IDPs).

Mr Kenyon then spoke to other changes to conditional grants. Over the MTEF there would be about R11 billion from indirect to direct grants in the water and sanitation space, to allow municipalities with capacities to implement the projects themselves. For the first time there would now also be a direct portion of the Regional Bulk Infrastructure Grant, so that municipalities can implement those projects themselves. The closure of the Bucket Eradication Programme Grant had been extended for one year, to allow for completion of this work in formal residential areas. Sanitation upgrading in informal settlements is being funded as part of the broader informal settlement upgrade funding programme. Lastly, the Municipal Systems Improvement Grant, as announced in the MTBPS, will become an indirect grant and will be focused on the weakest capacity municipalities, because it previously had a very diluted impact.

Response to Recommendations of Parliamentary Committees
Mr Kenyon said NT had some updates to give the Committee, on the recommendations made regarding the 2015 DORB. These included the following points:

a)  NT must ensure the budgets of various spheres of government need to comply with the priorities. He reported that NT had worked closely with the provinces in the preparation of this year’s budget and there had been a number of engagements between the Treasuries, the Minister and the MECs for finance. The result was largely seen in the cost containment measures. NT will be issuing an MFMA circular to set more stringent cost containment guidelines for municipalities.

b) NT must take innovative steps to overcome concerns about reductions in conditional provincial grants to increase efficiency.
He noted that the budget review speaks to how new procurement standards, issued in December 2015, will allow officials greater flexibility to negotiate lower prices. This should go a long way in compensating for reductions in grants

c)  There were many points raised around withholding of funds and municipal debt, including a request for a discussion amongst all stakeholders, for a sharing of the results with Parliament, and a call for  NT to develop systems and mechanisms to ensure that state agencies settle their debts with municipalities timeously.
He reported that NT has had a number of interactions with stakeholders and a joint report is being complied which will be tabled by the Minister. Further, the Department of Public Works is heading a process which is making good progress in settling old debts.

d) A recommendation that conditional grants be phased out.
Mr Kenyon reported that the Occupational Specific Dispensation for the Education Sector Therapist Grant was only ever rolled out for two years and it had achieved its purpose, so that it could now be reincorporated into the equitable share for provinces. The Municipal Human Settlements Capacity Grant had ended, although Metros are allowed to use up to 3% of the Urban Settlements Development Grant ( about R300 million), for capacity-building. NT had engaged, as requested, with the Department of Human Settlements and SALGA.

e) NT was requested to provide assistance to ensure that provinces qualified for the infrastructure incentives for education, health and roads, with an emphasis on provinces which have performed poorly.
He reported that this had been done, that technical assistance had been provided and NT carried out workshops with municipalities, pointing out where they had performed well and where they could improve. NT had noted a significant improvement in the quality of plans coming from those provinces.

f) There should be a greater government focus on local government infrastructure grants to improve performance. particularly around water and sanitation, monitoring and reporting systems, and the planning and rolling out of road infrastructure.
Mr Kenyon noted that this was taken into account in the Budget Review process and the water and sanitation grants had been restructured and merged. He noted that the Committees were particularly concerned about the planning in the Department of Water Affairs and Sanitation. Whilst this was not so apparent in the grant framework, he noted that within this department there was a commitment to bringing together its macro-planning and infrastructure grants management units, to allow for a closer working relationship. In relation to road maintenance, the Municipal Infrastructure Grant funds could be used for refurbishment, and not just for the construction of new roads. This must be planned through the road asset management unit, which is funded through another grant. 

Mr Kenyon then also dealt with the comments made by the Committees at the time of the MTBPS and Division of Revenue Amendment Bill. He noted the following points:

- NT had, as requested, reviewed the application of the provincial equitable share in this year.
- There had been a request to correct the National Health Grant framework, which had now been approved and would be gazetted
- Concerns were raised by the Committees around ECD, with the request that NT must engage with Ilifa Labantwana, This had led to new grant being allocated over the MTEF for ECD
- The Committees recommended that NT must strengthen its oversight over provinces. National Treasury agreed and it is working on its mechanisms, particularly the benchmarking of provinces
- The Committee recommended that NT strengthen compliance with conditional grant frameworks, to ensure the funds were not used for any other purpose. NT and the sector Departments which are the transferring officers monitored expenditure on a regular basis. The Auditor-General was asked also to determine if the funding had been spent properly. If funds had not been used for the dedicated purpose, then they were considered unspent, and would need to be returned to the National Revenue Fund.
- Funding shortfalls in compensation of employees in provinces had been noted, and the  Committees had requested more detail on how provinces were able to reprioritise within their own budgets. The Budget Review set out a number of measures;  such as hiring freezes, greater control of the PERSAL system and consideration of who leads appointments. Declines in goods and services and rental spending had also assisted. Further reductions are expected in compensation budgets. The provinces will look to Treasury and the Department of Public Service and Administration to develop a national strategy around headcount interventions
- There had been a request by the Committees that NT must ensure the alignment of the Municipal Demarcation Transition Grant spending and objectives, and in particular that it should only be used to defray administrative costs related to the demarcations. The Grant’s rules were very strict in this regard. COGTA – which was the transferring department, will monitor closely, along with the provincial departments which are providing direct support.

Government's Response to the Financial and Fiscal Commission Recommendations on the Division of Revenue
Ms Ubugo reminded the Committees that on an annual basis, the FFC is required to make recommendations on the division of revenue. Government’s responses to these recommendations are annexed to the DORB. This year, the recommendations included the following points:

  • Government should restructure infrastructure grants and enhance efficiency in infrastructure procurement, to foster infrastructure led growth.
  • Government should improve the economic growth effects of municipal capital expenditure, should prioritise grant allocations for growth producing infrastructure, establish an incentive grant or a reserve fund for asset management, and fund technical assistance to allow municipalities to prepare and implement credible Infrastructure Asset Management Plans.

Ms Ubugo said NT agreed with the importance of the links between infrastructure and economic growth. Government is already implementing some of these proposed changes, including the outcome of the Local Government Infrastructure Grant and procurement reforms.

The FFC further recommended that, in order to better manage direct and indirect conditional grants, government should consider conditional grants only as a last measure, should develop clear criteria that will guide the scheduling of conditional grants, and develop an accountability framework from indirect infrastructure grants.

Ms Ubogu noted that government agreed with this and with the need to develop a clear policy framework around management of indirect grants.

FFC recommended that when financing ECD, government should provide a capital subsidy for constructing or upgrading ECD facilities. Government's response was to have a new grant for ECD, but the functional issues around the responsibility for ECD persisted. Between NPOs, local government and provinces, there were some complexities.

FFC next recommended that in order to improve public sector productivity, government should implement the finalised framework on measuring productivity. Ms Ubogu noted that NT agreed that improvements in productivity would be necessary, in order to deliver value for money under trying economic circumstances. Once the productivity framework proposed by the FFC is approved, government will review how it can best be applied.

The Acting Chairperson reminded the Committee that in respect of the recommendations made by the Committee on the 2015 DORB and responses, a decision had been taken not to amend the DORB, but rather to propose areas where improvement is needed – and that was what NT was now reporting on. He reminded Members also that the  former Minister of Finance had written to the Speaker of the National Assembly in response to the Committee’s recommendation, and that NT was now responding what had been done.

Mr Mtileni spoke to slide 7 and the delay on infrastructure projects, asking whether it is not contradictory that part of job creation will be coming from infrastructure projects, whilst the presentation speaks to delaying infrastructure projects. On slide 11, it is clear that the response to corruption is in relation to local government, and he asked whether this was suggesting that that corruption only occurred at the local level, and that there are no procurement irregularities in national and provincial government?

Mr van Rooyen firstly asked where, in the Bill, the Community Service Grant ring-fenced for poorer municipalities was to be found. He referred to page 33 of the Bill but noted no change in allocation for Gariep, thus asked where the money allocated was mentioned. On page 76 of the Bill, it was noted that there was provision for cushioning, with all provinces are giving towards the R2.7 billion, but a quick calculation showed that the Free State would be getting only R171 million, while it was giving R330 million. He would like clarity on what the contribution of the Free State was. He asked if the Road Maintenance Incentive was to be phased in or implemented immediately.

Mr de Beer said the fiscal framework sets the basis for the allocation of revenue, which was why the present briefing was so important. He noted that he had fifteen ECD centres in his constituency, but there were issues around the payment of practitioners in these facilities. NT conceded that while it is seeking to increase ECD infrastructure funding, there were ongoing functional issues in the sector. He urged that this must be sorted out as a matter of urgency, since ECD centres form a key component of a child’s foundation phase learning. Furthermore, he stressed that Members should visit ECD centres during their constituency work and check whether they were equipped to do what they were supposed to do.

Mr de Beer said that the withholding of the equitable share, especially from the small municipalities which are often not financially viable, is a problem. It was important to monitor the spending of the equitable share throughout the year, because the municipality would otherwise get a letter from NT stating there has been non-compliance and therefore the equitable share is being withheld. Speaking to the R345 per household for free basic services, he asked how Members could be assured that this funding reached the poor households in every municipality, and whether there was a reporting format. Members would have to do oversight over the funding for sports facilities being ring-fenced, and municipalities should report in a different form to NT, to show where the money went. The Committees will have to intensify their oversight both within and outside Parliament, to determine if South Africa is getting value for money at grass roots level. Lastly, he pointed out that page 63 of the DORB set out the consultation process for the DORB, for the guidance of NCOP Members who would brief their provincial parliaments. All nine MECs for finance sit in the Budget Council, with the head of Departments, and the Minister and Deputy Minister. Provincial Chairpersons of Finance have to take on the MECs if there are any disputes, because they agreed to the DORB.

Mr A Shaik-Emam (NFP) asked how sincere government was on trying to minimise water and electricity loses at the local level. In Ethekwini, there are 44 000 households who steal for water every day, with the fact and the people involved known to government, yet despite the plans and the stated intentions, the problem persisted. Speaking to losses through procurement and tender fraud, he expressed the concern that at times Members concentrated overly on the big amounts, but he would have thought it better to look more deeply into smaller tenders, which involved three quotations rather than a full tender process. He noted that the purpose of re-demarcating the municipalities was to reduce the numbers and make them more efficient, and he asked if NT thought there was a chance of reducing the provinces at any point? He was concerned about the implementation of the framework on measuring productivity, because he had found that there is a constant duplication of structures to make sure someone checks up on those at lower levels who are not performing. Whilst the intentions were good he wondered about the cost implications. Speaking to issues of fraud, corruption and wasteful expenditure, he pointed out that Members played a major part, because there was, in respect of constituency allocations to political parties, absolutely no control to see where that money goes and whether those offices are in fact open. He had tried to find out whether there was anything that could be done, only to be told that it is all up to political parties. A lot of tax payer money was being allocated to political parties for constituency work, and he asked how restrictions could be put on that money so that it was used for its intended purpose.

Ms Shope-Sithole said she was happy to hear that if allocations were not being spent in line with supply chain prescripts, that money would be considered unspent and would have to be returned to the National Revenue Fund. She hoped that NT was communicating regularly with municipalities and departments, not relying upon the Auditor-General because by the time the audit report was ready, many things may already have gone awry. She would prefer seeing NT doing proper monitoring and evaluation on a continuous basis, as figures that came to NT monthly should be able to give a picture. She also suggested that on a monthly basis, there should be work done with the Portfolio Committees on Local Government and Finance, to make sure funds are traced on time. The Minister appealed that things should be done differently and the Committee should walk the extra mile.

The Acting Chairperson said that essentially the questions raised were grouped into two concepts. The first related to matters which needed tighter oversight by the parliamentary Committees. Mr Shaik-Emam's last question was more of a political question which political parties should deal with, but he invited NT to respond to his other points. Ms Shope-Sithole had raised a key point around the tightening of inter-governmental reporting and fiscal relations. 

Ms M Manana (ANC) said that page 8 had indicated that there was a meeting between MECs and National Treasury, where it was agreed that municipalities must improve on billing and revenue collection.  SALGA had argued that this was a problem due to lack of capacity, so she questioned whether the Committee and NT now were sure that there was indeed capacity for municipalities to improve and do everything that they were supposed to do. She fully agreed that there should be information about corruption at provincial level, not suggest that it happened only in municipalities. She agreed with Mr de Beer that ECD was crucial and was not pleased with the response of NT. This was a matter long overdue and some ECD centres in rural areas were not healthy or conducive to educating children.

Ms Ngqaleni answered the question on infrastructure projects, confirming that infrastructure is important for growth and that is why the infrastructure allocations in the past years have increased very fast. Unfortunately, they have increased faster than the capacity of Departments to spend. Given the need for fiscal consolidation, money had to be found somewhere. Some of the reductions made to infrastructure are less than the amounts by which the grants have been underspent in the past, and for this reason the reductions would not in fact have a major impact on how much government will be able to deliver. In a sense, the allocations were perhaps being better aligned with the capacity to spend. NT was also saying that a municipality may be performing so well that it cannot keep itself funded through re-allocations, which is when there would be delays.

She maintained that nobody was suggesting that local government was the only corrupt sphere, but there was now a specific measure to enable national government to respond where there is clear evidence that money is not spent in accordance with the purpose for which it was allocated. This response may also relate to capacity to spend, because there are always issues around procurement, particularly where there is no will to tap into the negotiated contracts, such as in the sports environment. This will give an opportunity to reduce procurement delays. National government,  which distributes the money for a set purpose, needs to be empowered to take action where there are procurement delays. Other reforms will be monitored by the Office of the Chief Procurement Officer. Standards have been issued for the procurement in schools, and all provinces need to comply. Some of the grants are already indirect grants, so that departments can intervene if there is a problem; the issue is around trying to enhance the process and avoid some of the problems with supply chain management.

In relation to the Community Service allocation, she explained that NT was trying to provide a breakdown of the components which make up the equitable share allocations. The first part relates to free basic services, which are allocated to every household who earns less than two old age pensions. Some components in the equitable share formula go only to the poor, and subsidise those municipalities which do not have strong revenue raising capacity. This allocation is meant to be used to cross-subsidise activities which do not earn any income, and the institution. R6.1 billion which funds community services is reflected in the presentation, but it is part of the equitable share.

She further explained that the cushioning of the equitable share was not “a free ride given to provinces”. When the new census data became available it became clear that the strong urbanisation element had resulted in strong demographic shifts from more rural provinces. The money followed the demand for services. As the formula is updated with the new demographic information, it becomes clear that some provinces need to cut costs, because they are receiving less money. Because these provinces may not be able to respond as quickly as necessary, the cushioning was introduced by agreement by the Budget Council, to allow some money to go towards the provinces losing significantly. It was not intended to compensate fully for the reduced share resulting from shifts in demographics. The intention was to have provinces gradually reduce their costs. That cushioning was supposed to fall away, but was extended for the current year. A review of the formula is under way, to start in 2017.

Ms Ngqaleni then spoke to the road maintenance incentive and explained that levels of government are given two years to plan to qualify for the incentive. That is what would happen here. For 2016/17 and 2017/18 there will be clearly stipulated requirements which the provinces would have to meet, in preparation for the allocation in the third year of the MTEF. The same applies to the education and health grants, where actual allocations will start in 2016/17. This is an important mechanism for it incentivises the provinces to do the right thing. R10 million has been provided to provincial Departments to capacitate them, and then they should be able to follow the planning guidelines. If they do that, then they will qualify. NT believes this is fair. Municipalities have been given support to make the grade.

She noted that the reason why money is being added in the outer years for the ECD is in recognition of the problems, particularly in those ECDs which service poor or rural children. There are issues around infrastructure, and the numbers of centres, which may need to increase. The Department of Basic Education is looking at how best to deal with this. There may be issues in government  upgrading an infrastructure asset which does not belong to the state. However, these issues are to be tackled in the next two years to clarify what mechanism will be used for this money to reach the very poor.

Ms Ngqaleni agreed that there were problems with withholding the equitable share, and said it was designed to ensure compliance. NT does have a challenge in that the allocations are supposed to be allocated to around 9.2 million households, but the actual benefit actually reaches only about 5.2 million households. There has not been any municipality which provides free basic services itself, and there is usually additional funding because free basic services are not provided to all the households. The formula assumes that all the households have access to infrastructure, which is not the case. NT still needs to establish what mechanisms are used to reach the households which do not have access to infrastructure. The money is not necessarily inadequate, and the issue is more about targeting. There is provision in the NT guidelines for municipalities to indicate how many indigent households are being provided with free basic services. However, recording of this is not accurate and NT and COGTA are working together to try to obtain proper management of indigent registers. In some cases, everyone will get free basic services, instead of targeting. Both targeting and monitoring are important. Failure to pay creditors also does not happen always because the municipality is not viable, but may have more to do with relative costs to income and how collections are managed; revenue collection is a major problem that needs political will to fix it. Municipalities claim that they do not have capacity, but their wage spend indicates that they should have structures to collect revenue. Part of cost containment links to a proper alignment by municipalities of cost structures, and reorganisation of the Municipal Systems Grant will allow COGTA to better target the municipalities.

Mr Kenyon assured Ms Shope-Sithole that Treasury does use in-year monitoring, monthly and quarterly reports, but the AG, as arbiter in disputes, does give the final word on whether funds have been spent in the specified manner. Speaking to the question around possible duplication, he said that NT is aware of the administrative burden on municipalities to manage reporting on multiple platforms, and there is a review under way to rationalise the reporting frameworks, because there are many duplications. There is however a need to move cautiously to ensure that everything will still be accounted for in the system.

Ms Ngqaleni spoke to performance frameworks, noting that in the discussions around cost containment measures, it was realised that part of the challenge will be how to strengthen enforcement through monitoring. The Department of Planning, Monitoring and Evaluation will be strengthened to play that role across government.

She said that in relation to sports, NT will not necessarily have a different reporting mechanism, but it will be monitoring,with support from COGTA, the use of the ring-fenced funds, will determine where the money has been allocated, to what projects and the processes around procurement.

Mr J Mthetwa (ANC) said that the budget appeared to suggest that local economic development was more of a provincial matter, with local government seemingly only expected to handle infrastructure maintenance and certain incentives. However, he knew that municipalities should always provide for local economic growth with their own programmes, and the failure to mention this in the budget worried him; high level discussions were one thing, but this must be implemented on the ground.  This is not covered in the Budget aside from requiring municipalities to do what is mentioned above. That link worried him, because the whole matter is discussed at high levels, but it remains to be implemented on the ground.

Ms Shope-Sithole said every time anything about local government was discussed, only NT and COGTA seemed to be cited, despite the fact that the MFMA had a section requiring all other levels to support local government. MECs for Local Government did not seem to be playing their part and this was why Mr Mtileni asked about where corruption is found. She suggested that this Committee must ask NT to communicate with provincial treasuries, and their committees on local government, to assist with local governance.

The Acting Chairperson said this raised issues around both the funding of local government and the monitoring and evaluation of the work of municipalities by the provincial and national structures. He noted Mr Mthetwa's point about the lack of clear directly on local government’s role in relation to broad economic activity. 

Ms Ngqaleni agreed that the role of local government was critical in local economic development, and most local governments do have various economic development projects. However, this was not far-reaching enough, since local government is supposed to drive the economy. The core of the Back to Basics programme is to recognise that local government must do the basics – such as ensuring that the network infrastructure works, that it approves construction developments and registers property quickly. NT, with the World Bank, had done a study into the nine metros, looking specifically at areas in the regulations that required local government to facilitate Small, Micro and Medium Enterprises such as access to property, registration and access to electricity. If these services did not work, it would cause major problems for businesses, who required certainty and reliability on infrastructure and administration. NT is trying to ensure that local government understands its role and what is affecting economic development. The private sector will ideally also drive economic development. However, in DORB, NT sets out a strong programme to work with the metros, which constitute 60% of the economy, for if these can deliver the infrastructure in a sustainable way and perform their administrative functions efficiently, that is the first step. This, however, was also where many municipalities are failing, either through lack of funding or delays in planning. NT's role is to instil understanding of local government in supporting the economy effectively.

The Acting Chairperson said one area needed clarification. The recommendation of the FFC in relation to ECD could be interpreted as saying that NT should allocate the money but adopt a hands-off approach. However, Members were saying that NT has to be able to see what the money being allocated is actually achieving, and lay down core rules for its use, and then also create a format for reporting back to NT. He noted that coordination between NT, DBE and DOH was not apparent, and the state of ECD centres, particularly in the rural areas, was not conducive to child development. When these funds are allocated, other players, including the NPOs, must play their roles in ensuring that these centres are suited to doing their work.

Mr Shaik-Emam asked for clarity of the authority which NT has over local government or provincial government regarding their decisions. He cited the example of a bus company in Durban which had been sold for R70 million, bought back for R300 million, plus R50 million VAT.

Ms Ngqaleni said NT was in a difficult position in regard to ECD. There are numerous areas of sectoral performance to be monitored. Government is structured to have departments with accountability for certain functional areas – so the Department of Social Development is the lead department on ECD, and it must coordinate with the Departments of Health and Basic Education, which is further encouraged by the Department of Planning, Monitoring and Evaluation. NT is not making a decision to allocate money, but is helping in implementing policies of the line function department, through its proposal, and Cabinet approval, of the allocations. The DSD must be accountable, however, because it has the policy mandate. From the reports in terms of sections 40 and 32, NT will be able to see where money is being spent or underspent, but the line department must take ultimate responsibility. NT does facilitate, assist and engage, but the Departments hold more authority in their policy area. The allocation was made in response to a call from the DSD, and it has been allocated in the third year because there is no money in the first two years, and to allow time for planning. Ultimately NT will want to see a business plan that will clearly indicate how the money is to be used.

Overall, NT will engage on the business plan, and have an understanding of what will be monitored under the grant framework which it articulates, but the performance indicators must be determined not by NT but by the line departments who will know best how they will achieve their objectives. The legislation is very clear about the departments having the authority to manage and take responsibility. NT essentially is involved when things go wrong and need to be investigated, and the Office of the Chief Procurement Officer is setting rules on improving supply chain management, increasing accountability and transparency, to improve reporting – and that would be how NT would be able to pick up where things were going wrong, although it was not able to track the multitude of decisions ordinarily at different levels.

Mr Bongani Khumalo, Acting Chairperson, Financial and Fiscal Commission, spoke to the ECD issues. He said that the findings highlighted by the FFC Report related to the confusion around the assignment of the function itself and what the responsibilities of the municipalities are. Given the service delivery pressures faced by municipalities elsewhere, very little attention was being paid to these facilities. As a concurrent function, every sphere had a role to play and it was, as NT had noted, quite complex. Much of what the DSD should be doing was in practice assigned to NGOs and NPOs to perform. However, money paid to those organisations is drying up, and that leads to increasing inequality across municipalities. FFC raised this as an urgent matter because the distribution of resources was skewed. The conversation should not end here, and the relevant departments should also have this conversation to clarify the various roles.

The Acting Chairperson said perhaps the FFC, together with NT, should have a look at NPOs and NGOs working in that space. Some received funding from National Lottery, which is under the Department of Trade and Industry and access to other funding might help to strengthen the ECD environment.

Ms Shope-Sithole sympathised with the burden on NT, and assured it of the Committee's support. She urged NT to alert the Committees of any suspicions; Members would not otherwise know of problems until reading the Auditor-General's reports. She urged that greater preventative measures be adopted. Once the money has been allocated, departments are left to do their work and oversight is Parliament’s responsibility. Members can debate as much as they want, but once money is spent it is gone. She asserted that Members were elected to the House not to be historians who would lament problems, but to act positively to ensure that South Africa's affairs were conducted to assist communities, including being able to stop corruption. For this, support from departments like NT would be vital The Committee must allocate money, and track its spending, ensuring it is in line with the plans submitted. 

The Acting Chairperson wondered if representatives from SALGA were present, given the important issues about money, spending and outcomes for local government were being discussed.

Mr de Beer said perhaps the various departments mentioned should appear before the Committee, together with FFC, to plot the way forward and determine the end goal.

The Acting Chairperson referred to the Minister's statement that if NT allocates  R1 million to a national department, with that money flowing then to provincial departments and local government, the department must also be asked how much of that R1 million reaches an individual in the community. Members were very concerned about the leakages at the top, middle and ground levels,which eventually resulted in poor services, bad management, wastage and corruption. He fully agreed with Ms Shope-Sithole's comment that there was no time to lament, but to act.

The meeting was adjourned. 

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