Division of Revenue Bill [B5-2015]: Treasury response to submissions; negotiating mandates

Meeting report

Division of Revenue Bill [B5 – 2015]: Treasury response to submissions
The Chairperson noted that National Treasury had provided responses to inputs on the Bill which members had received. If members wished to comment they should feel free to do so.

Mr L Gaehler (UDM, Eastern Cape) felt that National Treasury needed to elaborate more on allowances for teachers in the Eastern Cape.  He noted that a distinction needed to be made as to what a village was and what a town was.

Ms Wendy Fanoe Chief Director: Intergovernmental Policy and Planning, National Treasury, responded that National Treasury could ask the Provincial Department of Education to provide Treasury with more information on when an area was a town or a village.

Mr C De Beer (ANC, Northern Cape) said that municipalities in his area were affected by the withholding of funding. He considered it a serious matter and provincial treasuries needed to familiarise themselves with the processes of National Treasury. In terms of the Intergovernmental Relations Act, National Treasury, the Department of Cooperative Governance and Traditional Affairs and provincial treasuries should all be on board as to what was happening in provinces. The leadership of municipalities should be informed about the implications of the Division of Revenue Bill. Municipalities should be aware that there were consequences when they contravened the Division of Revenue Bill. At the end of the day it was the people at grassroots level who felt the consequences of non compliance by municipalities.

Mr Jan Hattingh, Chief Director: Local Government Budget Analysis, National Treasury, stated that National Treasury had started equipping provincial treasuries. The belief was that if provincial treasuries were empowered then it would assist with the process in general. National Treasury had explained the agenda and items of the process to provincial treasuries. So they were informed. National Treasury did have one on one sessions with each provincial treasury. In theory provincial treasuries should be more involved. One of the challenges was that provincial treasuries felt that they did not have the legal teeth. It was important to empower provincial treasuries. National Treasury made a significant effort to equip and train provincial treasuries.  National Treasury was aware that Members were not happy with the manner in which it was invoking the “withholding” clause. The issue of water boards had been spoken to before. The process had started in 2009. National Treasury consulted with the water boards, municipalities and Eskom. There was a systematic process in place. The problem was that municipalities did not enforce credit control policies. The heart of the problem was that the budget of municipalities was not a funded budget. Municipalities had agreements with Eskom but they did not stick to the agreements and there was no funding that was provided for the agreements. The interest charged to municipalities on penalties was also felt to be excessively high. Municipalities being part of government should get a better rate.  The point was that there should be better credit control at all spheres of government.  

Mr T Motlashuping (ANC, North West) pointed out that the manner of Eskom’s billing and its implementation had not been spoken to as yet. There were municipalities that were affected by demarcation processes.

The Chairperson said that there was a local government programme which spoke about the “back to basics principle” to deal with the problems of municipalities. There were three categories of municipalities. The first were municipalities that were okay, the second were those that had potential to be okay and the third were those that were totally weak. How did the National Treasury intend to get municipalities back on track? There was nothing to be done for those municipalities that were totally weak.

Mr Hattingh said that National Treasury did endorse the “back to basics principle”. He noted that there were in total 85 distressed municipalities. The Department of Cooperative Governance and Traditional Affairs’ tally came to 86. National Treasury and the Department of Cooperative Governance and Traditional Affairs tried to compare lists but the names and numbers of distressed municipalities did not correlate. National Treasury had used eight indicators to come up with its list. The Department of Cooperative Governance had done a desk top study in compiling its list. There was an agreement to focus on 40 municipalities which was termed the “A-list”. He clarified that these municipalities were not those involved in the “withholding” process. The ones from whom funds were withheld were those who had not paid for services from Eskom and water boards.

Ms E van Lingen (DA, Eastern Cape) was more concerned about where municipalities subtracted pension funds and medical aid contributions from employees but did not make the payments. It was considered a fiduciary fraud. Workers were being defrauded of their benefits.

Mr Hattingh responded that National Treasury was aware of the pension fund issues. It was difficult for National Treasury to detect such instances in its systems. National Treasury was dependant on information which municipalities provided to it. He noted that the Standard Chart of Accounts would assist with this issue. Another problem was that municipalities had different pension funds. National Treasury was aware of selective cases and was trying to deal with it. It was a huge problem which National Treasury was not on top of. He said that once work was commissioned on it, National Treasury would report back to the Committee.

Mr Motlashuping stated that there were already problems of unemployment, poverty and inequality in communities and with the National Treasury withholding the equitable share of municipalities the poor were being even more adversely affected. The concern was that the wrong persons were bearing the brunt and not the municipal officials who were in the wrong. Why were the municipal officials not being punished? The withholding of funds was misdirected. It aggravated the situation and he felt it especially to be so in the North West Province.

Mr Hattingh explained that withholding funds was not the preferred option. It was currently the only tool which National Treasury had. He said that Parliament had recently approved disciplinary regulations. It had been promulgated and would allow National Treasury to change its approach. Perhaps it would no longer require the withholding of funds. There was now a legal basis to take action against offending officials. He noted that communities had received services; the issue was about municipalities not paying their creditors.

Mr De Beer asked what National Treasury was doing about the 45 municipalities.

Mr Hattingh pointed out that as at 16 April 2015, National Treasury had dealt with 14 municipalities and that the equitable shares had been released. Meetings between municipalities and National Treasury, the Department of Cooperative Governance and Traditional Affairs, the South African Local Government Association (SALGA) and provincial treasuries took place. Efforts were being made to try to understand why municipalities could not pay their service providers. The challenges of municipalities needed to be understood. The configuration of creditors of the municipalities were looked at in totality and not only Eskom and water boards were considered. He noted that the section 75 report which municipalities provided to National Treasury was understated compared to municipalities’ list of creditors.

Mr Gaehler pointed out that some of the municipalities were small and he considered shared services as the best option to consider.

The Chairperson stated that the Committee did subscribe to efficient public service management. Organisations like Eskom had many institutional problems. The Committee could not condone mismanagement at municipalities. Not too long ago the National Treasury had had interventions in provinces, that is, the Limpopo Province. He asked whether parliament should not first have been consulted before funds were withheld from municipalities. Did National Treasury take rthe elevant parliamentary committees on board on substantive matters?

Mr Hattingh felt that perhaps National Treasury had not consulted parliament enough about the withholding of funds. National Treasury had tackled the problem and needed to be decisive. Poor municipalities received funding and conditional grants. No matter how much funds were given to municipalities, if there was bad financial management, then things would not improve.  

Mr De Beer recommended that the Committee engage National Treasury and the Department of Cooperative Governance and Traditional Affairs on a quarterly basis.

Mr Hattingh welcomed the recommendation by Mr De Beer.

Mr Gaehler asked what National Treasury was doing about government departments owing municipalities millions of rands.

Mr Hattingh confirmed that National Treasury did have lists of national and provincial departments that owed funds to municipalities. He noted that government money was the easiest money to collect. The problem was the debts of businesses owing to municipalities. National Treasury advocated the use of credit control.

Mr F Essack (DA, Mpumalanga) asked whether there was political will to do what needed to be done.

The Chairperson stated that the Division of Revenue was a continuation of the budget process.

Negotiating mandates of provinces on the Division of Revenue Bill [B5 – 2015] 
The Chairperson stated that negotiating mandates had been received from all nine provinces. Each were read out:

Eastern Cape Province
Mr Gaehler stated that the Eastern Cape Province voted in favour of the Bill but had raised a few concerns. One of the concerns was that although there had been a review of the Local Government Equitable Share formula, there had been little reprieve for municipalities and as such a backlog portion should be considered. Recommendations made were that intergovernmental relations processes needed to be intensified and National Treasury had to ensure that there was capacity to spend the grants when allocating them.

Free State Province
The Chairperson noted that the Free State Province voted in favour of the Bill but had raised two issues.
The first issue was that the Free State, in particular Xhariep District, was predominantly rural and poor whose structural outlay presented significant challenges and constraints to the economic performance of the province and the benefits that were supposed to accrue from it. The second issue raised was that some provincial roads should be handed over to the National Department of Roads and Transport.

Gauteng Province
Ms T Motara (ANC, Gauteng) said that the Gauteng Province voted in favour of the Bill.

Kwazulu-Natal Province
In the absence of a representative from the Province, Ms Motara as the Chief Whip of the Committee, stated that the Kwazulu-Natal Province voted in favour of the Bill.

Limpopo Province
Mr V Mtileni (EFF) emphasised that the EFF held a different view of the Bill than the Limpopo Province. The EFF did not support the Bill.

The Chairperson said that the Committee was not interested to know what the view of a party, namely the EFF, was on the Bill. The Committee needed to know what the negotiating mandate of the Province was.

Mr Mtileni felt it best that the Chief Whip of the Committee read out the negotiating mandate of the Limpopo Province.

The Chairperson asked Ms Motara to read out the negotiating mandate.

Ms Motara stated that the Limpopo Province supported the Bill.

Mpumalanga  Province
Mr Essack noted that the Mpumalanga Province voted in favour of the Bill.

Northern Cape Province
Mr De Beer said that the Northern Cape Province voted in favour of the Bill.

North West Province
Mr Motlashuping stated that the North West Province voted in favour of the Bill.

Western Cape Province
In the absence of a delegate from the Western Cape Province, Ms Van Lingen stated that the Province was in support of the Bill.

Ms Van Lingen said that it would be useful to all members to read the Mandating Act as it made section 76 of the Constitution more understandable.

Mr Mtileni said that although some provinces had supported the Bill, there were two to four provinces that had comments attached to their negotiating mandates which were tantamount to a vote against the Bill. He noted that the Eastern Cape, North West and Mpumalanga Provinces were actually saying no to the Bill but had to say yes to the Bill as it was expected of them.

Ms Motara suggested that the Committee move on with other Committee matters.

Ms Fanoe stated that National Treasury would provide the Committee with a written response based on the negotiating mandates that had been received from the provinces.

Committee Minutes
Committee Minutes dated the 17 and 27 February 2015, 3 March 2015 and 14 April 2015 were adopted unamended.

The meeting was adjourned.