Division of Revenue Bill [B2-2018]: negotiating mandates

Meeting report

The Chairperson welcomed everyone to the meeting. He welcomed the two representatives from National Treasury who had been involved in the division of revenue to provinces and who would be able to respond to some of the concerns of the provinces. He provided copies of the mandates to Treasury. He added that the points raised by the provinces would be included in the report on the Division of Revenue Bill to Parliament.

He asked the delegates to read out the mandates from their legislatures. He started with the Eastern Cape, but the Eastern Cape was still holding its meeting. He moved to the Free State, but the province was not present, so he asked Ms T Motara (Gauteng) to read out the Free State mandate.

Mandate of the Free State Provincial Legislature

Ms Motara stated that the Free State had concluded its negotiation process, and it was in favour of the Bill.

The Chairperson read out the concerns that the Free Sate had raised. Those concerns were the relationships within the metros, and the effect of the poor political administration on the Bill.

Gauteng Provincial Legislature

Ms Motara stated that the Gauteng Province had voted in favour of the Bill. However, a number of issues had been raised. The issues were listed on page 7 of the negotiation report and recommended that the National Treasury should devise methods for the efficient management of grants, rather than just penalising the non-performing grants. There was also a need to revise the formula for vertical division of revenue to local government due to the increase in unemployment.

KwaZulu-Natal Provincial Legislature

Ms Motara did not have the details of the KZN mandate, but the province was negotiating in favour of the Bill.

Limpopo Provincial Legislature

Mr M Monakedi (ANC) (Free State) stated that the Limpopo province had voted in favour of the Bill. However, many concerns were raised in their negotiations. Page five of their negotiation mandate contained all the concerns they had raised. A concern was raised on the farm dwellers who still lived in mud houses and could go without water for seven days. Small scale farmers did not get the necessary support compared to the commercial farmers. The duplication of services in provincial and local government spheres was the biggest threat to service delivery.

Mpumalanga was not in the meeting, and the Chairperson asked Ms Motara to report for the Mpumalanga province.

Mpumalanga Provincial Legislature

Ms Motara did not have the details of the negotiation process, but Mpumalanga had voted in favour of the Bill.

Northern Cape Provincial Legislature

The Chairperson read the decision. He said that the Northern Cape had voted in favour of the Bill.

However, there had a very lengthy discussion of concerns raised at five public hearings.

North West Provincial Legislature

Mr T Motlashuping (ANC) (North West) stated that North West had voted in favour of the Bill, but recommendations had been made in their meeting. The North West had only managed to meet that morning instead of Friday due to the situation in the province. He said that the report would dwell on the concerns and recommendations in detail. He would only highlight that National Treasury needed to look seriously into the matter of affording the North-West province a limestone, cement, platinum, and chrome haulage grant. The province needed the grant to take care of infrastructure like roads. A similar grant had been afforded to Mpumalanga. Another concern was that National Treasury should monitor funding of health care services in the province to ensure that the funds were used appropriately as ordinary people were the ones who were affected by the health care services issues. They were important issues.

The Chairperson commented that he knew what the honourable member was talking about as the road was a great challenge. It was not the road that one had in the Eastern Cape or KwaZulu-Natal because ambulances could not travel on roads of that quality. Economic growth and development was needed.

Western Cape Provincial Legislature

Mr T Terblanche (DA) (Western Cape) stated that the Western Cape had voted against the Bill. However, there were reasons that Mr Terblanche would read from the report of the negotiations. The main concern was the uneven distribution of the resources between the rural and the urban areas. That was a big challenge. The government needed to review the situation and come up with a new model to address it.

Mr Motlashuping raised a question about the financial issues of the Western Cape. He asked if the Western Cape rejected the R6 billion that had been raised toward the drought in Western Cape.

The Chairperson said that he wanted to sensitise Members. Everyone agreed because they wanted the money. If there was a disagreement, Western Cape would try to unpack it in its equitable share as contained in the Division of Revenue Bill.

Mr Terblanche stated that he had read out the reasons and was not going to argue further.

The Chairperson thanked everyone who had just presented their mandates. He noted that they were only waiting for the Eastern Cape that had a meeting at nine o’clock. He said that out of eight provinces, seven had voted in favour of the Bill.

Mr L Gaehler (UDM) (Eastern Cape) said that he had only been invited to the meeting to make up the numbers. He felt disrespected because he was there to represent the Eastern Cape, but the Chairperson decided to talk on behalf of the Eastern Cape. He thought that the Chairperson should finalise the report because he already started it.

The Chairperson replied that if Mr Gaehler had wanted to say something, he should have raised his hand. He would have given him ten minutes to present the mandate. The Chairperson handed the mandate to Ms Motara, since the Eastern Cape delegate did want to read it.

Ms Motara refused to read the Eastern Cape mandate. She said that the delegate from the Eastern Cape was present, unlike other delegates.

The Chairperson requested the Eastern Cape delegate, Mr Gaehler, to read out his province’s mandate.

Mr Gaehler said that the Eastern Cape voted in favour of the Bill. There were some concerns which included problems with the roads. From when he was first joined the Committee, he had been talking about the issue of roads. High unemployment had affected the Eastern Cape, and even more so the rural areas. There was also the problem of the drought.

The Chairperson indicated that eight out of nine provinces had voted in favour of the Bill. He noted that all provinces had road problems.

Responses by National Treasury to concerns raised by provinces

The Chairperson invited the representatives of National Treasury to address the issues that had been raised by Members, especially about the rural areas.

Ms Wendy France, Chief Director: Intergovernmental Policy and Planning, National Treasury, stated that she would deal with items common to all provinces and then between herself and Steven Kenyon, Director: Local Government and Budget Framework, National Treasury, they would attempt to address the concerns raised by the provinces. A common concern was the monitoring of grants. In the first instance, the national department responsible for the particular grant was responsible for monitoring. If it were a direct grant, the national department should liaise with the provincial department, as, for example, in the case of the Department of Health. In the second instance, monitoring was undertaken by Treasury, and Parliament was the third port of call in ensuring that grants were appropriately spent. Treasury received only information regarding the overall percentage of the grant that had been spent per quarter which meant that Treasury was removed from the actual work that had to take place.

Coming to the issue of roads, about which a lot of questions had been raised, Ms France stated that the issue was that there were various categories of grants. Firstly, there was a supplementary roads fund which was a grant provided to help with key provincial roads that carried heavy traffic. That grant was not enough to cover the current situation regarding roads. It was a supplementary grant over and above the equitable share given to provinces. Provinces should be allocating funds from the equitable share for roads. Secondly, she noted that the Department of Transport grant to municipalities was for the upkeep of main roads that went through municipal towns. That was a grant only for the maintenance of the existing roads, which covered the busiest roads, but not all of the roads. Another grant went to rural municipalities. The intention was to assess the roadwork systems in rural areas. Strategic roads were the responsibility of the national Department of Transport which had to develop policy in order for that process to move forward. Treasury was waiting for the national Department of Transport to draft policies regarding the issue of roads and finances, which would then inform the national budget.

 Treasury could only fund projects that were contained in policy.

She added that many provinces had raised concerns regarding the division of the equitable share.  There had been some change, but Treasury required an improved quality of data. There was to be a rural colloquium that would look at the trade-off between rural and urban areas. There had been changes to the equitable share in the education budget. It had required an extensive process of consultation. The provincial equitable share had not been reduced, but the size of the increase had been reduced over the Medium-Term Expenditure Framework (MTEF).

School and maintenance infrastructures grants to the Eastern Cape had been reduced. That was an indirect component. The Eastern Cape had said that it had capacity to spend the direct, but not the indirect grant. The human settlement grant was complex because it was not based on expenditure, but on human settlement. In addition, policy was not in place so that needed to be addressed to access funding. Funds had been rolled over.  Disaster management funds were not a grant but went through the Department of Agriculture, Forestry and Fisheries.

Mr Steven Kenyon, Director: Local Government and Budget Framework, National Treasury, stated that in the Free State, the first important issue was the suggestion that the equitable share was biased towards the rural areas. That issue had been raised before around the division of the revenue. Treasury could only fund at the provincial level. The distribution within the province was a provincial legislature responsibility. The money was available, making the issue one of accountability.

Ms France stated that, in Gauteng, there was the issue of vertical grants and local government share. It looked very small compared to other provinces, but one should not underestimate the responsibility Gauteng had. She referred to the government equitable share. The key issues there included the financial distress, concerns about tax morality and economic growth to improve the economy of South Africa. The request for salaries for staff to work in the Limpopo Treasury was key in managing transfers to municipalities. What was important was that the proper planning process and procedures were followed. 

Treasury had measured the usage of the road and its quality, based on the climatic issues as well, such as the drought. Polokwane needed to provide guidelines on schools, and those guidelines had to be referred to Basic Education.  The agricultural sector was another where the provincial department had work to do.  The Department of Education in Limpopo had failed to address poverty. There was funding available for support and professional expertise and there was an infrastructure support programme run by the Department of Basic Education, but Limpopo had failed to access additional funding. That was at the local level, not on the national level. He noted that Limpopo had raised 20 different concerns.

Mr Kenyon spoke about challenges in the Northern Cape. He stated that the province was facing a challenge around rural municipalities.  Municipal spending on grants required accountability.

He added that provinces had to plan for roads in the province and to prioritise roads in respect of usage. Other factors such as climatic conditions would also be considered. The drought grant had previously been discussed in detail. There was a recommendation that the EPWP (Expanded Public Works Project) was to be redesigned to address the tension between temporary jobs and permanent jobs. He stated that there were plans to promote growth in rural areas where there was extreme poverty

Further discussion

The Chairperson said that he noted a lot of hands. He assured Members that he would give every Member an opportunity to raise concerns. However, the Committee needed to complete its work. The Committee would address other issues in future meetings. He asked for additional concerns relating to that meeting.

Mr M Chabangu (EFF) (Free State) stated that he was not happy about the way Free State was dealing with the Bill. They were not taking it seriously. They had only sent the mandate the previous day. Where he came from, there were no salaries for municipal workers despite the Municipal Infrastructure Grant. Electricity and water were in crisis in that area. Health was a disaster as there were no doctors and no nurses.

The Chairperson responded that the Committee should go back to the Free State as it had gone to the Eastern Cape.

Mr Chabangu added that most places in Free State were rural. People were using pit toilets, with no water, and that a health hazard. He suggested that the Committee visited the Free State

The Chairperson apologised if he had offended Eastern Cape or the Free State.

Mr Gaehler accepted the apology and added that the Committee had been talking about some of the issues for quite some time. In 1994, there were two South Africa’s, informal and formal. There was a serious need for infrastructure grants, and those must be under the national department, not the provincial.

Mr Terblanche said that the people were desperate for job creation. The Committee should not overestimate the amount of money that could be raised. The roads were terrible in the Eastern Cape.

Mr Monakedi added the issue of road infrastructure in the Limpopo. Road infrastructure was desperately needed as well as guidelines for planning to prevent a crisis. He said that if Treasury could find additional funds, the provinces would be able use the money.

Mr Motlashuping raised the issue of division of revenue issues in his province. Could Treasury explain those issues?  A new municipal infrastructural grant, had taken the water grant and invested it in the roads maintenance grant in the North west. The mining grants was another concern. One could not turn that gravel road to the tar roads in terms of those grants, but the gravel roads were where most Africans lived. Members wanted to know the reasons for decisions, not the policy on which decisions were based. It was an excuse. Treasure should look into giving platinum haulage, cement haulage grants.

The Chairperson explained that the following week the national departments would be presenting their budgets and Annual Performance Plans and there would be debates.  There were two routes for Members to take: firstly, Members could take up their points in the budget for Roads and the Division of Revenue Bill. They should sensitise their colleagues in the National Assembly to assist in raising the issues. Secondly, they should speak to the provincial legislatures so that the issues are raised there. They had had a briefing and a public hearing already. He noted that several provincial health departments were under Section 18 of the Public Finance Management Act.

The Chairperson asked if were there any other serious matters that members wanted to address.

Mr Chabangu noted that the NCOP had determined to call provincial heads and mayors to the NCOP to account for the mess that provinces were in. He stated that the oversight Committee had to go to those places. North West could not dictate to the Free State because they were the worst.

The Chairperson asked if were there any other serious matters that members wanted to address.

Mr Chabangu stated that the oversight Committee had to go to those municipalities that were underperforming. North West could not dictate to the Free State because they were the worst.

The Chairperson suggested the two Members could discuss those issues over a cup of coffee.

The Chairperson thanked the Members, and he asked Treasury if the officials wished to respond to anything.

Ms France said that they were currently working with the national disasters management. She warned that it was possible to over-invest in infrastructure and that would place a burden on the country in terms of repayment.  She suggested that an assessment be made of the entire context. The national Department of Water had pulled forward some projects to relieve the drought. Short term solutions such as put in place by Cape Town were good but could be very expensive. However, pre-emptive measures were important because the water scarcity was increasing.

Looking at the roads, Ms France stated that they question of who should be responsible for major roads was under discussion and it was possible that the national Department of Transport would take responsibility for the key roads in the country.

The Chairperson noted that Members were taken on by the legislatures about the roads problems.

Mr Kenyon agreed with Members that SANRAL (The South African National Roads Agency) managed the roads under its agency very well. Roads were planned in advance, time for construction and maintenance was schedule and the whole process was well managed and it had set engineering standards for roads. However, if maintenance was delayed by three or four years, the cost increased six-fold. However, if maintenance is delayed beyond five years, the cost increased 18 times, making it impossible to maintain roads. In a country with limited resources, there were funds to maintain roads but not to pay 18 times that amount because provinces had not maintained a proper schedule of maintenance. Similar catch-up dynamics played in all of the other sectors as well.  He assured Mr Motlashuping that Treasury was aware of the problems of North West. He added that Treasury needed a policy guideline on roads, including usage in the North West and other provinces.

In response to questions on the Municipal Recovery Grant, he stated that the grant was currently being designed through consultations with stakeholders and he could not speak to it at that stage, but he added that it would not be a bail-out for under-performing municipalities. The principle was that municipalities had to show a commitment to sound governance before they could be considered.

Ms France responded to the question of whether the new division of revenue would prevent municipalities from taking loans. Previously, the grant was a guarantee and loans were secured but the necessary oversight was not undertaken. The difference was that the financier had to take accountability for the proper utilisation of the loan, which was simply bring back rules to manage loans which was included in the Municipal Finance Act. Municipalities should not be relying on conditional grants when they could manage the finances and infrastructure faster and more effectively by taking out loans. Support would be provided to municipalities and the risk would be reduced, not increased.

The Chairperson thanked Treasury and indicated that the Committee would like to include Treasury’s responses in the report.

The Treasury officials concluded that that they would provide a written response on Thursday of that week.

Outstanding Minutes

The Chairperson presented the draft minutes of 17 April 2018 on the public hearings on the Division of Revenue Bill for consideration. The adoption of the Minutes was proposed by Mr Motlashuping and seconded by Mr Chabangu. The Committee approved the Minutes.

Ms Motara presented the Committee Framework for the Second Term. The programmes would not change.

She explained that the Division of Revenue Bill would be tabled but provinces would probably be permitted to make declarations on the Bill. Local Government Week from 8 May 2018 in Cape Town. Budget policy debates would commence on 15 May 2018

The Chairperson noted that there should be debate on the Division of Revenue Bill because it was Section 76 legislation.

Committee Members suggested that the Committee should arrange matters so that the Committee was in recess in June and not the only Committee working in Parliament. The days should be extended into the evenings to complete the programme.

The Chairperson noted that public hearings, such as the one on the VAT, on the following day was important to ensure that NCOP consulted fully and did not rush the approval of Bills, especially concerning finance Bills.

The meeting was adjourned.