Division of Revenue 2005/06 on Health, Housing and Transport: Financial and Fiscal Commission briefing

Meeting report

TRANSPORT PORTFOLIO COMMITTEE
17 August 2005
DIVISION OF REVENUE 2005/06 ON HEALTH, HOUSING AND TRANSPORT: FINANCIAL AND FISCAL COMMISSION BRIEFING

Chairperson: Mr J Cronin (ANC)

Documents handed out:
Financial and Fiscal Commission Submission on Division of Revenue 2005/06
Annual Submission for the Division of Revenue 2006/07

SUMMARY
Financial and Fiscal Commission (FFC) officials reported to the Committee for the first time in about six years. The Division of Revenue 2005/06 submission covered Health, Housing and Transport that were intrinsically linked. The main focus of the meeting was on transport matters. Members decided to study the Division of Revenue 2006/07 document and later reconvene with the FFC and the Department of Transport. They needed to discuss the condition of roads infrastructure, subsidies for public transport, FFC recommendations to the Minister based on highly specialised research into coherent planning of intermodal transport systems and the recapitalisation of the taxi industry.

The officials preferred that grants be transferred directly to institutions and provincial administrations and municipalities for allocation to where funds were required. The special levy on fuel proposed by the Western Cape was also discussed. Underspending was a major challenge. They stressed the importance of funding dedicated to the maintenance of roads before new construction was embarked upon. They expressed grave reservations about the proposed recapitalisation programme for taxis, as far too little basic research had been done on this issue.

MINUTES
The Chairperson announced arrangements for Committee oversight visits to Polokwane and Tshwane during the following week.

Financial and Fiscal Commission briefing
Mr Jaya Josie (FFC Deputy Chairperson) guided the Committee through the Annual Submisssion on Division of Revenue 2005/06. FFC recommendations on the budget for 2006/07 had to be submitted to the Finance Minister ten months in advance, with a joint review in August 2005 for April 2006. Aspects relating to Health and Housing were covered briefly as the main focus of the Committee was on Transport matters. Their recommendations included that Health Professions Training grants be retained at national level, and that grants should go directly to institutions that did the training.

As for Social Welfare grants, there was a massive push for education and health grants that did not have strict mandates as was the case for social security that was normative (per person). Fraud and corruption were also significant in this push. It would be preferable for national grants for welfare services to be administered at Provincial level. A clear definition of norms and standards for a basket of services would have to be set to accompany the delegation of powers to the Provinces.

Mr D Kallis (FFC Researcher) covered the Framework for Powers and Functions, and announced that Parliament would shortly pass the draft Framework Bill on the assignment of Powers and Functions to Local Government.

Mr R Nthite (FFC Research Co-ordinator) presented the issues on Housing and stated that formulae for allocating funds had been stagnant since 2001. The delivery process was slow. Long-term financial liabilities of provinces or municipalities regarding rental housing stock were determined at national level with little regard for local conditions. Funding should preferably go directly to municipalities, and funding gaps such as associated administration costs should be avoided. As far as the Municipal Infrastructure Grant (MIG) was concerned, Local Government Equitable Share (LES) allocations, e.g. for schools, should keep pace with the installation of new housing infrastructure. Underspending was a major challenge. There was a lack of clarity of roles, and contractors lacking capacity had been hired.

Mr Josie added that new housing was organically linked to transport facilities such as roads, and the Equitable Share Formula (ESF) should take that into account.

Mr Kallis pointed out that the Medium-term Expenditure Framework (MTEF) 2005 emphasised investment in infrastructure.

Mr Josie confirmed that provinces had the right to impose taxes. The Western Cape had proposed a fuel levy dedicated to funding road infrastructure improvements. There was concern about spill-over effects to other provinces and the lack of flexibility in tying their hands to one form of transport (roads), and not taking into account the multi-sectoral impact of a particular form of transport. Transport had been the stepchild of funding. For the World Cup in 2010, transport infrastructure concomitant with requirements would have to be based on intersectoral planning.

Discussion
Mr S Farrow (DA) was of the opinion that the Medium-term Expenditure Framework (MTEF) should include funding for the maintenance of existing roads. The required information on the conditions and exact location and requirements of all roads had been gathered by the SA National Roads Agency (SANRA). It would appear that money did not go to roads and that the capacity to use the funds that were allocated was lacking.

Mr G Schneemann (ANC) asked whether the cooperation of various Departments involved in housing had been studied and recommendations made, and whether subsidies to taxis had been considered.

Mr L Mashile (ANC) referred to instances where housing funding had been approved but no land was available. The majority of municipalities did not have the capacity to make effective use of funding. Communities were uncertain where funding came from.

Mr Josie said that the Government was reticent to classify roads as this did not facilitate easy costing. As for backlogs, a conditional grant allocation was made according to a capital expenditure model. Initially R800 million and then R300 million per year had been made available, but there was a lot of under-spending. Their recommendation contained a proposed formula. The proposed Western Cape fuel levy had various implications and its imposition was problematic.

Mr Nthite explained that too little maintenance led to more and costly rehabilitation. Interdepartmental cooperation was desirable. The intention to work together was a challenge.

Mr Kallis stated that better planning could be achieved at Municipal level. Fragmented bus subsidies could be better managed at Municipal level. 60% of commuters used taxis, 18 % buses and 22% rail.

Mr Josie recommended that certain funding decisions should be coordinated at municipal level, e.g. buses for school children, and suggested that Cabinet clusters also be instituted at provincial and municipal levels.

Mr Nthite deplored the lack and inequitable distribution of technical expertise; e.g. architects were situated in the Department of Public Works, but none could be found in the Department of Health.

Mr Farrow warned that too little maintenance led to an increased backlog, and suggested that maintenance should be combined with operations, and separated from new construction. The report produced by SANRA on the condition of the country’s roads was clear enough to be acted upon.

Mr Josie agreed that maintenance should be separated from new construction, and explained that Treasury feared dramatically escalating expenditure if they accepted the SANRA report on the condition of the roads. The SA Development Bank had done good research on the issue.

Mr Mashile suggested the ringfencing of funding allocated to Municipalities specifically for maintenance before new construction could be undertaken. Under-investment in the previous decade had resulted in the deterioration of roads to a point where rehabilitation amounted almost to new construction. Black areas had been neglected for so long that no infrastructure existed and a catching-up strategy or formula was required. Something was going wrong with planning as evidenced by the Department of Education rolling over funds allocated for building new classrooms. Should planning not be done in phases?

Mr Josie explained that the Municipal Infrastructure Grant (MIG) was supposed to address iniquities. Incentives should encourage Municipalities to use some funds from their own budgets. In 1995, the FFC had recommended a planning framework such as the Planning Commissions found in India and Brazil. The issue was not lack of funds.

Mr Nthite stated that prudence and a lack of relevant policy counteracted ring-fencing of funding.

Mr D Schneemann (ANC) asked that the impact of the fuel levy on commuters be studied. He asked whether taxis and public transport would be excluded.

Mr Josie replied that those issues were brought to the attention of the Minister and that his reply was awaited.

Mr Farrow asked whether research had included public hearings. In Port Elizabeth, the Metro authority intended to impose a levy.

Mr Josie stated that the FFC made recommendations for Provinces to impose taxes for their own purposes, and invited the Portfolio Committee to ask for specific research to be undertaken by the FFC.

The Chairperson was heartened by what he described as a convergence of opinions. A coherent, well-defined approach was required. Subsidies had to be devolved, also to Metrorail and intermodal transport such as non-motorized modes. What he had found was complete incoherence. The proposed taxi recapitalization programme was flawed. Only technical requirements had been studied, whereas the taxi industry was a multi-billion industry suffering from over-trading and exorbitant charging by "warlords". The 110 000 taxis catering for 64% of all commuters constituted a whole economy on its own. Applying the proposed scrapping allowance would have to be based on coercion and could result in a massive loss of jobs.

The proposed maxi and mini taxis for 36 and 24 passengers existed nowhere else in the world. Massive research was required, and hardly any had been done. Coherent planning of intermodal transport systems with municipal involvement was required which could result in a single Public Transport Company being established for a metropolitan area such as Cape Town. The laudable success of the two million RDP houses that had been constructed had compounded the transport problems for the long term. Trade-offs between transport and housing had to be considered. A thousand questions remained, and a meeting between the Department of Transport, the FFC and the Portfolio Committee to address the lack of research would be useful.

Mr O Mogale (ANC) wondered whether one transport authority for all municipalities would be advisable.

Mr Josie pointed out that transport was a constitutionally mandated right. The source(s) of the money for the recapitalization programme was unknown. A joint request from both the Portfolio Committee and the Department of Transport to the FFC for a recommendation to the Minister, based on research by the FFC, would be welcome. The research, which would be highly specialized, could take 12 to 18 months.

Mr Farrow was very impressed by the Annual Submission document and proposed that Members study it and come back for a follow-up meeting.

Mr Nthite remarked that there was keen competition for funds. He proposed that traffic officers be confined to patrolling and fining in defined areas.

The Chairperson deplored the fining by traffic offenders to obtain income instead of educating the public. He supported the proposal for Members to read the Annual Submission and the holding of a workshop meeting with the Department and the FFC to discuss road infrastructure and subsidies for public transport. October would be the Month of Public Transport.

Mr O Mogale asked how often the Portfolio Committee would meet the FFC, to which the Chairperson replied that the meeting was the only one in six years, and that it was intended to develop a work programme within the institutional framework.

The meeting was adjourned.