Please note that this is our provisional comment and that we, in view of the importance of the matter, might wish to furnish you with additional comments at a later stage and we trust that any such additional comments will be entertained.

1. Ad Clause 1: proposed amendment of section 73:

The proposed amendment is based on the principle that only the Minister of Finance may introduce a money Bill in the National Assembly. It then extends this principle by providing that all legislation which emanates from Chapter 13 of the Constitution ("Finance") are to be dealt with as money Bills.

Since legislation which relates to the financial administration of a provincial legislature is to be excluded from the definition of a money Bill, it will mean that such legislation will be dealt with as ordinary Bills affecting Provinces ie in terms of section 76 of the Constitution. Thus the proposed amendment is acceptable.

2. Ad Clause 2: proposed amendment of section 76:

The proposed amendment is acceptable.

3. Ad Clause 3: proposed substitution of section 77:

Since it is so that legislation which imposes a tax, duty or levy is a money Bill, it is only a matter of logic that any legislation which reduces or abolishes such a tax, duty or levy must also be a money Bill. Therefore the proposed amendment is acceptable.

4. Ad Clause 4: proposed substitution of section 100:

The proposed amendment is unacceptable. The amendment provides for the direct intervention of the national executive in the affairs of a municipality. As argued above, the Constitution bestows a very specific role for the Province vis-à-vis local government, namely to monitor, see to the effective performance of, and to strengthen and support, local government.

The proposed amendment is a flagrant disregard of this provincial role and should only be exercised at the request of a Province or if the Province itself cannot assist a municipality.

An asymmetrical approach should be followed, where provinces which have the capacity to intervene, should firstly be allowed to do so.

To simply argue that none of the provinces have the capacity is factually incorrect and does not accord with the structure between different spheres of government as was envisaged during the negotiating process and was eventually embodied in the present Constitution.

As such the amendment reflects a radical departure from the constitutional order which was agreed upon and endorsed by all the relevant political role-players and parties during the negotiating process and subsequently endorsed by the Constitutional Court.

5. Ad Clause 5: proposed substitution of section 120:

The amendment is acceptable.

6. Ad Clause 6: proposed substitution of section 139:

This amendment is supported. By removing the time-frames in subsection (2), it will give a province adequate time to intervene effectively.

7. Ad Clause 7: proposed amendment of section 159:

This amendment is consequential. However, we reiterate that, in our view, the proposed amendment to section 100 is unacceptable, vide paragraph 4.

8. Ad Clause 8: proposed amendment of section 163:

This amendment will mean that local government will not be allowed to nominate persons to the FFC. In practice, it will mean, that local government will only be consulted as to who their representatives are (ie they will only be informed, but have no say over the representation) and thus the proposed amendment is unacceptable.

9. Ad Clause 9: proposed amendment of section 213:

The amendment is acceptable.

10. Ad Clause 10: proposed amendment of section 216:

The amendment is acceptable, as long as the Minister, in his capacity as Head of the Treasury assents to the termination of the transfer of funds.

11. Ad Clause 11: proposed amendment to section 217:

The proposed amendment cannot be supported. The present wording of the Constitution grants organs of state a discretion in the implementation of preferential procurement.

Our concern is that certain smaller municipalities may have limited or no providers and thus the enforcement of these sections may not, as yet, be practical. In view thereof, the amendment should be reconsidered.

12. Ad Clause 12:proposed amendment of section 221:

This amendment is unacceptable for two reasons: firstly, by reducing the number of provincial representatives to the FFC from nine to two, will mean that provinces will only be collectively represented.

It must be borne in mind that the economic environment and financial positions and interests of provinces differ from one another and that each province should have its own representative to address the province’s particular needs and concerns.

Furthermore, the Constitutional Court in Ex Parte Chairperson of the Constitutional Assembly: In re Certification of the Constitution of the Republic of South Africa 1996 (4) SA 744 (CC) emphasized the importance of representation of each province at the FFC. This was enshrined in the Constitutional Principles upon which our Constitution is based (in this regard see CP XXVII).

Finally, provinces and local government will not be allowed to nominate their representatives, but will merely be informed as to who their representatives are, thus leaving the provinces and local government no say in the matter. This cannot be supported.

13. Ad Clause 13:proposed amendment of section 226:

This amendment is unacceptable. Provincial treasuries are established and authorized to manage their provincial revenue funds in terms of the Constitution and the Public Finance Management Act and, in the case of the Western Cape, the Western Cape Constitution.

The proposed amendment is in direct conflict with the said legislation and an unreasonable infringement on the powers of the provincial Treasury. The Western Cape has its own Constitution, as well as a Direct Charges Act, which also provides for money to be withdrawn from the Provincial Revenue Fund as direct charge, as is contemplated in the present wording of the Constitution.

Secondly, the amendment provided for in the new subsection 4(b) will mean that the municipalities will receive their funds. However, it leaves no discretion to a province to withhold such funds, if it comes to the province’s knowledge that a municipality is mismanaging the funds or not performing its functions effectively. Therefore, we believe that the proposed amendment should be revisited.

14. Ad Clause 14:proposed amendment to section 228:

The proposed amendment of this section is questionable. One cannot calculate a tax if there is not a tax base upon which to calculate it.

Presently the Constitution will allow a Provincial Legislature to, after the promulgation of a Provincial Tax Regulation Act, impose flat-rate surcharges on the tax bases of any nationally imposed tax, levy or duty (other than the tax bases of corporate income tax, value-added tax, rates on property or customs duties). In effect, this means that a province may not impose a flat-rate surcharge as a percentage of national tax liability (ie a surtax or a tax on a tax).

Thus, if the proposed amendment is effected it would imply that a province may impose a surtax on a national tax, which is undesirable.

Furthermore, by excluding the words "tax base" the mobility of provinces to impose provincial taxes and increase own revenue sources is severely restricted.

It is suggested that the words "tax base" should not be deleted, as the "tax base" is a higher income generator in comparison to the tax potential on tax income, which is now proposed. The broader the tax base, the larger the taxpayers included in the base and the greater the potential tax revenue for a given tax rate.

In view of the above, we believe that this section should not be amended.

15. Ad Clause 15:proposed amendment to section 230:

We trust you will find the above in order and that our comments will, in a spirit of co-operative governance, be seriously considered. We also wish to state that we would appreciate an opportunity to make an oral submission to the Committee when public hearings are held in respect hereof.

Yours faithfully

On behalf of Premier GN Morkel

31 AUGUST 2001