The Committee commenced the hearings with a briefing by the National Treasury, the Finance and Fiscal Commission (FFC) and the South African Local Government Association (SALGA). Sessions were subsequently held with various national Departments. The presentations of both the National Treasury and the FFC followed a similar sequence, dealing with the Provincial Equitable Share System, the Local Government Equitable Share System, and then the intergovernmental fiscal system.

The Division of Revenue Bill was tabled simultaneously with the budget speech and other key budget documents on 23 February 2005. This was in accordance with Section 214 of the Constitution, which requires that Government ensure a transparent and equitable system to divide nationally raised revenue between the three spheres of Government. In addition, Section 10(5) of the Intergovernmental Fiscal Relations Act gives effect to the Constitution with regard to consultation processes. ¹ The Division of Revenue Bill enables Provinces and Municipalities to budget for their allocations, determining how their share of nationally raised revenue will be used to give expression to their priorities.

The total national budget for 2005/06 amounts to R417.8 billion, from which National Government is allocated R273.5 billion, provinces R134.7 billion and local government R9.6 billion. Furthermore, in 2005/6 financial years the equitable share allocated to provinces and Municipalities are R134.7 billion and R10.6 billion respectively.

The Bill allocates R10.6 billion to provinces and R5.4 billion to Municipalities in 2005/06 to fund infrastructure and hospital services. The provincial and municipal infrastructure grants also support expanded public works programmes. Other grants include specific purpose conditional and other grants to provinces and local government. For example, the three conditional grants for HIV and AIDS programmes, in health, education and social development.

There have been significant changes in the provincial fiscal framework, which inform the 2005 MTEF. These are:

• The conditional grant framework has been revised to take into account the social security grant function that moved to the national sphere of Government from 1 April 2005.

• A new conditional grant has been introduced to fund the recapitalisation of further education and training colleges.

• The housing conditional grant has been adjusted to take into account the new housing policy.

• A broad overview of the Provincial budget framework over the 2005 MTEF indicates the following facts:

• R22.3 billion is added over the baseline for social security grants over the next three years.

• R6.9 billion is set aside over the next three years to implement pay progression in education in line with Government’s strategy to improve remuneration packages of educators, attract and retain management skills in schools and accelerate the delivery of quality mathematics and science education.

• R2 billion is added to the housing subsidy programme over the next three years to support the implementation of the new housing delivery strategy.

• R1 billion is invested in the recapitalisation programme for Further Education and Training (FET), specifically targeting the rehabilitation of infrastructure, improved governance and administration, and greater curriculum flexibility.

• R1 billion is added to the provincial infrastructure grant over the MTEF to speed up delivery of social and economic infrastructure. This addition brings results in total allocations for the provincial infrastructure grant of R13.2 billion over the next three years.

• R540 million is added to the National Tertiary Services grant administered by the national Department of Health. Health conditional grants are currently being reviewed to increase their efficacy and the results of this review will inform their configuration from 2006 Budget.

• The FFC reiterated its previous recommendation that the provinces need to augment provincially raised revenues through the implementation of Section 228 of the Constitution and take advantage of the provisions of the Provincial Tax Regulation Process Act, which government seems to agree with. The reduction of economic activity weighting may represent an indirect incentive for provinces to increase own revenue.

• The FFC agrees with the removal of the backlogs component in favour of a conditional Provincial Infrastructure Grant.

• The FFC views the issue of poverty targeting in a holistic manner and therefore suggests that further work, including a detailed assessment of all transfers in the system is required in order to determine the appropriate trade-off between poverty and economic activity. This would be in line with the criteria in S 214 (2) (a)-(j) of the Constitution.

• The FFC supports the expansion of the PES formula to incorporate (ECD) Grade R and the equal weighting of school age population and actual enrolment.

• The FFC agrees with Government’s concerns with data constraints with respect to the healthcare component, but also emphasises the need for the Department of Health to prioritise the collection of the relevant data.

• The FFC highlighted that it is important for government to provide clarity on the basket of services that provinces are expected to provide and the appropriate funding mechanism.

• The FFC proposed that Government utilise the FFC capital grant scheme model for the equitable allocation of infrastructure grants to provinces. Provinces will qualify based on the state of their capital stock for a backlog and a maintenance pool of funds. While the backlogs component is conditional, provinces have the flexibility to choose their priority sectors.

• The FFC will engage with government in assessing the availability of sector specific data so as to target sectoral infrastructure backlogs.

Municipalities will receive an additional R5.4 billion over the MTEF, which will mainly be targeted towards the provision and expansion of free basic services, as well as job creation through investment in labour based infrastructure programmes. In total, R31.5 billion over the 2005 MTEF is made available for water, electricity, refuse removal and sanitation though the unconditional local government equitable share.

Funding for free basic services is directed through the Local Government equitable share, which increases from R9.6 billion in 2005/06 to R11. 4 billion in 2007/08. This unconditional equitable share component grows to 56 per cent of national transfers to local government in 2005/06.

• The FFC supports the Government’s endorsement of a components-based approach rather than the ad hoc use of funding windows, which has characterised the development of the LES formula.

• The FFC supports Government’s inclusion of more direct revenue raising capacity component in the revised LES formula. The Commission has noted the problems associated with measurement and accepts the interim proxy measure introduced by National Treasury. The Commission will continue with its work on the identification of appropriate measures for revenue raising capacity.

• The Commission will also continue with its ongoing work of researching the costs of a basket of municipal services. This exercise would be enriched if government can define the list of the basic services that all municipalities are expected to deliver.

The 2005 Division of Revenue Bill introduces new provisions to improve intergovernmental co-ordination and performance, by:

(a) Enabling Ministers with concurrent functions to make recommendations on improving service delivery.⁴

(b) Improving governance over the administration of social grants.⁵

(c) Strengthening the provisions on withholding, stopping and re-allocation of funds. ⁶

(d) Ensuring that conditional grants are spent in line with their purpose, and preventing fiscal dumping when there is under spending on such grants.⁷

(e) Improving planning and monitoring of infrastructure grants.⁸

National Treasury addressed the Committee on the Division of Revenue Bill⁹ and the new formula that was being used to determine the equitable share for provinces.

The Treasury started its presentation by indicating that the Division of Revenue Bill was a legal document arising from Section 214 of the Constitution, and that a new formula has now been introduced to determine the division of revenue.¹⁰

The following FFC recommendations were implemented:

• The Early Childhood Development grant is now being included in the equitable share formula. The FFC also advocates a regular revision of weights in order to ensure that they take into account the shift of the social security grant function and all other components that have shifted.

• The school age cohort component has been eliminated to determine the equitable share. Enrolment data obtained from schools was not reliable and therefore the enrolment and school age cohort was given an equal weighting.

• Considerable reduction of the economic activity component due to the fact that it tends to offset the redistributive element in the current poverty formula.

• Although Treasury concurs that it would be ideal for cost disabilities to be taken into account to ensure equity and efficiency, this is difficult to implement as cost disabilities differ in each province. The approach has the same challenges related to the costed-norms approach.

• Treasury also provided the structure of the review of the conditional grants transfer system. The presentation focused specifically on the supplementary January 2005 proposals on the social grant shift to National Government and the Capital Grants model.

The Committee raised the following concerns:

• Whether the removal of certain components of the formula, such as the school age cohort component, would impact on service delivery, and whether these will be replaced.

• Whether the transfer of allocations meant that funds would be taken away from a province that might be in dire need but could not utilise the funds to a better-off province that could utilise them.

• Capacity concerns around the transfer of the housing function from provinces to local government.

• With respect to the revenue raising capacity component in the formula the Committee enquired how the potential revenue would be determined and by whom.

• The Committee requested clarity on the RSC levies that Municipalities raised, as well as the question of research around the devolution of powers with respect to housing. The Committee enquired how the poverty component was determined since some provinces such as Gauteng, was regarded as a rich province, yet it had the most informal settlements.

• The Committee had reservations around the fact that national departments determine conditional grants. A recommendation was made for the FFC to assist national departments to determine a better formula for disbursing these funds.

• The Committee were concerned that, if some Municipalities were to receive housing accreditation, there would be a migration of people from those who did not have accreditation to those who did. This also put the burden on Municipalities, whereas the issue that must be deal with is the lack of capacity and under spending of provinces.

The National Treasury pointed out that it has been standard practice to shift allocations in cases of under spending. In order to prevent underspending it is now common practice, particularly with donor funds, that a project management team is sent to assist the province that was under performing. In addition, provincial departments are also required to provide monthly and quarterly reports. In some cases there was no other choice but to re-allocate funds.

Both the Committee and the Treasury noted the possibility that this could potentially create the situation where ‘reports are glorified in order to avoid losing funds’. Treasury relies on managers to act responsibly as the system would foster possibilities for improvement. However, there needs to be tangible information that can be compared with the financial information. Furthermore, in order to ensure transparency, a short memorandum detailing the purpose of the transfer would be provided. Treasury indicated that this would be difficult to implement.

The FFC agreed with the National Treasury in this regard, and pointed out that any imbalance which occurred should be corrected in the following financial year.

SALGA indicated that there was a need for a turnaround strategy to assist provinces that were struggling so that they could provide the resources needed in a shorter time.

Treasury indicated that the concern that provinces were getting less because of the new formula was unfounded, and that there had actually been a steady increase in the percentage that provinces were getting.

The accreditation of Municipalities arose from the Housing Act and the Division of Revenue Bill only seeks to accelerate the process. The service was transferred to Municipalities because they provide the services as well. However, capacity is a major concern.

The poverty component is difficult to measure and if the number of informal settlements was used, it would not be accurate. Income per household was used as a measure and this is more accurate. Even though Gauteng has more informal settlements, income is higher than in other provinces. Referring to the money allocated per household, Treasury indicated that the money was given to supply infrastructure and not services. There was no sense in giving money for services when the infrastructure was not present. Having the FFC assist the departments is a possibility that is still being considered.

Treasury indicated that it had conducted the revenue raising correction for Municipalities. Treasury had decided on a non-arbitrary approach, which ensures that the parameters and weights could not be imposed on an ad hoc basis and would therefore not be open to manipulation by Municipalities.

Treasury indicated that it was working at finding alternate ways to deal with RSC levies, which would include either a tax or grant.

Regarding the water-operating subsidy, Treasury indicated that this was a Cabinet decision and was also a bilateral contract process that had to be followed. Municipalities had to enter into a contract and national government would abide by its responsibilities until the grant was phased out in 2011 or 2012.

The Treasury indicated that the allocation for the removal of the bucket system was not based on a formula, but rather in response to a need. There are capacity problems in this area as well.

Treasury referred to the fluctuations in the figures in the Bill and indicated that these are due to a new model coming into force in 2007/08. The aim of the new model is to serve as an incentive to Municipalities to provide services to the poor so that their share could increase.

5. Financial and Fiscal Commission briefing¹¹

The financing of welfare services were highlighted with a view that there is a need to respond more directly on defining a basket of services.

The main change to the education component is the adjustment of the learner to school going age children, and the inclusion of early childhood development (ECD).

Spending on primary (clinics) and secondary (hospitals) health care averaged 2% between 1996 and 2001 and has accelerated to an average 4% per annum since then. Spending on hospitals has lagged behind that of primary health care provision in clinics.

The Child Nutrition Grant has identified a target population of 4.58 million poor children. Less than 1% of provincial budgets are set aside for food adequacy programs. However, 4% real growth in these programmes was projected for the 2004 medium-term budget cycle. The impact of this programme on the nutritional status of children has not been measured yet.

Household infrastructure services that may be constitutionally mandated as basic include housing, land and water. Sanitation, waste disposal and electricity might be implied through the environmental health mandate. Transport services enable access to other basic services and hence serve a complementary role in the provision of other services. Municipalities are the primary delivery agents and several cross-municipal public entities are involved. Most capital funding is through special purpose conditional grants or utility fees.

The value of the housing capital subsidy did not keep pace with inflation until FY 2001 and household income brackets have not changed since 1995. The housing spend has decelerated since FY 2001 and is projected to continue declining over the 2004 medium-term. The operational implications of the housing capital expenditure are passed onto municipalities

Between 1996 and 2001, the proportion of households with reticulated access to water increased from 60% to 62%. The current norm is 50 litres per person per day within 200meters of the dwelling. Full access to water services is targeted for 2008.

Since FY 2001, Municipalities have increased their capital spending but reduced their operational spending whilst the regional Water Boards have reduced their capital spending and increased their operational spending in real terms on the provision of water.

The proportion of households with water-borne sewerage or VIP toilets increased from 50% to 55% between 1996 and 2001, whilst the proportion receiving municipal waste disposal services increased from 53% to 57%. Coverage improvement in the metropolitan areas was less substantial. This could be as a result of rapid urban migration of the poor. Full access to adequate sanitation is targeted for 2010.

Coverage rates for connections to the national or municipal grid increased from 57% of households to 70% between 1996 and 2001. Government has targeted full coverage by 2012.

In FY 2003, provincial governments undertook 57%, Municipalities 30% and national government 13% of road construction and maintenance spending. Between FY 2000 and FY 2004, provincial spending on roads increased by 11% per annum in real terms whilst spending on bus, taxi and train subsidies increased by 6.5%.

Components of the Formula were reviewed against:

1. Set policy objectives, norms and standards.
2. Improvement of equity in access to basic services.
3. Efficiency in utilising public resources.

With regard to the economic activity component, the FFC highlighted that:

• Public infrastructure tends to be pressurised in areas of high economic activity.
• The FFC needs more clarity on the choice of the weight used, as it is not clear haw the weight was arrived at.
• In addition, there is a trade-off between this component and the poverty component.

The new formula includes an introduction of a 3% poverty component. A proper definition of what the poverty component seeks to achieve is needed, as well as an empirically tested method used to determine relative weight.

This component considers the socio-economic status for different beneficiary groupings. The FFC aims to conduct a review of all transfers aimed at targeting poverty. Political imperatives and government priorities have to be considered in this regard.

The FFC proposed the creation of a separate conditional grant to deal with infrastructure. The Government has addressed this and has introduced the grant.

The Government and the FFC agree that different types of delivery methods for basic services should depend on the appropriateness and cost of technology. Geographic and population density considerations require different technologies for the delivery of similar basic services.

The Government should define a basket of basic municipal services. It is also important to protect the Local Equitable Share from being ceded by Municipalities.

All in all the Government agrees with the FFC regarding the structure of the formula and the components that should either be deleted or reviewed in the formula.

SALGA's briefing focused on three key points:

1. Predictability.
2. Simplicity and transparency.
3. Cost of service.

SALGA noted that the eradication of multiple grants has led to the introduction of the Municipal Infrastructure Grant (MIG), but contended that the Bill would reintroduce multiple grants. Furthermore, SALGA is of the view that easily collected forms of revenue should replace Regional Services Council (RSC) levies.

SALGA proposed that in future, when new information that affected the allocation of the equitable share was obtained, the same year allocation should be guaranteed. The amount by which the local government equitable share increased would be distributed only to those Municipalities negatively affected by the new information.

The objective of establishing the MIG was to drop all the different grants targeting local government. The Division of Revenue Bill would see the reintroduction of the different grants. SALGA requested National Treasury to create conditions that would promote simplicity and transparency for eligible Municipalities to access the MIG.

The revised average cost of service for serviced areas had been acknowledged and that of non-serviced areas had the full support of SALGA. It was noted that the "one size fits all" approach did not work, and the government should consider the introduction of different average service costs for Municipalities with relatively comparable cost of services to different categories of costs would be a more flexible option. The transfer of equitable municipal costs should be done timeously to complement basic cash management requirements in Municipalities. This would eliminate the problems emanating from late payments of service providers such as penalties.

Finally, SALGA suggested a new source of revenue or tax should be introduced as a substitute for the Regional Services Council levies (RSC), but it should be easily collectable.

The Committee observed that National Treasury was entitled to withhold funds to truant Municipalities. Oversight visits had revealed that some provincial officials would sometimes urge the NCOP to intervene in troubled Municipalities. On closer inspection, the NCOP Members would discover that it was actually provinces that had not been playing their role. They had been supporting the Municipalities while those problems were being encountered. He therefore urged the NCOP to play the role of a regulator when dealing with such matters. The Committee also suggested that the Committee should call an ‘Indaba’, which would involve the Department of Provincial and Local Government (DPLG).

All stakeholders should participate in the process of the division of revenue. The Committee asked to what extent SALGA had been involved in drafting the Division of Revenue Bill.

It noted that DPLG and SALGA should capacitate Municipalities. In addition, there should be a consistent manner of engaging all the stakeholders

SALGA replied that RSC levies had been going to Metropolitan Councils only. Therefore SALGA was in favour of the abolition of these levies.

SALGA's involvement in the drafting of the budget was in the Budget Forum, in which it raised everything that related to revenue. Another forum at which SALGA had been participating was the extended Cabinet meeting. At both of those forums submissions were made, but the outcomes were totally different.

The current Act provided for the withholding of the equitable share, and the withholding was supposed to happen in three phases. That would mean a gradual tightening of the screws in relation to which steps the Municipalities had to take before the transfers could be made. For an example, when Municipalities had not submitted the required financial statements. The Constitution provided for funds to be withheld when there was a consistent failure to account. In instances where Municipalities had explained why they had not met Treasury standards, they received funding immediately. Regarding conditional grants, it was the transferring official who withheld the funds because those conditions had not been met.

The Department reported that the Provinces operate the Expanded Public Works Programme (EPWP) with funding provided by National Treasury, through the equitable share, on fulfilment of certain conditions. The role of the DPW is to ensure that EPWP tender and design guidelines are used on all relevant projects Special emphasis is placed on projects utilising labour intensive methods. It was emphasised that quality and cost effectiveness are important aspects of all EPWP projects.

The total targeted expenditure on EPWP projects is R15 billion, which is to be divided between Provinces and Municipalities. The number of jobs created is expected to reach 750 000. To date 130 000 jobs have been created and with further acceleration, a target of 300 000 jobs per year is expected.

These two-year learnerships aim to develop 500 sustainable contractors and 1000 site supervisors with the participation of Municipalities and 30 Provincial Departments. As part of the learnership 1 500 projects to a value of R1.5 billion will be implemented, employing 100 000 people. The Department of Labour has committed to providing opportunities for those who had completed the LI programmes.

The duration of employment differed from project to project, depending on the nature of the project. The length of training would also differ but all courses were integrated with the National Qualifications Framework (NQF), all qualifications were transferable and links would be developed with a variety of other programmes. The building industry had undertaken to try to recruit learners from the programmes and would also provide information on how to access opportunities.

The DPW was aware of the possibility of job displacement when designing the EPWP. However, the infrastructure sector had been identified as a growing area over the next ten years and therefore a conscious decision had been taken to target that sector. In this way fewer machine-intensive contractors were likely to be displaced.

Committee Concerns

The Committee was concerned about how effective the DPW’s monitoring system was as there were reports of delays in the roll out of projects. In particular, the capacity to do effective monitoring was probed.

The Department acknowledged that it was aware of delays and problems around quality. The service delivery programme aimed to improve all systems by April 2005. It was also acknowledged that DPW does not have the capacity to monitor every project. However, it was DPW’s role to monitor the total programme, and the role of the Provinces to monitor and report on the individual projects. It was emphasised that DPW monitored whether the projects were labour-intensive, but the hands-on monitoring of the project remained with the province. Accounting Officers in the provinces would retain their accountability on the individual projects. Selected projects would be evaluated by DPW on an annual basis. The EPWP does not allocate funds to specific projects but rather tries to influence Municipal and provincial spending so that it resulted in job creation and training. The Accounting Officers of provinces are responsible for the actual allocation and spending of funds.

The Department of Health reported that the previous day’s hearings had revealed problems with DPW’s progress on hospital building. In KwaZulu-Natal contract management problems had created delays of ten months, and in Limpopo there were a tender that had closed in August 2004 but no contracts had yet been awarded.

The Committee questioned how compliance with EPWP Guidelines was enforced.

It was noted that previous presentations had pointed to capacity problems within Municipalities and the Committee therefore asked whether the National DPW had budgeted for sufficient capacity at a local government level to ensure delivery.

The vision of the Department is "to work together, ensuring some (water), for all, forever". The Department was of the view that DORA is a challenge for co-operative government and service delivery.

An amount of R138.7 million had been budgeted for implementation of water services projects, which would complete efforts started under the Water Supply and Sanitation Programme. The Water Services Operating and Transfer Subsidy had been budgeted at R934.4 million. DWAF schemes were to be transferred to Municipalities. The current budget was intended for operation and refurbishment. The hand-over had been extended to 31 March 2005; 84 schemes, with a total value of R1 225 million, had been transferred to date. The receiving institution, in order to receive transfer, should have the necessary capacity for implementation of the conditional grant.

The Department noted that special arrangements were necessary for Municipalities with weak administrative and technical capacity. From 2008/09 grants would be incorporated into the equitable share.

The provision of free basic water is made possible through the Equitable Share in rural areas, and cross subsidies in Metro Municipalities. The equitable share provides incentives for more funding if Municipalities have provided better access.

The Municipal Infrastructure Grant (MIG) replaced the DWAF capital programme, and water and sanitation accounted for 72% of this grant in 2005, and 53% in the future. R200 million had been earmarked for bucket eradication in 2005, increasing in future years, and DWAF would support Municipalities in planning, implementation and monitoring.

The Committee was concerned that the rollover of funds for drought was extended over two financial years, instead of being applied directly to community efforts. In addition, it was questioned why the rollover could not be used to address drought problems in the Northern Cape and to assist farmers in that area.

The Committee asked how DWAF planned to eradicate the bucket system in areas where there is little water.

The Committee expressed concern about sanitation in schools, which in some cases posed serious health risks.

The Committee asked whether it was really viable to effect a hand-over of the water services function to Municipalities at this stage. A question was raised about the transfer of staff to Municipalities, and particularly for details on any agreements between the Department and the Municipality in regard to performance.

The Committee questioned whether it was really appropriate to "name and shame" Municipalities who did not comply with norms and standards. It was also asked what would be done about Municipalities who did not use funding for the purpose intended.

The Committee asked what Municipalities could do in cases where municipal water charges had not been paid or illegal connections had been made, as it seemed that some Municipalities were cutting connections altogether.

The Committee asked whether the budget made special provision for areas with poor rainfall, or poor access to rivers and dams.

The Committee was concerned about whether anything was being done about rising water levels where mining had been abandoned.

The Committee asked how people could be assured of benefiting from the free basic water supply.

An amount of R48.8 billion had been added to the baseline allocations of provinces and Municipalities. National transfers to Provinces would grow at 10,2% per year over the MTEF period and local government allocations would increase by 13.3%.

The Local Government Equitable Share (LGES) requires consideration of basic services, development needs, institution support, the ability of Municipalities to raise revenue and a guarantee of allocations published in 2004 (a stabilisation component). This would be phased in over three years, and work on it would be ongoing. It was noted that District Municipalities, who do not provide basic services, would receive lower allocations.

The Municipal Systems Improvement Grant (MSIG) is a conditional grant aimed at assisting Municipalities in developing in-house capacity to build integrated systems to perform their functions. A district-wide capacity building development plan would need to be prepared in consultation with Local Municipalities.

The total grant allocation over the period 2005-2008 is R600 million and the grant would be reviewed in 2007. This grant had been challenged by late submission of business plans, poor spending, rollovers, and non-compliance with DORA and poor consultation between Districts and Municipalities. However, a programme of support had been developed and was being implemented through Project Consolidate.

The Municipal Infrastructure Grant (MIG) was a conditional grant established through the merger of a number of programmes across sectors and intended to eradicate municipal service backlogs and provide basic services. An amount of R21.19 billion had been allocated over the 2005-2008 period. Key conditions, and roles and responsibilities were highlighted. DPLG administered the MIG and convened Municipal Infrastructure Task Team meetings, involving several other Departments, who retained their policy making and regulatory functions while providing oversight and monitoring.

Challenges faced were similar to those of MSIG, but various interventions had been made to address these challenges.

DPLG pointed out that Dora would assist it in consolidating its success in local government transformation. DPLG was confident that some of the key challenges would be addressed through Project Consolidate, which would assist government to provide dedicated and appropriate support to Municipalities.

The Committee asked whether the public entities referred to in Clause 9 of the Bill could be identified, and whether they were self-sufficient.

The Committee asked the DPLG to clarify the amount of R3 billion set aside for "community investment programmes" and what it would comprise.

The Committee asked the DPLG to clarify whether Dora addressed the problem of capacity, and whether Clause 42 of the Bill would assist in cases where there were disputes. The Committee asked what would happen in the case of wasteful or irregular expenditure, which had been the responsibility of provinces to date.

The Committee asked for clarity on the formula used for LGES. There was concern about under-spending and the process put in place to assist implementation.

The Committee noted that in some provinces the indigency policy was not being implemented properly.

The Committee asked how DPLG would view the stopping of allocations provided for in Clause 35 of the Bill.

The Committee enquired what formula was used for the MIG and how it would be disbursed. Reference was made to decreases in allocations set out in Schedule 3 and in Schedule 6 and whether Departments were consulted when allocations were made.

The Committee questioned whether the formula for MIG did not disadvantage the weaker or poorer Municipalities, and whether this might not result in migration of residents to Municipalities that could provide better services. It was suggested that DPLG should arrange a workshop on the formula for the information of the Committee.

The Department of Health administers 6 conditional grants-

1. The National Tertiary Services Grant
2. Health Professions Training and Development Grant
3. Comprehensive HIV and AIDS Grant
4. Hospital Revitalisation Grant
5. Integrated Nutrition Programme Grant
6. Hospital Management and Quality Improvement Grant

Each grant has its purpose and the conditional expenditure criteria are according to that purpose.

1. The National Tertiary Services Grant.

The Committee notes that the spending pattern was generally good. Only three departments are lagging; the Eastern Cape (7,7%), the Free State (75,7%), Limpopo, (79,6%), and North West (62, 5%).

The MTEF allocation is as follows:

The total nominal growth over the MTEF period is at 6%, with the slight decline over the end of the period.

2. Health Professions Training and Development Grant

The Committee notes the spending pattern (2004/05) as generally good. Only three departments are lagging (Eastern Cape, 61, 5%), (Free State, 54,4%), and (Limpopo 64%).

In terms of the future vision of the Grant, hospital grants will be reviewed, with the view to restructuring all the conditional grants as well as the role of conditional grants in Health Funding.

The total growth only increase by 5% at the end of the period.

3. Comprehensive HIV and AIDS Grant

The purpose is to enable the health sector to develop an effective response to HIV and AIDS epidemic. The future of the Grant indicates that portions of the grant drop into the equitable share as the functions have become entrenched as activities in the Provincial Health Departments.

The Committee notes that the spending pattern (2004/05), has been particularly slow in the Eastern Cape (64,4%), (Free State, 53, 91%), (Limpopo, 32, 7%), (Mpumalanga, 50%), (North West, 60%). Transfers have been delayed to the following provinces; Free State, Limpopo, Mpumalanga, Northern Cape and North West Province.

The nominal growth is 38% in 2006/7. However, it declines by -33% over the medium term.

4. Hospital Revitalisation Grant

The purpose of the grant is to modernise infrastructure and equipments within the context of national policy. The Grant, however, will be reviewed in future in the context of national health funding system.

The Committee notes slow spending patterns in Kwazulu Natal (17, 1%). The Province has decided to fund the total of the amounts transferred to date and requested that the 2004/05 amount be rolled over at National level into 2005/06 and 2006/07.

The MTEF allocation is as follows:

The total nominal % increase in the short term is 15%. However, it declines by -9% at the end of the term.

5. Integrated Nutrition Programme Grant

The purpose is to implement integrated nutrition activities aimed at improving the nutritional status of all South Africans. After 2005/06 the Grant will be moved to Equitable Share.

The Committee notes that the spending pattern (2004/05), is slow especially in the (Eastern Cape, 35,5%), (Kwazulu Natal 55%), (Limpopo, 20%), (Mpumalanga 38,4%), (North West, 26,3), (Western Cape, 46, 9%).

The MTEF allocation is as follows:

The Grant is being discontinued over the medium term. However, the Committee noted that general poor performance in the use of the Grant amongst provinces and the implementation over the final year should be effectively monitored.

5. Hospital Management and Quality Improvement Grant

The purpose is to transform hospital management and improve quality of care in line with national policy. In future the Grant is to be reviewed within the context of the National Health funding Policy. The Grant is meant to fund the organisational development part of the revitalisation of hospitals.

The Committees noted that the transfers of funds were delayed with the exception of Northern Cape, Gauteng and Mpumalanga Provinces.

The nominal total allocation increases by 6% in the short term (2006/07). However, it declines by -1% over the medium term.

The Committee expressed concern on the perception that Conditional Grant’s requirements are continuously being administratively burdensome and costly. It recommends that this issue be attended to as urgently as possible, within the context of the Division of Revenue 2005/ 06 requirements.

The Committee acknowledged and recognised that with the monitoring measures suggested for each grant, the Department is ready for the financial year 2005/06, grants allocations.

The Committee recommended that monitoring mechanisms under each conditional grant should consistently be followed through in the oversight process.

The Committee acknowledged and recognised that with the monitoring measures suggested for each grant, the Department is ready for the financial year 2005/06, grants allocations.

The new housing policy shifts responsibility for housing to accredited Municipalities, particularly Metropolitan and major urban category B Municipalities.

• The Committee is concerned about the capacity of certain Municipalities to deliver this task. Oversight visits will be made to areas where Municipalities are already carrying out this task such as the Sol Plaatjie Municipality in the Northern Cape.

• The Committee noted that the cost of doing government business should continuously form part of programmes implementation. This includes reducing time delays in the building and allocation of the Reconstruction and Development Houses (RDP).