First Report of the Select Committee on Finance on
the Division of Revenue Bill [B4 –
2009] (National Assembly – sec 76), dated 12 March 2009
The Select Committee on Finance, having considered
the subject of the Division of Revenue
Bill [B 4 – 2009] (National
Assembly – sec 76), referred to it, and classified by the Joint Tagging
Mechanism as a Section 76 Bill, reports the Bill without amendment.
Second Report of the Select Committee on Finance on
the Public Hearings on the Division of
Revenue Bill from 24 February to 3 March 2009, dated 12 March 2009
Introduction
The
report deals with the hearings convened by the Select Committee on Finance on
the Division
of Revenue Bill [B4-2009], from 24 February to 3 March 2009.
The
following stakeholders were invited to make submissions on their respective
allocations with the specific emphasis on the conditional grants:
·
Department of Agriculture
·
Department of Education
·
Department of Health
·
Department of Minerals and Energy
·
Department of Provincial and Local Government
·
Department of Sport and Recreation
·
Department of Transport
·
Department of Water Affairs and Forestry
·
Department of Arts and Culture
·
Department of Public Works
·
National Treasury
·
South African Local Government Association (SALGA)
·
Financial and Fiscal Commission (FFC)
To
foster transparency and ensure smooth intergovernmental relations, section
214(1) of the Constitution requires that every year a Division of Revenue Act
(DORA) determines the equitable division of nationally raised revenue among the
three spheres of government. The Intergovernmental Fiscal Relations Act (1997)
prescribes the process for determining the equitable sharing and allocation of
revenue raised nationally. Sections 9 and 10 (4) of
the Act set out the consultation process to be followed with the Financial and
Fiscal Commission (FFC), including the process of considering recommendations
made with regard to the equitable division of nationally raised revenue.
The
2009/10 budget was tabled amidst challenges of a global financial crisis and
the deteriorating international environment, noted by the National Treasury to
be significantly affecting
The
2009 budget was framed by 5 objectives that guide government’s policy response
over the medium term, namely to:
(a)
protect the poor;
(b)
build capacity for long term growth;
(c)
sustain employment growth;
(d)
maintain a sustainable debt level; and
(e)
address sectoral
barriers to growth and investment.
The
total national budget for 2009/10 amounts to R738.5 billion, from which
National Government is allocated R483.6 billion, provinces R231 billion and
local government R23.8 billion over each of the medium-term expenditure
framework (MTEF) period. These figures are inclusive of the debt service costs
and the contingency reserve. The allocations take into account government’s
spending priorities, the revenue-raising capacity and functional
responsibilities of each sphere, and inputs from various intergovernmental
forums and the recommendations of the FFC.
The
explanatory memorandum of the Division of Revenue outlines Government’s
priorities for the 2009 MTEF as follows:
(a)
Enhancing the quality of education;
(b)
Improving the provision of health care, particularly for the poor
and to reduce infant, child and maternal mortality rates;
(c)
Reducing the levels of crime and enhancing citizen safety;
(d)
Expanding the built environment to improve public transportation
and meet universal access targets in housing, water, electricity and
sanitation; and
(e)
Decreasing rural poverty by taking steps to raise rural incomes
and improving livelihoods by extending access to land and support for emerging
farmers.
CHANGES TO THE 2008 DORA
Technical
changes have been effected on the Bill with a view to improving readability of
the Act and different sections have been aligned to further facilitate the
implementation of the provisions of the Act. Some of the technical changes effected to the Bill are discussed briefly in the paragraphs
below.
Grants introduced in the
2008/09 financial year:
·
The Agriculture’s Ilima / Letsema Projects Grant intended to boost food
production by assisting previously disadvantaged South African farming
communities to achieve increase in agricultural production. A total of R650
million over the MTEF period is allocated for this grant of which R50 million
is for the 2009/10 financial year. A transfer from the National Treasury in
respect of this grant was only done to
·
The Overload control Grant aimed at preserving road
infrastructure by ensuring that overloading practices are significantly
reduced. With a three year life span, the grant is allocated R10.069 million in
2009/10 and R11.038 million in 2010/11. The allocation for 2009/10 is divided
between
·
The Sani Pass Grant aimed at
developing road infrastructure projects to promote regional integration,
development and connectivity between neighbouring
states. This grant ends in the 2009/10 financial year. An amount of R34.3
million is allocated for 2009/10. No
spending has occurred on this grant.
·
The Agriculture Disaster Management Grant which is allocated R60
million in the 2009/10 financial year has, as its objective, to relieve farmers
from the effects of drought / veldfires, cold spells,
hailstorms and flood in identified areas. This grant ends on 31 March 2010.
While there were no amounts transferred from national to the provinces in
respect of this grant for the financial year 2008/9, Mpumalanga
spent R8.1 million, Limpopo R60.1 million, North West
R6.4 million, Free State R24.6 million and Western Cape spent R17.3 million.
Five new grants
introduced in the 2009/10 budget:
·
A new type of conditional grant, Expanded Public Works Programme Incentive. This provincial grant has been
allocated R1.4 billion over the MTEF period. Payments in respect of this grant
will be subject to meeting threshold and performance targets.
·
The Public Transport Operations Grant is allocated R11.5 billion
over the MTEF period for subsidisation of commuter
bus services.
·
The Technical Secondary Schools Recapitalisation
Grant has been allocated R280 million for equipment and facilities at
technical schools.
·
The Health Disaster Response (Cholera) Grant has been allocated R50
million.
·
The Housing Disaster Relief Grant is allocated R150 million
to respond to natural disasters.
Grants to be effected in
the 2010/11 financial year:
·
The Technical Secondary Schools Recapitalisation
Grant will be available to provinces from 2010/11. This grant amounting
to R80 million in 2010/11 and R200 million in 2011/12 will provide for
equipment and facilities in technical high schools.
Gautrain Rapid Rail Link Project
·
An amount of R4.2 billion has been allocated to the
The differentiation
approach
Large
scale migration is a common phenomenon in South Africa where over a third of
the population, according to the National Treasury’s 2009 Budget Review,
currently resides in the nine largest urban areas, the six metropolitan
municipalities (Ethekwini, Nelson Mandela Bay, Tshwane,
City of Johannesburg, City of Cape Town and Ekurhuleni)
as well as Mangaung, Msunduzi
and Buffalo City municipalities. This trend is expected to increase in the
years ahead. The National Treasury reports that these municipalities face a
dual challenge of keeping pace with demand for infrastructure expansion and
maintenance while serving the needs of a growing population.
The
2009/10 Municipal Infrastructure Grant (MIG) has been amended to take into
account the differences between large urban and smaller rural municipalities.
The grants will target the following areas respectively for the cities and for
rural municipalities:
Cities- Integrated planning;
Effective leveraging of
resources to eradicate backlogs;
Improving
performance in the development of integrated human settlements; and
Effective
asset management in line with Municipal Finance Management Act (MFMA)
requirements
This grant will be
phased in starting with the six metropolitan municipalities in 2009/10 and
bringing the 21 large cities over the next two years.
Rural- Addressing
infrastructure needs for basic services
Rural development
Other
changes to the Bill include: the conversion of schedule 7 grants to schedule 6
grants during the course of the year to prevent under-spending; duties relating
to category C municipalities to ensure proper flow of funds between category C
and B municipalities for providing basic services; and mechanisms added to deal
with the implementation of re-demarcation of provincial and municipal
boundaries which come into effect during 2009/10 e.g. Merafong. From the 2009 budget the general fuel levy
will be shared between national government and metropolitan municipalities.
This will serve as an appropriate replacement for the Regional Service Council
(RSC) levy.
In
order to facilitate a smooth transition from the RSC levy system to sharing of
the general fuel levy system, and to prevent any drastic changes to municipal
revenues, implementation will be phased in over a three-year period. Full
implementation will be achieved by 2012/13.
FFC RECOMMENDATIONS MADE
IN JUNE 2008 AND THE RESPONSE BY GOVERNMENT
FFC Recommendations
In
line with section 214(2) of the Constitution and the Intergovernmental Fiscal
Relations Act (1997), the FFC tabled its recommendations on the 2009/10
Division of Revenue to Parliament in June 2008. The recommendations were
divided into three parts:
Part
A: dealt with national-provincial fiscal
relations matters relating to financing of basic
education and health care, transport and
bottlenecks hampering housing delivery;
Part
B: dealt with local government fiscal
relations matters pertaining to augmenting local
government revenue, electricity pricing, generation and distribution and World
Cup 2010 transport infrastructure; and
Part
C: dealt with intergovernmental data issues.
The Division of Revenue Bill [B4-2009] (section
76(1)) outlines the FFC recommendations as well as the responses by government
as indicated below:
PART A: NATIONAL-PROVINCIAL FISCAL RELATIONS
The financing of basic education
Proposal on the re-ranking of schools
The FFC recommended that government should review
the method used to inform the national quintile ranking of schools. Rather than
classifying schools according to the ward or neighbourhood
in which they are located, the method should take into account the
socio-economic circumstances of the learners (with particular reference to
inequality and poverty).
Government agrees with the FFC recommendation. The
Department of Education intends to, in addition to the two poorest quintiles (1
and 2), phase in the no-fee schools policy to quintile 3, which will extend
coverage to 60% of schools. The DoE is also working on a policy to provide assistance to
schools up to quintile 5 that accommodate very poor learners.
Proposal on learner transport
The FFC recommended that national norms and
standards for the provision of learners transport should be established. It
added that this will be possible once the location of this function has been
clearly demarcated between the national departments of Education and Transport.
The FFC advised that this responsibility be clarified as a matter of urgency.
In the interim, all provinces were to implement statutory provisions that
ensured that learners were afforded equal access to education, irrespective of
their province of residence and irrespective of whether they resided in rural
or urban areas.
Government agrees with the FFC recommendation. The
functional responsibilities with respect to learner transport are those of the
Department of Education, which is responsible for the provision of scholar
transport, while the Department of Transport is responsible for regulatory
requirements with respect to all public transport. Government also notes that
once the function has been clarified, scholar transport needs will be included
in the integrated transport plans at local government level and aligned with
the Public Transport Strategy.
The financing of health care
Proposal on fiscal performance of
community health clinics sub-programme
The FFC recommended that, just as the 2008 DORA
requires that indicative allocations to schools and hospitals and hospitals be gazetted with the tabling of provincial budgets, this
practice be extended to clinics and other public health care facilities, as and
when they fall under provincial control.
Government agrees with the FFC recommendation. Given
the capacity constraints in certain provinces, attention is currently given to
ensuring compliance with existing requirements with respect to indicative
allocations for schools and hospitals.
Proposals on infrastructure for primary
health care and health outcomes
The FFC recommended that greater emphasis be placed
on improving the quality of service provided at clinics and funding the maintenance
of existing primary health care facilities. It also pointed out that there
remained a need for the construction of clinics in poorly serviced rural and
urban informal settlements. The FFC recommends that the health component of the
infrastructure grant to provinces (IGP) should be aligned to the roll-out of
infrastructure through municipal infrastructure grants (MIG).
Government agrees that emphasis should be placed on
improving the quality of health services provided at clinics. In this regard,
government introduced in the 2008 Budget a special allocation for complementary
infrastructure (water, sanitation and electricity) that targets primary health
care facilities. In addition roads expenditure in provinces has increased
sharply over the past few years and this trajectory is to be maintained over
the MTEF.
Government also recognises
that it is exceedingly important that outputs (staffing, equipment, drugs and
medicines) be managed in a manner that ensures optimal outcomes.
Government agrees that appropriate coordination
between provincial and municipal infrastructure grants will result in optimal
outcomes from infrastructure investments. To address any misalignment where it
exists, government introduced electricity, water and sanitation grants to
ensure that municipal infrastructure supports health and the schools
infrastructure programme.
Transport
The FFC comments on the classification
and earmarking of roads
The FFC recommended that the process of classifying
roads among national, provincial and local spheres of government should be
accelerated in line with the classification framework already established. It
added that the premiers of provinces with roads earmarked for incorporation
into national road system should make the necessary applications without
further delays.
Government supports the recommendation that the road
classification process be accelerated as proposed by the FFC adding that delays
could lead to unintended consequences, such as underinvestment
in the function or lack of proper maintenance.
PART B: LOCAL FISCAL RELATIONS
Augmenting local government revenue
FFC comments on replacements for the
Regional Service Council (RSC) levies
The FFC recommended that, in view of the abolition
of the RSC levy, which formed a significant source of municipal revenue, the
replacement revenue source for municipalities should be a tax that enhances the
fiscal autonomy and discretion of local governments; strengthens the
accountability of local government regarding the administration and use of the
proposed tax base; yields an adequate and buoyant revenue stream for
municipalities in the face of cyclical instability; and maintains macroeconomic
balance.
Government agrees with the FFC recommendation;
however, the revenue capacities of individual municipalities need to be taken
into account. A replacement revenue instrument that is purely in the form of a
tax is unlikely to achieve the desired goal of enhancing local government
fiscal autonomy for poorly resourced and rural municipalities. Government
suggests that this will at best reproduce the existing inequalities in local
government own-revenue generation.
As part of a package of reforms, the VAT zero-rating
of municipal property rates and other VAT reforms were introduced in July 2006.
Further reforms under consideration include the sharing of the general fuel
levy and/or transfer duty in the medium term, a local business tax in the
longer term as well as grants as a guaranteed revenue source for municipalities
or categories of municipalities.
Electricity pricing, generation and distribution
FFC comments on the restructuring of the
electricity distribution industry
The FFC recommended that government should work with
the National Energy Regulator of South Africa to put together a financing
framework that dealt effectively with electricity pricing. It added that that
government should address the potential loss of a crucial revenue source for
local government as a result of the establishment of the Regional Electricity
Distributors (REDs). The commission also pointed out
the need to review legislation as it concerned the transfer of assets, the
national pricing framework and the establishment of the REDs.
Government acknowledges that the slow pace of the
restructuring of the electricity distribution industry is a concern and is
currently addressing the outstanding policy and legislation issues, including
asset transfer framework for transferring Eskom’s and
municipalities’ assets to REDs. The asset transfer
framework prescribed in the Municipal Finance Management Act (2003) deals with
municipal asset transfers generally.
Possible financial and other risks for Eskom
and municipalities will also be addressed by government.
World Cup 2010 transport infrastructure
Recommendations of the financing of
public transport
The FFC recommended that spending on public
transport infrastructure for 2010 should be linked to broader city development
plans. The commission proposes a better resourced public transport
infrastructure and systems grant that must continue after the 2010 FIFA World
Cup. Projects funded under this
arrangement would be selected based on full appraisal of economic,
environmental and social cost/benefit; and funding mechanisms to cover
maintenance costs of constructed 2010 facilities should be developed.
Government supports the recommendation that projects
funded through the public transport infrastructure and systems grant should be
selected based on full appraisal of economic, environmental and social cost/benefit.
The existing public transport infrastructure and systems grant will continue
beyond 2010. The grant is aligned to the Public Transport Strategy. Projects
funded under this grant are part of the integrated transport plans contained in
Integrated Development Plans (IDPs) of
municipalities.
Government is of the view that the costs relating to
the maintenance of 2010 FIFA World Cup facilities should be provided by
municipalities.
PART C: INTERGOVERNMENTAL DATA ISSUES
Performance monitoring framework
Proposal on Education
With respect to measuring the costs of basic
education, the FFC recommended that to assess the pro-poor impact of school
funding norms, the Department of Education should make publicly available and
accessible the funding norms of no-fee schools in line with provisions of the
2008 Division of Revenue Act requiring indicative allocations by school.
Provincial education departments should be enabled to report on budgets and
spending on learner transport in line with the new economic reporting format.
Government agrees with the FFC recommendation to
make publicly available the funding norms for no-fee schools. The list of
no-fee schools per province, per allocation and per location is published
annually and is available on the department’s website.
COMMENTS OF THE NATIONAL DEPARTMENTS AND ENTITIES
During public hearings held by the Select Committee
on Finance, departments and entities made the following comments on the Bill:
FINANCIAL AND FISCAL COMMISSION (FFC)
Among strategic
issues raised by the Commission were the following:
·
The
DORA was becoming complex and voluminous. To this end the commission called for
a comprehensive review of the Bill;
·
There
were too many conditional grants; and
·
The
commission proposed that all new Bills should go through a rigorous analysis
before introduction.
The
Commission also observed that there was a need to evaluate the Expanded Public
Works Programme, from the time of inception to
establish the number and quality of jobs created through the programme to date. To this end the Commission, while
welcoming the attempts to address employment through government programmes, raised a flag of caution.
There were
also concerns raised by the Commission in respect of the Bill as follows:
·
Government’s
responses did not provide details on how the recommendations agreed upon would
be implemented;
·
The
Commission recommended that the tax that would replace the RSC levy should be a
good local tax. In its view, the fuel
levy fell short of this requirement in that municipalities will have no discretion over the base and rate of
the tax
SOUTH AFRICAN LOCAL
GOVERNMENT ASSOCIATION (SALGA)
SALGA in general welcomed the Bill as tabled and
presented a set of comments in relation to both general and conditional grants.
The differentiated approach was, according to SALGA,
needed in dealing with of the challenges of different categories of
municipalities within different geographic contexts.
Expanded Public Works Programme
(EPWP)
SALGA raised the following concerns about the nature
of the EPWP wage incentives, the eligibility conditions and employment creation
targets:
•
The proposed phasing in of EPWP targets
and wage incentives included a minimum threshold target (based on 2008/09
achievements) which municipalities needed to first meet, before they could be
eligible to receive the incentive.
•
These targets were retrospectively
applied to all districts and municipalities resulting in many being
disqualified for eligibility for the incentive.
SALGA therefore made the following proposal:
•
That all municipalities who have
reported on EPWP be deemed eligible, in order to benefit in the wage incentive;
and
•
That the incremental performance from a baseline determined by the
incentive formula for 2009/10 be encouraged.
Replacement levy for the RSC Levy
SALGA made the following comment in this regard:
•
The fuel levy allocation was guaranteed with inflation adjustment for the
next three years. From 2012/13 the allocation would be solely based on fuel
sales per municipality. In the case of a decline in fuel sales, municipalities
will receive less as there are no guarantees.
•
The reliance on fuel levy by metros could have unintended consequences
(municipalities could promote use of private motor vehicles to boost fuel sales
as opposed to promoting public transport and mechanisms to reduce road
traffic).
•
SALGA noted that it was investigating a
Local Business Tax as an alternative/appropriate replacement for the RSC
levy.
•
It also requested that the challenge of unfunded mandates be looked into adding that functions that were not local government
functions (in terms of the Constitution) were assigned to local government by
way of sectoral legislation, without related
adjustments to the fiscal framework – e.g. Disaster Management (Disaster
Management Act) – Schedule 4 (A) of the Constitution.
DEPARTMENT OF
AGRICULTURE
In
addition to the Comprehensive Agricultural Support Programme
(CASP) Grant and the Land Care Programme Grant, the
Department also manages the Agriculture Disaster Management Grant with a R60
million allocation for the 2009/10 financial year and the Ilima/Letsema
Projects Grant receiving R50 million in 2009/10.
The
Committee raised the following areas of concern in respect of the report by the
Department of Agriculture:
·
There
a was need for the programmes of the department to harmonise with those of the Department of Land Affairs;
·
It
was the view of the Committee that there were projects in Eastern Cape, Free
State, North West and many other provinces that were in dire need of the
department’s assistance; and
·
CASP
and the Land Care Grant were grossly underperforming.
The
Committee was of the view that some departments did not grasp the whole purpose
of the MTEF and as such there were always cases where the plans were not ready
resulting in under-spending. Furthermore, in the
The
Committee emphasised the need to ensure that people
who received land as part of the land redistribution and restitution programmes were assisted to become commercial farmers.
The Ilima/Letsema Project was reported to be underway targeting
140 000 households to boost food production. The Committee requested the Department
to furnish it with a list indicating where the 140 000 people were for purposes
of conducting oversight.
Given that the provincial spending on the CASP was
at 62% and 66% on the Land Care Grant at the end of January, the Committee was
concerned that the department would under-spend. The Department noted that
there was gradual improvement as it had strengthened its monitoring of the
grant. A challenge reported by the Department was that procurement plans were
not finalised on time by the provinces leading to
under-spending.
The
National Treasury committed to providing information indicating the extent to
which the department was compliant with the provisions of the DORA in respect
of submission of plans as outlined in the framework under processes for
approval of business plan.
Agriculture
spending in provinces was about 7% of the total provincial spending. The
National Treasury pleaded with the Committee not to reduce the allocations to
the department as this would affect the areas that were in dire need of the
department’s support. The Committee noted that it would compile a report for
the incoming Committee on the performance of the Department of Agriculture.
DEPARTMENT OF EDUCATION
The
Minister of Education approved implementation of revised minimum norms with
effect from 1 April 2009 for the 2009/10 financial year as follows:
·
Continued feeding of all learners in Quintiles 1, 2 and 3 primary
schools
·
Programme to be implemented in Quintile 1
secondary schools;
·
Feeding must take place on every school day; and
Approved
implementation over the two outer years of the 2009 MTEF is as follows:
·
Further implementation in secondary schools:
Quintile 2 (2010/11);
and
Quintile 3 (2011/12)
·
Average meal cost to increase as follows:
Primary: 2010/11 (R2, 10); 2011/12 (R2,30)
Secondary: Increased to 1,75
times that of primary learner: 2010/11
(R3,80); 2011/12 (R4,10)
Funds
have also been allocated to provinces to assist with implementation cost for
feeding in secondary schools
NEW GRANT - Technical
Secondary Schools Recapitalisation Grant
The
preliminary allocations for the grant are as follows:
2009/10: R4,602 million
2010/11: R80 million
2011/12: R200 million
The
amount of R4,602 million allocated in 2009/10
will be used to assist the Department in the preparation phase to implement the
grant. One hundred (100) schools are targeted over the MTEF period.
Recommendations of the Committee in
respect of the Department of Education
The
Committee recommends that the Department looks into the following:
·
Follow
up on the R2.7 billion allocated to provincial departments of education in the
2008/9 financial year;
·
To
ascertain that the money is allocated to the relevant recipient FETs by the provincial departments;
·
Follow
up on the implementation of the school nutrition programme
at secondary schools and to establish norms and standard in respect of the
feeding mechanisms to ensure uniformity across the provinces;
·
To
investigate the reasons for poor spending across the provinces
The
National Treasury was requested to assist in these matters.
DEPARTMENT OF HEALTH
The
Department manages six conditional grants which make up approximately 95% of
its total budget. These grants are:
•
HIV and AIDS
•
Forensic Pathology Services [Schedule 5]
•
Hospital Revitalization
•
National Tertiary Services
•
Health Professions Training and
Schedule 4 Development
•
Health Disaster Response (Cholera) - New grant
The
department reported the following variances in terms of amounts requested from
the National Treasury and the amounts received in respect of the Comprehensive
HIV and AIDS Plan:
2008/09
requested: R938 million and
received R300 million
2009/10
requested: R1.4 billion and
received R200 million
2010/11
requested: R2.1 billion and received R325 million
2011/12
requested: R1.7 billion and received R407 million
The
Committee raised a concern about the underfunding of
the health department in respect of HIV and AIDS and requested the National
Treasury to note this concern since health was a national priority.
Furthermore
it was pointed out that there needed to be clarity on what the implications
were for underfunding in service delivery and whether
there were any guarantees for compensation in cases where the department was underfunded.
In respect
of health professionals working abroad, the department noted that its challenge
was not in preventing the health workers from working outside the country, but
whether the country was training enough health professionals for itself and for
exporting to other countries.
National Tertiary Services Grant
Final
allocations from the funding requests submitted for this grant resulted in the
following funding gaps for the respective financial years listed below:
·
2008/09 : R2.2 billion
·
2009/10 : R2.6 billion
·
2010/11 : R3.6 billion
Implications for under funding:
- The provinces had to use their
provincial equitable share to fund the gaps;
-
Under developed provinces did not achieve the goal of equity and
capacity building; and
- The aim of relieving pressure on the costs
related to tertiary services from bigger provinces was not achieved.
DEPARTMENT OF PROVINCIAL
AND LOCAL GOVERNMENT (DPLG)
While
the department noted that some of its inputs had been incorporated in the Bill,
it noted the inputs that were not included:
•
Infrastructure grant for cities – the DPLG interpreted
the new clause (section 9(1) and (2)) in the Bill to mean that transfers to the
provinces go through the DPLG vote but the monitoring and reporting only
to the National Treasury. This was contrary to the mandate of Vote 29 and
duties of the national transferring officer (in this case DPLG);
•
The need to increase funds for municipal systems improvements;
•
Enabling mechanisms for the DPLG to report to Parliament on
performance of municipalities with regard to conditional grants. It was
reported that the current framework did not enable the DPLG to reallocate funds
to municipalities which had the capacity to spend; and
•
Addressing MIG performance audit findings, as indicated below:
The
crafting of DoRA in relation to municipal
infrastructure was restricting the DPLG’s role
in the management of the grant.
Issues
raised by the Auditor-General
•
The DPLG had limited powers to address under-performance by
municipalities;
•
Funds from conditional grants should be deposited into a separate
bank account by each municipality to ensure proper monitoring; and
•
Based on the above proposal, VAT reimbursements from SARS and
interest received with respect to MIG funds should be ploughed back to MIG
projects by each municipality.
Recommendations of the
Committee in respect of the DPLG
The
Committee recommended that the DPLG and the National Treasury to look into:
·
the
concerns raised by the DPLG and to ensure that greater effort was put into
ensuring the well-being of poor or low capacity municipalities;
·
the
funding for Municipal Systems Improvement Grant (MSIG) that was not growing;
·
section
9(2) of the Bill as it relates to the function of the DPLG (transferring
national officer) with the view to ensuring that the department was given
latitude to perform its role; and
·
A
possible contradiction between section 9(1) and 15(6) as reported by the DPLG.
The two
departments met and reported back to the Committee that a paragraph outlining
reporting procedures to both the DPLG and the National Treasury would be
inserted in the framework of the Bill. This would eliminate any uncertainties
as to which department the provinces would or would not report to.
DEPARTMENT OF WATER AFFAIRS AND
FORESTRY (DWAF)
In its
submission the department raised the following areas of concern in respect of
the Bill:
•
There was limited direct control by
sector departments on how funds were spent and shortcomings in reporting at
municipal level made control impossible;
•
Essential planning was not mandated
in the Bill and this prevented effective performance evaluation;
•
The allocations were not being
adjusted in accordance with the delivery performance of the Municipalities;
•
The need for the differentiated
approach in Section 23 where cities were to play a more prominent role in
service delivery to be investigated;
•
More funding would be needed than
was provided in order to eradicate backlogs, especially in Regional Bulk
Infrastructure and for eradicating rural backlogs; and
•
Ring-fencing of water services
budgets, especially in rural areas, was excluded from the Bill.
The
department made the following recommendations:
•
Reporting responsibilities of
municipalities needed to be improved to effectively measure performance;
•
The possible role of DWAF and other
national departments in supporting planning and implementation of water
services in rural areas where municipalities lacked capacity needed to be
investigated;
•
A differentiated approach for
smaller rural municipalities needed to be initiated;
•
Section 11, 2(c) should require the
submission of monthly reports within 20 days after the end of each month;
•
Section 18 (Integrated housing)
should include the same monitoring conditions as Sections 11 and 16;
•
Section 24 (b1) must include control
measures to ensure that grant conditions were met and that proper planning took
place.
•
The MIG framework needed to be
adjusted to align to the objectives attained in the DORA;
•
The conditions and framework of the
Bill needed to be revised to take into account requirements for an integrated
approach towards basic services;
•
The initiation of the differentiated
approach and the supporting City Budget Forum; and
•
Delivery through Water Services
Authorities (WSA) to continue where the capacity has been demonstrated.
The DWAF noted that it was best placed to deliver in
low-capacity rural areas and the differentiated approach was silent on this. It
added that the DOR Bill strengthened the role of cities in delivering services
in their areas but was silent on areas/municipalities where there was no
capacity to deliver.
DWAF believed it was best placed to support delivery
in rural areas and could initiate processes to do so to ensure that funding was
placed where there was capacity to deliver as demonstrated through bucket
eradication.
DEPARTMENT OF MINERALS AND ENERGY
The department’s electrification allocations for the
2009/10 financial year were highest in the
The
A concern raised by the Committee in respect of the
The department reported that it did not electrify
mud schools.
Energy Efficiency Demand Side Management Grant (EEDSM)
The Energy Efficiency Demand Side Management Grant
(EEDSM) received a total of R675 million over the MTEF period with R175 million
of that being in the 2009/10 budget. The objective of the grant is to implement
the EEDSM programme by providing capital subsidies to
licensed distributors to address EEDSM in residential dwellings, community and
commercial buildings in order to mitigate the risk of load shedding. The grant
is also aimed at assisting municipalities with the development of capacity to
deliver on EEDSM smart metering projects.
DEPARTMENT OF PUBLIC WORKS
Two conditional grants are managed by the Department
of Public Works: the new Expanded Public Works Programme
Incentive Grant for provinces and the Devolution of Property Rate Funds Grant
which was introduced in the 2008/09 financial year.
Expanded Public Works Programme
Incentive Grant
The objective of the Bill is to increase the number
of full-time equivalent (FTE) employment through labour
intensive employment by provinces. This grant will continue until 2014. Its
allocations over the MTEF are R151.4 million in 2009/10, R400 million in
2010/11 and R800 million in 2011/12.
The department explained that its target is to
create 2 million FTE jobs for poor and unemployed people in
The framework of the Bill outlines conditions that
must be met prior to the incentive being paid out. Allocations to the provinces
will be based on the targeted number of FTE’s for each province. The incentive
will be paid out based on performance in the previous financial year. Furthermore the incentive amount from
under-performing provinces will be re-allocated to performing provinces.
An example of some of the municipalities targeted by
the department for the grant was in the
·
·
·
Tsolwana
·
Intsika Yethu
·
Emalahleni
·
Sakhisizwe
·
·
·
Alfred Nzo
District
It was the view of the Committee that some of these
municipalities did not need the incentive and that focus should be channelled towards assisting the low-capacity
municipalities which were mostly rural.
The Committee tasked the National Treasury, DPLG and
the Department of Public Works to revisit the framework and look at how the 129
rural municipalities appearing in the AG’s report as low capacity
municipalities can be incentivised through this programme. They were tasked to also revisit the targeted
figure of only 45 municipalities.
Devolution of Property Rate Funds Grant
This grant is aimed at enabling provincial
accounting officers to be fully accountable for their expenditure and payment
of provincial property rates. The process was reported to be fully implemented
with transfers taking place according to set timeframes.
Some of the challenges expressed by the department
in respect of this grant were:
·
Challenges relating to obtaining funding
from the National Treasury to settle arrears in the Western Cape, KwaZulu-Natal, Mpumalanga,
Eastern Cape and Limpopo;
·
Challenges with the reconciliation and
validation of the claimed arrears; and
·
The department’s lack of capacity to
conduct the validations.
The following amounts were allocated to the grant
over the MTEF:
R996.5 million in 2009/10
R1 096.2 million in 2010/11
R1 162 million in 2011/12
DEPARTMENT OF ARTS AND CULTURE
Libraries
and the transformation thereof were critical among the responsibilities of the
department and ensuring availability of materials in indigenous languages
formed a part of that transformation process. The department was also involved
in efforts of ensuring that indigenous languages were fused into the computer
language in the country.
Priorities
of the department for the 2009/10 financial year included:
•
Increasing
books and reading material (especially for younger readers)
•
Upgrading
and construction of library buildings
•
Appointment
of more staff as well as extensions of contracts
•
ICT
– New integrated library management system
Further
priorities were:
•
The
construction of a model library in
•
Facilitation
of the planning and building of two libraries in Khayelitsha,
•
Cooperation
with correctional services regarding youth at risk;
•
Publishing
in indigenous languages; and
•
Cooperation
with Arts, Social Development regarding the production of tactile books.
In respect
of conditional grants, the department reported that for the 2008/9 financial
year, four provinces had applied for roll-overs. These were the
The
National Treasury noted that the figures presented were based on the funds
transferred and not on the overall allocation. Taking into account the
allocation would bring the spending down from 68% to about 58%.
Challenges
reported by the department were:
·
high
staff turnover;
·
delays
in concluding Service Level Agreements with municipalities;
·
supply
chain issues in relation to procurement and acquisition of books; and
·
Infrastructure
related problems.
The Committee
noted that, given the strong link between libraries and schools, the Department
Arts and Culture needed to engage rigorously with the Department of Education
to ensure that libraries were built while addressing the provision of reading
material. Libraries, which are community structures, needed to be made
accessible to communities.
THE DEPARTMENT OF SPORT AND RECREATION
This department is responsible for managing the Mass
Sport and Recreation Participation Programme Grant.
The framework of the 2008/9 Division of Revenue Bill outlined the
following measurable outputs for the abovementioned grant: Siyadlala,
Legacy and the Schools Sport Mass Participation Programme.
Encompassed in the legacy output were the establishment and/or development of
300 sport specific clubs.
The 2009/10 Division of Revenue Bill outlines the
purpose of the Bill as that of promoting mass participation within communities
and schools through selected sport and recreation activities, empowerment of
communities and schools in conjunction with stakeholders and that of the
development of communities through sport.
The department was to receive an amount of R402.3
million in the 2009/10 financial year towards Mass Sport and Recreation
Participation Programme Grant. It was reported that
the following provinces had requested roll-overs of unspent 2008/9 funds: Limpopo (R2.3 million),
The Department reported the following challenges:
•
Slow spending by provinces;
•
Lack of capacity for monitoring and evaluation Sport and Recreation South
Africa (SRSA); and
•
Lack of capacity in provinces
The department also reported that there was a slow
turnaround in recruitment processes and that the vetting of applicants further
delayed the process.
The Committee was concerned that the department did
not report on club development, which was a common feature in the work of the
department in the previous financial year. It appeared that this had been
replaced with the Legacy Grant. The Committee was not satisfied with the
department’s explanation that club development was encompassed in the Legacy.
It added that during an oversight visit to
The Committee also raised concerns with the
Department that provinces were hosting professional games which were not their
core competence. The
Questions
were also raised on whether there were any links between the department and the
private sector initiatives in terms of the Public Private Partnership.
Recommendations of the Committee in
respect of SRSA and the National Treasury:
·
The
two departments to jointly evaluate whether the structures and clubs developed
from the club development grant existed;
·
Ensure
ongoing support for those clubs;
·
Clarify
the purpose of the Legacy Grant and monitor it accordingly.
·
Establish
whether the legacy was in respect of 2010 only, meaning soccer, and establish
whether this was targeting host cities or the provinces generally.
While
soccer would be the main beneficiary, the department was of the view that other
sporting codes would also take advantage of the Legacy Grant. The Committee
proposed that it would assist to have an indaba with the relevant stakeholders
to look into how they can jointly benefit from the legacy grant.
DEPARTMENT OF TRANSPORT
The Department of Transport manages five conditional
grants. These are the:
·
Gauteng Rapid Rail Link Grant receiving R2 832.7 million in 2009/10;
·
Overload Control Grant (new) receiving
R10.069 million in 2009/10;
·
Public Transport Operations Grant
receiving R3 531.9 million in 2009/10;
·
Sani Pass Grant receiving R34.3 million in 2009/10; and
·
Transport Disaster Management Grant
(new) receiving R11.5 billion over the MTEF.
The
department reported that since the 2005/06 financial year it had been running
at a shortfall until in November 2008 the department ran out of funds. This was
not as a result of under-budgeting but rather that of underfunding.
The matter had been largely resolved through the courts.
The
department had agreements with the provinces to provide the services to people
who needed the service. Various contracts were used in these arrangements
ranging from tendering contracts, negotiated contracts and interim contracts.
It was reported that the bus operators preferred interim contracts (driven by
ticket sales), but the department was now moving from these agency agreements
towards conditional grants provided for in the DORA. This would ensure that
there were strict conditions that operators would adhere to. Non-compliance
would lead to termination of contracts. This would be closely monitored to
avoid increasing unemployment.
The
department also noted that focus in terms of technical assistance needed to be
directed towards Mangaung but more so towards Tshwane which had major problems.
The
National Treasury reported that its plans were to complete the contractual
engagements by September 2009.
The
National Treasury committed to provide a report on the consequences of underfunding reported by the Department of Transport. The
Department also committed to provide the Committee with a detailed report
tabled before the Portfolio Committee on Transport. It added that the
implication of the underfunding was the deterioration
of services provided as well as bus operators who do not maintain their
vehicles.
It was also
the view of the department that the DORA only created a rigid framework and did
not provide a solution for providing bus services to the people who needed it.
The
National Treasury pointed out that government needed to decide how, in the
context of limited resources, it would ensure that settlements were in close
proximity to work areas in order to reduce the need for funding in the form of
bus subsidies.
National
Treasury and the Department were requested to engage on the issue of underfunding and report to the incoming SCOF and PC
Transport.
The
department was also restructuring the Road Accident Fund (RAF) in such a way
that the processes eliminate the need for lawyers. It was reported that
structures representing lawyers were opposing this move through the courts.
CONCLUSION
Given the significance of the Division of Revenue
Bill in ensuring equitable division of nationally raised funds among the three
spheres of government, the Committee thanks all stakeholders for their comments
and participation in the public hearings that took place over three days.
REFERENCES
1.
Division of Revenue Bill [B4-2009]
(section 76(1))
2.
Budget Review 2009
3.
Presentations submitted by participating
departments and stakeholders
4.
National Treasury’s 3rd
Quarter Report on conditional grants transferred from the national departments
and actual payments made by the provinces