Report of the Portfolio Committee on Labour on the public hearings on Labour Broking, dated 23 March 2010

1. Introduction

The issue of labour broking generated a lot of discussion recently, with claims that labour brokers exploited workers. Some people called for a total ban of labour broking while others called for the industry to be regulated. Against this call, the Portfolio Committee on Labour decided to conduct public hearings on labour broking at Parliament and in the provinces.

2. Aim of the public hearings

As part of the Portfolio Committee’s oversight role and due to the growing interest in the subject of labour broking both internationally and in South Africa, coupled with concerns from interest groups and affected parties, it was decided to ascertain the views of the public on this matter. The purpose of the public hearings was to look at the challenges that the country was faced with in regard to labour brokers who were not operating in accordance with labour law prescripts, and how government can regulate labour broking in South Africa.

Participation from the various stakeholders was intended to assist the Portfolio Committee in understanding the nature and extent of labour broking in South Africa, given that there is currently no extensive research done on the subject. However, this growing trend has major policy implications in the labour market due to growing anomalies created by labour brokers. The Portfolio Committee’s call for public hearings follows a process already at its pinnacle between the social partners at NEDLAC and the Department of Labour. The public hearings were meant to:

• Bring to light the extent to which labour broking practices are taking place in South Africa, including identifying sectors most affected by labour broking
• Assist in preparing the Committee when dealing with relevant legislation to identify gaps, contradictions and further challenges in policy implementation
• With the varied inputs from stakeholders and organisations, the Portfolio Committee expects to apply an impartial view when drafting final recommendations to be considered by Parliament.

3. Public hearings at Parliament, 25-26 August 2009

3.1 Presentations by different stakeholders and individuals

The Committee heard oral input from various organisations and individuals. The following issues were raised:

3.1.1 Consulting Engineers and Project Managers

• It would be difficult to operate the labour market without labour brokers as they provide flexible workers
• If people employed through labour broking lose jobs, they are placed somewhere else in the labour market
• There are brokers who operate problematically, and the system should be regulated

Recommendations

· Labour Broking should be regulated

· If there are people operating unscrupulously the Department of Labour (DoL) should deal with them harshly

3.1.2 Staffataclick

· Acknowledges the abuses that exist within the Temporary Employment Services (TES) industry

· If regulated, the TES has potential to make an even more positive contribution to the socio-economic climate of South Africa

Recommendations

· Propose regulation of the industry through the Staff Data Management System (SDM)

· The SDM will register all labour brokers, and the DoL will also have access to all data in this system

· Through the system, all TES would be monitored to see if they complied with the Bargaining Council regulations

· Deregister all non-complying labour brokers

3.1.3 Mr Vincent Phillips (individual)

· Will the system not contravene any laws that are there to regulate employment

· To suggest banning of labour brokers is not an option

· The Labour Relations Act is clear on the definition of employer and employee

· Labour brokers should force companies to employ people permanently

Recommendations

· Labour Brokers should force companies to employ people permanently

· Banning will not assist in solving the Labour Broking problem but there should be regulation

3.1.4 Association of Personnel Service Organisation (APSO)

• APSO promotes self-regulation
• Acknowledges that there are TES providers who do not comply
• APSO’s current work can be automatically extended to cover all parties operating in the labour recruitment industry and any non-complying party be eliminated and prohibited from operating

Recommendations

· Supports greater regulation of the industry, including better enforcement, co-regulation and not by creating debilitating legislation that could become a stumbling block for direct investment and job creation

· There already exists sufficient legislative framework and attempts to alter this framework will further complicate the state of affairs within the industry

· There should a Co-regulatory body such as the Private Employment Agencies Board

3.1.5 DEAF SA

• Ban labour brokers in order to protect and not exploit workers
• There is a problem with labour brokers who act as interpreters but do not qualify to interpret sign language
• Deaf people apply for jobs through labour brokers but do not come back to DEAF SA when they are fired

Recommendations

· Ban labour brokers in order to protect and not exploit workers

3.1.6 SOLIDARITY

• There should be a way of regulating the system by means of legislation
• Temporary employment should become permanent
• Section 189 of the Labour Relations Act must be amended
• In favour of setting up a minimum wage
• The role of the Department of Labour should be increased so as to assist in conducting compliance within the brokers
• International laws must be rectified

Recommendations

· The banning of brokers is not the solution (instead it will lead to increased poverty and unemployment)

· Regulation of the labour broking industry is a far more realistic option

· Over-regulation of the industry will have negative consequences

· A Code of Good Practice should be developed through a stakeholder consultation process

· Co-regulation with government and labour

· Clear definition of periods at which the employee under the broker Temporary Employment Services (TES) should fall into the responsibility of the client

· TES industry should set up its own Bargaining Council that will cover all sectors

· Existing Bargaining Councils should be consolidated into one umbrella Bargaining Council

· Legislation should incorporate a 4 weeks notice period after six months service

· TES and employees should contribute to the industry pension fund

· Definition of “workplace” for the temporary worker should be that of the client and not the TES provider/labour broker

· Amendment of section 189 of the LRA - where employers retrench permanent employees but later hire same employees through TES providers to save costs should be prohibited

· Amendments should include payment of severance amount where client terminates contact of the TES provider

· Sectoral collective bargaining may provide atypical workers with a forum

· Ensure that certain guiding principles regarding contractors are negotiated and included in the collective agreements signed by all parties

· Reach collective agreement to phase out the use of TES over a period of time

· Extend collective agreements to cover temporary employees but such should be limited to Bargaining Councils, not Agency Shop Agreement as that would infringe on the right of association

· Support minimum wages for TES employees which are sector specific, but concerned about the Minister of Labour’s powers to determine wages which leads to over regulation

· TES registration with the DoL should be a legal requirement

· Extending the role of the DoL, for example, giving guidelines in the TES employment contract, enforce current legislation and encourage business to select compliant TES providers

· Assess which parts of the ILO Convention 181 can be encompassed in the amendments to the LRA

3.1.7 Mr Victor Anthony

• Why should labour brokers take part only when a salary needs to be paid
• Most of the time the Labour Relations Act is manipulated
• Termination of contracts most of the time is without notice

Recommendations

· Labour Broking should be regulated

3.1.8 Confederation of South African Workers Union (CONSAWU)

• Rejects all forms of atypical work including Expanded Public Work Programme
• Workers are trapped into continuous poverty cycle
• Some broker/client arrangements exclude the right to strike
• Since the rise of temporary employment and decline of permanent employment, SA Human Index has declined from 0,702 in 1985 to 0,670 in 2006
• No person should be paid less than the basic R4 000 in SA

Recommendations

· Legislation should define an employer

· Employee definition should delete “excluding an independent contractor”

· Definition of an employee should include “any person whose monthly income is R5 000, or less, a different amount as determined by the Minister from time to time”

· Taken from other African countries, the Minister of Labour should legislate an across all sectors minimum wage/salary which should not be less than R4 000 per month

· Non-complying employers should be fined a stipulated amount or sentenced to a minimum of two-year jail sentence

3.1.9 Landelahni Recruitment Group

• Supports closure of labour brokers who do not adhere to the requirements and do not comply with LRA or regulations
• Currently reviewing benefits to contract workers
• Provide learnerships and internships to workers
• Supports professional conduct of agencies to contribute in creating jobs
• Supports that labour brokers that flout the law be struck off the roll and never practice again
• If all brokers are banned there will be major job losses in Lindelanhi

Recommendations

· Closure of Labour Brokers who do not adhere to regulations

· Supports registration of TES and termination of contracts to those found to be manipulative and do not comply with the LRA

· Labour Brokers should be professionals and contribute to creating jobs, not exploit people

· Supports that Labour Brokers that flout be struck off the roll and never practice again

· Labour Broking should not be banned.

3.1.10 AL JAMA-AH

• The Department should not allow TES contracts unless they are measured.

· The sectoral determination for contract cleaners must be scrapped as it has stripped 300 000 workers of their job security, their dignity and service benefits

· Employers and State entities are also guilty of worsening conditions within the labour market

Recommendations

· Regulation of the TES industry should be limited to the expiry of the existing commercial contracts between labour brokers/TES and their clients which can exist for the next five years

· The TES ban should exclude first time school leavers but subject to strict regulation if it is the first step to guaranteed employment for them on leaving school

· Review procurement policies within government departments, especially the Department of Health which outsources cleaners

· Contracts should not be awarded unless bidders pass the test of providing decent work

3.1.11 Women on Farm Project

• 46% of agricultural labour force is casual
• Wage rates are far lower for casual workers compared to their permanent counterparts, even when performing same tasks
• Most “cost-saving” activities include: non-wage benefits such as maternity leave, sick leave, rain-day pays, protective clothing etc.
• Growing feminisation of work with men replaced by women. Women paid less
• Workers are unable to join unions for fear of losing jobs
• Illegal deductions from wages
• No access to training and development opportunities
• Overt gender and racial discriminatory practices
• Current legislation assumed that the labour force is unionised and falls within the bargaining council
• Current framework is still biased towards the two-way employment relationship

Recommendations

· Legislation should consider the growing new format of employment

· Introduce legislation that specifically deals with labour brokers, including registration, skills development, etc.

· Those using unregistered brokers should face stringent legal consequences

· Implement effective monitoring and enforcement strategies together with farm workers’ organisations

· Introduce agricultural bargaining council

· There should be education programmes on labour rights

· Hold commodity groups account for training and coordination of labour broker operations within their sectors

3.1.12 Confederation of Association in the Private Employment Sector (CAPES)

• Non-compliance and gaps contribute to abuse in the industry
• Accepts that there are challenges in the industry but there should be a mechanism to deal with them
• Rejects rise to any references like selling people, labour abuse and human trafficking
• Proposes looking at the existing law and embarking on educating the stakeholders on their rights and obligations
• There should be public private agency board

Recommendations

• Proposes looking at the existing laws and embarking on educating stakeholders on their rights and obligations
• There should be a public and private agency board

· There should be mechanisms in place to deal with the current problems between Labour Brokers and employees

3.1.13 FEDUSA

· Focus should be on the “end user”/client and not the broker

· Look at the Netherlands model “ABU” which covers approximately 90 per cent TES workers or

· The UK National Level Agreement between government, labour (TUC) and the CBI concluded in May

· Believe labour broking should be regulated and not banned

· After being legislated there should be monitoring and enforcement

· FEDUSA supports the joint mode of holding the labour broker and employer accountable in cases of

exploitation of workers

Recommendations

· Regulation of the industry through the national legislative framework supplemented by collective agreements and the national framework agreement supplemented by sector or industry agreements

· Beyond regulation there should be enforcement

· Workplace issues should be monitored (hours of work, equal treatment, etc.)

3.1.14 Ms Nyameka Nama (Exploited worker recruited by a labour broker)

She was accused of stealing a client’s watch at the hotel where she works. A security guard had told her she would be called to a pornographic test (being stripped naked). The watch was not found on her. The following day a client reported that he found his watch. No apology was made to her after such humiliation. She felt she got such treatment because she is black and a woman.

She and her other colleagues work irregular hours and when she questions such a behaviour, she is told that she is employed by a labour broker and therefore the hotel does not have powers on her.

Recommendations

· She appealed to Unions to come to her rescue.

3.1.15 COSATU-FAWU/NEHAWU/NUM/NUMSA/SACCAWU/SATAWU

· Acknowledges the Department of Labour’s discussion paper which proposes various additional regulations against labour brokers

· Urgent need to correct the notion that labour brokers create jobs

· Labour brokers are merely intermediaries to access jobs

· Labour brokers destroy decent jobs through insecure contractual relations

· The contract is between the labour broker and the “client”, excluding the employee (who supplies labour)

· “scab” labour undermines collective bargaining rights, e.g. right to strike

· Labour broking is the reflection of the true employer refusing to comply with its obligations

· Progressive deskilling of workers due to short-term and irregular nature of contracts associated with labour broking

· Department of Labour (DoL)’s proposed regulations have not outlined how it intends to address current incapacity to enforce legislation

· There’s been an increased usage of labour brokers in the Public Sector e.g. Health sector

· Labour brokers have become the mechanism to deprive vulnerable employees of labour law protection

· The public sector has significantly reduced the number of employees and increasingly involved the process of outsourcing

· Increasing usage of employment agencies/labour brokers both in the public service as well as the State Owned Enterprises

· Most nurses belong to agencies, not hospitals

· Home-based care workers in communities are provided by the NGOs, who in turn pay them (labour broking) through payments from the Department of Health and Social Development

· Labour broking results into:

- Low levels of remuneration, including benefits

- Unionisation and security of employment

- Absence of occupational health and safety protections and systems

· Definition of seasonal work is not clear, as some sectors employ workers for almost 12 months who then become permanent seasonal workers

· No adequate housing and basic services

· Labour brokers deprive workers direct access to the employer

· Sole interest of labour brokers is to maximise profits, while depriving them of their rights and benefits

· Social consequences of labour broking result in workers depending on government pension after retirement

· Labour brokers provide cheap labour and entrench unsafe working conditions

· Neither companies nor labour brokers take responsibility for workers injured/fatally wounded

· They target the desperate, particularly from the rural areas and poor communities

· Same-job- same-pay does not apply as labour brokers pay less compared to client companies

· Workers under the labour broker do not receive focussed and co-ordinated training as clients do not take responsibility for them

· In trying to minimise hardship and exploitation of workers within the engineering sector, parties agreed to regulate labour brokers

· Instead of conditions improving within the sector, they’ve worsened since employers opt for labour brokers instead of employing permanent staff

· Issues of employment equity and skills development are not implemented

· Courier companies, maritime, cleaning industry, are all vulnerable

· Workers are often not supplied with contract copies, hence the delusion of a permanent position

· In instances where workers’ wages are increased, employers in turn, cut working hours for workers not to receive the benefit

· Unionised workers are often moved to other client companies

· If workers take cases to CCMA, they’re simply told that client companies do not need them

· SATAWU has an agreement with SAA to ban labour brokers

Recommendations

· Strongly proposes that labour brokers should be banned

· There is a need for further hearings at local level and in all provinces by the Portfolio Committee

3.1.16 NACTU

· Based on Article 1 of the Declaration of Philadelphia, adopted by the ILO in 1944

· Workers under the labour broker usually do not enjoy such formal employment benefits as: pension, medical aid, housing subsidies, maternity, occupational diseases and injuries

· Labour broking racially profiles workers

· The system of labour broking undermines the Constitutional provisions such as the right to human dignity and equality

· They also undermine international labour standards: labour brokers violated at least six fundamental conventions No. 87, 98, 29105, 100 and 111

· Given that the wages to national income ratios have decline considerably between the periods 1995-2000 and 2001-07, if labour brokers are not prohibited this will decline considerably

· Labour brokers undermine social protection

· Labour brokers engender discrimination at the workplace and intensify the exploitation of workers

Recommendations

· Immediately prohibit labour broking

· Amend legislation and restore the original standard employment relationship

· Compel all employers to provide minimum benefits of employment

· Capacitate the DoL’s inspectorate unit

· Restrict TES services to those of recruitment, placement, and information dissemination only. In instances where they provide temporary employment services, it should be limited

· Prohibit the public service, enterprises, entities, and major public investment projects form using TES

· Bar members of legislatures, executive, and civil service from owning and operating TES through compelling them to disclose such activities

· Fast track the Comprehensive Social Security and Retirement Reform and the National Health Insurance Scheme

· Instruct DoL to engage at NEDLAC on its proposed amendments to the labour legislation

3.1.17 Metal and Electricity Workers Union of South Africa (MEWUSA)

· The discussion is long overdue

· Labour brokers contribute nothing to the working class

· Where labour brokers are involved, conditions of workers are at their worst

Recommendations

• Want Labour Brokers to be liquidated
• Legislation should be done to prevent further formation of such Labour Broking

3.1.18 Business Unity South Africa (BUSA)

• Labour broking should be considered in the context of employment as a whole
• It is a pivotal facilitator of employment
• It provides speedy access to temporary and permanent employment, skills development and reduces administrative burden on employers Also recognising other forms of labour broking that have given rise to abuse and consequently eroding workers’ rights and decent work.Business does not support such abusive practices
• Key focus should be on improving conditions towards decent work than eliminating labour broking completely
• Example of CAPES: it places 500 000 temporary assignees daily
• TES facilitate more than 20 000 learnerships and contribute more than R400 000 million in skills development levies
• Facilitated more than 5% of all learnerships in the NSDS 1
• 40% of temporary assignees fall under the jurisdiction of Bargaining Councils
• There’s also a large scale use of labour broking in the public sector
• Labour legislation already has provision for TES regulation, inter alia:

Section 198 of the LRA

Section 57 of the EEA

Section 24 of the SDA and Regulations

Section 82 of the BCEA and Section 1 of the OHSA

• Also regulated by Sectoral Determinations and Bargaining Council Agreements
• There has been no Regulatory Impact Assessment conducted by the DoL before tabling the Discussion Document at NEDLAC

Recommendations

· Positive elements of labour broking be maintained

· There has been no reasonable enforcement of the existing statute by the DoL

· Bargaining Councils should fully address enforcement issues

· Opposed to new legislation

· Existing statute be considered as primary remedy

· Co-regulatory model with a Private Employment Agency Board which registers, investigates and de-registers TES

· Opposes DoL proposals which curtail the TES industry

3.1.19 Young Communist League of SA (YCL)

· Labour brokers undermine workers’ rights, including those contained in the Bill of Rights

· Do not guarantee Job Security

· Workers kept on temporary work for long periods, especially the Retail Sector

· Do not contribute to skills development and worker progression

· The provision in the Constitution which states that everyone has the right to choose their employer, undermines/or is ignorant of the socio-economic conditions that workers find themselves, and thus, makes them vulnerable

Recommendations

· It would be costly to regulate and penalise labour brokers, hence banning is a more viable option (since this will be a process), meanwhile:

· After a particular period, employers should take over the labour broker contract, with the worker directly falling under the company

· Enforce the stipulation that both the employer and the labour broker are liable (joint-liability)

· Ban all forms of labour broking within vulnerable sectors (where minimum wages have been set) including mining, agriculture, private security, mining and domestic

· Immediate regulations be introduced to ban labour broker usage in all local government municipalities, public education, health and other institutions including courts, sports facilities, etc.

· Heavy punishment for those contravening regulations

· Contribution by labour brokers to the Skills Development Levy and clear skills development plans

3.1.20 ANC Youth League

· Labour brokers cause division amongst permanent and temporary workers

· Workers are placed anywhere that the employer want to place them

· Labour brokers should be banned in South Africa because they abuse and exploit workers

· There should be legislation to assist in transferring workers in the temporary system to the permanent system and there should be a process to oversee compliance in this regard

· Jobs found by young people should be permanent and should provide security and benefits

· Labour brokers had neglected to protect workers at the workplace

· When workers were injured on duty and had to stay away from work, they are not paid

· ANC Youth League were of the view that labour brokers were exploitative, took an unfair portion of workers’ salaries and did not have fair dismissal practices

Recommendations

· Labour brokers should be banned in SA

· A structured process should be established in order to transfer temporary workers into permanent employment

3.1.21 General industries Workers Union of South Africa

· Terms of reference of the hearing are restrictive thus reducing the challenge of labour broking to one mere regulation

· Labour broker employers are not owners of the means of production. What they own are employees they contract through a fictitious employment relationship. Because of “this ownership of the employees” the labour broker employers can sell the employee to another at a fee

· Labour broking has caused the present labour market to take on the abominable features of the previous colonial and Apartheid labour markets

· Employees of labour brokers do not enjoy the same conditions of employment as permanent employees because of being third party employees. They do the same work; generate surplus values for the same client employer as permanent workers

· Labour broking employees suffer from constant violations of the provision of the labour laws. Though they work for the same labour broker and client for several years they have no job security and are employed on the basis of no work no pay. Their contract with the broker is terminated as soon as the commercial contract between labour broker and its client ends

· Client companies would threaten to cancel the contract of the broker if the employees should join a trade union. The threat can be difficult to prove in a court of law

· It is difficult to get unions recognised by the brokers

· Most labour brokers describe themselves as BEE companies but they contribute little to socio-economic development and the creation of decent work

· Even the so-called big labour brokers, like Capacity Outsourcing, a subsidiary of Adcorp Holding are among the worst exploiters and oppressors of workers

· Banning labour broking will not lead to thousands of job losses

· Labour broking companies are not job creators and therefore contribute very little to South Africa’s development. They undermine attempts to create decent work

Recommendations

· Labour broking should be banned

3.1.22 Man on the side of the road

• Organise people who look for jobs on the side of the roads
• Service is for free and people are placed as casuals
• Believe existing labour rules were sufficient

Recommendations

· Current legislation is appropriate

· Scope to define “temporary employment”

· Industry must be effectively regulated

· The DoL should effectively monitor the labour broking industry

4. Public hearings in the Free State, North West, Gauteng and KwaZulu-Natal Provinces, 05-08 October 2009

4.1 Introduction

The hearings held in Parliament on the 25 and 26 August 2009 were mainly attended by labour brokers and Labour Union representatives of employees affected by labour broking. There were few representatives from the communities. It is for this reason that the Portfolio Committee on Labour took a resolution to extend the hearings to provinces where labour broking practices are deemed to be rife in order for the Committee to get first hand information from the workers/communities about the extent and effects of the labour broking practices.

4.2 Delegation

Ms L E Yengeni (ANC) – Leader of the Delegation

Mr E Nyekemba (ANC)

Ms L Makhubela-Mashele (ANC)

Ms F E Khumalo (ANC)

Ms A M Rantsolase (ANC)

Ms R D Tsotetsi (ANC)

Mr E Mtshali (ANC)

Mr A Louw (DA)

Mr I Ollis (DA)

Mr W M Madisha (COPE)

Mr V B Ndlovu (IFP)

4.3 Presentations by different stakeholders and individuals

The Committee heard oral input from organisations and individuals. The table below reflects organisations, workers and individuals who called for the total banning of labour broking, and those who called for regulation of labour broking.

4.3.1 Day 1: Monday, 05 October 2009

Public Hearings in Welkom: Tabong Community Hall, Free State Province

Present: Organized business, labour and individual members of the public.

Organisations and individuals who called for the banning of labour broking	Organisations and individuals who called for the regulation of labour broking
Anglo Company worker - working under AKTV labour broker: · Workers working under Temporary Employment Services (TES) do not have benefits at all · They are fired without proper disciplinary processes · Salaries should be paid straight to workers and not to the intermediary · Recommend that TES should be abolished, employers should employ people directly	Collen Ackland (Chairperson of Personnel Services) · Labour broking need to be regulated · Temporary Employment Services (TES) assist in employment · If banned, people will lose their jobs · Co-regulate with government, since the Department of Labour (DoL) has no capacity to regulate the industry
NUM: Ntandazo Siqwala · Regulation will fail fair labour practices · Cannot allow commoditisation of human beings · Conditions of employment: no promotions, benefits, no skills development and employment equity · Sometimes there are 100% salary deductions · Commission for Conciliation, Mediation and Arbitration (CCMA) processes do not assist · Should be permanently banned in South Africa in order to promote decent work	TES employer in Bloemfontein · In current labour legislation there are structures in place already · Need enforcement of current legislation · Employers currently abusing workers · Skills levies are not used, not because TES do not train but employers (incomplete sentence) · Collective bargaining agreement should be enforced to all TES · CCMA make a stand on (incomplete sentence) (commissioner do not want to deal with Removal Clause) · Effective Human Resource (HR) to client should be rendered by the client companies · Cleaning companies should be distinguished from labour brokers as they should take full responsibility of their companies · Co-regulation between the TES and the DoL · Have a board that will regulate the industry
YCL in the Frees State: · Labour brokers undermine the rights of workers · Labour brokers take away a share in the worker’s wage · Monitoring will waste a lot of money · No skills development · Department of Labour should take over the responsibility of placing people	Buyisiwe Sikhona · Matriculated with electrical engineering · If people are looking for jobs in the public service they need connections · Resort to labour brokers since they do not need experience and connections
Mhlupheki Hadebe (DENOSA) · Call for total banning of labour broking · Labour broking camouflages shortages of nurses within the sector · It violates the legislation like the Basic Conditions of Employment Act (BCEA) e.g working hours are long · Service delivery is being compromised due to tired nurses · Nurses take leave or sick leave from the permanent employer so as to moonlight somewhere else	Transman- Petros · During school holidays, company employs kids · Employ people to stand-in for workers on maternity leave · 10 000 people given jobs on a daily basis
Babazile Bonai (Bongani hospital) · Cleaners, security workers, catering staff working under the TES working for R1 800 which amounts to R1 400 after deductions (were not paid in September) · Requesting government to create decent jobs (permanent jobs) · Stop delaying the legislation process
Bongani Hospital: NEHAWU (nurse) · Worked for the provincial hospital and were not allowed to go on strike · Working for Bongodi Cleaning services since 2008 they have not been paid · MEC promised to assist but nothing has been done · Mr Ace Magashule promised to assist but nothing has been done
Message Tsatsa (from Youth at Work) · Middle man – take wage share from the workers · Government should create permanent work for all
Worker: (Bambanani Company) · Works for R723 per month · Can’t feed the family · Management of Bambanani do not listen to workers concerns · The company Ignore occupational injuries · Others work for R100 per month · Ban labour broking companies, and mines should employ workers directly and permanently
Mrs Botsane · On behalf of her child who works for (incomplete sentence) (attorney firm) · Since people are not paid through lawyers, their salaries have been reduced · No benefits, salary fluctuates every month · Government should assist on how to deal with the issue · Labour broking should be abolished
Mandlenkosi Skhomo (Bambanani Mine) · Does same jobs as the permanent staff under the mine · Those working for TES do not have benefits such as accommodation whereas they are poorly paid · Government should ban labour hire
Juwel Jali · Mine paid him R7000 but after deductions from the TES would get R1 500 · How could government let TES dominate the private sector · Compares to apartheid · TES should be banned
Moris Mokwedi (NEHAWU) · Ban labour broking like it has been done in China · It is the exploitation of labour · Government should not regulate labour broking
Sonwabo Stokwe (MassMart) · Labour broking is exploitation and victimization · Female workers dismissed due to grievance about sexual harassment · In Bloemfontein Cash and Carry staff all employed through the TES · Mass Cash retrenched all full-time employees and replaced them with TES employees
Post Office Worker: · Six years working under the TES · Delivers letters without protection such as rain-coats · Permanently employed workers receive protective gear · Salaries fluctuate each and every month · Terms of contracts not clearly stated
Modise Moekedi (Worker from Sky-High ) · Workers get paid R60 per 9 hours (R1 320) · When injured at work, removed from others and no treatment given · Government should take over from the TES · Labour broking should be banned
Nomsa Matshaba (Employer from Sondelani Hospital under Karisma TES) · Random inspection without proper training, people are being fired without proper procedures · Replaced immediately with labour broking employees · Had accident – but not permitted to take sick leave · Ban TES
Mkhulu Stofile (SACP in OFS) · Workers are also community workers, have social responsibilities · Workers cannot uplift themselves out of poverty given the conditions they work under · People view TES as slavery · Ban TES
Sandile Mzantsi (Bambanani - formally known as Steel No 4) · Company does not have the hospital to attend to the injured workers · If injured taken to the TES office and ordered to go back to work · Unpaid sick leave · R500 per month or R400 · Not paid for overtime or night duty · Ban TES
Isaac Mostwewu · Works for Impro-Chemical · People working for TES had no benefits · Ban TES since they are the only party benefiting from the system · Union in the industry (CEPAWU) cannot represent TES employees
Mpule Sikicane (Glofields-Ameture winders) · Mewusa requested company to implement skills development training for staff members but this was not done · Workers work short-term but the company is still bringing in labour brokers instead of using the money to employ permanent staff · Labour broking should be banned
Tseko Mokupi · Works for Quest Flexi-Solution · Worked for 17 years for the company as temporary worker · Only african workers are employed by TES, Why? · Ban labour broking because it exploits black people
Tsepo Moloi · Working for Prestige Cleaning Services · How will Parliament ban TES? · No benefits or sick leave · Three days of family responsibility leave is not enough · Workers getting paid R50 for Saturday and Sundays · Reducing working hours when they request salary raise · Work for 7 days with no leave · Parliament to follow up on working conditions · No medical aid benefits · Sick workers are replaced
Sophie – contract worker at Bongani Hospital · Currently on pension without benefits · Were employed under Bongani with promise of government employment after three months · Worked with seriously dangerous chemicals · Ban labour brokers
Gcinikhaya Silwanyana · Workers are exposed to cancer and TB under the mines · Temporary Employment Services (TES) do not belong to Rand insurance therefore TES employees do not qualify for medical benefits · Ban labour broking or TES
Worker at Charisma Solutions · Like migrant labour, families are destroyed since workers do not have benefits such as leave (no family time) · Temporary Employment Services (TES) goes against decent work · People under TES can’t even join trade unions · TES should be banned
Zoliwe · Works for Ellerines furniture store · Companies retrench workers, and bring in TES workers · TES are also service providers to the Sector Education Training Authorities (SETAs) · People become part-time worker for the rest of their lives under TES · No maternity leave. People took 10 days maternity leave, if more than that they do not get paid or lose their jobs · Labour broking should be banned
SAMWU (Nombulelo) · Labour broking within local government is rampant · Services (e.g. payment for electricity and water) which are core services rendered by the municipality are being outsourced · Municipalities should stop hiring people who work for politicians on temporary basis · Entities within local government e.g. water boards employed people as permanently casual workers · All entities should do away with casual workers and all workers should be employed permanently by the municipalities · Trucks that work for the municipality are outsourced to the labour broker · Municipality should stop outsourcing truck services to labour brokers
Security guard – Fidelity · Worked for Fidelity, as a security guard at ATMs and hospitals, but not provided with any equipment · Security officers work as police officers but not recognized for their work · Sexual harassment is rife in the company · Government should stop outsourcing services to the labour brokers
Health worker: Bongani Hospital · The Hospital is dirty · Through labour brokers, patients are given rotten food because of uncaring labour brokers · Ban labour brokers
John Makgutsa · (Pick ‘n Pay) – Worker under Padima Cleaning Services · Working 7 days a week · Salaries fluctuate · Uniforms payments are being deducted from employees without explanation · Work with dangerous chemicals and not protected · Overtime not paid · Ban TES
Lehlonolo Hadebe · Ban TES
Worker – Works for cleaning company at Shoprite · The salaries of workers who fall under brokers are cut because some of it goes to labour brokers · Work from 7 till 2pm (working hours have been cut down) · Not allowed to take leave · Labour broking must be banned
SATAWU · Fixed term contracts ( three-months contract) · Not allowed to embark on strike on the client premises · Sectoral determination – TES reduce hours of work to avoid sectoral determinations · Managers within government department have shares within labour broking companies (benefit within the industry) · 3000 SAA workers were with the TES and SATAWU has negotiated with the employer and those workers have since been permanently employed by SAA · Employers must employ people directly and permanently
NEHAWU – · Ban labour brokers · No relationship with the employer · DoL should take over TES duties · TES employers claim not to have money to address issues, whereas they got paid by the client- companies
Busisiwe Skhosana (Worker for cleaning company under Checkers) · Company deducts provident fund – NBC · Colleagues died without getting money · Instead of salary increase, they cut working hours · Ban TES
Sam Mashinini (Cosatu Provincial Secretary – KZN) · TES must be banned · TES do not own the means of production · Effective HR is the strategy used by the TES companies · No relationship between the TES and the workers · Nothing stops TES from joining the Bargaining Council

4.3.2 Day 2: Tuesday, 06 October 2009

Public Hearings at Shaft No1 Vaal Reefs Mine, North West Province

Present: Organized business, labour and individual members of the public

Organisations and individuals who called for the banning of labour broking	Organisations and individuals who called for the regulation of labour broking
Thandikhaya – Mine worker under labour broker Labour brokers mainly dominant in mining industry No benefit for people working under labour brokers Labour broking must be banned because it exploits workers	The President of Association for Nursing Agencies in SA Health care is in turmoil There are huge vacancies in the health care industry Nurses who are already in full-time employment are also under labour brokers
Patrick Alilani – retailing industry In favour of abolishing TES Labour brokers were the ones benefiting from the process, not the employees Government should come up with legislative provisions to deal with the matter	Micheal · Has a BTech in Chemical Engineering · Companies require experience, including government · If you do away with TES, what will happen to people who have no alternative · Better regulate than ban
Khaya – Kandintseng Labour broking equal to slavery TES equal to capitalists (profit-driven)
Mine worker TES completely wrong Labour brokers not complying with the law Mining industries were corrupted due to labour broking
Jacob Ngwenyama Worked for TES for two years Whilst working for the TES still under financial constrain UIF and provident fund not paid Some never received their salaries at all and some received after three to four months TES should be banned
Siyabulela Dinginto – Anglo Gold Ashanti NUM- struggles to organise workers under the TES When finalising the contract on the relationship between the Union and the labour broker, the labour broker disappeared TES should be banned
Mqondeni Madubela Poverty has risen since TES started Ban TES
Lebokgeng Mathosi Jobs are created by client companies but not TES Labour brokers promote slavery Rise in poverty and inequality through TES Contribute to trade union collapse since the environment does not promote workers’ organizing Labour broking should be banned, not regulated
Mine worker Labour broking contradicts the decent work campaign It should be banned
Zongezile Goniwe Workers are victims of loan sharks in the mines Majority of mine workers are heavily indebted to cash loans Having children in universities and can’t maintain Ban labour brokers and let companies employ employees directly People employed under TES - their salaries are not the same as permanent employees This contributes and results in family disunity
Mine worker Was under the TES in previous years Majority of TES are white people White people are lifting each other whilst oppressing workers Ban labour brokers
Mine worker Client companies put pressure on TES to fire injured workers through threats of contract termination Ban TES Let them move out for clear vacancies identification Contract workers are blamed for accidents in mines (system divisive for the working class since permanent workers are treated better than contact workers)
Provincial Deputy Chairperson (SAMWU) · Number of graduates employed by TES paid small amounts · Workers do not benefit from the process - only the middle man benefits · Some municipalities also use labour brokers · Farm workers are also victims of exploitation by labour brokers (farmers kill farm workers) · Municipalities should stop outsourcing services · Government should stop privatisation, it must render services to the people
SAWU (provincial secretary) · All truck industry companies are using labour brokers · People working for these companies don’t receive any benefit · Labour broking should be banned
Mthuthuzeli (Mine worker) · Workers under labour brokers are being paid nothing but peanuts · This leads to source of hunger and distrust between workers · Workers sometimes are forced to sleep at the mines since they have no money for rent and food
Winnie Mashilo (Individual) · White people are the ones who are bringing labour brokers · Workers working under labour brokers are not allowed to join unions · Ban labour brokers
Timoti Msuku (Individual) · The system is very cruel · Parliamentarians own TES – first clean Parliament · Minister should stop talk of “good vs. bad labour brokers” · Workers will halt SA to a standstill like in 1976 when fighting against Afrikaans · This TES or Labour broking system must immediately come to an end
Emma Mitse (Individual) Labour broking should be banned as it exploits workers
Individual Government should first stop outsourcing services This is where labour brokers kick in
Nozi Labour broking should be stopped because it is a strategy to exploit workers
Mathews Labour broking must be banned
Mine worker Labour broking must be banned and Government must come up with another strategy of developing jobs
Mine worker Ban labour broking
Mine worker Labour broking must be banned starting from Parliament
Phila Hlongwane (Rustenburg) Ban labour brokers but make sure that people who work for TES are absorbed by the mining industries permanently
Solly Phetoe (Provincial Secretary- COSATU) · Commercial contracts in farming, security and mining are against labour legislation · When dismissed by the TES, those workers cannot be re-employed by client employers in the sector · Labour broking must be banned

4.3.3 Day 3: Thursday, 07 October

Public Hearings in Germiston – Council Chambers, Ekurhuleni Municipal, Gauteng Province

Present: Organized business, labour and individual members of the public.

Organisations and individuals who called for the banning of labour broking	Organisations and individuals who called for the regulation of labour broking
Dumisani Dakile - COSATU Provincial Secretary (Gauteng) In relation to the Freedom Charter – there shall be work and security, freedom of association and the labour legislation Whilst there is progress - however TES have introduced setbacks to those gains Denying people right to progress, organize and give section 21 – dismissed without proper steps being taken Racism still rife in the workplace TES a direct attack on the Freedom Charter and the spirit of the RDP Decent work – labour is not commodity – a source of pride and dignity as enshrined in the Constitution · TES do not own any means of production · Violate workers’ rights and labour laws · Undermine principles of equal work and equal wage · Workers’ share in the economy has decreased significantly · BEE deals have benefited the few · Labour brokers own shares as far as GIDANE – lotto · Local government is also not immune in the utilization of TES · Senior State managers in collaboration with TES are also beneficiaries · Post Office – 90 per cent of this work force are constituted by the TES · TES use women since they are the most vulnerable section in society · TES are white male dominated · Disappointed that the DoL is proposing the regulation of TES · DoL has failed to enforce safety in the workplace – how will they regulate TES · Parliament must listen to the people · Decent work agenda should be realized in SA · Parliament should go and visit TES workplaces	Lance Duree (teacher) Witness the hardship that workers go through everyday School children that cannot afford fees The issue is not about race but about labour legislation People cannot be employed because it is difficult to hire workers without the experience Labour brokers can do their work within the correct legislative frame work
Heinrich Diesel Ban – the system is abusive	Association of Nursing TES There is crisis in the nursing industry Number of nurses available is not enough 40 per cent rate of vacancies Purpose of TES in the health industry is to facilitate the movement of nurses within various hospitals TES also in charge of statutory requirement Brokers only charge the maximum of 12 and half per cent Voluntarily enter into TES contracts because they paid less
Mandla Khumalo NACTU (B&R Products) Mandate from both permanent and temporary employees TES employees are the majority in his company TES employees have no benefits, only UIF TES earn far less than the agreed bargain council wages Over five years working for TES in the same company - proof that there is need for the employees Two ladies employed by the company - after two years they are back under the labour broker TES does not comply with the bargaining council agreements TES must be abolished	Unemployed People’s Party Unemployed people also have an interest in the matter Debate has created undeniable attention Relationship with CAPES and APSOL Need to realize that there are legal operators as well as illegal operators Started the vulnerable workers union Do no support a general ban on TES but regulation A general ban of TES is in contradiction to the need to create employment
Individual Government should ban labour broking because it exploits workers	North-West Province SA organization Registered with the DoL and have 600 workers i.e. there are almost 120 000 workers under the TES Aware that some companies do not comply with the regulations Have to abide by the basic minimum requirement DoL has no capacity to regulate and enforce the current labour legislation Employees are moved from one project to the other as soon as short-term projects are completed Recommend that regulate unlawful TES Those abusing TES should be banned Those that comply should be regulated
Nonhlanhla Shabangu – SHER Sexual harassment education programme – workers are being sexually harassed Big business hides the TES Women especially in the domestic sector are requested to perform sexual deeds in homes Men are also asked to perform sexual acts, especially in the security industry Ban TES	Temporary Employment Services Company (TES): Law should establish the TES bargaining council
Individual Ban TES Supports submissions by COSATU South Africa must follow the Namibian example Labour broking promotes slavery and tramples on workers rights People are getting payslips with no details about the company and address Employers must employ directly and remove the middle person	TES owner There are TES who comply with the legislation The current legislation is not properly enforced DoL has no capacity to enforce regulations Recommends that DoL should be empowered to enforce regulations Keep TES and just enforce the current legislation
NALEDI Misconception that TES creates employment According to the law- the TES creates employment whereas that is not true TES should be abolished
Worker under the TES company TES using the courts to fight workers Client companies deny workers access to the workplace during strike action as if these workers “are not employed by the company” 600 people were dismissed whilst on strike Employees monitored through cameras even in private rooms when workers are on strike Some workers under labour brokers worked 13 hours a day Labour broking is a source of poverty Must be banned Express Pay-Roll system (night shift allowance is 50c and works 13 hours a day) Female workers are not allowed to take maternity leave DoL officials are being bribed Parliament should visit Express Pay-Roll
Chillie (Pan-African Workers’ Forum) TES violates the Bill of Rights of the indigenous people in SA Farm workers work under hazardous conditions Health and Occupational Safety legislation and the Skills Development Act are all undermined by the TES Encouraging crime and Xenophobia in the workplace Recommends that TES be banned
Individual · Injured workers dismissed · No benefits · TES be abolished
Siphokazi Ngcali (works for Kelly) Labour broking must be banned · Permanent workers get allowances such as shift allowances, transport allowance · TES workers do not get any of these allowances
SATAWU No need for the third party in the work relationship Ban labour broking
Sabelo Dlamini - from the IFP Employers working under labour brokers have no transport to work and received no benefits Labour broking must be banned
Individual 90 per cent of TES are owned by white people Some Parliamentarians are part of the problem TES Should be banned
Lungile Nkosi Government promised decent work for all No decent work under labour brokers Labour broking should be banned
Individual Outlaw section 198 of the LRA Ban labour broking
Post office worker · Unable to afford anything · No money to travel to work · Ban TES
Worker for Marula Workers working under labour brokers are being abused by the employers Workers forced to testify against fellow workers that are permanent and if they refuse they get fired Received R1 allowance for night shift Should be banned
Worker for Marula Maternity leave not recognized No skills development Recommend that labour broking be banned
Individual The disabled people cannot manage working conditions under the TES Ban labour broking
Post Office worker Been working for 5 years, never met the employer nor the labour broker manager 13c increase in the Post Office last year The system should be abolished
Worker working under labour brokers Workers under labour broking in the company earned R300, whereas other fellow workers in the same company earned R5 000 Ban TES
RSC Mining Since 2007 the issue of TES was a burning issue and it is still so in 2009, when is it going to end Ban TES
Alex Mashilo (YCL) · Labour broking should be banned
Ivin Jim (General Secretary - NUMSA) · Inequalities in SA have widened · Rate of exploitation is rife in SA · There are jobs currently occupied by the TES · People are crying and dying of hunger because of labour broking · Labour broking must be banned

After the hearings the Committee undertook a site visit to Primrose Gold Mine Camp. Workers in the mine are under labour brokers and the situation was disgusting (the camp was very dirty, windows were broken, and taps were broken).

4.3.4 Day 4: Thursday, 08 October 2009

Public Hearings in Pietermaritzburg – Winston Churchill Theatre – KZN Province

Present: Organized business, labour and individual members of the public.

Organisations and individuals who called for the banning of labour broking	Organisations and individuals who called for the regulation of labour broking
Manqoba Ngubo Employed for more than two years under labour brokers Labour brokers take a huge chunk of money from their salaries No skills development programmes People who own agencies never come back to workers to address their concerns Ban labour broking system and establish a much more humane system	Telaman Staffing TES is a source to find out which jobs are available in the market Train people straight out of school, which the majority of companies would normally not consider Legislation needs to be enforced in this regard
Cabanga Hadebe Employees under labour brokers are being fired without notices Ban labour broking	Wilson Cele · From Unemployment Labour Forum · Some TES assist people · Acknowledges that some TES are abusive, therefore should be banned · However those TES who ascribe to the labour legislation should be regulated and permitted to operate
Bonga Ngwane (NUMSA) Decent work TES do not own the means of production Secondary employer should be banned Ban TES Constitution protects the rights of the employees	Bridget Jones Supports regulation Invest millions of rands into training SARS will also lose a lot of money in tax collection if labour brokers are going to be banned
YCL in KZN Regulation of TES is an antithesis in itself TES find it difficult to comply to the legislation since they are also employees to the client companies State spent more money on TES than on the employees TES are a new form of slavery TES oblivious of the enslavement element in the system MTEF talks about decent work TES should be banned State should take a major role in the developmental state	Jack Simons · Misconception about the returns that TES make through their businesses · TES charge administration fees and not through the hourly rates of the employees · Recommends that the TES have a place in the South African market · Regulated since it is a world-wide phenomenon
Bheki Buthelezi (Black Consciousness) Black people are most affected in the system of TES Section 198 of the LRA specifically identifies both the TES and client company But both run away form their responsibilities Ban TES Boost cooperatives	Escors (Richards Bay) Clients are small and medium companies who need short-term labour Social benefits that come from the R29 billion industry Incompetent DoL officials who do not understand legislative requirement There is lack of policing in the system Government should look after the workers’ benefits There should be one legal body that all TES should belong to DoL should be capaticipated so that it can be able to monitor the system Regulate and enforce legislation
Mr Velaphi Mabatha Too little payment and not enough to afford anything The system should be banned Companies should employ workers directly No benefits – such as medical aid TES workers will later be the State burden	Terrence Dlamini (Ekuseni Consulting) TES has been in the system for more than 20 years Regulate TES Transform the industry The majority of the small and medium companies rely on TES for labour supply Some employed more than 20 000 people
Individual Ban labour brokers They sell workers to companies Municipality workers/managers benefit from TES as one employees’ salary is worth 4 TES employees	Andrew (PMB Chamber of Business) · Supports the idea of decent work · Accepts that some sectors need seasonal workers due to fluctuation in product demand e.g. agriculture · 500 000 people will be unemployed if TES is banned · Proposes regulation of the system, not banning · Labour broking and decent work are achievable
Individual Worked 8 years under the TES Fired without reasons Salary increments of 50c per year TES should be banned	Paul Labour broking should not be banned, instead should be regulated TES should work under prescribed conditions If banned, people will lose jobs Half a loaf better than nothing at all Government has no capacity to employ due to corruption and nepotism
Bhekani Ngcobo (NUM) · TES should be banned · There is no balance · No Constitutional right at work · TES turns employees into commodities · If workers go to Commission for Conciliation, Mediation and Arbitration (CCMA) they are being questioned about “who is the employer” · Disputes are dismissed at CCMA due to confusion about liability and the definition of an employer · Ban labour brokers	Individual · Element of tribalism blocks her from finding work · Nepotism and corruption within big companies promote sexual abuse · Labour brokers assist in finding jobs, must be regulated not banned
Individual · People working for TES are not workers since they take nothing home · No contact between the workers and the employer · Ban TES	Individual · Assisted to find a job by the TES · TES should not be banned
Smangele Khanyile · Ban TES · TES should not use the 500 000 job targets as a justification for survival	Individual · Have 300 apprentices with the company · 1000 learners in learnerships · In Namibia - 3000 workers were absorbed into permanent position out of a larger number · Eradicate exploitation of employees
Sandile Ngcobo Been under the TES employment Target young graduates who have no experience and use their desperate situation to their advantage Should not give impression that they create jobs and that they are not making any profits It brings back racisms - the Indian and White race are not affected as much as the Africans The tax that the TES pay is from the employees that they employ Ban TES Appreciate the democratic processes of Parliament but urge the ANC to ban TES	Quest Staffing Regulate TES Quest staff get all the benefits Take graduates and matriculants, train and place them in jobs 80% of staff placed get permanent placement
Sifiso Ngema It is a shameful experience TES do not create jobs Contradicts the decent work campaign Should be banned
Simphiwe Mncwabe TES do not pay maternity leave Don’t care about Issues of HIV/AIDS Should be banned
Nokuthula Khanyezi Working for welding company From 1988 worked for the same company and was retrenched Same company returned to PMB and employed under the TES Foreigners are paid more than SA citizens Suggesting that something should be done to do away with the TES system
Nhlanhla Msomi Works for the Working on Fire under the Department of Water Affairs and Forestry (DWAF) Majority race is white Paid R60 a day- with promise of a raise after 6 months UIF not paid, no medical aid R1, 80 increment Should be banned Not paid overtime Trade unions not permitted
Vukani Mthethwa Ban labour broking TES do not train employees Families get poorer instead
Nonhlanhla Msomi · Cannot regulate human suffering · Africans are mostly oppressed · Managers get kickbacks from TES contracts
Fana Dlamini (NUMSA) chairperson in PMB · Supports banning of TES · People injured at work still get paid half the permanent employees salary · Uneven benefits · Do away with TES, employees be absorbed by the client company
Individual · Employees cannot even afford to own houses with the salaries they get from the TES · Municipalities perpetuate the use and abuse of TES · Ban the TES
Individual · Client companies refer employees with complaints to the TES they have never met before · Ban TES
Zibuyele Mchunu (works for Willowton Oil) Recommending that labour broking be banned
Phumlani (SADTU) Do not support TES There should be an employer-employee relationship Employer should own the means of production It is a criminal offence and should be banned
Sobongile Nhlapho (COSATU) TES reversing the gains of democracy TES should be banned Anti-human rights
Zet Luzipho Secretary –COSATU Provincial Secretay (KZN) · Wrong to suggest that people are not informed about the TES industry · Define broker: cushions the employers from the burdens of bargaining council · Abolish TES · World day on “recognition of decent work for all” and labour brokers are against that · Government is left with the burden of taking care of orphans left by TES system · Workers who wanted to attend the hearing were told to say what the TES instructed them to say or else lose their jobs · Cannot regulate abuse · TES against nation building - majority white with black workers

5. Public hearings in the Eastern Cape Province, 28 -29 November 2009

5.1 Introduction

On the 29 October 2009 the Portfolio Committee on Labour held a meeting to assess the input made during its hearings on labour broking in the four provinces where the hearings took place. A resolution was taken in the above-mentioned meeting to extend the hearings once again to the Eastern Cape Province. The Committee held public hearings in the Eastern Cape Province on 28-29 November 2009.

5.2 Delegation

Ms L E Yengeni (ANC) – Leader of the Delegation

Mr E Nyekemba (ANC)

Ms L Makhubela-Mashele (ANC)

Ms N A Mnisi (ANC)

Ms A M Rantsolase (ANC)

Mr A Louw (DA)

Mr I Ollis (DA)

5.3 Presentations by different stakeholders and individuals

The Committee heard oral input from organisations, individuals and workers. The table below reflects organisations, workers and individuals who called for the total banning of labour broking and those who called for the regulation of labour broking.

5.3.1 Day 1: Saturday, 28 November 2009

Public Hearings in East London – City Hall – Eastern Cape Province

Present: Organized business, labour and individual members of the public.

Organisations and individuals who called for the banning of labour broking	Organisations and individuals who called for the regulation of labour broking
Nceba Sitole (Queenstown) - worked for premier foods - all services were outsourced to a private company - another company (Kageng co.) took over with the promise of maintaining same conditions as the mother company - Kageng introduced new company (Imperial staff) - Imperial staff was a labour broker - were told unions were no allowed - were paid half the usual salary - overtime was not paid - UIF contributions were also not deducted - Recommends that government must terminate TES
Xolile - Were dismissed because they were members of the union - Their case still with the CCMA - Request government to ban TES - Company specifies that they want only White and Coloured people - TES promotes poverty amongst communities and contributes to the increase in crime rate - Whilst mother companies would pay R200 per day, TES would pay R90
Simon - There is no future under the TES - Dismissed without proper procedures followed - Transport more expensive than wages - TES employees earn far less than permanent staff - Upon losing the job, workers do not receive any benefits
Eric Mokoena - Started working for the TES since 2000 - Workers under the TES work under unfavourable conditions without proper protection - TES should be abolished Requests government to send inspectors in order to witness conditions
Elvis (Mdantsane) - Worked for a labour broker called Workforce Employers - Transferred to DHL - People who came after him were employed permanently- Used to earn R500 whereas permanently employed workers earned R4000
Patrick Phakade - Victim of labour brokers - Got paid on Christmas day - Works for Transnet - Rare to find workers who have not been injured - Workers forced to work whilst injured - Given a choice of going to the doctor or losing the job - Gets paid R400 a week and never received any increment - Deducted salaries on election day - Should be banned
Raymond - Painter and got injured - Admitted for three weeks in hospital - Lost the job and never got any benefits from the company
Kholekile Sosarha - Unemployed - Used to work for SAB in Wesbank but terminated employment in 2002 - Employer told him to work under labour broker called CAPACITY - Salaries were cut, although performing the same job - Whilst the salary was fine, the labour broker deducted a certain portion as well - Recommends a total ban of labour broking
Mandla (self-employed) - Requested clarity between the labour broker and the employment agent? - Members of Parliament are responsible for the labour laws, which in turn affect the general workers - Labour brokers are middlemen who have no role to play in the employment relationship - Have to eliminate the middleman
Dumezweni - Worked for three cleaning companies under labour brokers - Don’t have basic salaries - When contract ends, workers do not receive benefits - Labour broking should be banned
Sipho (works for Workforce) - Payments to workers are not the same and workers are expected to keep quiet - Labour broking should be disbanded
Vuyo Bikitsha (NUMSA) - Labour broking should be disbanded - Requesting Parliament to implement the recommendations as a matter of urgency - Exploitation of women within factories – sexual harassment since they are vulnerable - Organisational rights of Trade union are being undermined - Companies demand that unions should hold their meeting outside of the company premises - If workers falling under labour brokers join strike action, they are being threatened with losing their jobs - Labour broking should be disbanded
Zwelakhe (Driver under CAPITAL labour broker ) - Workers are being fired without proper procedure being followed - DoL has never been to the workplace to inspect the environment - No skills development programme - Workers are not allowed to engage in strike action, if they do they get fired - Labour broking should be disbanded
Nombuleo Machebeni (COSATU) - The contracts of workers falling under labour brokers are being terminated when they join trade unions - Workers are not allowed to take sick leave and sick leave certificates from clinics and public hospitals are not recognised, only private practitioners are recognised - Not assisted by CCMA since HR bosses go to CCMA to postpone cases in some cases DoL and the union have however assisted
Worker under labour broker - Section 198 of the Labour Relations Act (LRA) and Section 82 of the Basic Conditions of Employment Services Act (BCEA) should be repealed completely - Employees that are hired through labour brokers have two employers - These sections violate the fundamental rights of the workers as stated under the Constitution - For example, workers have rights to fair labour practices, however, under the TES these workers do not have such rights - When not needed by the employer, employees are neither employed nor unemployed - Economic activities of the TES should be limited through the repealing of these two sections
Mthobeli - Been victimised by CAPACITY, KELLY and Global Recruitment labour brokers - Never received a payslip - Salary being deposited in the bank without knowing how much it is - Currently companies retrenched workers and replaced them with TES or outsourced the services to labour brokers - TES workers are not allowed to go on strike - Requested Parliament to work with COSATU in reviewing the LRA
Nolukholo (Employ Rights) - Works for the labour broker Employ Rights - Workers in permanent employment are outnumbered by the temporary workers - However, the TES workers are paid less - Have never met or seen their employer - After seven years working in the same company, workers are transferred to a new company - Upon returning from maternity leave, workers start as new entrants and forfeit all the benefits - Labour brokers should be banned
Nonzame Nyawombini - Works for Employ-Right labour broker - Workers are victimised - Workers not paid during lay-off period - Provident fund being deducted without the workers’ knowledge - The Provident Funds rates have also increased without workers’ knowledge - Employers told them that they will not receive the previous provident fund money - Labour broking system should be abolished
Lindiwe Rhai - Worked for Employ-Right labour broker - Worked for 5 years for the company - Have not received the retrenchment package - Labour broking should be banned
Luthando - Started working under labour broker in 2006 - Employees employed under labour brokers do not get paid the same as permanently employed employees - Working conditions are also not the same, e.g. TES employees have to buy their own protective gear - Should be banned
Ntobela from East London (CAMPSTINE Labour Broker) - Workers work long and irregular hours and do not get paid - Workers never received a salary increment

5.3.2 Day 2: Sunday, 29 November 2009

Public Hearings in Port Elizabeth – Coega Village – Eastern Cape Province

Present: Organized business, labour and individual members of the public

Organisations and individuals who called for the banning of labour broking	Organisations and individuals who called for the regulation of labour broking
Xolisile Jikile (work for municipality) - Under Masakhane labour broker as a driver - Never earned bonuses, pension and medical aid - Labour brokers don’t have offices, end up not knowing where to go to when there is a problem - Only received verbal contract with the labour broker - Plead with Parliament to ban labour broking	Phakamisa Vuka - Works for Supply Chain Services - Majority of employees are coloured people - Regulate labour brokers - Client companies should be regulated to employ staff permanently after a certain number of months e.g. three months - Council must specify rates for TES employees
Songezo - Works for TES under Flexida - Employees perform same tasks but paid differently - TES employees not provided with protective gear - Not paid for sick leave - Parliament must ban labour broking	Labour broker - 500 000 people employed by the TES - 30% get permanent placements - TES also contributes to the GDP - In 2008 it contributed R26 billion - R150 million contributed by the TES towards skills development - The industry should be regulated
Loyiso Spearman - Worked for Fruit and Veg on a permanent contract - In 2002, the organisation introduced a labour broker, to operate within Fruit and Veg, from there things started to change - Workers under labour brokers are ill-treated and work under unfavourable conditions - This causes confusion and tension between the workers - Request Parliament to ban labour broking	Polin - Vice Chairperson of the Eastern Cape Services SETA a labour broker - SETAs also conduct training through the labour broker - Also receives discretionary grants from the Services Seta
Thembisa - Works for the traffic department under Masakhane labour broker - Uneven payment system whereas performing similar tasks - Urges Parliament to ban labour broking agencies
Nomfanelo - Works for the Department of Health under a labour broker - First salary referred to her as the assistant nurse and later on was reduced - Never met the TES employer - A new labour broker later took over - Has requested the new TES to visit the place of work but to no avail - Suggests that the TES system should be banned
Individual - Calls for total Ban of TES, no regulation - Salaries paid by the TES are not enough for essentials such as food and children’s education - Works for Parmalat under Workforce TES as a system operator - Co-workers performing similar duties earn different salaries - No bonuses - Instead of bonuses, labour brokers deduct R30 from the salaries - The batter way is to ban labour broking
Mncedisi Hlutshwa - Work for a labour broker at Coega - Paid R10.50 per hour - Not allowed to embark on strike action - Labour broking should be banned
Khuthala Hlathi - Worked for Transnet under a labour broker - Worked through a learnership - Upon finishing was placed under contract and later placed under the TES for a year - Employees refused to sign the contract with the TES, but till today they deduct the TES services from the employees’ salaries - When requesting safety gear, they were told to provide their own safety gear - The system is abusive and it must be banned
Mzwandile - Working for Post Office under the labour broker - People who join the post office are trained by him but he’s not permanently employed whereas those new entrants are employed permanently in the Post office - The system is abusive and must be banned
Phenduza Gwatshu - Works for Parmalat under the Workforce TES - Works for the department called Longlife as the systems operator - Should be banned - During the 10 years employed by the TES, he has not seen or met the labour broker
Xolani - Works for CAPITAL labour broker for 4 years - There is no life under labour brokers - Companies are using labour brokers to run away from their responsibilities - Labour broking must be banned
Nomahlomi - Was a temporary worker for five years and were later transferred to Grape International (TES) - Cannot get loans from any bank due to payslips they receive - TES company double-deducts what has already been deducted by the client company - Labour broking should be abolished
Phathisa Cawe - Works for Prestige TES at Greenacres Hospital as a cleaner - Cleaners are also taking over the nurses’ duties such as delivering food to patients although they are not paid for extra duties - If equipment is faulty or broken, employees have to pay for replacement through salary deductions - Ban labour brokers because they exploit people - Company employs white people to supervise workers although they have no clue about the jobs
Thundezwa - Works for ZABA TES - Working conditions are unfavourable - Not paid for sick leave - The system must be banned
Ntomboxolo - Employers promised to deduct the provident fund for the employees, however nothing written has been furnished as proof - R25 is paid for the night shift - TES should be banned
Zolile Mhlaba - Zama Cleaning Services - Worked for Prestige before but left because of racism in the company - Were fired for participating in the strike action - Work in carbon contaminated environment but not given protective gear - Labour broking must be banned
Bulelwa - Works as a volunteer at the Motherwell Health Centre - Under a contract and without benefits - Labour broking must go
Nondumiso - Works for the Masakhane TES for the PE municipality - Termination within 24 hrs without notice - Being threatened if they want to join unions - Ban labour broking - Remove the middleman
Noziqhamo - Works for Khangela at Firestone - Never received any benefits - Ban labour broking because it exploits workers
Khayalethu - Worked for the gentleman who had won a tender from the municipality - Were never paid their salaries
Secretary for the Communications Union in the Eastern Cape - Works with Telkom and the Post Office - The DoL has an obligation to clear the State Owned Enterprises of the TES - TES are the legacy for the past administration - Legalises slavery - Ban the system and ensure that all workers under the labour brokers are permanently employed directly by the company
Mpumelelo (Shopsteward) - Company outsourced services to the labour broker - People were promised that salaries would not decrease, however they were decreased - Another new labour broker called Sizeka took over - Nothing has changed since both Sizeka and the client company shift blame and responsibility - If retrenched, workers don’t know how to access their provident fund benefits - Ban labour broking
Thandisizwe - Working for CN business furnishers for Labour Core (TES) - Since 2005, deductions for provident fund have not been made and no bonuses have been paid - The bargaining council declared that employees should be earning better wages and benefits - TES should be banned
Cosatu Representative - Confusion caused by the primary and secondary employer - Trade unions also struggle to represent TES employees in cases of disputes
Ntombizandile - Works for Prestige labour broker - Referred to as cheap labour - Work same hours but different payments - Ban labour brokers
Mlandeli - Works for Parmalat under Transman Workforce labour broker - Workers are being threatened with dismissal if they raise concerns about their wages - Agencies should be banned
Dunyiswa Thetha - Works for Naledi labour brokers - Works for R60 per day - When injured, no sick leave is being paid - Payslips are hand-written - No benefits - TES workers are paid far less than the permanent workers
There are people who start work at six and have to sleep outside work premises since they do not have transport The system must be banned
Beauty - Working under labour broker - Lost the job because she forgot to leave the key at work
Worker - Works for Workforce labour broker - Packaging in the storeroom - Workers have to pay from their pockets when products get damaged - Labour brokers do not specify the term of contract in their payslips - Ban labour broking
Mzwandile: member of the SACP - Workers’ contribution to the country’s economic development has significantly dropped - TES has been systematically used as a scapegoat to undermine the current labour legislation - There’s a corrupt relationship between the employers and the labour brokers, in order to employ people who do not necessarily qualify for such positions - TES makes quick money through victimisation of workers
Nomonde Jawu (SATAWU organiser) - Deals with labour brokers throughout - Labour broking should be banned - When workers’ salaries increase, labour brokers will cut working hours just to cut salaries Zama Cleaning worker who worked the night shift. When requesting assistance from the company, they refused and he died
Nondumiso - Works for labour broker under Transnet - No benefits if you are under labour broker - Salary fluctuation - Ban labour broking
Worker under Capacity labour broker - Capacity workers have not been entitled to sick leave nor allowed to join the union - Regulation should not be an option - There’s a 30% maximum limit of TES companies that can be used by the client company. However, companies do not comply with that 30% stipulation - Proposing a complete ban of labour brokers
Worker under labour broker - Workers’ salaries are deducted when they take sick leave - No benefits at all - Labour broking must be banned
Vuyo Bhikitsha (NUMSA) - Who stands to benefit from the TES system? It does not benefit the workers - Code of Good Practice – Section 56 on who is an employer and the employee should be an instrument to determine whether TES are employers or not - Labour brokers must be banned
Adam (NUMSA shopsteward) - Workers are pushed by their conditions to accept such unfavourable conditions - Labour brokers are inconsiderate of the workers’ circumstances
Pinkie - A caregiver at Livingstone Hospital since 2007 - They were under the learnership and later told they were switched to a contract - No longer perform the tasks they agreed on - Have to buy their own uniforms - Initially worked between 07h00 – 16h00 but now work between 07h00-19h00 - Had to perform nurses’ duties - Labour broking should be banned
Bulelani - Works under the TES called IFM - No benefits received - TES should be banned
Kholeki Mbetje - Told to buy their own protective gear by the labour broker - Suggesting that labour broking should be banned
Worker under Madimang labour broker - TES company changed the name of the company from Polar to Madimang - Difficult to send children to school - Paid R30 per day - Sent to Cash Loans for money if they request financial assistance - Labour broking should be banned
Andiswa Jacobs Ban agencies
Micheal - Works for SASKO under the TES company - Has worked for years but still has nothing under TES - Ban agencies or labour broking
Sicelo: NUMSA shop steward Labour broking is a criminal offence and must be stopped urgently
Andile Jalo - BLG labour broker under the General Motors company - Works as driver - Ban labour brooking because it exploits workers
Mazotsho Dukwe (COSATU – Deputy Chairperson in PE) - Labour brokers are involved in human trafficking - Seasonal workers/contractual employees are also victimised - No social benefits such housing subsidy and medical aid - 1997 ILO Convention to ban labour brokers There’s an urgent need to address the notion that labour brokers create jobs

6. Conclusion

Most of the individuals/workers, including labour trade unions called for the total banning of labour broking as they were of the view that the system exploited workers. Labour brokers, including some workers working under labour brokers were of the opinion that there were some labour brokers who operated according to labour laws and therefore suggested that the industry should be regulated.

7. Committee Evaluation

The Committee, during its deliberations and evaluation identified the following bad and abusive practices in relation to various labour laws:

7.1 Violations of the Labour Relations Act (LRA)

§ Labour broker contracts often exclude the right to strike in contravention of the LRA and the Constitution

§ Workers are threatened with dismissal should they join labour unions. Some labour broker contracts even require workers to sign stating that they will not join labour unions. Workers are often moved around between different workplaces to prevent them unionising.

§ Illegal forms of discipline are adopted - no compliance with due process or workers’ right to present their side of the story. Dismissals without following proper procedures are common.

§ Scab labour is used as a mechanism to undermine the right to strike and collective bargaining in general.

§ Minimal job security - a client who does not want a specific worker for arbitrary reasons often instructs the agency to allocate someone else. As the client is not treated as an employer, the worker does not have recourse to protection against unfair dismissal. The worker is treated as still being employed by the broker despite not being given any assignments.

§ Violations of the LRA retrenchment provisions - often full time/permanent workers are retrenched only to be re-hired or replaced through brokers, with wages and employment conditions being substantially downgraded.

§ Workers are often misled by the nature of the contracts, often believing that they are employed on a permanent basis only to discover that they have been employed on a short term contract by a labour broker.

7.2 Violations of the Basic Conditions of Employment Act (BCEA)

§ Wage rates are lower for workers supplied by labour brokers as compared to permanent counterparts employed by the same “client”, and despite work being the same. Bargaining council agreements are generally not applied either.

§ Non-wage benefits and rights such as medical aid, retirement provision, shift allowance, transport, maternity leave and sick leave are not provided, although permanent workers (directly employed by the so-called client) are entitled to them. This is treated as a cost-saving by employers.

§ Illegal deductions are made from wages and often not explained. Sometimes deductions amount to the greater proportion of the entire wage paid out.

§ Minimum conditions including work hours are violated.

§ Wages are paid late.

§ There is poor income security as salary fluctuates from month to month.

§ Sick workers are replaced by others furnished by the broker and are not paid during this period.

§ Longer work hours in violation of the BCEA.

§ Overtime is not paid.

§ Payslips are not provided.

§ If workers manage to negotiate a higher rate of pay often brokers will reduce hours to so that they do not receive the benefit of this.

7.3 Violations of Employment Equity and Unfair Discrimination

§ There is overt gender and racial discriminatory practices in violation of the Employment Equity Act.

§ Labour brokers apply racial profiling systems to workers in determining appropriate placements.

7.4 Health and Safety violations

§ Protective clothing is not provided or if the labour broker agency does provide them then workers are charged for the costs.

§ As assignments are often short-term in nature workers supplied by a broker are often unfamiliar with the hazards and safety procedures applicable to a particular workplace, and certainly do not receive the same training as permanent and directly employed workers. Accidents are therefore more likely to occur.

§ Neither the client company nor the broker takes responsibility for workers who are injured. Often all that happens is that the injured worker is removed from others and no treatment is provided.

7.5 Skills Development

§ No access to training and development opportunities.

§ Progressive deskilling of workers due to short-term and irregular nature of contracts.

§ Often do not contribute towards skills levy.

7.6 Other/General Concerns

§ Overall employment conditions are such that workers are trapped in a continuous poverty cycle.

§ Growing feminisation of precarious work with men being replaced by women as they are paid less.

§ Labour brokers destroy decent or quality jobs by displacing workers from the sector that the workplace is located in and through the use of insecure contractual relations.

§ Labour broking has become a mechanism that is intentionally used for the purpose of evading compliance with labour legislation, which is seen as a nuisance and additional cost.

§ Workers who are vulnerable socio-economically in society are predominant amongst those forced to work through labour broker agencies.

§ Workers remain in a temporary position despite being employed/located within a client’s workplace for lengthy or indefinite period. There is currently no definition of “temporary work”.

§ There is little distinction between abusive practices of large industry players and so-called “bakkie brigade”. General violations and overall poorer working conditions are applicable to both.

§ Workers under labour brokers are vulnerable to sexual harassment owing to the precarious nature of their contracts.

§ Labour broking has the effect of increasing xenophobia especially as differential conditions are employed.

§ Has the effect of fragmenting the workplace and sectors, by dividing workers even if they are doing the same work, thereby undermining rights to collective bargaining. This facilitates an environment where differential conditions are applicable to workers.

§ It is not possible simply to cure many of the above problems by extending the application of legislation to workers with labour brokers. Some rights “disappear” once they become party to the triangular employment relationship. For example, what rights can be applied in terms of section 189 and 189A of the LRA to such workers.

§ Another example that illustrates this is section 197 of the LRA. If a client company is transferred or sold as a going concern, only those directly employed will be transferred in terms of section 197 as workers supplied by the broker are treated as part of a commercial contract.

§ With the general worsening of conditions of workers subject to labour broking and other atypical work arrangements, the effect is that the employers are benefiting not only by avoiding labour law organisations but are effectively being subsidised by Government which must then provide such services as pension and public health care for these workers.

8. Recommendations

• The Department of Labour should amend or redraft section 198 of Labour Relations Act as it brings confusion to the employment relationship
• The Department of Labour should examine all labour legislation pertaining to the concerns raised in the full report of the committee and to the above-mentioned categories of bad or abusive practices.
• With reference to outsourcing and subcontracting, the Department of Labour should introduce legislation to address the abusive practices by holding all parties liable for the conditions of the workers.

Report to be considered.

National Council of Provinces

Report of the Select Committee on Appropriations on the Division of Revenue

Bill [B4 – 2010] (National Assembly – sec 76(1)), dated 23 March 2010:

The Select Committee on Appropriations, having considered the Division of Revenue Bill [B4—2010] (National Assembly – Section 76(1)), referred to it and classified by the JTM as a section 76(1) Bill, reports that it has agreed to the Bill without amendments.

The Committee further reports as follows:

1. Introduction and Background

In terms of Section 4(4) of the Money Bills Amendment Procedure and Related Matters Act, 2009 (No. 9 of 2009), “a committee on appropriations has the power and functions conferred to it by the Constitution, legislation, the standing rules or a resolution of a House, including the considering and reporting on-

spending issues;

amendments to the Division of Revenue Bill, the Appropriation Bill, Supplementary Appropriations Bills and the Adjustment Appropriations Bill;

recommendations of the Financial and Fiscal Commission, including those referred to in the Intergovernmental Fiscal Relations Act, 1997 (No. 97 of 1997);

reports on actual expenditure published by the National Treasury; and

any other related matter set out in this Act (No. 9 of 2009)”.

According to Section 7(3) of the Money Bills Amendment Procedure and Related Matters Act (the Money Bills Act); Section 10 of the Intergovernmental Fiscal Relations Act, 1997 (No. 97 of 1997); and Section 76(4) of the Constitution, the Minister of Finance must introduce the Division of Revenue Bill in Parliament. In accordance with thes e sections, the Minister of Finance (the Minister), Mr. Pravin Gordhan, tabled the 2010 Division of Revenue Bill (the DoRB) before Parliament on the 17 February 2010. The purpose of the DoRB is two-fold: it aims to provide for the equitable division of revenue raised nationally among the national, provincial and local spheres of government for the 2010/11 financial year and the responsibilities of all three spheres pursuant to such division; and to provide for matters connected therewith.

The DORB is referred to the Select Committee on Appropriations (the Committee) in terms of section 9(2) of the Money Bills Act. The Committee held public hearings on 05 March 2010 in line with section 9(5) (b) of the Money Bills Act. The Committee received written and/or oral submissions from the following stakeholders: the National Department of Higher Education and Training, the National Department of Basic Education, the National Department of Health, the National Department of Rural Development and Land Reform, the National Department of Energy, the South African Local Government Association, the Aids Law Project, the South African Institute of Chartered Accountants, the Financial and Fiscal Commission, the City of Cape Town, and Eskom. This report reflects the main themes emerging from the engagement with the afore-mentioned stakeholders including National Treasury .

The 2010 National Annual Budget (the Budget) presents the outlook for a fragile economic recovery and discusses government’s medium term (three-year) spending priorities. The implications are that the Budget provides an indication of government’s assumptions and intentions, which should improve both planning and budgeting within line3 departments as well as overall budget co-ordination, and contribute to the quality of engagement with the budget from civil society and legislatures. This anticipated quality of engagement is expected to strengthen oversight and budgetary efficiency and effectiveness.

2. The National Department of Treasury

Total non-interest government expenditure is expected to increase by 6.5 per cent annually from R691.2 billion in the 2009/10 financial year to R830 billion in the 2012/13 financial year 1. The Committee welcomes an additional budget of R112.2 billion to the baseline over the Medium Term Expenditure Framework (MTEF) period. Of the additional budget, national government receives R56.2 billion (50 per cent), provinces R45.6 billion (40.6 per cent) and municipalities R10.5 billion (9.4 per cent).

The equitable share formula has the following components and weightings:

Education share: 51 per cent - based on the size of school-age population (between ages 5 and 17) and the number of learners (Grades R to 12) enrolled in public ordinary schools;

Health share: 26 per cent - based on the proportion of the population with and without access to medical aid;

Basic share: 14 per cent - derived from each province’s share of the national population;

Institutional component: 5 per cent - divided equally between the provinces;

Poverty component: 3 per cent - reinforcing the redistribution bias of the formula; and

Economic output component: 1 per cent - based on gross domestic product (GDP) by region data.

When the Committee raised concerns about the equitable share formula, National Treasury indicated, during the public hearings, that the equitable share formula is being reviewed to cater for some gaps that have been identified. The Committee asked for clarity on the role of Parliament in the process of reviewing the Provincial Equitable Share (PES) formula. National Treasury responded that Parliament does not have a role to play but, on request, Parliament can be taken through the process and data that influences the formula that is used to allocate the equitable share.

The Committee noted the change in the 2010/11 DoRB. There are new conditional grants added for provinces. These new conditional grants include:

The Expanded Public Works Programme Grant for the Social Sector: To subsidise non-profit organisations so that they can pay salaries to care-workers who are voluntarily working on social and health care-related matters in the home community-based care sector;

The Technical Secondary Schools Recapitalisation Grant: To modernise technical schools by providing for equipment and facilities at such schools;

The Dinaledi Schools Grant (2011/12): To enhance the quality of Mathematics and Physical Science so that the matric pass rate in these subjects is improved; and

The FET Function Shift: To protect current spending on these colleges by provinces while the legislative processes required to shift this function to national government are in progress.

National Treasury appealed to the Committee to join it in encouraging provinces to save more funds so that saved funds can be redirected to core services.

When the Committee requested clarity on why the Backlogs in Water and Sanitation at Clinics and Schools Grant and the Backlogs in Electrification of Clinics and Schools Grant had lapsed, National Treasury indicated that the pronouncement was made in the 2009/10 budget statement that the afore-mentioned grants would be discontinued because their objectives were met.

The Committee expressed its appreciation over the introduction of the Rural Households Infrastructure Grant which is a new grant introduced in this financial year (2010/11), that is meant for developing innovative infrastructure solutions in rural areas.

The Committee enquired how the wage subsidy for youth is managed. National Treasury responded that the Minister has indicated that by the end of March 2010, a policy paper will be in place and it may be driven by national government to deal with issues of unemployment. National Treasury added that other spheres of government, especially local government, can play a critical role in stimulating job creation. National Treasury further emphasised that the wage subsidy is meant for creating employment.

When the Committee requested clarity on the effects of inflation on conditional grants relating to infrastructure, National Treasury indicated that recipients of a specific grant are normally allowed to manage the entire infrastructure including making provisions for inflation. The infrastructure grant to the provinces is about R11 billion.

The Committee further enquired about the length of time it would take to review the capacity building programmes at municipal level. National Treasury responded that the capacity building initiative through Siyenza Manje is government’s initiative and is housed at the Development Bank of Southern Africa. The Memorandum of Understanding (MOU) that government entered into with the DBSA is coming to an end at the end of March 2010 and government intends to review it with an objective to build effective governance in the municipalities.

3. The South African Local Government Association

The South African Local Government Association (SALGA) reported that capacity-building grants (including Siyenza Manje) grow by only 1 per cent in real terms over the MTEF. The local government turnaround strategy hinges on improved municipal capacity and capacity-building initiatives can only be effective if municipalities improve on leadership, accountability, governance and technical skills.

The SALGA stated that there is no co-ordination between the Municipal System Infrastructure Grant (MSIG), Financial Management Grant (FMG) and Siyenza Manje. The SALGA argued that there is no proper assessment of the impact of the grants, especially on smaller municipalities. The SALGA further stated that local government is not central to setting the agenda for capacity-building programmes, Another main concern raised by the SALGA was that there is reporting burden, which is costly and time-consuming because there are 5 different grants to report on and 5 different departments to report to. The SALGA advised that provincial allocations must be gazetted and timeously transferred, such as for example funding for libraries and other operational functions performed on behalf of provinces.

3.1 Specific Recommendations of SALGA

3.1.1 Financial Management Grant

The SALGA argued that an almost uniform size of allocations to different municipalities does not reflect an allocation system that is based on specific needs of municipalities.

3.1.2 Municipal Systems Improvement Grant

The SALGA again observed that an almost uniform size of allocations to different municipalities does not reflect an allocation system that is based on specific needs of municipalities. The SALGA reported that no additional funding was provided for ward committees that must now be funded from this grant according to the National Department of Cooperative Governance and Traditional Affairs’ regulation. The SALGA advised that support must be provided for the establishment of municipal public accounts committees and ongoing work on the Municipal Property Rates Act implementation.

3.1.3 Water S ervices Operating Subsidy Grant

An increase to the Water Services Operating Subsidy Grant was welcomed by the SALGA. However, the SALGA proposed that the subsidy may be ring-fenced for the schemes transferred and not be allocated as part of the general equitable share to local government.

3.1.4 Expanded Public Works Programmes Incentive Grant for M unicipalities

The SALGA advised th at the framework reporting should reflect the increase in municipal reporting. It appears that some municipalities (mainly in the North West) have sought legal opinion before they sign the standard incentive agreement with the National Department of Public Works (DoPW). The SALGA said that this was obviously causing a delay for compliance and proposed that an investigation as to why this was happening (and what the concerns are) should be conducted. While reporting is expected to only take place through the Expanded Public Works Programme’s (EPWP) Management Information System (MIS) , local government is expecting that the EPWP unit will continue to support municipalities who report manually owing to the information and communication technology (ICT) challenges at local government. The SALGA advised that the DoPW should provide and disseminate a simple guideline to outline how the targets were calculated. The SALGA commended and supported the extension of the reporting date to the 15 October 2009 (and 15 October 2010); the increase in the nominal incentive amount; and the continuation of the zero thresholds for rural municipalities.

3.1.5 Unspent Conditional Grants

The SALGA supported that unspent funds should be returned to National Treasury. SALGA urge d National Treasury to consider that the nature of the problem (under spending) might be due to the poor design of specific grants, especially newly created grants and requirements such as project registration that delays implementation, fiscal dumping, poor planning and implementation capacity of municipalities. The SALGA advised that government should give focused attention to struggling municipalities, especially because spending of the grants against their purpose is indicative of a deeper funding problem, especially in smaller and poorer municipalities who struggle to raise own revenues for operations.

3.2 Responses by National Treasury to the SALGA’s Submissions

National Treasury responded to the submissions of the SALGA with regard to the medium term expenditure framework, direct transfers, indirect transfers, and operating grants, as follows:

3.2.1 Medium Term Expenditure Framework

During the public hearing, the SALGA had raised its concern that the growth in the local government equitable share of 15 per cent per annum over the next three years is only towards continuing current levels of services given the high increases in the bulk price of electricity and does not deal with other services. National Treasury responded that the R6.7 billion increase to the local government equitable share does not only cater for the Eskom electricity bulk price increase over the 2010 Budget, but also assists municipalities to extend service delivery to the poor that do not yet have access to a basic level of service. National Treasury argued that the impact on municipalities is further cushioned as electricity bulk purchases only make up approximately 67 per cent of the municipal electricity tariff, where the costs of the other components (i.e. operational and administrative costs related to the provision of electricity to the end-consumer, including billing, metering, and so forth) increase closer to inflation.

The SALGA reported that the funding need of local government is enormous and municipalities with low revenue raising capacity require further fiscal support to broaden service delivery to generally poor communities (smaller municipalities also struggle to maintain institutional capacity for effective local governance and administration); and that larger municipalities are facing increasing growth in backlogs with declining gearing capacity. National Treasury commented that it supports the need for the review of the local government equitable share and local government fiscal framework, and will undertake such review during 2010, for the possible phased-in implementation from the 2011 Budget. National Treasury further reported that the review will need to ensure that the different socio-economic and economic profiles, and the allocations produced by the local government equitable share formula are appropriately captured in the formula. In order to ensure an equitable division, National Treasury agreed that the formula needs to be appropriately structured. This would ential adherence to the principles of equity, efficiency, spill-over effects and facilitating democracy. National Treasury reported that, as part of the 2010 Budget, detailed work was undertaken to explore the possibility of updating the data in the current local government equitable share formula (that is 2001 census) with the results of the 2007 community survey. National Treasury agreed that the data is not robust enough to use up to local municipal level and will accordingly skew allocations rather than improving allocations.

National Treasury added that some of the issues that need to be reviewed are: (a) the size (quantum) of transfers sufficient (vertical split) to support a developmental local government; (b) the transfers in the system appropriately targeted (that is to the correct municipalities); and (c) the transfers appropriately structured (that is conditions to access funds) to result in the desired outcomes. National Treasury advised that it is important to note that any reforms to the local government fiscal framework will not have the desired results if the current structural challenges ( flaws) in the system of local government are not addressed concurrently .

Furthermore, National Treasury indicated that care should be exercised to ensure that the fiscal system only be targeted at municipalities that are under-resourced due to socio-economic circumstances (which are largely outside their control) and not at municipalities that are experiencing financial challenges despite having a sufficient tax base. By way of example, National Treasury illustrated that insufficient attention is being given by some municipalities to optimize own revenues at their disposal due to inappropriate metering, billing, collection, credit control and indigent policies. Under-collection is also due to lack of sufficient maintenance, for example leakage through pipes. National Treasury cautioned that, if allocations are increased to these municipalities because they are in financial distress, it will not only create perverse incentives, but most probably be unconstitutional as well. National Treasury emphasised that more detailed work therefore needs to be undertaken to determine the root causes of financial strain in municipalities.

National Treasury noted that any reforms to the local government fiscal framework need to be structured in such a manner as to enable metropolitan and other larger cities to more effectively manage, support and account for built environment outcomes. National Treasury said that government introduced the MIG Cities Grant in 2009 to cater for the unique challenges faced by these municipalities and a process is also currently underway to accredit municipalities to undertake national housing programmes starting with the large metropolitan municipalities from April 2010 onwards. National Treasury explained that this process is looking at creating better alignment and coordination between municipal infrastructure, through the MIG Cities Grants, and the housing delivery through accredited municipalities. National Treasury expects that this will enable these municipalities to be in a stronger position to gear in additional funding for infrastructure development through external sources/borrowing.

3.2.2 Direct Transfers

The SALGA raised a concern that municipalities are not aware of the application processes for all conditional grants in the system and that municipalities must be supported to institutionalise key management processes resulting from participation in conditional grant programmes. The SALGA added that monitoring processes should also be streamlined to ensure efficiencies in grant management. National Treasury submitted that various initiatives are in place to advise municipalities of these transfers. Firstly, the annual Division of Revenue Bill is placed on National Treasury’s website shortly after the release of the annual budget. Secondly, the annual Division of Revenue Bill contains not only the conditional grant frameworks, but also a breakdown of the allocations to individual municipalities. Thirdly, an annual circular is also issued by National Treasury to inform them of all salient developments regarding that year’s budget. Lastly, each transferring national officer that administers a conditional grant is also required to advise individual municipalities of their allocations over the MTEF as well as conditions (qualifying criteria) for a grant. National Treasury further added that with respect to most indirect transfers to local government, it is a condition that such projects should be aligned to a municipal integrated development plan. National Treasury invited the SALGA to assist this process by informing municipalities of these grants, qualifying criteria, and so forth (direct and indirect transfers).

Furthermore, National Treasury responded that all transferring national officers are required within 14 days after the Division of Revenue Act takes effect, to confirm to National Treasury, that the allocation frameworks, including (a) conditions and monitoring provisions, are reasonable and do not impose an undue administrative burden on receiving municipalities beyond the provision of standard management information; and (b) monitoring provisions are compatible and integrated with and do not duplicate other relevant and related national, provincial and local systems.

3.2.3 Indirect Transfers

The SALGA proposed that communication of these grants should be improved as municipalities are not always sure of how these grants work. It further advised that it should be indicated in a municipal integrated development plan as projects benefiting (but not part of fundable budget) the municipality. The SALGA proposed that implementing national departments and public entities should streamline management of these grants and improve communication with municipalities. National Treasury responded that a need for appropriate consultation by implementing national departments and public entities with affected municipalities are acknowledged and a stipulated condition for most grant-in-kind transfers to municipalities. For example, the Regional Bulk Infrastructure Grant prescribes that the national department must ensure that every municipality benefiting from a specific project or scheme is invited to participate in the feasibility study. It is suggested that the Integrated National Electrification Programme (Eskom) Grant may stipulate that allocations to Eskom are made on behalf of municipalities and that applications from Eskom must be based on consultation with communities in terms of the Integrated Development Plans (IDP) process.

3.2.4 Infrastructure Grants

On the infrastructure grant, the SALGA raised a concern that the link to real backlogs is questionable since latest data is not available. National Treasury, while agreeing that data on municipal service backlogs are outdated, argued that a grant system should be supported by credible and official data and that such data should be available for all 283 municipalities. National Treasury reported that work will be undertaken to further explore this issue. National Treasury explained that, in the interim, reforms are already underway to ensure that reliable information on backlogs is contained in municipal IDPs and performance to eradicate these backlogs reported in municipal annual reports. National Treasury expects that closer monitoring of this information will assist in addressing some of the challenges.

Another concern raised by the SALGA is that the increase in municipal capital spending is not necessarily supported by adequate support for operational and maintenance costs. National Treasury replied that the local government equitable share finances the full operational cost of providing a basic service to a poor household, inclusive of the operational and maintenance costs (these costs with respect to non-poor households should be funded through the tariff/user-charge, and rates policies of municipalities).

Other concerns raised by the SALGA with respect to infrastructure grants are that there is a lack of technical capacity to implement and oversee major capital projects; the growth in grants contributes to lower appetite for borrowing; reporting burden is costly and consuming (for example: there are 13 different grants to report on and 7 different departments to report to); and grants from provincial departments are not always gazetted. National Treasury noted that the Financial and Fiscal Commission (FFC) has indicated that it will undertake a review of conditional grants, which will deal with the issues raised by the SALGA, including an assessment of the appropriate number of conditional grants to local government.

The SALGA requested clarity around the alignment of the Rural Transport Services and Infrastructure Grant (RTSIG) and the Rural Household Infrastructure Grant (RHIG) with the Municipal Infrastructure Grant (MIG). National Treasury reported that it should be noted that the MIG mainly targets the roll-out of conventional infrastructure and the specific infrastructure grants, such as the Rural Transport Services and Infrastructure Grant and the Rural Household Infrastructure Grant, are intended to explore new technologies and service delivery approaches where conventional service delivery modes and policies are not viable and/or practical. National Treasury added that these short- to medium-term specific conditional grants are essential tools to expedite service delivery roll-out and are complementary to the MIG grant.

The SALGA proposes that, firstly, the Electricity Efficiency Demand-Side Management (EEDSM) should be seen as an intervention beyond electricity provision and should be extended to all municipalities (including those not licensed for electricity provision) to initiate demand side management measures and efficiency more broadly. Secondly, the Integrated National Electrification Programme Grant needs to shift towards investment in renewable sources of energy (solar and wind). Lastly, the allocation to Eskom should be accompanied by a condition that it be mostly utilised towards getting the grid ready for receiving feed-in energy from renewable energy sources. National Treasury responded that the Electricity Demand-Side Management Grant (EDSMG) is part of a broader intervention to finance EEDSM (provision is also made for this through Eskom’s electricity tariff). National Treasury reported that the EDSMG was introduced as a short-term intervention to ensure security of supply, which is for the three-year period from 2009/10 to 2011/12 and the EDSMG will accordingly prioritise areas with high electricity usage and the 2010 Federation of International Football Association (FIFA) World Cup host cities. The EDSMG is subject to review in 2010 and 2011. National Treasury stated that the Integrated National Electrification Programme (INEP) is specifically targeted at reducing the backlogs of un-electrified (poor) households, schools and clinics through the installation of bulk infrastructure and rehabilitation of electrification infrastructure and the INEP does not focus on investments in renewable sources of energy, such as solar and wind.

3.2.5 Capacity Building and Other Operating Grants

Various concerns were raised by the SALGA regarding the administration of municipal capacity building grants, including lack of coordination between grants; no account being taken of the impact of these grants, especially on smaller municipalities; local government not central to setting the agenda for capacity building programmes; reporting burden is costly and time consuming as there are 5 different grants to report on and 5 different departments to report to; and provincial allocations must be gazetted and timeously transferred. National Treasury noted and agreed with the concern raised by the SALGA and reported that the Minister has formally responded to the SALGA’s recommendations, which is attached as Annexure A to the 2010 Budget Review. The Financial and Fiscal Commission (FFC) had raised similar recommendations with respect to municipal capacity for the 2010 Budget and National government has responded to the FFC’s recommendations (refer section 4 below).

Furthermore, the SALGA commented on a number of specific municipal capacity building and operating grants. The SALGA raised a concern that both the Financial Management Grant and Municipal Systems Improvement Grant do not necessarily reflect allocation systems that are based on specific funding needs of municipalities. With respect to the Financial Management Grant, the National Treasury confirmed that allocations to municipalities are made to assist and support all municipalities to implement the Municipal Finance Management Act (MFMA) and the resources are applied consistently with the objectives outlined in the grant framework as the funding needs of municipalities may exceed the available resource ‘envelope’. National Treasury added that in terms of the MFMA, all grants from national and provincial government to municipalities must be appropriated on municipal budgets before they can be spent, hence the communication mechanism allows for such inclusion in municipal budgets. National and provincial treasuries meet regularly with municipalities to inform them of allocations. National Treasury stated that chief financial officer (CFO) forums have been established in all provinces where municipal officials discuss financial management issues, including grant allocations.

In terms of the conditional grant framework, the Municipal Systems Improvement Grant is allocated to selected municipalities based on previous expenditure performance and assessed priority needs. The National Department of Cooperative Governance and Traditional Affairs (DoCGTA) is responsible for the administration of the Municipal Systems Improvement Grant.

The SALGA proposed that the subsidy decrease be ring-fenced for the water schemes transferred and not be allocated as part of the general equitable share to local government. National Treasury replied that some municipalities that took over water schemes formerly administered by the National Department of Water Affairs (DoWA) are not yet fully capacitated to operate and maintain these schemes. National Treasury proposes that the SALGA undertakes a detailed assessment of the challenges experienced in these municipalities to determine appropriate intervention(s) in the municipalities that have taken over these schemes, with support from the appropriate sector department responsible for this function.

3.2.6 Incentive Grants

The SALGA makes a number of proposals with respect to the administration of the Expanded Public Works Programme (EPWP) Incentive Grant for municipalities, including that information on the percentage of municipalities reporting on EPWP be provided to the SALGA; that some municipalities have expressed concerns on the contents of the standard service delivery agreement; that some municipalities are struggling to report on the EPWP electronic system due to information communication technology (ICT) challenges; and that the N ational Department of Public Works (DoPW) increase its support to municipalities to assist them to improve their participation in this grant. National Treasury stated that these matters relate to the administration of the grant. National Treasury will accordingly refer these matters to DoPW for consideration as the transferring national officer responsible for the Expanded Public Works Programme Incentive Grant for Municipalities. In addition, National Treasury will arrange a meeting with the SALGA and the DoPW to discuss these matters.

3.2.7 Unspent Conditional Grants

Although the SALGA support ed the provisions to ensure the return of unspent funds, it requests that government identifies the root causes of the problem so as to address them. The SALGA recommended that the off-setting of unspent grants should not be once-off, but rather negotiated with each municipality. National Treasury notes and supports the recommendations of the SALGA. National Treasury said it should be noted that a number of consultations are undertaken with the municipalities concerned prior to the off-setting being formally instituted and such off-setting, including the appropriate period for such off-setting, is therefore negotiated between National Treasury and the affected municipalities.

In summary, National Treasury concluded that none of the proposals submitted by SALGA have implications for the main text of the 2010 Division of Revenue Bill and that concerns with respect to specific conditional grants will be referred to the appropriate national transferring officers for possible incorporation into the conditional grant framework. National Treasury emphasised that a number of inputs, although appropriate, can only be considered as part of the longer-term review of the local government fiscal framework, which is from the 2011 Budget onwards.

4. The Financial and Fiscal Commission

The Financial and Fiscal Commission (the FFC) commented that there is a need to strengthen intergovernmental structures for coordination with respect to government’s priority areas, relating to employment creation and rolling out a comprehensive rural development strategy. With respect to the Division of Revenue Bill, the FFC cautioned that the local government sphere receives the smallest share of total revenue relative to the other two spheres, but local government exhibits the fastest growth; and conditional grants allocations to provinces grow faster than allocations made through the provincial equitable share.

The FFC noticed that there is an increase in debt service costs and another increase in public sector wage bill in relation to other items on the budget. The FFC added that if debt service costs are driven by personnel increases, this trend must be reversed in the medium term. The FFC appreciated the additional R 3.7 billion to drive nationally-managed employment creation initiatives which includes the textile sector, automotive production incentive and bio-security.

4.1 The FFC’s Specific Recommendations

4.1.1 The Equitable Share

The FFC reported that it welcomes the data updates to the Provincial Equitable Share (PES) such as impact of re-demarcation on PES and cautioned government against the risk of increasing demand for bail-out money in cases of boundary changes. The FFC commented that there is a need to create better incentives for sub-national government adjustment through better structured transitional transfers. As a short-term solution, the FFC recommended that the reform of the provincial equitable share formula stays within the confines of the current constitutional dispensation. As a medium to long term solution, the FFC recommended that the reform should depart from the realization that fixing the provincial equitable share as a pool requires the fixing of other aspects of the current fiscal decentralization system.

The FFC commented that it is currently reviewing the whole syste m of conditional grants and will be making recommendations in the submission for the 2011 Division of Revenue Bill.

The FFC argued that there is potentially unconstitutionality in the revenue raising component. The FFC reported that the effect of this component is that it takes away money on the basis of what municipalities can raise, which is contrary to Section 227(2) of the Constitution which states that additional revenue raised by the municipalities may not be deducted from share revenue raised nationally or from other allocations made to them out of national government revenue.

The FFC recommended that there should be clarity around expenditure assignments between provinces and national government, especially distinguishing between delegated and own or devolved responsibilities of the provincial government.

4.1.2 Public Infrastructure Investment

The FFC recommended that increased funding be directed towards infrastructure programmes that are linked to basic services including water, health, electricity, roads, transport and communication. The FFC further recommended that government should improve the quality of targeted outcomes of infrastructure investment towards employment creation and poverty reduction. Implementation of a fully comprehensive national infrastructure maintenance strategy is proposed by the FFC .

4.1.3 Social Grants

The FFC recommended that government should increase the rollout of social grants to cushion poor people from the effects of the economic downturn. The FFC advised that efficient management of social grants is of paramount importance in order to ensure that increases in the grants does not crowd out other forms of social expenditure. The FFC recommended that there should be a use of infrastructure expansion to provide work opportunities through activities identified in the Expanded Public Works Programme (EPWP).

4.1.4 Health Services

The FFC recommends that, whilst recognising the provisions of the National Health Act (2004) and current norms guiding the primary health care (PHC) system, there is a policy gap in respect of legislative provisions and, norms and standards for a well-functioning public hospital system. To address the identified gap, government must develop norms and standards that deal with key issues in the public health system, such as specification of minimum service requirements and minimum input norms, quality assurance, transparent reporting system, and so forth.

4.1.5 Rental Housing

The FFC recommended that there should be relaxation and flexibility on: eligibility criteria for accessing the Social Housing Capital Restructuring Grant (SHCRG) to allow projects falling outside the Designated Restructuring Zones (DRZs) to access funding; number of DRZs to respond to excess demand for rental housing; and minimum unit size for redevelopments of existing buildings. The FFC further recommended that the process of disbursing funds for rental housing within the housing sector should be made shorter to minimise time lags following the submission of approved project plans. Furthermore, the FFC recommended that the Social Housing Regulatory Authority (SHRA) should improve the inter-sectoral coordination between various government departments responsible for integrated human settlement. The FFC recommended that the qualifying income bands should be reviewed to ensure that individuals are not unfairly excluded from benefiting from the subsidy (for example, due to increases in the cost of living).

4.1.6 Road Infrastructure

The FFC recommended that there should be increased and stable flow of funds for maintenance, rehabilitation and addressing backlogs in the long-term and, possibly, to include a road infrastructure component within the PES formula. The FFC argued that there is a need for greater coordination of road management functions across the three spheres of government, through the revision and modification of the inter-road authority coordinating model to include all municipalities and the SALGA. Furthermore, the FFC recommended that there must be an introduction of a separate conditional grant specifically targeted at building technical capacity within the road management sector of sub-national governments.

4.1.7 Water and Sanitation

The FFC recommended that there should be a review of the free basic water and sanitation subsidy, and water tariff structures in order to ensure that the shortcomings implicit in the current subsidy system do not outweigh the benefits. The FFC further recommended that the sanitation strategy should target behavioural change in relation to sanitation practices by households, rather than the provision of infrastructure alone, premised on attaining certain health outcomes. Furthermore, the FFC recommended that there should be an establishment of an independent National Water Regulator that would report to Parliament.

4.1.8 Capacity Support of Local Government

The FFC recommended that local government should be central to setting the agenda for capacity building programmes and that these programmes should be informed by a local government performance management system which is driven by Key Performance Indicators (KPIs). The FFC further recommended that capacity-development programmes should be comprehensive and focus beyond training of personnel and deploying experts to municipalities. Furthermore, the FFC recommended that there should be an establishment of an intergovernmental wide framework for understanding what constitutes lack of capacity within the context of local government. In addition, the FFC recommended that appropriations for Siyenza Manje should be allocated through the Division of Revenue Bill like other capacity grants. This will promote order, transparency and accountability.

4.2 Responses by National Treasury to FFC’s Recommendations

4.2.1 The Equitable Share

National Treasury reported that government in 2007 endorsed a comprehensive review of the provincial equitable share formula. A task team consisting of officials from the FFC, National Treasury, provincial treasuries and relevant sector departments has commenced with this review and should complete its work in time for the 2011 MTEF. The recommendations of the FFC will be considered as part of this review.

4.2.2 Public Infrastructure Investment

National Treasury reported that government agrees with the FFC that investment should be targeted towards infrastructure that supports basic needs, and will continue with the infrastructure investment programme aimed at expanding and improving social and economic infrastructure to increase access, quality and reliability of public services. National Treasury reported that infrastructure expenditure is one of the fastest growing areas with provinces expected to spend R146 billion over the next 3 years on education, health, roads and agriculture , and municipalities expected to spend R148 billion on basic services, roads and housing. Furthermore, National Treasury reported that government is taking active steps to ensure that these large investments result in increased access to quality services through programmes such as Siyenza Manje and the Infrastructure Delivery Improvement Programme (IDIP) that aim to improve infrastructure management.

4.2.3 Social Grants

National Treasury reported that government agrees that the social grants system should be managed in a manner that does not compromise fiscal sustainability and that government is taking active steps to increase employment opportunities through its large capital investments and EPWP II.

4.2.4 Health Services

National Treasury is of the view that the FFC’s recommendations on health services are in line with government’s vision to improve the country’s entire health system. National Treasury reported that the National Department of Health’s 2009/2010 Strategic Plan offers a comprehensive set of programmes intended to overhaul the health system, with public hospitals a key area of focus. Furthermore, National Treasury reported that factors such as norms and standards, enhanced management and training, delegation of authority, appropriate levels of autonomy, human resource for health, quality assurance, quality improvement and monitoring will be the focus area for the National Department of Health and its partners.

4.2.5 Rental Housing

National Treasury reported that the social housing programme is a targeted programme rather than a mass housing delivery programme with specific restructuring objectives. National Treasury further reported that the restructuring aims to facilitate the further provision of private rental accommodation by the private sector in areas where no or minimal investment in rental housing is occurring, but where investment is required. The Social Housing and the Rental Housing Acts (SHRA) were established to focus on the regulation of the social housing sector in order to protect government’s investment in rental housing. In terms of SHRA, national government should ensure that all spheres of government and other government departments are aligned to enable and support the development of rental/social housing.

Furthermore, National Treasury reported that government acknowledges that there is a great demand and need for affordable rental housing. The institutional qualifying criteria do not apply when the Social Housing Capital Restructuring Grant is used in the social housing programme. However, there are requirements to ensure that government’s investment does benefit targeted income groups (income groups below the R3500-R1500 per month income band) through cross-subsidisation with middle- and higher-income groups.

4.2.6 Road Infrastructure

National Treasury reported that the road infrastructure’s proposal (in section 4.1.6 above) will be dealt with as part of the review of the provincial equitable share formula. National Treasury further reported that the proposal to expand the existing Roads Coordinating Body (RCB) may have merit as it could improve the intergovernmental co-ordination and resolve issues such as the Roads Infrastructure Framework of South Africa (RIFSA). Furthermore, National Treasury reported that government through its Infrastructure Delivery Improvement programme (IDIP) and Siyenza Manje programmes is stepping up efforts to build infrastructure capacity in provinces and municipalities.

4.2.7 Water and Sanitation

National Treasury reported that government agrees with the review of the water tariff structures and that specific legislation, regulations, policies and guidelines have been developed on water tariffs. Municipalities currently set tariffs, and National Treasury and the National Department of Water Affairs only oversee and comment on such tariff setting. Therefore, government supports the need for strengthened regulation on water tariffs and monitoring. National Treasury further recommended that government agrees with the FFC’s recommendation of expanding access to sanitation services and improving sanitary outcomes; and government is currently implementing a holistic sanitation strategy which includes behavioural change. National Treasury reported that, i n determining appropriate sanitation investments, affordability and safety considerations are considered.

Furthermore, National Treasury reported that government agrees to the FFC’s recommendation on the establishment of an independent National Water Regulator subject to the actual cost of the proposal and affordability thereof being known up-front and any lessons learned from the regulation of both bulk and retail electricity being taken into account.

4.2.8 Capacity Support of Local Government

National Treasury reported that government agrees that local government capacity should be streamlined to enhance its performance. National Treasury argued that initiatives such as the local government turnaround strategy and implementation of municipal budgeting and reporting reforms are looking at measures that would improve service delivery at the local level. National Treasury further argued that the current local government capacity grant frameworks have clear outlines of measuring objectives, targets, conditions and timelines.

However, National Treasury reported that government does not agree with the recommendation that Siyenza Manje be allocated through the Division of Revenue. This is because only two-thirds of the total funds are allocated to the Development Bank of Southern Africa (DBSA) to perform local government capacity building on behalf of national government and that one-third of the total funding comes from DBSA’s own revenues.

5. The National Department of Health

The National Department of Health (DoH) confirmed that it accepts the Provincial Equitable Share (PES) but in some grants the formula does not address the intended purpose.

The Committee requested the DoH to explain the role of the FFC in the allocation of grants. DoH explained that the FFC looks at what the department is doing and makes recommendations and the department responds to them. The DoH indicated that the FFC is not involved in the process of grant allocations to provinces.

When the Committee asked the DoH to clarify why the review of the Health Professions Training and Development Grant is only taking place now whereas the decision was taken five years back, the DoH responded that a recommendation was made before, which the DoH was not satisfied with. That recommendation has been taken to a government committee that consists of officials of National Treasury, the DoH, and the National Department of Higher Education and Training (DoHET). The role of this government committee is to review the Health Professions Training and Development Grant.

The Committee requested the DoH to give a status update on the hospital which was intended to be completed in 2009 with the objective to alleviate pressure from Chris Hani Baragwanath Hospital. The DoH stated that the Zola Gate-Way Clinic is complete and there is good progress with the construction of the Jabulani Hospital. The DoH added that there are plans for the revamping of the Chris Hani Baragwanath Hospital. The trauma and out-patient department (OPD) units of the Chris Hani Baragwanath Hospital have already been revitalised.

When the Committee posed a question to the DoH on how they intend to correct the situation on the ground if the people they train through the Health Professions Training and Development Grant migrate to other places/provinces, the DoH indicated that health professionals are enticed to stay in rural provinces by offering them rural allowances and in some instances it has worked. The programme includes a scare skills package which intends to discourage the migration of doctors from rural areas.

The Committee raised concerns as to why the DoH employs engineers, to which the DoH responded that it has decided to employ engineers because it did not have the technical capacity to monitor and evaluate the work of contractors. These engineers assist the DoH to ensure that contractors perform as per the service level agreement (SLA) and memorandum of understanding (MOU).

The Committee asked the DoH to explain who identifies hospitals for revitalisation and the DoH responded that provinces have a prerogative to identify hospitals that must be revitalised. This is influenced by the state of repair/disrepair that the audit has found.

The Committee asked the DoH how it allocates funds taking into consideration the demarcation problems because some villages are closer to government health centres that are in another province, to which the DoH responded that the allocation of conditional grants and funds to provinces are as per services rendered. This means that hospital that are servicing patients from other provinces can claim for expenses incurred since the patients serviced do not form part of their province’s statistics and no allocation was made for them by the national government.

In response to the Committee’s query regarding the proposed reopening of nursing colleges the DoH indicated that an audit is being done regarding the reopening of nursing colleges.

During the public hearing it was confirmed that the DoH is in the final stages to take over the administration of mortuaries from the National Department of Police (DoP). The Committee asked the Do H how many government mortuaries are still with the DoP and when the DoH is anticipating to finish the process of the takeover. The DoH responded that that all mortuaries have been transferred to the DoH. The DoH added that some mortuaries are in a bad state of affair and they need to be improved or revitalised. Lastly, the Committee was told that mortuaries will be upgraded and remain where they are, like those that are in Police Stations, but they will be administered by the DoH.

The Committee sought clarity from the DoH on the status of its vacancy rate having at some stage had a 25 per cent vacancy rate and further sought an update on the progress in filling vacant positions. The DoH told the Committee that the DoH’s budget has increased by R24 million but the goods and services budget has been cut. Therefore, the DoH cannot afford its personnel structure and the DoH has a number of unfunded posts that are vacant. The organisational structure of the DoH is currently being looked at with the aim of reprioritising the needs of the DoH. Unfunded posts will be abolished and therefore the vacancy rate will go down.

6. The National Department of Rural Development and Land Reform

The National Department of Rural Development and Land Reform (DoRDLR) informed the Committee that it had requested R 6.2 billion from National Treasury but it was allocated R1.9 billion.

On challenges raised by the DoRDLR in relation to the way to treat transfers of funds to municipalities and the process that must be followed, National Treasury said if a municipality is going to render a specific function and it expects resources from national government for those functions those things must be gazetted on time. National Treasury committed itself to assist municipalities in this regard. Another challenge is that certain functions are meant for specific departments and therefore synergy should be observed at all times. Departments must adhere to their own specific functions.

When the Committee requested the DoRDLR to clarify its overlapping functions, the DoRDLR responded that the matter was debated at policy making level and it was agreed that the DoRDLR’s function and budget ‘sits’ in other departments. Secondly, it also came out that rural development involves infrastructure services which will talk to education, health, and agricultural infrastructure services. Overall the role of the department has been defined as the initiator, facilitator, coordinator and catalyst of all the different functions.

The Committee commented that it had hoped that the issue of backlogs would have been dealt with, but sought reasons why that was not the case. Moreover, the Committee requested the DoRDLR to explain the budgeted figure on land restitution because in the past the process was to be closed but there was too much backlog. Furthermore the DoRDLR was asked to explain why the housing development has not been addressed in the DoRDLR’s budget, since this can prevent urban in-migration given the skewed funding of big cities at the expense of rural areas. The DoRDLR replied that 96 per cent of land restitution has been settled. Although there were 79 698 claims that were lodged, the DoRDLR is left with 3000 claims, which are expensive to settle. A claim in Malamala, in Mpumalanga was cited as an example, which will cost the government R800 million to settle. It is expensive because it involves part of the airport and a game reserve. In KwaZulu-Natal, a claim near Stanger will cost the government R600 million to settle. The DoRDLR is facing a number of challenges involving complaints in court which demand that the DoRDLR pay for filed claims. The DoRDLR added that land has become so expensive in the recent three to four years. Moreover, the DoRDLR added that it needs an approach that will not only consider the hectares of land but to look at the quality of land as well. In the 2010/11 fiscal year, 25 per cent of the total budget has been put aside for recapitalisation and development of the land redistribution (R3 billion) and restitution programmes (R1 billion).

When the Committee enquired how the DoRDLR links its Rural Development Programmes to the Integrated Development Plans of municipalities, the DoRDLR explained that a council of stakeholders has been established wherein all government stakeholders are invited to table their programmes that seek to address rural challenges. Municipalities are also part of this co-ordinated approach.

Given the DoRDLR’s limited budget, the Committee requested the DoRDLR to explain how they will accomplish their goals to which the DoRDLR responded that its allocation is an indicative amount because rural development funds are found everywhere in other departments but they are not ring-fenced. Therefore, this clearly shows that the DoRDLR has a coordinating role to play around rural development. Lastly, the DoRDLR added that if the total amount was needed, a detailed analysis of different programmes and their budgets will have to be conducted.

7. The National Department of Energy

The National Department of Energy (DoE) submitted to the Committee that its conditional grant allocation is split into two, namely 62 per cent is allocated to Eskom and 38 per cent to municipalities. Details of allocation per municipality are available in the 2010 Division of Revenue Bill.

The Committee asked the DoE to clarify the issue of backlogs, to which the DoE responded that there are new backlogs, because as the communities expand, new backlogs are emerging, notwithstanding the historical backlogs. The DoE informed the Committee that since 1994 the backlogs have increased from 8 million to 12 million households but from then till now over 4.5 million households have been electrified. The amount of households that have emerged and those in rural areas have not been serviced. The DoE further explained that municipalities apply for electrification and sometimes they would fail to build the total number of houses they had applied for. The DoE electrifies all newly build houses.

When the Committee asked the DoE how much money Eskom is owed by municipalities and how did those debts arise, the department replied that in December 2009 the debt was R129 million but now the January 2010 report shows that the debt is R99 million. The department informed the Committee that the problem is that municipalities use the equitable share to settle the debt which is not consistent with the requirement of their licence. As a result, municipalities default on payments while waiting for the equitable share to be paid. Most of the defaulting municipalities are in the North West and Free State provinces. The DoE indicated that Eskom visits the municipalities regularly, and sensitise them about the importance of paying bills because Eskom cuts power supplies. The DoE further stated that Eskom only cuts power supplies as a last resort.

The Committee asked the DoE about the prospects to conduct research on alternative sources of energy to which the department responded that at this stage the technology on alternative sources of energy exist and there is no need for research, but what needs to be done is to introduce alternative energy supplies.

When the Committee asked the DoE to explain the contingency plans for providing energy during the 2010 FIFA World Cup, the DoE replied that there is commitment from both Eskom and municipalities to provide enough electricity to stadiums for the 2010 FIFA World Cup. As a backup plan, all stadiums will have generators running during games in case there are power failures.

The Committee enquired what informs the allocation of electricity per province. The DoE indicated that prior to the allocation of the grants, the DoH target areas that do not have domestic lighting. Furthermore, the DoE added that it had concluded the electrification of schools and clinics and, as a result, the grant has lapsed as from this financial year but the target has been revised to June 2010. The schools that have not been electrified are either mud school or school that are to be demolished, moved orcombined with other schools. All clinics that were identified for electrification were electrified.

The Committee raised its concerns over the fact that the DoE seems to be shifting its responsibilities of providing sufficient energy to Eskom and municipalities. The Committee stated that municipalities see Eskom as its solution to electricity needs because they are not aware of the functions of the DoE. The Committee requested the DoE to explain its role to municipalities so that there is clear understanding of its role in electrification. The DoE together with Eskom convene workshops in all provinces with the aim to disseminate information about available grants. Eskom is the licence holder of electrification and they report to the DoE on a monthly basis. The municipalities are responsible for procurement and the DoE does not get involved.

When the Committee asked the DoE to explain the kind of support it intends to give to the small municipalities because currently only the big municipalities are accessing all the other grants and small municipalities are not aware of them. The DoE responded that all municipalities are entitled to all available grants and the workshops that are convened in provinces are meant to inform municipalities about them.

8. The National Department of Basic Education

The National Department of Basic Education’s (the DoBE) submission was categorized into three parts, namely: Restructuring of Education and distribution of budget, Funding of Education Sector: Equitable Share, and Basic Education Conditional Grants.

The DoBE presented that it was established through the split of the National Department of Education (the DoE) while government was undergoing a restructuring process during the 2009/10 financial year. The DoBE received functions from the DoE. These functions include: (a) adult basic literacy and numeracy through the Kha Ri Gude campaign; and (b) School Education.

According to the DoBE, the key aspect in the Division of Revenue Bill relating to this Department is the funding of the Basic Education Sector in Provincial Departments of Education. DoBE presented that at this stage, Provincial Departments of Education receive a total of R128.3 billion, R138.9 billion and R145.6 billion over the 2010 MTEF (excluding conditional grants). These allocations represent on average 49 per cent of total provincial budgets. Compensation of employees remains the biggest portion of the budgets of Provincial Departments of Education at an average of 79.9 per cent over the 2010 MTEF.

The DoBE will be responsible for four conditional grants over the MTEF period, namely: National School Nutrition Programme, HIV/Aids Life Skills, Technical School Recapitalisation and Dinaledi Schools. The allocation for the National School Nutrition Programme is R3.7 billion, R4.6 billion and R4.9 b illion over the medium term expenditure framework. In addition to these amounts, provision is made for national coordination, monitoring and strategic leadership as follows: R13.4 million; R8.2 million; R9.1 million over the same period.

The HIV/Aids Life Skills programme is allocated R188.1 million, R199.3 million and R209.3 million over the medium term expenditure framework. But, there is no provision in the grant for national coordination, monitoring and strategic leadership of the programme. It is reported that this will need to be funded from the Department’s baseline allocation. The Technical Schools Recapitalisation Programme is allocated R80 million, R200 million and R210 million over the medium term expenditure framework. In addition, provision is made for national coordination, monitoring and strategic leadership as follows: R1 million, R2.5 million and R2.6 million over the same period. The Dinaledi Schools programme is allocated R70 million, R100 million . This grant is only from the 2011/12 financial year and details around the framework and activities will be finalised during the 2010/11 financial year.

After the presentation by the DoBE, the Committee asked National Treasury to identify the budget allocation for the Early Childhood Development (ECD) programmes because both the DoBE and the National Department of Higher Education and Training (below) did not mention it. The Committee stressed that it should know why such funds were not ring-fenced for the ECD programme. National Treasury replied that provinces have tabled for ECD budgets and the ECD programme would be allocated R2.9 billion as per equitable share formula. National Treasury informed the Committee that the ECD grant has lapsed and funding for the ECD was within the equity share of provinces.

When the DoBE was asked by the Committee how much it had budgeted for coordinating, monitoring and providing leadership insofar as implementation of HIV and Aids Education Life skills, the DoBE responded that a budget in the range of R300 000 to R400 000 per annum was budgeted for the HIV and Aids Education Life Skills. The DoBE added that the final budget allocation per specific function will be finalised in the near future.

When the Committee requested the DoBE to explain the cost per meal per learner apart from saying that the older learners require a bigger meal than the younger ones, the DoBE responded that the cost per learner is calculated as per the total number of learners per age groups. It is the average of the cost on the ground.

9. The National Department of Higher Education and Training

The National Department of Higher Education and Training (the DoHET) presented that its aim is to develop and support a quality higher education and vocational education sector, and to promote access to higher and vocational education and skills development training opportunities. The DoHET submitted that it has a total budget of R32.2 billion. The DoHET was established through the split of the DoE through the government restructuring process during the 2009/10 financial year and it received functions from the DoE and the National Department of Labour (the DoL). Its functions include: (a) Adult Education and Training, (b) Vocational Education and Training, (c) University Education and (d) Skills Development.

The DoHET submitted that its budget consists of funds based on the split of the DoE as well as the transfer of functions from the DoL. The splitting of funds from the DoE was done on an agreed framework in line with the allocation of functions as well as the distribution of the staff complement. The DoHET presented that the shifting of funds from the DoL was done by the National Treasury based on the functions allocated to the DoHET.

The DoHET cautioned that it may experience budget constraints during the 2010/11 financial year onwards due to limited additional funds allocated for the establishment of the DoHET. The DoHET stated that it is responsible for the grant for the Further Education and Training (FET) Colleges Sector, which is a Schedule 4 conditional grant and which will come into effect from 1 April 2010. This grant as presented by the department is based on previous funding of the FET College Sector through the provincial equitable share. The purpose of the grant is to ensure the successful transfer of the further education and training colleges function to the DoHET and is a general conditional allocation to provinces. The funding of the grant o ver the 2010 MTEF is as follows: R3.8 billion, R4 billion and R4.2 billion over the medium term expenditure framework.

The Committee asked the DoHET to clarify if there were funds ring-fenced for establishment of the universities in the Northern Cape and Mpumalanga provinces. The Committee requested a project plan (including time frames) for establishment of these universities. Moreover, the Committee expressed its dissatisfaction about the delay in the establishment of these universities. The DoHET informed the Committee that the process is still underway but it will take time before those universities are established because of the strategic activities that must be undertaken. The DoHET assured the Committee that the task team is working on the establishment of the two universities.

The Committee requested an explanation from the DoHET on why Vocational and Adult Education and Training are managed at the national level, which is a shift from the provincial level. The DoHET stated that it strongly believes that vocational and adult education and training ’s functions are well-placed within the DoHET because they are of national priority in response to the skills crisis in South Africa. The Committee asked the DoHET to clarify the FET function shift from provinces to the DoHET, to which the DoHET responded that the FET was shifted from provinces to DoHET in line with part of the vision of the new DoHET to focus on skills development.

When the Committee requested the DoHET to clarify why there are two allocations for the National Skills Fund (NSF) in the departmental budget, the DoHET explained that the amount of R8.4 billion is for direct charges (levies) for the Sector Education and Training Authority (SETA) and NSF and the amount of R51.7 million is as a result of revenue generated through taxes (tax base).

When the Committee asked the DoHET to explain what is going to happen to the affected officials due to the shifting of the training function from the National Department of Labour (the DoL) to the DoHET; the DoHET responded that sub-functions from the DoL will have to be identified first and then its posts and budget will be shifted from the DoL to the DoHET. The DoHET added that there is a list of employees who have agreed to migrate from the DoL to the DoHET as from 01 April 2010.

10. The Aids Law Project

The Aids Law Project (the ALP) commented that the pressures experienced by provincial departments of health are due to insufficient funds for operational activities. The ALP stated that funds have been used to pay employees for Occupational Specific Dispensation (OSD).

National Treasury commented that the pressure that the provincial departments of health find themselves in certain provinces is not related to OSD but it is due to wrong decisions that have been taken over the previous years, these includes advertising many administrative costs, paying monies for cases lost in courts, excessive use of consultants and so forth.

11. Eskom

Eskom’s main focus was on the Integrated National Electrification Programme (INEP ) Grant. Eskom proposed that Municipalities allocated a grant must be given flexibility to use their allocation for the electrification of settlements that may be in Eskom’s areas of supply. In the event of that eventuality, the municipality must either implement the project themselves using Eskom’s designs or appoint Eskom as a contractor to carry out the work. On completion of the project, the networks created as a result thereof and associated customers should be transferred to Eskom at no cost and form part of electrification assets under the custody of Eskom.

Furthermore, Eskom submitted that notwithstanding the re-gazetting, the National Department of Energy (DoE) must be given authority to move funding between Eskom and municipalities in the event that either Eskom or the municipality is not performing as per the plans submitted to the department. The decision should be done before re-gazetting and formalised at re-gazetting in order not to lose time. The decision to do so must rest with the department and not with the recipient of the grant.

12. The City of Cape Town

The City of Cape Town’s submitted that on the conditional allocations to municipalities there is no indication of the process to be followed in order to get funds approved by National Treasury. The City of Cape Town (CoCT) stated that there appears to be numerous different plans referred to in the Public Transport Infrastructure and Systems Grant (PTISG) framework, namely Municipal Integrated Rapid Public Transport Network plans (MIRPTN), PTSI business plan, IRPTN operational plan, business plans for the PTIS-IRPTN expenditure, and it is not clear which one or combination of these plans would be the business plan specified in clause 8 of the Bill. The CoCT is of the view that the Public Transport Grant Framework contains limited information on the process of municipalities accessing the grant. Also the provisions in the framework need to be aligned to the changing responsibilities between provincial and local government as outlined in the National Land Transport Act.

13. The South African Institute of Chartered Accountants

The South African Institute of Chartered Accountants’ (SAICA) submission focussed on Chapter 8 of the explanatory memorandum to the Bill. The SAICA supports government’s view that Siyenza Manje not be allocated through the Division of Revenue Bill. However, the SAICA is concerned with the following two broad issues: the lack of co-ordination or accountability for local government capacity building initiatives between different but related to the National Department of Cooperative Governance and Traditional Affairs (DoCGTA) and National Treasury; and the non-allocation of any funds to the Development Bank of Southern A frica (DBSA) in the 2010 MTEF budget for capacity building. The SAICA feels that the capacity building initiative budgets should be combined and accountability or responsibility for this should be allocated by the Presidency to one department. It is critical that this department that is tasked with the capacity building mandate and budget will need to set up a project team and involve other relevant private sector entities in order to effectively implement the capacity-building or turnaround strategy.

The SAICA submits that the Financial and Fiscal Commission (the FFC) and government’s consideration under chapter 8 appear frivolous as there are no funds allocated to the DBSA for the 2010 MTEF which translates that no funds are allocated to the Siyenza Manje initiative.

The SAICA submits that they have been involved in the Siyenza Manje initiative in Gauteng and that there have been positive impacts on the audit outcomes. Furthermore , the SAICA admits one of the shortcomings of the Siyenza Manje initiative is that the desired capacity-building or skills improvement aims have not been satisfactorily achieved.

The SAICA submits that Siyenza Manje initiative was successful in addressing the short-term needs of Municipalities from a financial management perspective. The SAICA feels that the non-allocation of funds to this initiative will ultimately result in its closure. The SAICA requests that another initiative along the lines of the Siyenza Manje initiative be undertaken within the capacity-building budget allocated in the 2010 MTEF of approximately R1.9 billion. However, the success of the Siyenza Manje should not be discarded.

14. Concerns of the Provinces

The Province of the North West (PoNW) reported that the demarcation of Merafong and Kudumane municipalities has affected the budget of the province substantially. PoNW further reported that the formula that the Financial and Fiscal Commission uses to determine the population and budget allocation of certain municipalities is a disadvantage to the PoNW as, it is a vast and rural province, the population may be low demographically yet there may be large areas to develop. The Province of the Northern Cape (PoNC) reported that there is an absence of an allocation for the Municipal Infrastructure Grant for the PoNC; provincial roads are in “appalling state” which need serious attention; and the PoNC is allocated an “insufficient and small budget” which sometimes compromises service delivery.

The Province of Limpopo (PoL) reported that municipalities commit Municipal Infrastructure Grants only to water and sanitation, and neglect other functions like roads, electricity and so forth. The PoL also reported that the equitable share from national to provinces does not seem to be addressing the backlogs in terms of infrastructure and rural development. Furthermore, the PoL reported that facilities in the PoL are under pressure due to the settlement of foreigners from Zimbabwe and other countries who are not part of the statistics in the PoL. In addition, the PoL argued that provinces are taken for a ride by contractors, especially in the construction of roads where government pays more than it should. The PoL reported that water and sanitation is under pressure in the PoL and the country at large.

The Province of the Eastern Cape (PoEC) reported that the statistics from the 2001 census conducted by Statistics South Africa is outdated and is seen as a disadvantaging factor in the allocation of equitable share. The PoEC further reported that Eskom does not want to account to municipalities although residents enquire from the municipalities about the programme in cross-boundary municipalities. Furthermore, the PoEC reported that the allocation for drought relief does not seem to take into consideration the submissions made by municipalities who have already been declared disaster areas. In addition, the PoEC reported that the percentage of the total national revenue that is given to the Local Government is “insufficient” given the fact that this is a sphere that is closest to the people.

The Province of Gauteng (PoG) reported that the provincial equitable share (PES) is mainly driven by population trends, which is derived from census and this poses a problem of time lag and, as a result, PES distribution potentially under-allocates provincial distribution in provinces that experience migration and in-migration like the PoG.

15. Recommendations of the Provinces

The Province of the Western Cape (PoWC) recommended that the process of bringing the equitable allocation into line with in-migration into provinces should be expedited to enhance service delivery. The Province of the Eastern Cape (PoEC) argued that there is a need to review the formula for the allocation of the equitable share, particularly the weighting given to the poverty component and the level of backlog in a particular province. Furthermore, the PoEC recommended that both Eskom and municipalities should first decide collectively on which village to electrify within the district or local municipality and should continuously monitor each other on progress.

The Province of Limpopo (PoL) recommended that government should consider more funding for infrastructure and take into account the rural nature of the PoL; and that National Treasury should conduct a detailed analysis on the capital spending trends on infrastructure development. The PoL further recommended that the water and sanitation grant with specific conditions should be established and that government should ensure that municipalities are capacitated on the administration of conditional grants in order to meet the millennium developmental goals. Furthermore, the PoL recommended that the formula for the equitable share should be reviewed to accommodate the challenges facing the PoL. In addition, the PoL recommended that South Africa’s census should be conducted every five (5) years instead of ten (10) years in order to give accurate statistics timeously.

The Province of Mpumalanga (PoM) recommended that Parliament should allow sufficient time to solicit views on Section 76 bills referred to legislatures as some stakeholders were excluded from participating due to time-constraints. The PoM recommends that in future at least three weeks can ensure successful solicitation of views from stakeholders. This time-frame is especially important in terms of the Division of Revenue Bill. The PoM also recommended that strict control measures should be implemented to assist poor-performing municipalities in-year to ensure that procedures for the shifting of funds and rollovers from municipalities back to the national government should not disadvantage such municipalities and priority should be given to supporting structures to assist these municipalities. Furthermore, the PoM recommended that the criteria for the allocation of the amounts allocated to the PoM in terms of the Human Settlements Development Grant, the HIV and Aids (Life Skills) Grant and the Comprehensive HIV and Aids Grant should be re-visited so that the PoM can get its fair share in this regard.

The Province of Gauteng (PoG) recommended that the provincial equitable share (PES) formula should respond to the socio-economic challenges and the growing populace of the PoG and follow a costed norms approach.

16. Responses by National Treasury on Provinces’ Submissions

Provinces raised concerns about the data that is being used to calculate the Provincial Equitable Share (PES). National Treasury explained that the census data that is currently being used to calculate the PES is that of 2001 and it is obtained from Statistics South Africa. This data is the officially endorsed data and therefore it is used to distribute the Equitable Share.

National Treasury also informed the Provinces and the Committee that the equitable share formula has been updated with the data from 2009 School Realities published by the Department of Education in September 2009, the 2008 General Household Survey published by Statistics South Africa (StatsSA) in 2009, and the Gross Domestic Product per Region (GDP-R) of 2007 as published by StatsSA in 2009. National Treasury clarified that the 2009 School Realities data is used to update the education component, the 2008 General Household Survey is used to update the health component, and the 2007 GDP-R data is used to update the economic component of the formula.

On the Local Government Equitable Share, National Treasury informed the Committee that the local government equitable share is the main fiscal instrument that is used to redistribute the local government’s share of nationally raised revenue. National Treasury added that it supplements municipal own revenues for the provision of basic services to poor households.

Provinces informed the Committee that certain municipalities use the Municipal Infrastructure Grant for water and sanitation and not for roads and electricity. But the Committee was of the opinion that the line functions of grants spending are clear and therefore it is the duty of the provinces to monitor and make sure that municipalities utilise conditional grants for what they are meant for. The Committee was firm on the view that municipalities are expected to spend grants on what they are meant for. The Committee stated that for other services, municipalities are welcomed to apply for other available grants. However, the Committee acknowledged that the challenge for certain municipalities is that, for some other services, they are expected to submit detailed business plans and explain in detail the service they wish to offer to the people and some municipalities do not have the capacity to compile those business plans. The Committee commented that it believes that certain municipalities prefer to apply for certain services like providing road construction, water and electrification because they simply use the old application formats that they have used before.

On monitoring of the spending of conditional grants and mismanagement of municipal funds, National Treasury and the Committee agreed that a lot is being done to capacitate Municipal Managers, Chief Financial Officers, and Financial Managers through trainings and workshops to learn about financial management skills but they do not come back and practise what they have learnt in these training workshops. The Committee is of the view that they, instead, intentionally run down the municipality. Moreover the Committee admitted that National Treasury has been responsible, across the country, for empowering Municipalities but municipalities are still failing to manage their funds according to Public Finance Management and Municipal Finance Management Acts. Upon the Committee’s request, National Treasury agreed that it can second its own personnel to poor-performing municipalities on a full-time basis while the long-term human resources solution is in progress.

Another request was made to National Treasury to explain conditional grants to local government. Treasury said the aim of these grants is to eradicate backlogs by 2014 and to build institutional and financial capacity in local government. National Treasury went further and informed the Committee that it has introduced “the floor” for the Municipal Infrastructure Grant which is not going to be less that R5 million per municipality.

On the issue of interventions in municipalities that are not spending their grants due to capacity constraints, National Treasury informed the Committee that there are legal provisions when there are service delivery challenges in a municipality, including the worst case scenario of interventions in terms of section 139 of the Constitution, but there is a procedure that should be followed before the afore-mentioned Section139 is invoked. National Treasury further informed the Committee that provinces, through its provincial committees, have a responsibility to monitor, evaluate and support or facilitate support to struggling municipalities. This includes providing enough money to provincial departments that may provide support to these municipalities.

Another concern that National Treasury had to explain was that of distributing Local Government Equitable share. The Committee had a firm observation that a rural municipality cannot be treated exactly the same as a urban municipality. The challenge with the LGES is that, currently, the criteria for distributing it is based only on the population of the municipality (not the distance) whereas in the rural areas distances are long between households which make administration of service delivery projects expensive. An example was made that putting water pipes between a few households will involve a long distance in the rural areas whereas in an urban area like KwaMashu in KwaZulu-Natal, a 2 kilometre pipe of water can provide water to a large number of households whilst in rural areas the same size pipe line will provide water to far lesser households. The Committee stated that, for provinces like Mpumalanga and Limpopo, the provision of equitable share cannot be determined by their population data because other factors like the temperature, illegal foreign in-migration, cholera and so forth, escalated the administrative costs of service delivery.

National Treasury indicated that the LGES formula includes the basic services component, development component, institutional support component, the revenue-raising capacity correction and the correction and stabilisation factor. National Treasury added that the formula is both rural and urban bias. But the formula favours larger municipalities. But municipalities within classifications are treated the same way. National Treasury told the Committee that the 283 municipalities differ according to socio-economic realities and institutional strength. Therefore, a one–size-fits-all approach does not recognise these differences. National Treasury added that the Local Government Fiscal Framework will be reviewed to take account of these differences.

The Province of Eastern Cape (the PoEC) told the Committee that there is a challenge in the Eskom’s demarcation system because certain areas are classified as belonging to KwaZulu-Natal whereas they are within the PoEC. The Committee resolved that Eskom is the relevant institution to explain its demarcation process that it uses when discharging its mandate and to explain the process that is followed when they are electrifying areas at provincial borders.

National Treasury reported to the Committee that provinces have made R49 billion available for road infrastructure. National Treasury told the Committee that the fair share of the conditional grant goes to all three spheres of government. The housing backlogs are taken into account when funds are allocated. The same applies to the HIV and Aids treatment. National Treasury added that there are different grants such as schedule 4 grants and schedule 5 grants and they are meant for intended services. Municipalities are encouraged not to deviate from these intended purposes.

National Treasury informed the Committee that the re-demarcation of Morafong from the Province of North West to the Province of Gauteng has affected the budget of the former. Gauteng will provide services to the people of Morafong and there are conditional grants that are expected to be administered by provinces like the School Nutrition Grant.

The Committee requested National Treasury to explain how the formula on Equitable Share (both provincial and Local) help provinces and municipalities to mitigate the impact of people migrating from other countries into the Republic of South Africa, as well as the internal movement of people from one province to another in search of “greener pastures”. The Committee also brought to the attention of National Treasury that there is a new trend among people who move from one province in search for jobs and applying for a government housing subsidy while they still own another house in their ‘home’ province. National Treasury proposed to the Committee that Statistics South Africa should be invited to come and explain the data that is currently used and also explain how they intend to address data challenges raised by the Committee and provinces. On the issue of in-migration, National Treasury replied that legal immigrants are captured in surveys that are factored in the local equitable share but it is challenging to manage potentially illegal immigrants.

17. Recommendations of the Select Committee on Appropriations

The Select Committee on Appropriations, having considered the 2010 Division of Revenue Bill and submissions through public hearings (including the Financial and Fiscal Commission and the South African Local Government Association), recommends that the National Council of Provinces considers the following:

That the National Department of Treasury should introduce a grant for the Early Childhood Development (ECD) for the National Department of Basic Education in order to ensure that ECD is prioritised as one of the key functions of the National Department of Basic Education;

That the National Department of Higher Education and Training should establish, at least, one University (in phases, starting with faculties producing scarce skills) in Mpumalanga and Northern Cape provinces before the end of the 2009-2014 government term;

That the National Treasury should consider the need to include senior leaders of provincial governments in the task team dealing with the comprehensive review of the Provincial Equitable Shares formula to ensure that the views and concerns of provinces on the matter are taken on board and there is a com mon understanding by all stakeholders involved on how equitable shares are allocated;

That National Treasury in conjunction with the National Department of Cooperative Governance and Traditional Affairs should conduct a study to identify all municipalities that are 100 per cent dependent on the conditional grants (and does not have any revenue base due to economic and other related circumstances and who are genuinely poor); and should develop support mechanisms to help them with funds and financial management skills so that they can be able to provide services to the community. National Treasury may want to introduce a special grant for such municipalities to achieve the same purpose mentioned here; and

That National Treasury should engage the Financial and Fiscal Commission, Statistics South Africa and all relevant stakeholders entrusted with the responsibilities of compiling data used in determining the formula for the allocation of equitable shares to find a reasonable, fair and equitable way of updating data with specific attention to the fact that the South Africa’s census that is conducted once in a decade becomes greatly outdated towards the end of a ten-year period results.

Report to be considered.

---

¹ National Treasury (2010:132)