Report of the Standing Committee on Appropriations on the Division of Revenue Amendment Bill, dated 02 November 2010

Having considered the Division of Revenue Amendment Bill [B35-2010], the Standing Committee on Appropriations, reports as follows:

1. Background

Section 12 of the Money Bills Amendment Procedure and Related Matters Act, No. 9 of 2009 (the Act) requires the Minister of Finance to table the Division of Revenue Amendment Bill together with the revised Fiscal Framework if the adjustments budget effects changes to the Division of Revenue Act (DoRA) for the 2010/11 financial year. This is intended to foster transparency and ensure smooth intergovernmental relations. The Intergovernmental Fiscal Relations Act (1997) prescribes the process for determining the equitable sharing and allocation of revenue raised nationally. Sections 9 and 10 (4) of the Act set out the consultation process to be followed with the Financial and Fiscal Commission (FFC), including the process of considering recommendations made with regard to the equitable division of nationally raised revenue.

In enforcing section 77 of the Constitution, the Money Bills Amendment Procedures and Related Matters Act, No. 9 of 2009 was enacted. This budget reform empowers Parliament to amend the government budget and therefore plays a greater role in ensuring that the most urgent needs of South Africans are addressed. It provides Parliament with necessary instruments to oversee government actions and monitor its fiscal discipline. While this reform is widely welcomed, the Standing Committee on Appropriations (the Committee) is mindful that this legislation will be phased in over the years. The Committee’s concern and focus is on the establishment of the Parliamentary Budget Office that will provide more support to enable the Committees on Finance and Appropriations to fulfil their legislative responsibilities.

The Division of Revenue Amendment Bill was tabled in Parliament on 27 October 2010 by the Minister of Finance during the submission of 2010 Medium Term Budget Policy Statement (MTBPS).

Clause 1 (the focus of this brief) of the Bill provides for the substitution of Schedules 1 to 8 of the Division of Revenue (DoRA) for Schedules 1 to 8 of the Bill. The Schedules to the Bill address the following matters:

• Additional unconditional and conditional allocations to provinces and municipalities;
• The allocation of unallocated conditional allocations to provinces and municipalities;
• The re-allocation of conditional allocations in terms of section 18 of the DoRA;
• Roll-overs of conditional allocations to provinces and municipalities not transferred by national departments during the 2009/10 financial year;
• Increases to a conditional allocation to a province or municipality through virements under section 43 of the Public Finance Management Act, 1999 (Act No. 1 of 1999) or section 28(2)(d) of the Local Government: Municipal Finance Management Act, 2003 (Act No. 56 of 2003), as the case may be; and
• The re-allocation of conditional allocations that were not correctly reflected in the Schedules to the DoRA.

2. Equitable division of revenue raised nationally among the spheres of government

Table 1: Schedule 1

Sphere of Government	Column A	Column B	Column C
	2010/11 allocation	2010/11 adjustments	Amount adjusted
National	R’000	R’000	R’000
	527 001 492	519 980 624	7020868
Provincial	260973745	265139448	-4165703
Local	30167706	30558566	-390860
Total	818142943	815678638	2464305

National Treasury (2010) [adapted]

The adjustments ended up in a net reduction of R2.4 billion whereby expenditure estimates levels decreased from R818.1 billion to R815.7 billion. The total allocations to national departments decreased by R7.0 billion, allocation to provinces increased by R4.1 billion and allocations to local government increased by R0.3 billion. In effect the general decrease will not impact on provincial and local spheres of government like on the national sphere of government where allocations were reduced. It is clear the reduced allocations are due to shortfall in expected revenue. In terms of section 6(1) of the DoRA if actual revenue raised nationally in respect of the financial year falls short of the anticipated revenue set out in Schedule 1, the national government bears the shortfall and in terms of section 6(2) of the DoRA if actual revenue raised nationally in respect of the financial year exceeds the anticipated revenue set out in Schedule 1, the excess accrues to the national government, subject to subsection (3).

3. Determination of each province’s equitable share of the provincial sphere’s share of revenue raised nationally

Table 2: Schedule 2

Province	Column A	Column B	Column C
	2010/11 allocation	2010/11 adjustments	Amount adjusted
Eastern Cape	R’000	R’000	R’000
	40134424	40789918	-655494
Free State	15959310	16217212	-257902
Gauteng	45134335	45869090	-734755
KwaZulu Natal	56742834	57632201	-889367
Limpopo	33237814	33766574	-528760
Mpumalanga	21323198	21640037	-316839
Northern Cape	7101615	7201470	-99855
North West	17314124	17567122	-252998
Western Cape	24026091	24455824	-429733
Total	260973745	265139448	-4165703

National Treasury (2010) [adapted]

The current adjustments resulted in the expenditure level estimates in provinces increasing from R260.9 billion to R265.1 billion with each province, KwaZulu Natal increased by R0.889 billion, Gauteng R0.734 billion, Eastern Cape by R0.655 billion, Limpopo by R0.528 billion, Western Cape by R0.429 billion, Mpumalanga by R0.316 billion, North West by R0.252 billion and Northern Cape by R0.099 billion respectively. There are however no changes in forward estimates expenditures for the outer financial years.

4. Determination of each municipality’s equitable share of the local government sphere of revenue raised nationally

Table 3: Schedule 3

Province	Column A	Column B	Column C
	2010/11 allocation	2010/11 adjustments	Amount adjusted
	R’000	R’000	R’000
Eastern Cape	4450185	4453126	-2941
Free State	2805978	2831056	-25078
Gauteng	5445197	5445197	0
KwaZulu-Natal	5533344	5712667	-179323
Limpopo	3666434	3678434	-12000
Mpumalanga	2803310	2909548	-106238
Northern Cape	909198	929810	-20612
North West	2563886	2599921	-36035
Western Cape	30167706	30558566	-390860
Total	58345238	59118325	-773087

National Treasury (2010) [adapted]

Except for Gauteng, all provinces experienced total increases in allocations to municipalities even though not all municipalities received additional allocations. Although the Committee welcomes this level of increase; there is still a need for more clarity to further explain the circumstances leading to such selective additions especially with regard to equitable share that is supposed to support extension of free basic service to the indigents. On the other hand, the Committee need to ensure that additional allocations target critical needs such as indigents, repairs and maintenance of ageing infrastructure.

In Eastern Cape, four municipalities received increased allocations- Sunday’s River Valley Municipality received increased allocations from R25.7 million to R26.1 million, Nxuba Municipality increased allocations from R16.2 million to R16.3 million, Inxuba Yethemba Municipality received increased allocations from R32.8 million to R34.2 million, Senqu Municipality received increased allocations from R66.4 million to R66.8 million.

In Free State, five municipalities received increased allocations – Kopanong an increase from R72.7 million to R78.0 million, Mantsopa an increase from R53.9 million to R55.1 million, Motheo District an increase from R 152.3 million to R152.7 million, Phumelela an increase from R44.2 million to R45.1 million and Metsimaholo an increase from R79.0 million to R143.9 million.

In KwaZulu-Natal, seven municipalities received additional allocations – Vulamehlo an increase from R24.5 million to R25.6 million, uMuziwabantu an increase from R30.3 million to R31.3 million, Zululand District an increase from R198.6 million to R215.4 million, Jozini an increase from R48.5 million to R54.1 million, Hlabisa from R39.2 million to R43.7 million, KwaDukuza an increase from R50.9 million, and Ubuhlebezwe an increase from R35.4 million to R42.3 million.

Limpopo’s total allocations increased from R3.6 billion to R3.7 billion where three municipalities received additional allocations – Makhuduthamaga received an increase from R107.3 million to R111.8 million, Molemole an increase from R57.0 million to R61.3 million and Thabazimbi an increase from R45.1 million to R48.2 million.

In Mpumalanga, municipalities received additional allocations from R2.8 billion to R2.9 billion whereby four municipalities received additional allocations as follows – Mkhondo an increase from R73.3 million to R80.8 million, Thabachweu an increase from R59.5 million to R62.6 million, Mbombela an increase from R247.6 million to R295.9 million and Bushbuckridge an increase from R339.7 million to R387.1 million.

Northern Cape received an additional R612 million whereby five municipalities received additional allocations – Hantam received an increase from R15.6 million to R17.4 million, Karoo Hoogland received an increase from R10.1 million to R12.1 million, Ubuntu received an increase from R13.9 million to R16.7 million, //Khara Hais received an increase from R40.5 million to R45.4 million, and Sol Plaatjie received an increase from R121.7 million to R130.9 million.

North West received an additional R360.3 million whereby five municipalities received additional allocations – Moses Kotane received an increase from R179.2 million to R186.4 million, Mafikeng received an increase from R96.3 million to R102.4 million, Kagisano received an increase from R42.8 million to R49.4 million, Ventersdorp received an increase from R35.2 million to R37.6 million and Tlokwe received an increase from R69.0 million to R82.8 million.

Western Cape received an additional R390.8 million whereby four municipalities received additional allocations – Matzikama received an increase from R27.1 million to R31.3 million, Bergrivier received an increase from R18.7 million to R20.9 million, Overstrand received an increase from R26.9 million to R28.0 million and George received an increase from R58.2 million to R59.3 million.

5. Allocations to provinces to supplement the funding of programmes or functions funded from provincial budgets

This Schedule comprises of a number of conditional grants and the only grant that has changed is the Further Education and Training Colleges Grant which received an additional R31.2 million during the adjustment period. According to the National Treasury 2010/11 First Quarterly Reports, there was no spending for Further Education and Training grants as at 30 June 2010. While the Committee welcomes the increase, the Committee is concern that less expenditure in the first quarter would negatively impact on the second quarter expenditure projections.

6. Specific purpose allocations to provinces: Schedule 5 Grants

Out of approximately nineteen grants in this category, only three grants received additional allocations – Comprehensive HIV and Aids Grant, Human Settlements Development Grant, and Devolution of Property Rate Funds Grant.

The purpose of the Comprehensive HIV and Aids Grant is to enable the health sector to develop an effective response to HIV and Aids, to support the implementation of the National Operational Plan for Comprehensive HIV and Aids treatment and care, and to subsidise in-part funding for the antiretroviral treatment programme. This Grant was allocated R6.0 billion for the baseline, during the adjustment the grant received an additional amount of R40 million.

The purpose of the Human Settlements Development Grant is to provide funding for the creation of sustainable human settlements. Although, in total, this Grant received additional allocations of R15 000 million only Gauteng received an increase from R3.7 billion to R3.8 billion while North West had its allocations reduced from R1.2 billion to R1.1 billion. There were no changes in allocations to other provinces.

The purpose of the Devolution of Property Rate Fund Grant is to facilitate the transfer of property rates expenditure responsibility to provinces, and to enable provincial accounting officers to be fully accountable for their expenditure and payment of provincial property rates. The grant received an increase from R1.0 billion to R1.8 billion. The Public Work report shows that 49 per cent of the allocation was spent as at the 30 August 2010 in this regard. This grant could be the main source of revenue generation for municipalities and can also reduce the current debt by government departments to municipalities. While the Committee welcomes the increase in this grant, there is a need for the relevant Committees and other stakeholders to ensure that there are systems and plans in place that will enable provinces to spend the additional allocations efficiently and economically. This will assist the government to be able achieve value for money in such expenditure and required outcomes.

7. Schedule 6 Grants: Specific purpose allocations to municipalities

Two grants in this category received additional allocations and they are the Water Services Operating Subsidy Grant and Municipal Drought Relief Grant.

The purpose of the Water Services Operating Subsidy Grant is to subsidise water schemes owned and/or operated by the Department of Water Affairs or by other agencies on behalf of the Department. The grant received additional allocations amounting to R8.3 million. However, it will be important to provide a detailed explanation for allocations to specific projects to the Committee so that the expenditure of these additional funds can be effectively monitored.

The purpose of the Municipal Drought Relief Grant is to provide capital finance for basic water supply in municipal infrastructure for affected households, micro enterprises and social institutions. The grant received an additional allocation of R92 million which is specifically allocated to the Mossel Bay Municipality for drought relief.

8. Conclusion

In conclusion, the Standing Committee on Appropriations will monitor the utilisation of these additional grant allocations through the in-year monitoring process which forms part of Parliamentary oversight. This will enable the Committee to be able to check whether financial legislations such as Division of Revenue Act (DoRA), Public Finance Management Act (PFMA) and Municipal Finance Management Act (MFMA) are adhered to by the spheres of government. The Committee will also monitor the efficiency of administration in compiling and spending various schedules so that schedules are not incorrectly recorded, classified or misplaced in the process. This will assist the Committee to identify challenges and, enhance the level of accuracy and compliance in all levels of government through making relevant recommendations during the in-year monitoring process.

9. Sources

The following source documents were used by the Committee when considering the Division of Revenue Amendment Bill:

• National Treasury (2010). Division of Revenue Bill [B4 – 2010]
• National Treasury (2010). Division of Revenue Amendment Bill [B35 – 2010]
• National Treasury (2010). Press Release. Provincial Budgets: 2010/11 Financial Year. First Quarter Provincial Budgets and Expenditure Report. 11 August 2010

10. Recommendation

The Standing Committee on Appropriations, having considered the Division of Revenue Amendment Bill [B 35 – 2010] (National Assembly – proposed sec 76), recommends to the House that it be adopted.

Report to be considered.