ATC120307: Report Division Of Revenue Bill [B4 – 2012] (National Assembly - Section 76(1)), dated 07 March 2012
Standing Committee on Auditor General
REPORT OF THE STANDING COMMITTEE ON APPROPRIATIONS ON THE DIVISION OF REVENUE BILL [B4 – 2012] (NATIONAL ASSEMBLY - SECTION 76(1)), DATED 07 MARCH 2012
The Standing Committee on Appropriations (the Committee), having considered the Division of Revenue Bill [B4—2012] (National Assembly – Section 76(1)), referred to it and classified by the JTM as a section 76(1), reports that it has agreed to the Bill without amendments. The Committee further reports as follows:
1. INTRODUCTION
Section 214(1) of the Constitution, 1996 (the Constitution) requires that every year a Division of Revenue Act (DORA) determines the equitable division of nationally raised revenue among the three spheres of government. This is intended to foster transparency and ensure smooth intergovernmental relations. The Intergovernmental Fiscal Relations Act, 1997 (No. 97 of 1997) prescribes the process for determining the equitable sharing and allocation of revenue raised nationally. Sections 9 and 10 (4) of this 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 giving effect to section 73 of the Constitution, the Money Bills Amendment Procedures and Related Matters Act, 2009 (No. 9 of 2009) was enacted. This Act empowers Parliament to amend the government budget and therefore play 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.
2. THE ALLOCATIONS OF THE DIVISION OF REVENUE BILL FOR THE 2012/13 FINANCIAL YEAR
The 2012 State-of-the-Nation-Address (SONA) by His Excellency President J G Zuma outlined South Africa’s programme of action which serves as the basis for the 2012 Budget tabled by the Minister of Finance. The 2012 SONA made a follow up on the 2011 SONA by retaining the key five government priorities with emphasis given to massive public sector infrastructure investment, jobs creation, economic stimulation, eradication of poverty, unemployment, and inequality.
Accordingly, on 22 February 2012, the Minister of Finance tabled before Parliament the 2012 National Budget together with the Division of Revenue Bill [B4-2012] as required by the above-mentioned legislative frameworks. The Constitution sets out specific criteria for the sharing of nationally raised revenue between national, provincial and local spheres of government. The Division of Revenue Bill classifies schedules from Schedule 1 to 8 in order to divide revenue between the three spheres of government. Table 1 below provides the equitable division of nationally raised revenue among these three spheres of government.
Table 1: Equitable Division of Nationally Raised Revenue among the National, Provincial and Local Spheres of Government
|
Spheres of Government |
Column A |
Column B |
|
|
Allocation
2012/13 (R'000) |
Forward Estimates |
||
|
2013/2014 (R'000) |
2014/15 (R'000) |
||
|
National |
622 434 681 |
684 327 086 |
746 588 676 |
|
Provincial |
309 057 382 |
328 920 693 |
349 350 999 |
|
Local |
37 873 396 |
40 581 787 |
43 638 905 |
|
TOTAL |
969 365 459 |
1 053 829 566 |
1 139 578 580 |
Source: National Treasury, 2012
2.1 Overall Budget Allocation
The overall budget (revised estimates) has increased from R891.2 billion for the 2011/12 financial year to R969.4 billion for the 2012/13 financial year. This marked an increase of R78.2 billion or 8.8 per cent from the 2011/12 financial year. The two outer-years of the Medium Term Expenditure Framework (MTEF) showed an estimated budget of R1.05 trillion and R1.1 trillion for the 2013/14 and 2014/15 financial years respectively, resulting in an increase of R85.7 billion or 8.1 per cent. The overall budget for the 2012/13 financial year included a contingency reserve of R5.8 billion and a debt-service cost provision of R89.4 billion, which when excluded, the overall budget was reduced to R874.2 billion.
2.2 National Share of the Nationally Raised Revenue
Including conditional grants (and also debt service cost, contingency reserve, and general fuel levy), national departments were allocated R622.4 billion or 64.2 per cent of the overall nationally raised revenue for the 2012/13 financial year. This marked an overall increase in the national allocation of R55.8 billion or 9.9 per cent when compared against an estimated allocation of R566.6 billion in the 2011/12 financial year. Over the MTEF, the national share was estimated to increase by 9.1 per cent from R684.3 billion to R746.6 billion between the 2013/14 and the 2014/15 financial years respectively.
2.3 Provincial Share of the Nationally Raised Revenue
Excluding conditional grants, provincial departments were allocated R309.1 billion or 31.9 per cent of the nationally raised revenue. The provincial equitable share allocation increased by R17.3 billion or 5.9 per cent compared to an allocation of R291.7 billion in the 2011/12 financial year. Over the MTEF the provincial equitable share was estimated to increase by 6.3 per cent from R328.9 billion to R349.4 billion between the 2013/14 and 2014/15 financial years respectively.
Table 2: Determination of each province’s equitable share of the provincial equitable share of nationally raised revenue
|
Province |
Colum A |
Column B |
|
|
Allocations |
Forward Estimates |
||
|
2012/13 (R’000) |
2013/14 (R’000) |
2014/15 (R’000) |
|
|
Eastern Cape |
46 940 272
|
49 602 467 |
52 215 629 |
|
Free State |
18 531 165
|
19 446 736 |
20 412 571 |
|
Gauteng |
54 545 389
|
58 613 875 |
62 880 944 |
|
KwaZulu-Natal |
67 802 913
|
72 579 341 |
77 551 103 |
|
Limpopo |
38 721 016
|
40 969 082 |
43 170 325 |
|
Mpumalanga |
24 874 453
|
26 287 888 |
27 698 217 |
|
Northern Cape |
8 225 155
|
8 742 528 |
9 230 224 |
|
North West |
20 614 831
|
21 905 865 |
23 214 536 |
|
Western Cape |
28 772 188
|
30 752 911 |
32 977 450 |
|
Total |
309 057 382
|
328 900 693 |
349 350 999 |
Source: National Treasury, 2012
Table 2 (above) shows the horizontal allocation of the provincial equitable share across all nine provinces. As shown in Table 2, the KwaZulu-Natal Province received the highest share of R67.8 billion or 21.9 per cent followed by theGauteng Province with R54.5 billion or 17.7 per cent, the Eastern Cape Province with R46.9 billion or 15.2 per cent and the Limpopo Province with R38.7 billion or 12.5 per cent. Provinces that received the smallest share included: the Northern Cape Province with R8.3 billion or 2.7 per cent, the Free State Province with R18.5 billion or 6 per cent and the North West Province with R20.6 billion or 6.7 per cent.
2.4 Local Share of the Nationally Raised Revenue
Excluding conditional grants and the sharing of the general fuel levy, municipalities were allocated R37.9 billion or 3.9 per cent of the nationally raised revenue in the 2012/13 financial year. The local government equitable share increased by R5 billion or 15.2 per cent compared to a revised estimate of R32.9 billion in the 2011/12 financial year. Over the outer two years of the 2012 MTEF, the local share of the nationally raised revenue is estimated to increase by 7.5 per cent from R40.6 billion to R43.6 billion between the 2013/14 and the 2014/15 financial years respectively.
The 2012 Division of Revenue Bill introduced some changes when compared to the 2011 Division of Revenue. These could be outlined as follows:
• An amount of R7.8 billion was added to the provincial conditional grants to cover policy priorities. A savings of R3.4 billion was realised and allocated towards government priorities.
• The inclusion of a new section, that is section 13, which outlined processes in respect of the transferring and reporting for provincial infrastructure grants. Conditions for infrastructure grants were strengthened.
• Reporting in respect of the Expanded Public Works Programme (EPWP) for infrastructure changed from in-year reporting and the allocations would now be based on the previous year’s performance. The grant moved from being a schedule 8 to a schedule 5. The allocated money would be conditional and would be used only for furthering the EPWP.
• Section 15 of the Division of Revenue Bill provided that the National Treasury must allow Parliament a period of 14 days to comment when any government department wants to amend or revise its conditional grant framework.
3. NATIONAL TREASURY
The National Treasury reported that 15 per cent under the P- component of the Municipal Infrastructure Grant (MIG) was ring-fenced in the conditional grant framework for the 2011/12 financial year for municipal sports facilities. A new subsection was added to section 15 in the 2012 Division of Revenue Bill to provide Parliament with two weeks to comment on any amendments to a conditional grant framework prior to publishing in the Government gazette
With regard to Health, the following two new grants have been introduced:
• The Nursing Colleges and Schools Grant with a proposed allocation of R100 million for the 2012/13 financial year and R450 million over the MTEF. Its objective is to fund the upgrading and rehabilitation of nursing colleges and schools.
• The National Health Insurance (NHI) Grant with an allocation of R150 million for the 2012/13 financial year and R1 billion over the MTEF. Its objective was to pilot a range of interventions in district health authorities and central hospitals as part of the phased implementation of the NHI. In respect of the NHI, primary health care would be used as a platform to be implemented in ten district health authorities.
The National Treasury reported that the Forensic Pathology Services Grant was being phased out and would be incorporated into the provincial equitable share. This process started during the 2011/12 financial year and would take three years to be completed.
4. FINANCIAL AND FISCAL COMMISSION
In respect of the additional allocation to provinces amounting to R19.4 billion over the MTEF, the Financial and Fiscal Commission (FFC) reported that the personnel costs remained a major concern and that this could compromise future service delivery since it accounted for 70 per cent of the R3.3 billion set aside in the provincial equitable share in the 2012/13 financial year.
The FFC commented on clause 15(3)(a) of the Bill which provided that Parliament must be given 14 days to comment, when Parliament was in session, on any amendments to conditional grant frameworks prior to the publishing of allocations in the government gazette. The FFC argued that the problems that this intervention aimed to solve may be symptomatic of poor grant design and that the underlying problem required serious attention.
The FFC made reference to the number of provincial departments that were under administration in terms of section 100 of the Constitution. It commented that there was a need for a regulatory framework for section 100 interventions to be developed going forward.
5. SOUTH AFRICAN LOCAL GOVERNMENT ASSOCIATION
The South African Local Government Association (SALGA) noted the 15 per cent ring-fencing of the P-component under the Municipal Infrastructure Grant (MIG), however, it stated that some municipalities did not have significant backlogs in that regard. The 15 per cent would thus not suit all the municipalities’ spatial plans. The SALGA recommended that in the long term, a conditional grant with a maintenance and backlogs consideration be introduced for all infrastructure grants.
The Rural Households Infrastructure Grant was allocated an amount of R479.5 million for the 2012/13 financial year and R389 million for the financial year 2013/14. No allocations were made for the 2014/15 financial year since this grant would be incorporated into the MIG by that year. The point was made by the SALGA that the integration of this grant into the MIG needed to be done sooner than the 2014/15 financial year since the grant was persistently underperforming.
The Committee made reference to the credit policy of Eskom in relation to municipalities and a concern was expressed that most money owed to Eskom by municipalities was in the form of interest. It was reported that Eskomcharged interest to municipalities after 7 days of non-payment. The Committee also expressed concern with the poor payment of municipal accounts by provincial and national government departments and stated that the issue needed to be addressed.
The Committee sought clarity on whether Operation Clean Audit would be achieved by 2014 as originally planned. The SALGA reported that, subsequent to deliberations between itself and the Office of the Auditor-General, it was ascertained that the deadline would not be met.
The proposed Infrastructure Skills Development Grant and Project Consolidate had similar objectives and concerns were expressed that the latter did not yield the desired results and as such, improved monitoring of the new grant would be needed. Effective implementation of the new grant would assist in addressing the service delivery challenges that related to capacity constraints.
6. INTERACTIONS WITH NATIONAL DEPARTMENTS ON THE 2012 DIVISION OF REVENUE BILL
6.1 Department of Basic Education
The Department of Basic Education was invited to comment on the 2012 Division of Revenue Bill (DOR Bill). The Conditional grants of this Department were split between three schedules in the 2012 DOR Bill. These were the:
• Schedule 4 Education Infrastructure Grant;
• Schedule 5 Dinaledi Schools Grant, HIV and AIDS (Life Skills Education) Grant, the National Schools Nutrition Programme Grant and the Technical Secondary Schools Recapitalisation Grant; and the
• Schedule 7 Schools Infrastructure Backlogs Grant.
In total, the Department of Basic Education received R11.2 billion for all its conditional grants excluding the Schedule 7 grant. The schedule 7 grant received an allocation amounting to R2.3 billion. With all grants combined, the Department received an amount of R13.5 billion.
The challenges reported by the Department of Basic Education related to its own capacity to monitor and evaluate the performance of the grants at the provincial level. In order to address this, the Department of Basic Education has established a Conditional Grants Management Office within the Strategy, Research and Communication Branch at the national level. This unit would monitor and evaluate delivery of services more efficiently. It would also make recommendations to senior management on the utilisation of a 5 per cent allocated per grant for administration and for the appointment of dedicated personnel to monitor and track progress on each of the grants.
Challenges in respect of the National Schools Nutrition Programme (NSNP) were a lack of cooking equipment at some sites, non-compliance with menu guidelines by some service providers, lack of involvement of educators in the feeding of children, failure to provide allowance for subsistence and travelling.
6.1.1 School Infrastructure Backlogs Grant
The School Infrastructure Backlogs Grant received an allocation of R 2.3 billion in the 2012 Division of Revenue (DOR) Bill or R13 billion over the 2012 MTEF period. Its purpose was to eradicate mud schools infrastructure and to provide water, sanitation and electricity to schools. The Department of Basic Education noted that this grant was in its second year and was also referred to as the Accelerated School Infrastructure Delivery Initiative (ASIDI).
The Committee heard that the country had a total of 496 inappropriate structures. Of this amount a total of 428 were reported to be in the Eastern Cape Province alone. Accordingly, the allocation towards the Eastern Cape Provincewas significantly higher than other provinces. The Eastern Cape Province was allocated an amount of R1.5 billion out of the R2.3 billion. The rest of the money is split among the remaining eight provinces. The Department of Basic Education planned to eradicate 100 inappropriate structures in the 2012/13 financial year.
In respect of the 49 schools in the Eastern Cape Province, the Department of Basic Education reported that 38 schools were under construction. Of these 38, a total of 29 schools were on schedule while 9 were behind schedule. These 9 were being closely monitored. The remaining 11 schools had not been scheduled to start as yet. The Committee requested that the Department of Basic Education submits a detailed report on the 49 schools outlining the number of schools per district and the progress to date on each school as well as the expenditure report.
In order to address capacity challenges, the Department of Basic Education has adopted a revised approach that seeks to accelerate implementation to the extent that it is able to manage 20 teams implementing 10 projects each. Each of the project teams would consist of a project manager (principal agent), a quantity surveyor, an architect and an engineer.
Among the risks observed in the implementation of various projects, the Department of Basic Education noted that the Development Bank of Southern Africa (DBSA) had low project maturity and capacity. The Department of Basic Education was therefore experiencing a learning curve on the first 49 Schools allocated to this implementing agent. To this end, the Department of Basic Education noted that additional contract allocation to the DBSA would be dependent on competence and capacity and would be subject to performance.
6.2 Department of Health
The Department of Health administered a total of seven conditional grants. These were the National Tertiary Services Grants, Health Professionals Training and Development Grant, Hospital Revitalisation Grant, Nursing Collegesand Schools Grant, National Health Insurance Grant, HIV and AIDS Grant, and the Hospital Infrastructure Grant. An amount of R25.7 billion was allocated in the 2012 DOR Bill for these conditional grants. This marked a budget increase of 7 per cent from the 2011 DORA.
The provinces received the following allocations:
|
Province |
Amount |
|
Eastern Cape Free State Gauteng KwaZulu-Natal Limpopo Mpumalanga North West Northern Cape Western Cape
|
R2.6 billion R2.2 billion R6.6 billion R4.8 billion R1.7 billion R1.2 billion R1.5 billion R1.0 billion R3.9 billion |
Source: Department of Health, 2012
The Department of Health reported that the Health Infrastructure Grant had originally been part of the Infrastructure Grant to Provinces. It was transferred to the National Department of Health in the 2011/12 financial year by the National Treasury. It added that this conditional grant had numerous similarities to the Hospital Revitalisation Grant in that they both were infrastructure related conditional grants. Given these similarities, the National Department of Health was looking into the possibility of merging these two into one conditional grant in the 2013/14 financial year.
The Committee was informed that the Department of Health was undertaking an audit of its 4200 facilities nationwide, and of this amount, a total of 3 370 facilities had already been audited. This was a comprehensive audit that looked at everything ranging from clinics to hospitals, assessing the state of services provided and the state of the infrastructure. In this regard, provinces were required by the National Department of Health to align their allocations of the conditional grants towards addressing challenges identified during this audit. The National Department of Health committed to share the outcomes of the audit at the earliest opportunity.
One of the challenges identified by the National Department of Health was that of the shortage of medical practitioners. It was reported that the country produced a total of 1200 doctors annually. This figure had remained the same for a number of years despite the growing burden of disease. The Committee was informed that engagements had taken place with relevant tertiary institutions to increase the intake of medical students in order to produce a higher number of practitioners. An agreement was reached that the institutions would increase their intake by 180 students at the first-year level.
The National Department of Health also briefed the Committee in respect of the Gauteng Province and the accrual of debt that the Gauteng Department of Health was facing. It was reported that, over the years, the GautengDepartment of Health had been underfunded and was mismanaged. These had led to the accruals amounting to R2.8 billion. The National Department of Health anticipated that this will be at approximately R3 billion by the end of the 2011/12 financial year. The Committee was informed that the National Department of Health planned to first address the accruals by June 2012. For this purpose, an Accruals Project Team made up of the Gauteng Department of Health and the Gauteng Finance Department was formed. A clearing house had also been established jointly between the two provincial departments. In addition to these two, the National Department of Health has also established a supplier queries centre. Moving forward the Department would ensure that funds for medicines are earmarked as of 1 April 2012 as well as provide the required support to the Province.
Questions were raised in relation to cross-boundary patients and the extent to which these impacted on the provision of services as well as on budgets. The Committee also sought to determine whether the poor service delivery at provinces could be associated with a failure to manage at the national level. To this end, the National Department of Health noted that the provincial boundaries could not be used as a reason to deny any person access to health facilities. It added that the country only has ten central hospitals. This meant that certain health services could only be obtained in some provinces and not in others. The National Tertiary Services Grant made provision for this.
In respect of poor services at some facilities and the extent to which the National Department of Health is responsible for this, it was reported that the National Health Act was processed in 2003 but was never promulgated until 1 March 2012. In the absence of this law, the role of the National Department of Health at the provinces has been limited. One of the challenges reported by the National Department of Health related to its priorities such as the reduction of maternal mortality, reduction of infant mortality and the reduction of the mortality rate of children below the age of five. It reported that provinces tended to deviate from these set priorities. The National Treasury explained that provincial departments of health were often faced with a range of demands for money. This often forced them to shift from the priorities set by the National Department of Health. The protection of priorities was noted as a matter of concern for the National Department of Health. The Department also pointed out that concurrent functions in respect of health would remain a challenge moving forward.
It was the view of the Committee that it would be more viable for South Africa to produce some of the anti-viral (ARV) drugs that are imported from other part of the world, given the volumes imported and the costs thereof. The National Department of Health pointed out that South Africa accounted for 25 per cent of the global ARV market. It added that, in order to ensure security of supplies, the country should produce locally. Engagements in this regard were underway.
6.2.1 National Health Insurance Grant (new Schedule 5 Grant)
The National Health Insurance Grant was to fund pilot projects that would be undertaken to test the feasibility of the National Health Insurance (NHI) in ten districts. For the 2012/13 financial year, the grant was allocated R150 million, and this was projected to increase from R350 million to R500 million over the MTEF period (2013/14 to 2014/15).
In his budget speech, the Minister of Finance mentioned that there was an amount of R6 billion out of budget in respect of the NHI. The Committee raised questions about where this money would come from. The National Department of Health reported that the amount was for future purposes. It added that the amount had not been allocated and that the National Treasury still had to determine where this money would come from. The National Department of Health pointed out that one of the critical decisions the country needed to make in respect of the NHI was the decision on how the NHI would be funded. The National Department of Health noted that the Value Added Tax (VAT) would place too much burden on the poor and it could therefore not be an option for consideration.
6.3 Department of Cooperative Governance
The Department of Cooperative Governance reported that, in general, it endorsed the provisions of the 2012 DOR Bill. Despite this endorsement, the Department of Cooperative Governance brought to the attention of the Committee two areas of concern in respect of the Bill which were as follows:
· The OR Tambo District Municipality was allocated water and sanitation funds for the Mbizana and Ntabankulu local municipalities whereas the funding for these municipalities should have been allocated to the AlfredNzo District Municipality. This should be corrected accordingly. In addition, the MIG allocations for the Matatiele and Umzimvubu Local Municipalities have been swopped around. This should also be corrected accordingly; and
· A concern was expressed about the ring-fencing of the P-component of the Municipal Infrastructure Grant (MIG) for the provision of sporting facilities.
In respect of the MIG, the Department of Cooperative Governance reported that the planning at municipal level was achieved through the adoption of Integrated Development Plans (IDPs) which took into account the priorities of the respective municipal constituencies regarding their needs. The Department of Cooperative Governance pointed out that funding instruments had to give practical implementation of the municipal IDPs. Flexibility in the prioritization of infrastructure that meets the needs of the community was therefore critical
The P-component constituted 15 per cent of the MIG and had to be utilized for sports facilities. The Department of Cooperative Governance suggested that, in order to have a more balanced approach, 33 per cent of the 15 per cent could be ring-fenced for sporting facilities instead of using the whole P-component. This would allow the municipalities some degree of flexibility in considering how to utilize the MIG. Those municipalities which already had sports facilities could use the grant for other pressing needs.
The Committee expressed concern at the position of the Department of Cooperative Governance in this regard. It argued that extensive discussions had taken place with the Department of Cooperative Governance and other relevant stakeholders in respect of the MIG grant and the need to ring-fence funds for sports facilities. These discussions took place as far back as 2010. Concerns were raised that the Department of Cooperative Governance had disregarded those engagements. The Committee committed to further engage the Department of Cooperative Governance along with the relevant stakeholders on the matter.
7. FINDINGS
On engaging the departments and various stakeholders, the Committee made the following findings:
7.1 While construction has commenced in respect of the 49 schools in the Eastern Cape Province under the ASIDI programme, nine schools were behind schedule and eleven were not scheduled to start as yet;
7.2 The National Department of Health was experiencing challenges in ensuring that provinces aligned their spending with the priorities set at national level. This led to a disjuncture between national and provincial priorities expressed through budget allocation;
7.3 The O.R. Tambo District Municipality was incorrectly allocated water and sanitation funds for the Mbizana and Ntabankulu local municipalities. Funding for these municipalities should have been allocated to theAlfred Nzo District Municipality. In addition, the MIG allocations for the Matatiele and Umzimvubu Local Municipalities were swopped around; and
7.4 Personnel costs amounted to 100 per cent of the R3.3 billion set aside in the provincial equitable share in the 2012/13 financial year.
8. RECOMMENDATIONS
The Standing Committee recommends as follows:
8.1 The Minister of Basic Education should ensure that the National Department of Basic Education submits to Parliament, within 60 working days after the adoption of this report by the House, a detailed report on the 49 schools constructed under the Accelerated Schools Infrastructure Development Initiative (ASIDI). Such a report should include the number of schools per district and the progress to date in terms of construction as well as an expenditure report;
8.2 The Minister of Health should ensure that the National Department of Health submits to Parliament, within 90 working days after the adoption of this report by the House, a proposal that seeks to address the challenge in relation to misalignment of national and provincial priorities. Such a proposal should take into cognisance various challenges experienced by provinces; and
8.3 The Minister of Finance should ensure that the National Treasury effects a technical correction to the 2012 Division of Revenue in respect of the funds incorrectly allocated for the following municipalities:
8.3.1 O.R. Tambo District Municipality
8.3.2 Alfred Nzo District Municipality
8.3.3 Matatiele Local Municipality
8.3.4 Umzimvubu Local Municipality
Report to be considered
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