ATC151124: Report Of The Select Committee on Appropriations On The Division Of Revenue Amendment Bill [B27 – 2015], Dated 24 November 2015

NCOP Appropriations

REPORT OF THE SELECT COMMITTEE ON APPROPRIATIONS ON THE DIVISION OF REVENUE AMENDMENT BILL [B27 – 2015], DATED 24 NOVEMBER 2015

Having considered the Division of Revenue Amendment Bill [B27 – 2015], the Select Committee on Appropriations reports as follows:

 

1. Introduction

In compliance with section 77 of the Constitution of the Republic of South Africa (Act 108 of 1996), the Money Bills Amendment Procedures and Related Matters Act, No. 9 of 2009 (the Money Bills Act) was enacted. This 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. The Money Bills Act provides Parliament with the necessary instruments to oversee government actions and monitor fiscal discipline.

While the Money Bills Act empowers Parliament to amend money bills, it also provides guidelines and factors to be taken into consideration by Parliament and its committees on appropriations when proposing amendments to money bills.

The Division of Revenue Amendment Bill (the Bill) was tabled in Parliament on 21 October 2015 by the Minister of Finance, as required by section 12(4) of the Money Bills Act, during the tabling of the Medium Term Budget Policy Statement (MTBPS).

In compliance with section 59(1) and 72(1) of the Constitution, the Committee issued advertisements calling members of the public and interested stakeholders to make submissions on the Bill. Advertisements were placed in print media in all 11 official languages.  In addition the Committee extended an invitation to the following stakeholders because of their strategic role in the national, provincial and local government spheres – the Financial and Fiscal Commission (FFC); the South Africa Local Government Association (SALGA); the Department of Higher Education and Training and the Council on Higher Education.

 

1. Changes in the 2015 Division of Amendment Bill

The Bill addresses the following matters:

• Changes in the equitable division of nationally raised revenue among the spheres of government;
• Adjustments to provincial allocations;
• Adjustments to local government allocations; and
• Changes to gazetted frameworks (i.e. technical corrections).

 

 

Table 1: Adjustments to spheres of government equitable share

 

Sphere of Government	2015/16 Allocation R’000	Amount adjusted R’000	2015/16 Adjusted allocation R’000
National	789 463 526	23 459 963	812 923 489
Provincial	382 673 477	3 826 532	386 500 009
Local	50 207 698	1 498 818	51 706 516
Total	1 222 344 701	28 785 313	1 251 130 014

 

The above table shows that the additional R28.79 billion is allocated between the three spheres as follows:

• National government receives an additional R23.46 billion (i.e. 81.5 per cent);
• Provincial government receives an additional R3.83 billion (i.e. 13.3 per cent); and

Local government receives an additional R1.50 billion (i.e. 5.2 per cent) for the 2015/16 financial year.

 

2.1 Changes to provincial allocations

2.1.1 Provincial equitable share allocations

The revised provincial equitable share allocation amounts to R386.50 billion compared to the original R382.67 billion allocated. The additional allocation of R3.83 billion is meant to assist provinces with the higher than anticipated cost of the public sector wage agreement.

Table 2 below provides a breakdown of the additional allocations to the nine provinces.

 

 

 

 

 

 

Table 2: Adjustments to provincial equitable share

Province	2015/16 Allocation ‘000	Amount adjusted ‘000	2015/16 Adjusted allocation ‘000
Eastern Cape	54 311 819	555 160	54 866 979
Free State	21 757 298	238 794	21 996 092
Gauteng	73 413 414	686 829	74 100 243
KwaZulu-Natal	82 253 946	877 619	83 131 565
Limpopo	45 377 444	488 758	45 866 202
Mpumalanga	31 029 509	307 134	31 336 643
Northern Cape	10 137 746	87 899	10 225 645
North West	26 150 635	246 412	26 397 047
Western Cape	38 241 666	337 927	38 579 593
Total:	382 673 477	3 826 532	386 500 009

 

As can be seen from the above table, KwaZulu-Natal receives the largest share amounting to R877.6 million, followed by Gauteng at R686.8 million. The Northern Cape receives the smallest share of the additional funding amounting to R87.9 million.

 

2.1.2 Provincial conditional grant allocations

(a) Human Settlements Development Grant

An additional R100.0 million is allocated to the Human Settlements Development Grant to fast-track the delivery of housing in the Nelson Mandela Bay Metropolitan Municipality. The R100 million was shifted from the Social Housing Regulatory Agency, as it was anticipated that the agency would not spend the funds during 2015/16.

 

(b) Conversion of indirect grants to direct grants

A total of R193 million will be converted from the health facility revitalisation component of the National Health Grant, which is an indirect grant, to the Health Facility Revitalisation Grant, which is a direct grant. This is being done to allow the Free State and Limpopo Provinces to implement health projects directly. Free State receives R23 million and Limpopo R170 million.

An amount of R7.7 million will be converted from the national health insurance component of the National Health Grant to the National Health Insurance Grant, to allow the Western Cape to implement national health insurance projects directly.

 

(c) Reductions due to anticipated under-spending

A saving of R7.4 million has been declared on the 2015/16 HIV and Aids (Life Skills Education) Grant allocation in order to reduce anticipated under-spending.

The 2015/16 allocation for the health facility revitalisation component of the National Health Grant will be reduced by R107.4 million due to anticipated under-spending and the funds are reprioritised, as follows:

• R30 million to fund the South African Demographic and Health Survey;
• R7.4 million to fund equipment in the Forensic Chemistry Laboratories;
• R7.5 million to fund storage facilities at the Medicines Control Council; and
• R62.5 million will be declared as savings.

 

(d) Reductions to offset funds not spent in 2014/15

Reductions will be made to 2015/16 grant allocations to offset the grant funds that were not spent in the 2014/15 financial year, and which was not returned to the National Revenue Fund.

The largest reduction, amounting to R163.1 million, is effected to the Education Infrastructure Grant, followed by the Comprehensive HIV and Aids Grant (Health) at R66.6 million and the Health Facility Revitalisation Grant at R51.7 million. Other significant reductions include the reduction of R43.2 million to the Provincial Roads Maintenance Grant and R30.2 million to the newly merged Maths, Science and Technology Grant (previously the Dinaledi Schools Grant and the Technical Secondary Schools Grant).

 

 

1. Changes to local government allocations

 

1. Local government equitable share allocations

The revised local government equitable share allocation for 2015/16 amounts to R51.71 billion compared to the original R50.21 billion allocated. The additional allocation of R1.50 billion is a roll-over as a result of funds not transferred in 2014/15 due to the withholding of equitable share allocations. The following municipalities that had withheld equitable share allocations for 2014/15 will receive their allocations, as listed below, because they have now met the National Treasury requirements of entering into approved payment arrangements with their creditors:

Table 3: Adjustments to local government equitable share

Province	Municipalities
Eastern cape	Nxuba (R6.4 million) and Maletswai (R6.9 million).
Free State	Masilonyana (R22.9 million), Matjhabeng (R153.2 million), Nala (R34.2 million), Dihlabeng (R35.6 million), Nketoana (R21.4 million), Maluti-a-Phofung (R106.2 million), Mantsopa (R18.4 million), Ngwathe (R27.8 million), Metsimaholo (R29.1 million), and Mafube (R9.9 million).
Gauteng	Randfontein (R27.2 million) and Westonaria (R37.8 million).
Limpopo	Ba-Phalaborwa (R22.5 million) and Thabazimbi (R12.2 million).
Mpumalanga	Msukaligwa (R31.1 million), Mkhonodo (R34.5 million), Lekwa (R23.0 million), Govan Mbeki (R52.4 million), Emalahleni (R55.8 million), Emakhazeni (R11.5 million), Umjindi (R15.8 million), Nkomazi (R88.3 million), and Bushbuckbridge (R147.6 million).
Northern Cape	Nama Khoi (R9.6 million), Kamiesberg (R2.4 million), Khai-Ma (R2.8 million), Ubuntu (R3.1 million), Renosterberg (R1.9 million), Thembelihle (R4.5 million), Siyathemba (R6.1 million), Siyacuma (R10.3 million), Dikgatlong (R13.9 million), Magareng (R3.9 million), and Phokwane (R18.1 million).
North West	Madibeng (R116.9 million), Kgetlen rivier (R13.5 million), Tswaing (R20.1 million), Mafikeng (R34.9 million), Ditsobotla (R9.3 million), Mamusa (R10.1 million), Lekwa-Teemane (R8.9 million), Dr Ruth Segomotsi Mompati District (R60.5 millio, Ventersdorp (R14.8 million), City of Matlosana (R77.9 million), and Maquassi Hills (R23.2 million).

 

 

1. Local government conditional grant allocations

 

1. Reductions due to under-spending

The 2015/16 allocations for the Regional Bulk Infrastructure Grant (RBIG) and the Municipal Water Infrastructure Grant, both of which are indirect grants, will be reduced by R64 million and R200 million respectively, due to anticipated under-spending in the current financial year. According to National Treasury, these reductions will have no impact on the completion of projects in the current financial year, as the funds would not have been spent. Reductions in grant funding for identified projects were based on the following factors: Delays in procurement, variations in plans and technical difficulties that would likely result in the delayed implementation of the project and therefore the allocated amounts would not be spent fully in 2015/16.

RBIG funds will also be shifted between projects based on the following principles:

• Funding will be shifted from under-spending projects to performing projects;
• Priority will be given to projects that can be fast-tracked and completed earlier; and
• Funds will be shifted from projects where municipalities have failed to fulfil co-funding agreements.

 

The R64 million reduction with respect to the RBIG represents the net effect of the total reductions which amount to R1.328 billion and the total additions which amount to R1.264 billion.

1. Reprioritisation of funds within the Regional Bulk Infrastructure Grant

An amount of R339 million within the Regional Bulk Infrastructure Grant will be reprioritised to fund the upgrading of bulk sanitation infrastructure (including waste water treatment works) in support of the bucket eradication programme.

 

1. Changes to gazetted frameworks

Section 16(2) of the 2015 Division of Revenue Act, requires National Treasury to consult Parliament on any proposed changes to conditional grant frameworks for the purposes of correcting an error or omission.

 

The 2015/16 framework for the health facility revitalisation component of the National Health Grant omitted to allow for funds to be used to roll out successful National Health Insurance (NHI) interventions beyond designated NHI pilot districts.

 

This omission is now corrected through the addition of the conditions that allows for a portion (no more than R50 million) of the grant to be used to expand the new integrated patient-based information system to Primary Health Care (PHC) facilities outside of NHI pilot districts. The outcome statements and outputs of the grant are also corrected to include the rollout of the information system to PHC facilities.

 

1. Submissions by stakeholders on Division of Revenue Amendment Bill [B27 – 2015]

In response to the call for oral and/or written submissions, members of the public and interested stakeholders submitted written submissions. In all, the Committee received seven written submissions from members of the public and interested stakeholders. The Committee also invited government institutions to make oral submissions and submissions were made by the Financial and Fiscal Commission; the South African Local Government Association; the Department of Higher Education and Training and the Council on Higher Education.

 

1. Mandates from Provinces

In compliance with section 7(b) of the Mandating Procedures of Provinces Act (Act 52 of 2008), provinces were required to submit negotiating and final mandates.

The provinces submitted mandates, as follows:

4.1 Negotiating Mandates

4.1.1 Eastern Cape supported the Bill.

4.1.2 Free State was in favour of the Bill and made recommendations.

4.1.3 Gauteng supported the Bill and made recommendations.

4.1.4 KwaZulu-Natal supported the Bill.

4.1.5 Limpopo supported the Bill and made recommendations.

4.1.6 Mpumalanga supported the Bill.

4.1.7 Northern Cape supported the Bill and made certain inputs.

4.1.8 North West supported the Bill.

4.1.9 Western Cape did  not support the Bill.

 

4.2 Final Mandates    

4.2.1 Eastern Cape supported the Bill.

4.2.2 Free State was in favour.

4.2.3 Gauteng supported the Bill.

4.2.4 KwaZulu-Natal supported the Bill.

4.2.5 Limpopo was in favour of the Bill.

4.2.6 Mpumalanga was in favour of the Bill.

4.2.7 Northern Cape was in favour of the Bill.

4.2.8 North West was in favour of the Bill.

4.2.9 Western Cape did not support the Bill.

 

5. Findings and observations

On engaging various stakeholders, the Committee made the following findings and observations:

5.1 National Treasury has issued letters to national and provincial departments in July and August 2015 instructing them to prioritise the payment of outstanding amounts owed to municipalities. While this is commendable, it is concerning that more stringent actions are not taken against defaulting national and provincial departments, in light of those that were implemented against municipalities.

 

5.2 It is concerning that conditional grant transfers amounting to R510.6 million was not spent in 2014/15, which implies that service delivery did not take place or was postponed, predominantly in critical sectors such as education, health and transport infrastructure.

 

5.3   Although R3.8 billion is added to the provincial equitable share to compensate for the increased personnel costs as a result of the wage agreement being significantly higher than was budgeted for, these allocations will, however, not fully fund compensation shortfalls and provinces will have to reprioritise within their own budgets to make up for the shortfalls.

 

5.4   An amount of R1.5 billion will be rolled over for municipalities whose equitable share transfers were withheld at the end of 2014/15. This money now appears as an increased allocation for the municipalities concerned.

 

5.5   The announcement of a zero percent increase in university fees in 2016 has created a shortfall of R2.3 billion (tuition fee increment of R1.915 billion and residence fee increment of R415 million). In covering the shortfall, the universities will contribute R394.7 million and the Department of Higher Education and Training, in consultation with National Treasury, will secure the remaining R1.935 billion.

 

 

 

6. Recommendations

After considering the submissions by the stakeholders and deliberating on its observations, the Select Committee on Appropriations recommends as follows:

 

6.1        National Treasury should strengthen its monitoring mechanisms over provinces and municipalities to ensure compliance with any of its directives and also to avoid any repeat of outstanding debt accumulation.

 

6.2        National Treasury should ascertain if the conditional grant funds that were transferred to the provinces but not spent in 2014/15 have indeed not been used for any other purpose to ensure that service delivery is not compromised.

 

6.3        National Treasury should provide further details on how provinces were able to reprioritise funds within their own budgets to fund  the shortfalls in personnel compensation. Furthermore, National Treasury should indicate how incidences of ghost employees might be contributing to the current employee compensation costs and also indicate if all provinces have conducted and completed a personnel head count.

 

6.4        The National Treasury and the Department of Higher Education and Training should, as soon as possible, provide Parliament with details of how and where the required funds will be sourced and what the implications of this process will be on the operational needs of the Department of Higher Education and Training.

 

Report to be considered.