2020 Division of Revenue Amendment Bill: briefing

Meeting report

2020 Division of Revenue Amendment Bill: briefing
Ms Malijeng Ngqaleni, National Treasury Deputy Director-General: Inter-Governmental Relations, presented a timeline of Treasury’s response to COVID-19 from the release of disaster relief grants in March 2020 until the Special Adjustments Budget tabled on 24 June 2020. She looked at how the government’s COVID-19 response was being funded and how R130bn of the budget was being redirected to fund the R500bn stimulus package. She outlined how provinces were expected to reprioritise their budgets, the significant impact of lockdown on the revenue of municipalities, and Treasury’s general approach to addressing the budgetary challenges posed by the pandemic: provincial equitable shares would be protected, local government equitable shares would be increased, and conditional grants would be repurposed to fund COVID-19 measures. She described the legal and procedural status of the Division of Revenue Amendment Bill (DoRAB) and noted that another DoRAB would be tabled around October 2020.

Ms Wendy Fanoe, Chief Director, Inter-Governmental Policy And Planning, Treasury, outlined the changes to provincial budgets. She noted that many conditional grants from which money had been reprioritised, particularly infrastructure grants, would have been underspent due to lockdown, although some projects would be delayed. She looked at changes to health grants (which included additional funds of R2.8bn to the COVID-19 component of the HIV, TB, malaria and community outreach grant), education grants and other provincial grants, such as public transport and emergency housing. She stressed that DoRAB did not indicate how funds were repurposed within grants. Though it was not part of DoRAB, she also outlined the drought relief funds that had been released in terms of the 2020 Division of Revenue Act, noting that Free State and Gauteng had not applied for drought relief funds.

Mr Steven Kenyon, Director, Local Government and Budget Framework, Treasury, outlined the changes to local government budgets. The R20bn package comprised an R11bn addition to local government’s equitable share, which would fund municipal increased operational expenses and the provision of food and shelter for the homeless, and R9bn in reprioritised funds, which would fund water and sanitation infrastructure and sanitisation for public transport. He broke down the distribution of the equitable share increases by municipality type, noting the need to strike a balance between metros, which had the greatest share of the population and COVID-19, and poor/rural municipalities. He looked at the implications of the DoRAB for future budgets. If spending plans remained unchanged after 2020/21, the country would experience a sovereign debt crisis, which was the reason government had chosen to hold debt below 90% of gross domestic product. This would necessitate changes to allocations in future years.

Discussion
Mr D Ryder (DA, Gauteng) said that the presentation was ideal for the Standing Committee but the Select Committee would have preferred more detail on the specific changes for the provinces. What guidelines or recommendations had Treasury given to municipalities on credit control? Were municipalities going to carry a lot of bad debt, or would there be a write-off at some point? He had heard that some provinces, such as Limpopo, were having problems with providing personal protective equipment (PPE) at schools. He observed a heavy focus on health and prevention in the DoRAB and asked what measures were proposed to resuscitate the economy.

Mr W Aucamp (DA, Northern Cape) noted that a lot of money was being spent in response to the COVID-19 disaster, which was correct, but in 2020 the Northern Cape and later the whole country has been declared a drought disaster area. Countrywide only R138m had been made available for drought relief. Farmers were responsible for the country’s food security but they were not being funded properly. Many jobs were at risk in the agricultural sector and farmers needed to be assisted. It was a disgrace that the Free State had not even applied for drought relief, while the farmers and farm workers in that province suffered. The country needed to stand behind its farmers.

Mr F Du Toit (FF+, North West) asked for the total monthly cost of the hired Cuban doctors. For how many months would they be providing services? Could Treasury give a breakdown of expenditure on PPE, medical infrastructure and medical equipment, and a breakdown per municipality of the R20bn relief package? Some municipalities were upgrading facilities but they could not say from where the finance was going to come. He asked how long the R7.5bn was expected to fund free basic services to the additional 1.4 million households.

Mr V Tshabalala (ANC, Free State Provincial Legislature) asked for clarity on the non-application by Free State and Gauteng for drought relief. Why had they not applied? He was worried about the expected delays to some programmes as a result of the downward adjustments to conditional grants.

Ms R Liebenberg (DA, Northern Cape Provincial Legislature) was disappointed at the lack of detail in the appropriations for the different provinces. The funding for drought relief was disturbingly low, especially given that 80% of the farmers who had applied for COVID-19 relief had not been assisted. She was worried that national government was responsible for water provision and the lack of oversight over it by the provinces. Water provision to schools was not being done transparently. The shortage of staff in rural hospitals was hampering their COVID-19 response and it was difficult to see how much money would get through to these hospitals.

Mr T Meeko (ANC, Free State Provincial Legislature) appreciated the protection of the provincial equitable share. Local government was at the forefront of implementing the government’s strategy. There were strategic responsibilities for local government that Treasury still needed to advise on. For example, there were water supply challenges in QwaQwa. Would this be part of the COVID-19 funding, directly or indirectly? The amount of money that provinces had surrendered to fund the COVID-19 response was lower than the amount they had received. Could Treasury clarify if the provinces had been further disadvantaged? He was adamant that the Free State had applied for drought relief. Business plans had been submitted and the provincial government was committed to seizing all opportunities. He asked Treasury to check with the National Disaster Management Centre, as there was no way the province could not have applied.

Mr X Qayiso (ANC) observed that the reprioritisation of local government funding provided for three months of water trucking, but the pandemic was expected to be present for longer. Had arrangements been made for water supply beyond three months? He noted that the District Development Model was not mentioned in the presentation, despite it being at the centre of service delivery. He asked if the workers doing sanitisation in schools were being paid the minimum wage.

Ms N Nkondlo (ANC) brought up the principle of budget alignment and spending with the desired outcome. She wanted Treasury to provide more information on the grants that had been repurposed. It was not enough to say they were not being used as intended. What exactly had the R1bn repurposed from the Western Cape Urban Settlements Development Grant been for? The Western Cape was a hotspot and the majority of cases were in poor areas. She suggested that Treasury should provide an impact assessment of this particular reprioritisation that dealt with service delivery imperatives. She asked what the breakdown of COVID-19 spending was between social and economic spending. There should be data available by now to help allocate the limited resources available so that at the same time as protecting lives, the economy can also be saved from collapse.

Ms N Ntlangwini (EFF) asked what research had gone into determining the adjustments. She agreed that adjustments were necessary but was worried about the effects of the reduction of agriculture grants on black farmers and education grants on black communities. What was the rationale? Had farmers been consulted? She noted that the lockdown had shown that some government expenses were unnecessary and asked if Treasury was looking to cut permanently some of these expenses. She asked Treasury to clarify the precise amount that was reprioritised for water and sanitation in local government.

Ms D Peters (ANC) asked for a list of the programmes and projects that would be delayed as a result of reprioritisation. In which municipalities and provinces they were and what the implications of these delays? What would the socio-economic impact of the delays be? She asked if the Supplementary Budget supported the objectives of the National Development Plan (NDP). Which cuts, across all three levels of government, had given Treasury the biggest headaches, especially considering their impact on job creation, economic growth and service delivery. COVID-19 had hit the tourism industry the hardest. What did Treasury suggest? The agricultural sector was facing a double challenge of the drought and the pandemic. She worried that the R35m drought relief for Northern Cape was not enough. She asked if the Department of Social Development or municipalities had been given the grant to cater for the homeless. She drew attention to the challenge in the taxi industry and that it was calling for economic relief. Was Treasury or the Department of Transport working on this? She asked why there were complaints about lack of medication from clinics and hospitals given that provincial health grants had been increased by R2.8bn. She suggested that Expanded Public Works Programme (EPWP) workers could be used productively in school sanitisation efforts.

Mr Z Mlenzana (ANC) asked if there was a way Treasury could manage water and sanitation prices to schools, and if Treasury was working closely with the Department of Education on financing scholar transport, particularly in the Eastern Cape. He asked if Treasury monitored the use of unconditional grants by municipalities, and if Treasury could talk about reprioritisation in the context of zero-based budgeting. He asked what the rationale for reducing agricultural support grants was.

Mr M Moletsane (EFF, Free State) asked what measures were being put in place to prevent fraud and irregularities and to ensure that there was consequence management, given the huge sums being diverted to fight COVID-19. For example, in the OR Tambo municipality in the Eastern Cape, more than R3m had been paid to a service provider that had not delivered a service. The municipality had indicated that it would do an investigation but he did not think that the municipality could investigate itself. The Hawks or the Special Investigating Unit needed to be involved. How was Treasury working with the Department of Cooperative Governance and Traditional Affairs to address this? Perpetrators needed to be investigated and prevention measures put in place.

Mr A Sarupen (DA) asked if Treasury had issued circulars to give guidance to local government on reprioritisation. Municipalities could sometimes be non-strategic in their use of budgets. Had cuts been made to government events and marketing budgets? Events would not be held during the pandemic and government had historically spent a lot of money on marketing, but all marketing should now be related to the pandemic response. He asked if infrastructure grant reprioritisation had been done according to need. There could not be schools with pit toilets in the COVID-19 era. What changes had been made to the bailing out of state-owned enterprises? What was the status of the country’s contingency reserve? Was it completely depleted for the year? What would government do if there was another disaster?

Mr M Filtane (UDM) asked why diabetes and hypertension were not mentioned as part of the HIV, TB, Malaria And Community Outreach Grant which had received an additional R2.8bn, given that these two diseases were known COVID-19 co-morbidities. He was concerned that Treasury was inviting trouble from other sectors, such as the taxi industry, by allocating funds to “compensate the sports sector for loss of earnings due to cancelled events.” He suggested replacing the word “for” to “in consideration of.” He called attention to media reports of COVID-19 funds being misused. Was Treasury aware of this and had it taken steps to prevent it?

Mr M Saziwa (ANC, Eastern Cape Provincial Legislature) asked if Treasury had issued guidelines to ensure that provinces and municipalities paid fair prices for PPE. He asked why R600m had been reprioritised from a direct Education Infrastructure Grant to the indirect School Infrastructure Backlogs Grant. He asked if there was a working relationship between Treasury and the South African Local Government Association (SALGA) to support municipalities that had faced significant revenue losses.

Ms D Mahlangu (ANC, Mpumalanga), Select Committee Chairperson on Appropriations, pointed to the municipal audit results released by the Auditor-General on 1 July which described problems and a lack of remedial action as well as a lack of consequence management in municipalities. This was worrying. She asked what mechanisms were in place to prevent the misuse of the funds reprioritised by the DoRAB and in particular the R9bn in grant funds to local government. How could government ensure that the reprioritisation would not negatively affect economic growth? What would be the implications of the significant revenue drops in already distressed municipalities? What powers did the Office of the Auditor-General have to monitor this?

Mr Y Carrim (ANC, Kwazulu-Natal) said that according to the Fiscal Framework Report adopted earlier that day, not enough money had been allocated to economic recovery. The focus had been on health and security, which was understandable, but an argument could be made that money had actually been taken away from sectors that would stimulate the economy and create jobs.

Mr O Mokae (DA, Northern Cape Provincial Legislature) asked how the R58m set aside for compensating sportspeople related to the R150m package announced by the Minister of Sports, Arts and Culture. He observed that the presentation did not say much about safety and policing, particularly in light of the present gender-based violence challenge.

Mr S Buthelezi (ANC), Standing Committee Chairperson on Appropriations, asked if the reprioritisation of funds from infrastructure grants did not contradict the President’s call to look at infrastructure as a way of reigniting the economy. He questioned the reprioritisation of R40m from HIV/AIDS education. The presentation was clear on where money was being reprioritised to, but what would be the impact on the areas from which money was taken? A fuller picture was required. Given that one of the criteria for reprioritising was the inability to spend money, were not the intended beneficiaries of services being punished for government’s inefficiency? He asked Treasury to provide written responses where questions required more detail. He asked that Treasury refer to the Committee’s Reports before it prepared budgets, to prevent the same issues from being raised repeatedly.

Mr A Shaik-Emam (NFP) said that the adjustments meant that more would have to be done with fewer resources. There were skills and capacity problems at all levels. In this context, did Treasury anticipate obstacles and opposition to zero-based budgeting? When could it be expected to be introduced?

Ms Ngqaleni said that more detailed indications of the adjustments per municipality and per province would be made in future briefings to each legislature. Her office could circulate them if necessary. She did not think that the PPE shortage in schools was a financing issue. The problem must be at the purchasing or delivery stage. The money released for drought relief was from the disaster relief grant. This did not preclude provinces or municipalities from allocating money to drought relief from their budgets. The additional funds for free basic services were not a separate amount but were intended to top up existing budgets to ensure that municipalities were able to respond to COVID-19 despite loss of revenue.

The questions about the rationale for how money had been reprioritised and the impact on programmes from which money had been reprioritised were important but difficult. Some infrastructure grants had been cut, she admitted, but Treasury had considered that provincial and local governments would not have had the capacity to spent the money allocated to these grants as a result of the lockdown. In a sense it was contradictory to the call for infrastructure development but this was not a perfect world. The focus of national allocations at the moment was to address the problem of infrastructure planning and preparation, and to create a pipeline of projects that could be delivered efficiently. Of course some projects would be going ahead but the hope was that this year government could bring about a change in the manner in which infrastructure projects were done, particularly in metros. There was also a drive to use tap into the resources of the private sector through blended financing.

She agreed that there was a small net reduction in the total grant to provinces. It should be remembered that provinces had had to contribute R30bn that would be reallocated to priority areas. The actual reduction was very small and provinces had benefited from being protected. Extra money had also been allocated to Health. Water tankering was a very expensive option that had been imposed on government by COVID-19. There should not still be sanitation backlog at schools given the amount of money that had been allocated over the years. More progress should have been made on service delivery. She hoped that the crisis had given everyone a wake-up call. The funding for water tankering had been transferred to national government in order to speed up the response and it had been done only in provinces that had shown that they did not have the capacity or readiness to deliver.

Ms Ngqaleni said that the District Development Model was about pulling the government together in a more coordinated manner to ensure that money was spent efficiently. It did not call for a separate allocation. She assured the Committee that Treasury did factor in Financial and Fiscal Commission and Portfolio Committee Reports when it deliberated on budgets.

Mr Mark Blecher, Chief Director: Health and Social Development, Treasury, said that Treasury had done research with the Department of Health and the provinces, as well as the national COVID-19 Modelling And Costing Consortium into the R20bn health spending programme. There was about R5.5bn at the national level, including a R3.4bn COVID-19 component, and the remainder would be seen in the provincial budgets over the next few weeks. Roughly R1.9bn would be spent on oxygen, about R700m on ventilators, about R2.5bn on health infrastructure, about R10.5bn on hospital infrastructure for COVID-19 and about R4bn on PPE. However, provinces had a fair amount of flexibility within their grants.

Mr Blecher replied that R280m was being spent on 200 Cuban doctors for 12 months. The possibility of introducing a rural factor into the formula for calculating equitable share was being discussed. When it came to medication, the main problem was not a shortage of supply but that people were not going to clinics and hospitals to collect chronic disease medication. This was a global problem. Treasury was trying to support the Central Chronic Medicine Dispensing and Distribution Programme, to allow people to collect three months’ supply at a time. The reason that the COVID-19 funds were added to the HIV, TB, Malaria and Community Outreach Grant was to avoid having too many separate grants. It did not mean that other chronic diseases such as diabetes were not being supported. He noted that the cut to HIV funding was comparatively small. He explained that this adjustments budget was an acute emergency response budget. The main economic response would be seen in the main adjustments budget and the Medium-Term Expenditure Framework after that.

Mr Jan Hattingh, Chief Director, Local Government Budget Analysis, Treasury, replied that to guide municipalities, Treasury had issued a budget circular, three circulars on procurement processes, and a circular on reporting COVID-19-related expenditure. The advice given to municipalities was that they should progressively return to normal practices of credit control as the lockdown was lifted. The number of indebted municipalities was certainly going to increase. Municipalities had been advised to consider community members who were unable to pay rates on a case-by-case basis.

Ms Julia de Bruyn, Chief Director, Public Finance, Treasury, replied that the events run through the national Department of Sports, Arts and Culture had been cancelled. This would be explained further when Treasury discussed the special adjustments for national departments. The EPWP rate of R11.76 per hour was exempt from the national minimum wage of R20.42 per hour. The Provincial Departments of Education would hire the workers directly until it could reach an agreement with COGTA on employing Community Work Programme workers. The R58m relief for sportspeople, artists and performers was part of the R150m package announced by the Minister, and there were conditions that allowed the Department to determine how much each applicant received.

Mr Kenyon replied that the amounts of drought relief funds were decided jointly by the National Disaster Management Centre, the Department of Agriculture, Land Reform and Rural Development and the provincial departments of agriculture. The Free State and Gauteng had chosen through this process to accommodate their needs within their own budgets, given the greater need in some of the other provinces.

The Standing Committee discussed its third term programme and the meeting was adjourned.