Division of Revenue Amendment Bill: public hearings & SALGA input

Meeting report

Stakeholder inputs on DORA Bill

SALGA

Mr Nceba Mqoqi, Chief Financial Officer (CFO), South African Local Government Association (SALGA), presented the entity's input on the Division of Revenue Amendment (DORA) Bill.

The main points of the presentation were:

• Public sector capital investment remained below the 20% target of the National Development Plan (NDP). South Africa was not meeting its objectives of catalysing the economy through infrastructure investments due to low private investment coupled with a low employment rate in the municipalities. SALGA recommended implementing economic recovery strategies to assist businesses in distress and address the Eskom crisis.
• Municipal revenue streams were affected by the 6.7% 2022 inflation caused by domestic food inflation and elevated fuel prices.
• The government planned to take over R400 billion municipal ESKOM debt.
• The local government received an unchanged 9.1% of the nationally raised revenue. Organised local governments received a 2.4%, or R3.6 billion, upward revision of the gross allocation to local government for the 2022/23 financial year.

(Please visit the presentation for details of SALGA recommendations)

Rural Health Advocacy Project: TB Advocacy and Accountability Consortium

Mr Russell Rensburg, Programme Manager: Health Systems and Policy, Rural Health Advocacy Project (RHAP), and Ms Sihle Mahonga, Project Manager, RHAP, delivered the presentation.

The presentation recommended that a temporary joint committee review and interrogate provincial departments’ resource allocation decisions for 2022/23/24/25 to ensure that strategies were in place to ensure that the fiscal squeeze did not compromise priority health services for sufferers of tuberculosis (TB). The committee must be composed of the Standing Committees on Finance and Appropriations, the National Council of Provinces and the Portfolio Committee on Health. The entity added that appropriate representatives from provincial departments should engage with this temporary committee to present on and explain how their allocations, given in their annual performance plans, were intentionally prioritising efficient coverage for the most vulnerable.

See submission for further details

Amandla.mobi

Ms Tlou Seopa, Campaigner, Amandla.mobi, delivered the presentation.

She said the organisation welcomed the year-long extension of the R350 grant to March 2024. However, the Amandla.mobi community and the public were disappointed that the grant had not been increased and expanded to include more people.

The entity recommends the establishment of a permanent basic income grant (BIG) to permanently uplift millions of people from poverty, by increasing the basic grant of R350. It also suggested a wealth tax to raise funds for the BIG. Further, it asked government to protect the marginalised communities by not increasing value added tax (VAT).

See submission for further details

Section 27

Ms Matshidiso Lencoasa, Budget Researcher, Section 27, delivered the presentation.

She said the organisation welcomed the 2022 Division of Revenue Amendment Bill, and stressed that the Bill must be viewed through a gendered lens to ensure that everyone benefited equally from this resource allocation and reduce the existing manifestations of systemic gender inequality.

It also suggested that the National Health Insurance( NHI) must cater for mental health. The lack of a sufficient budget allocation to mental health services was a definitive barrier to access, resulting in the failure to upscale community-based healthcare services and shortages of human resources in the public sector.

It added that the Bill must further reflect adjustments to the food inflation linked to the national School Nutrition Programme grant.

See submission for further details

COSATU

Mr Matthew Parks, Parliamentary Coordinator, Congress of South African Trade Unions (COSATU), delivered the presentation.

He said COSATU was deeply concerned by the lukewarm medium term budget policy statement (MTBPS) and the accompanying DORA Bill tabled by the Finance Minister, Mr Enoch Godongwana, in Parliament. The union hoped that the DORA Bill would protect workers from inflation, build the state, decisively tackle corruption, provide relief to the unemployed and put measures to stimulate the economy. COSATU acknowledged positive interventions in the policy statement at a macro-level.

 

Main points of the presentation were:

 

• COSATU welcomed the additional allocation of R37 billion to help key frontline

service departments, state-owned enterprises (SOEs) and social security.

• The Federation was concerned that despite the doubling of the expected infrastructure

investments over the medium-term expenditure framework (MTEF) to over R112

billion, including the allocation of R33 billion for transport and water, the country

remained far behind on infrastructure roll-out programmes.

• The number of municipalities failing to pay workers on time was increasing at an alarming rate. COSATU asked the government to hold the affected municipalities and the Department of Cooperative Governance and Traditional Affairs (COGTA) accountable, because the non-payment to medical aids, pension funds, and tax authorities of monies deducted from workers was a criminal offence.
• COSATU welcomed an additional R5.8 billion allocation to repair Transnet infrastructure and locomotives. However, more needed to be done by law enforcement to protect the railway infrastructure. COSATU was disappointed by the failure to provide similar support to Metro Rail, where many lines had still not been returned to service two years after the 2020 lockdown.

 

See submission for further details

Discussion

Mr M Moletsane (EFF, Free State) acknowledged all the presentations. He asked SALGA what matters could be taken to assist municipalities in addressing the increasing inflation that took away municipal revenues. He asked SALGA to comment on local government infrastructure network maintenance. What was its response to the water contamination of certain areas? He asked National Treasury to comment on the issue raised by SALGA around underfunding to local governments by R56m.

Mr A Shaik Emam (NFP) said it was ridiculous that SALGA was asking for government municipal debt relief to pay ESKOM, rather than strengthening revenue collection and ensuring greater management and skills within local government, because they failed to manage their finances. What was SALGA doing to ensure better collaboration between the people on the ground? He was concerned about the poor health management and sanitation problems at the local government level. How was SALGA dealing with high levels of corruption at the local government level, considering the poor state of the coalition governments? Every year, the Auditor-General (AG) had findings against the local governments, but with no consequences whatsoever. What was SALGA doing to ensure greater accountability at the local level? Did it not know that the process of providing water through water tankers was the root cause of all the corruption in the water and sanitation sector? Where was the motivation to deal with the infrastructure while people accumulated money from distributing the water through tankers?

Has SALGA ever considered talking with the farm owners and the municipalities, as it was not acceptable to expect them to continue accommodating people on the farms? Had SALGA ever considered creating an environment for retired people? What was it doing to ensure that some of the municipalities were attracting businesses and helping them to become financially independent, rather than relying on handouts? He said that the shutdown of the power stations in Mpumalanga would result in 100 000 job losses, and the area would become ghost towns. How was SALGA going to prevent this?

He applauded the Rural Health Advocacy Project on its work, and further recommended self-sufficiency. One of the reasons there was difficulty in rolling out health services was because one could not attract healthcare workers and general practitioners to the rural areas. Did it not think that government should start a process to ensure that rural areas identify graduates and those already in higher education institutions and basic education (grade 11 and 12), and capacitate them to decrease reliance on health workers from outside of the rural areas?

Mr Shaik Emam was concerned that only 13% of South African citizens pay taxes, yet thousands of people were conducting business in the country. He added that there was no coordination between local government and South African Revenue Services (SARS) to ensure everyone paid taxes. He said one could not continue to expect the rich to pay for the poor. The upper and middle classes were leaving the country because they were fed up. South Africa was one of the few countries in the world that had few people paying taxes due to its failed policies.

He said the prevalence of TB was due to socio-economic living standards, with a lack of water and poor sanitation, and urged for a more holistic approach. A person could not survive on a R350 monthly grant. There was a need to produce a conducive environment so people could be productive. The country could not sustain paying more grants. Many of the grants did not even reach their beneficiaries. There were no mechanisms to ensure that the children receiving grants actually went to school.

He asked COSATU what the roles of the unions were to ensure that societies were productive. What did the trade unions put back into the economy?

Mr D Ryder (DA, Gauteng) said he shared the concerns about the redistribution of funding. The proportion of funds given to both the local and provincial government was not enough. There was an impression that the national government took what it needed and left the scraps to the provincial and local government. The national government still managed the indirect grants to local governments. He pointed out that the Intergovernmental Fiscal Relations Act encouraged reasonable equity and redistribution. He called for improving financial management and accountability by the local governments. Municipalities had a lot of unfunded mandates that had been thrust down on them, especially housing. Urban municipalities were facing massive influxes of people looking for jobs. The unfunded mandate of providing housing and services to people in an unplanned manner has put local governments under massive pressure. He asked SALGA what was happening at the budget forum. Why did the local governments complain about the outcomes of this forum?

He said that the Rural Health Advocacy Project had come up with an important proposal that suggested a joint sitting between the departments to understand how much money was spent in various departments. He also thought it would also be useful to ask for input from public stakeholders. The Defence Department had asked to present to the Committee for some time -- departments should be given a chance to tell the Committee why they felt they deserved funds from the fiscus.

He applauded the slick presentation from Amandla.mobi, and said there was certainly agreement that the R350 grant was insufficient. He added that the issue of the beneficiaries not receiving grants should be directed to the Department of Social Development.

He said that the issue of the non-payment of statutory deductions of staff salary at the end of the month should be taken very seriously. It was criminal that the municipalities were not making payments to medical aids and SARS after they deducted these from staff members' salaries at the end of the month. People were left unprotected and were unable to get a clearance certificate to do whatever they wanted to do. If medical aid was unpaid, it lapsed and left the employee's family unprotected. He stressed that this was a criminal act of neglect, and it needed to be followed up in the harshest manner in the municipalities. He called for serious consequences for both the executive and the administration that committed this act.

Mr Z Mlenzana (ANC) asked for Amandla.mobi’s take on expanding the technology space to cater for the rise in grants. What did a welfare state look like for them? Would they like to see South Africa be a welfare state?

He asked SALGA to speak more about the perennial under-spending, and fruitless and wasteful expenditures at municipalities. How did it monitor the finances of the municipalities? If SALGA conducted annual monitoring at the municipalities, could they share some of its experiences? Why were 43 municipalities unable to perform on their own? Did it not think the money for assisting municipalities on their ESKOM debts should be a one-way debit from the municipalities? Should the Treasury allocation to municipalities not be redirected straight to ESKOM, because the municipalities end up not paying their ESKOM dues? The same question also applied to the municipalities that owed audit fees to the Auditor-General of South Africa (AGSA). He asked about COSATU's views on synchronising national, provincial and local government budgets. Would the loopholes it had raised remain if funds were synchronised?

Mr X Qayiso (ANC) asked about the Rural Health and Advocacy Project’s view on the NHI. Would the policy not advance the health of poor people? He said some of the recommendations by Amandla.mobi were brilliant, and some had already been articulated in the previous public hearings. He agrees that the recommendation on the BIG could go a long way. Perhaps the basic income grant needed to be fast-tracked and contextualised. He thought the social wage could mitigate poverty.

He agreed that SARS needed to look at legalising a wealth tax. A lot of money could be raised so the poor could have their share of the wealth. There had been a recent summit on gender-based violence (GBV), and he thought it was high time for a gender budget to finance GBV programmes.

He said that the issue of capacity raised by SALGA had now become a broken record. Obviously, lack of capacity and skills went hand in hand with under-spending. They had witnessed the deterioration of financial management identified by AGSA, including the non-payment of municipal workers. How far had SALGA assisted the workers who had not been paid effectively by the authorities? He added that COSATU had made excellent recommendations which must be extended and integrated into the relevant committees. He said that something had to be done about the Post Office, where 6 000 workers were about to lose their jobs, as government policy was to protect jobs.

Mr E Njadu (ANC, Western Cape) said that the Committee should welcome the inflation increase in the equitable share for the 2023/24 MTEF period. He commended the clear presentation from COSATU, and fully agreed with the recommendations. He suggested that National Treasury must respond Amandla.mobi’s submissions. The Standing Committee on Finance had proposed addressing the basic income grant in its fiscal framework.

He asked SALGA how ESKOM would bail out and address the municipalities' issues. What specific measures could be taken to address this? What was the role of local government in ensuring prompt responses to help poor people in South Africa during disasters? How could SALGA ensure municipal officials got involved when disaster strikes, rather than making one-day appearances? He asked the RHAP's TB Advocacy and Accountability Consortium to strengthen the existing oversight structures instead of creating more, to avoid confusion.

Ms D Mahlangu (ANC, Mpumalanga) asked the RHAP where the proposed committee would derive its legislative power. Would this committee not be a duplication of what already existed? She asked SALGA what the role of local government was regarding the disaster relief response to poor South Africans. They had seen people displaced from their homes, where municipal officials would make one visit, promise to assist people, and never return. How would SALGA’s maintain a local infrastructure network that would prevent contamination of municipal water? What specific measures could be taken to address the ESKOM debt by the municipalities?

The Chairperson said that there was always an assumption that the municipalities must raise their own revenue. He asked SALGA what the trend of consolidated revenue collection by municipalities was. Was the trend going up or down? What was happening to the debt? COGTA had said that their under-spending had been due to a lack of transfer of the local government equitable share because of non-compliance by municipalities. What was SALGA’s view on this issue, and what was it doing about it? How much was SALGA owed by the national and provincial government, and business?

He asked the TB Advocacy and Accountability Consortium what TB notification meant, and also to clarify the figures. What was their comment on the NHI? Had they interacted with the provincial government regarding the issues they had raised with the committees? If so, what had been their experience? What did they think should be done with the savings by the Department of Social Development that were taken to National Treasury and Transnet?

He asked COSATU for its views on job losses at the Post Offices, considering its impact on the localities, especially the rural economies. He said that the health of local government was dependent on business activities in the municipalities. What did it think the government should do regarding strategic private companies with problems, such as Tongaat Hulett in KwaZulu-Natal, and the numerous refineries? He asked COSATU and SALGA how local governments effectively and critically participated in the Enterprise Resource Planning (ERP). He asked COSATU if it was aware that MetroRail had under-spent by R14 billion in the previous year -- why had it called for more funds, if they were under-spending?

The Chairperson was concerned about the effectiveness and the efficiency of the model of indirect grants' delivery. He added that non-payment to medical aids was a huge risk.

Stakeholders' responses

SALGA

Councillor Lesetja Dikgale, National Executive Committee Member, SALGA, said that according to legislation, districts without metros in all municipalities were responsible for disaster response. The district had disaster response teams which were supposed to have the necessary equipment to be used during the disasters. They encouraged the municipalities and districts to ensure that they looked into their peculiar situations so that their equipment could respond to the disasters of a particular area. Most of the districts responded correctly, even though there were still some challenges.

He said that the Green Drop status was related to water treatment centres that ensure that water that goes to the river is at the level required by law. In some instances, where there were capacity and neglect issues, sewage spilt into the rivers. The municipality was currently collaborating with the Department of Water and Sanitation. There has since been an improvement in response to wastewater.

Mr Mqoqi said there had been a faster growth rate in allocating national revenue to local governments. It was about 13.7% for 2022/23, which was above the inflation rate. The outer years of the MTEF were 6.9% and 5.9% . This was the direct result of the interface that SALGA leadership had at the budget forum. The refinement in the local government equitable share formula was also a result of the interface at the budget forum. The challenge with the equitable share formula was due to structural underfunding that came from a low base.

He said that the statutory returns and third party payments were not paid over due to poor financial management and planning. It was illegal and there was nothing that SALGA could do to "sugarcoat" the illegality. However, it had embarked on financial sustainability roadshows, particularly for those municipalities that were in financial distress and were unable to meet their ordinary business obligations.

Mr Mqoqi said SALGA had consistently said that appropriately skilled people must be appointed to deal with local government issues. Unqualified people led to incapacity. SALGA believed that in instances where there was underperformance and corruption, the law must take its course.

SALGA had a small town regeneration programme that had started in the Karoo, funded by the European Union (EU) in 2014, to regenerate the economy and prevent ghost towns. For instance, there was no shopping centre in the area in 2014, but there is a shopping centre now. There was also an informal trading infrastructure and multipurpose centre setup at Amsterdam, in Mpumalanga. Although the programme was not progressing fast enough, there was an improvement.

SALGA was aware that the municipalities owed ESKOM due to the depressed economy. The COVID-19 shutdown further slowed municipalities' collection rate on electricity, water and other utilities. The 2023 budget would elaborate further on the comprehensive restructuring of the ESKOM debt. He added that there should also be a reciprocal approach to alleviating municipalities in financial distress. If there was a 10% alleviation of the burden of debt for ESKOM, similarly, 10% should be extended to the municipalities to improve their solvency and liquidity.

He said that SALGA did not have statutory and legislative powers to acquire information from the municipalities. The municipalities were required by the Municipal Finance Management Act (MFMA) to report in terms of Section 71. SALGA would get access to these reports through the National Treasury. SALGA would then conduct a financial analysis on the top 20 municipalities that owed ESKOM. Letters would be addressed to the Executive Mayors of the 20 municipalities to advise them on a course of action to ensure their financial sustainability.

He said that the Monetary Policy Committee was responsible for safeguarding the currency of the public, as well as targeting inflation. However, when inflation grew faster than the community incomes, it became a logical conclusion that the communities would need to prioritise their means of survival such as food, rather than paying for utilities. This would have a detrimental impact on municipal revenue collection. He concluded that the exact numbers on revenue collection would be sent to the Committee Secretariat.

Ms Khomotso Letsatsi, Chief Officer: Municipal Finance, Fiscal Policy and Economic Growth, SALGA, said SALGA conducted its analysis of infrastructure networks through a special budget forum. It had been flagged that over the years, municipalities had been spending less than 2% on repairs and maintenance, leading to an infrastructure backlog. SALGA was looking at alternative sources of financing to avoid using capital expenditure due to the inflexibility of operational expenditure of municipalities. It partnered with the Development Bank of Southern Africa (DBSA) and the Department of Water and Sanitation to form a dedicated water project to address municipal water network-related issues. There was currently no project dedicated to dealing with municipal problems at SALGA, but it was being deliberated through the budget forum resolutions. It was conducting training for municipalities to capacitate them on project preparation in collaboration with the University of Pretoria and the DBSA, so that they could start packaging bankable projects that did not necessarily rely on balancing the strengths of municipalities. They could pursue alternatives like public-private partnerships (PPP) to attract private investors to address some municipal gaps.

SALGA was looking at the overall credit exposure of municipalities regarding statutory payments. The outstanding debt owed to municipalities had been going in the wrong direction for the past three years due to the inability of the municipalities' consumers to pay for their services. This created a huge barrier and prevented the municipalities from fulfilling their obligations. The multidisciplinary revenue committee chaired by National Treasury assisted the affected municipalities and continued to pursue the affected municipalities' customers and businesses. Household initiatives were being deliberated through intergovernmental relations to find a differentiated debt approach. SALGA was disciplining the municipalities to meet their obligations and ensure that the consumers paid for the municipal services.

COGTA had developed a programme for the 43 municipalities undergoing financial recovery plans, and was deploying capacity to resolve some of the municipal challenges.

RHAP

The Rural Health and Advocacy Project and TB Advocacy and Accountability Consortium could not answer the questions due to load-shedding. The Chairperson asked the Secretariat to follow up so that the Committee could get a response in writing.

Amandla.mobi

Ms Seopa said it was important for organisations such as Amandla.mobi, which had been advocating for social grants, to stress that social grants were not against job creation. No one wanted to depend on grants for the rest of their lives, but when people had nowhere to turn, they often found themselves needing interventions like grants to survive. The organisation came here every year to demand things like basic income grants because it was the most immediate way to support households. The reality was that it was impossible for many people to get jobs. Grants did not stop government from creating jobs and business opportunities. The demand for grants should be a motivation for the government to find more efficient ways to allow people to support themselves.

She stressed that a wealth tax would exclude the middle income earners. Taxing the rich meant expanding and increasing the tax base for multi-millionaires and people who owned luxury assets, mining companies and corporate tax. She was aware that SARS was already checking people who had attained luxury and were not paying appropriate taxes. It was true to some extent that rich people were leaving the country, but people who found economic success barely relocated and were always "dodging" to avoid paying more tax. She said if the wealthy could not be taxed, it would remain government’s responsibility to find other ways to fund interventions that would lift people out of poverty. She stressed that the intervention must not in any way come back to bite the poor through raising VAT.

Section 27

Ms Lencoasa clarified that Section 27 had not said that the NHI would not work. She agreed that Section 27 supported gender-based funding.

The Chairperson said that there were a lot of young people and young women who had appeared before the Committee today. He said that all committees needed to acknowledge and encourage this, because it showed that young people were interested in government, the people and the country's future. He said the government was responsive and listened to the needs of the people, so the social grant had been extended further to address societal needs.

COSATU

Mr Parks said that not enough attention was being paid to the deterioration of local government by SALGA, COGTA and the provincial governments. Most of the municipalities were run by coalition governments, which called for all the political parties across the aisle to also take responsibility. He said that 90% of the local governments were in financial distress due to a lack of capacity and leadership. There were reports in the Citizen newspaper on the increase of municipalities unable to provide healthy water to their communities.

He stressed that workers provided labour to address some of the municipal issues, run hospitals, and build farms and companies. Doctors and the nurses sometimes worked extra shifts in the hospitals because they sometimes filled two or more positions. Teachers further volunteered to conduct weekend teaching camps. Many workers have paid with their lives during COVID-19. He said that most of the companies on the stock market depended upon the investment of workers' pension funds. Some workers were murdered in Limpopo when they blew the whistle on the VBS scandal. The same occurred in Gauteng when people stood up against corruption.

Unions participated in government's Local Economic Development (LED) and Sector Master Plans that addressed issues and increased productivity in agriculture, poultry, motor and manufacturing industries ,etc. COSATU had worked with government and business to release R64 billion from the Unemployment Insurance Fund (UIF) to assist half a million workers who had lost wages due to COVID-19 over the past two years.

He hoped government could hold COGTA, SALGA, municipalities and provincial governments accountable for the non-payment of salaries and deductions. It was criminal, because when these workers retired, they were penniless. The municipal managers should be charged for "pick-pocketing" the workers. There should be consequence management. He pleaded with the National Council Of Provinces delegates to put pressure on government, especially in the Northern Cape, Eastern Cape, North West and the Free State.

COSATU was frustrated about the increasing ESKOM debt, because ESKOM had entered into an agreement of debt repayment with the municipalities. The municipal managers had not honoured those agreements. One could not allow the municipalities to take money from consumers and keep it without paying ESKOM. He said that debt relief could be a solution to some of the impoverished communities where unemployment was high. However, there needed to be a solution to move every citizen to prepaid electricity. If one had petrol stations where one paid when one felt like it, those petrol stations would collapse. No sector of the economy was operated like that, yet there was surprise that ESKOM could not invest in maintenance and regeneration capacity. ESKOM loses around R40 billion annually, which almost equated to municipal debts.

Mr Parks said it would make sense to synchronise the national, provincial and municipal governments' budgets to address stability and the sustainability of government. It was alarming that COGTA was silent on synchronising the budgets, when 40% of the provincial government expenditure was spent on them.

He believed that the Post Office would further be decapacitated, adding that rural post offices were closing due to non-payment of rentals. He was glad that government was pursuing two options for Post Offices. The SA Post Bank Ltd Amendment Bill was before the Portfolio Committee on Communications, and would allow for the proper establishment of the Post Bank into a fully-fledged bank to provide banking and commercial services to social grant recipients and rural communities. The Post Office Bill would expand its products, such as courier services, including government services. He thought repositioning the Post Bank and Post Office would save the Post Office, which would require recapitalisation and proper management.

Mr Parks was worried about the Tongaat Hulett situation due to corruption. He said the private sector must also be held accountable for corruption, with real consequences. The Sugar Master Plan would stabilise the sugar industry in Mpumalanga and KwaZulu-Natal.

There was a need to discuss what could be done to rebuild local government and rural towns, because municipalities could not provide roads, sanitation, electricity and water. Companies were going to close, and one would continue to see people migrating from rural towns in search of better opportunities.

COSATU had been working with the Department of Trade, Industry and Competition to look into banning scrap metal exports and arresting those responsible for cable theft at the metro rails. Steps needed to be deployed by the Department of Defense to protect the railway infrastructure before it was completely destroyed. COSATU wanted to encourage the partnership between Transnet, private sector security and mining industries, to protect the railway infrastructure, because it was critical for the economy.

National Treasury

Ms Wendy Fanoe, Chief Director: Intergovernmental Policy and Planning, National Treasury, said that many municipalities were struggling, and various types of interventions were required due to bad management, governance and limited funding from the national fiscus. A working group had been established by the Department of Cooperative Governance and National Treasury to look at the issues highlighted. She acknowledged that there were inefficiencies within the local government system, and one needed to see if the issues were operational, infrastructural, or a combination of both. National Treasury would look into the spending capacity of the municipalities and the usage of the local government equitable shares. The equitable share portion was much larger than the equitable share for free basic services targeted at poor households. They would look into those issues with the concerned stakeholders. A detailed review would be undertaken, and they would give feedback to Parliament on a regular basis.

The Chairperson thanked the stakeholders for being present.

Mr Ryder was concerned that the SA Postbank Ltd A/Bill, currently before the Portfolio Committee on Communications, was in fact a money bill. He asked for Treasury to comment on this when the next appeared before the Committee.

The Chairperson agreed.

The meeting was adjourned.