Hon Chairperson, hon members, the Division of Revenue Amendment Bill was tabled in Parliament on 25 October by the Minister of Finance during the 2011 Medium-Term Budget Policy Statement. The Bill is introduced in compliance with the requirements of the Constitution and the Money Bills Amendment Procedure and Related Matters Act, section 12(4) which states that "the Minister of Finance must table the Division of Revenue Amendment Bill with the revised fiscal framework if the adjustments budget effects changes to the Division of Revenue Act for the relevant year". As the adjustments for 2011 effect changes to the Division of Revenue Act, it is necessary for the Bill to be tabled with the adjusted budget.
The Bill addresses the following: firstly, additional unconditional and conditional allocations to provinces and municipalities; secondly, the allocation of unallocated conditional allocations to provinces and municipalities; thirdly, the reallocation of conditional allocations to provinces and municipalities not transferred by national departments during the 2010-11 financial year; fourthly, increases to a conditional allocation to a province or municipality through virements under section 43 of the Public Finance Management Act or section 28(2)(d) of the Local Government: Municipal Finance Management Act, as the case may be; and lastly, the reallocation of conditional allocations that were not correctly reflected in the schedules of the Division of Revenue Act.
The net effect of the 2011 adjustments is a reduction in the 2011-12 estimates of expenditure from R888,9 billion to R888,0 billion. The national allocation has been adjusted downwards by R4,1 billion from R566,3 billion to R562,2 billion. The provincial equitable share allocation is adjusted upwards by R3,2 billion and the local government equitable share allocation remains unchanged.
The provincial equitable share is adjusted upwards from R288,5 billion to R291,7 billion to provide for higher remuneration increases than provided for in the main Budget. This represents a 1,3% shortfall in the initial allocation. The allocation qualified as unavoidable or unforeseen because provinces budgeted only 5,5% for wage increases, and the agreements reached between labour and government resulted in an increase of 6,8%. The risk if this shortfall is not funded is that provinces would be forced to hold back on expenditure needed for other areas of service delivery.
The Bill provides for new conditional grants to provinces for the repair of infrastructure damaged by floods in the 2010-11 financial year. The funds are divided between provinces based on the assessment of flood damage by the National Disaster Management Centre. The funding will be rolled out as follows: R180 million through the Housing Disaster Relief Grant; R240 million through the Transport Disaster Management Grant; and R149,6 million through the Agriculture Disaster Management Grant.
The Bill further provides for adjustments to the existing conditional grants as follows: the Education Infrastructure Grant is adjusted upwards by R180 million and the Health Infrastructure Grant is adjusted upwards by R2,6 million. The Bill also shows that there is a total of R1,2 billion in approved conditional grants rolled over to the current financial year. While the Division of Revenue Act makes provision for withholding and stopping of funds where there is noncompliance with the Act, we wish to caution against abuse of this provision by departments.
We have observed with concern the continued underexpenditure by different provincial departments on various conditional grants and the tendency of transferring funds to municipalities under the pretext that such transfers represent actual expenditure. There are, of course, numerous reasons for this situation, such as capacity constraints; poor project management; responsibility and accountability issues; corruption; a limited number of suitably qualified contractors; as well as poor monitoring and evaluation of project plans. Emphasis here should be placed on the need to ensure that provinces spend efficiently and that allocated budgets are not overspent on personnel or underspent on capital and maintenance budgets.
The Division of Revenue Amendment Bill makes provision for the distribution of unallocated Schools Infrastructure Backlog Grant funds in the 2011 Division of Revenue Act to the provinces. This grant of R700 million is meant for the eradication of inappropriate school structures in provinces.
The provincial distribution is allocated as follows: the Eastern Cape has been allocated R520,7 million; the Free State R22,3 million; Gauteng R6,7 million; KwaZulu-Natal R46,2 million; Limpopo R41,7 million; Mpumalanga R38,3 million; the Northern Cape R8,0 million; the North West R11,1 million and the Western Cape R5,2 million.
In the local government sphere the following rollovers are proposed for adjustments: R3,15 million for the Water Services Operating Subsidy Grant to Lephalale Local Municipality in Limpopo; R26 million for the Rural Households Infrastructure Grant, an indirect grant implemented by the national Department of Human Settlements to fast-track the roll-out of on- site water and sanitation solutions; and R10,6 million for the Regional Bulk Infrastructure Grant, an indirect grant through which the national Department of Water and Environmental Affairs builds bulk water supply systems that cross municipal boundaries on behalf of municipalities.
The Bill also approves a reduction in the Bulk Infrastructure Grant from an amount of R1,7 billion by R28,6 million. The R28,6 million is earmarked for feasibility studies of projects that may potentially be funded through the grant. A further transfer of R21,6 million from the direct Water Operating Subsidy Grant to the indirect Water Service Operating Subsidy Grant has been approved. Of this amount, R18,4 million comes from the recovery of the previous overpayment to Vhembe District Municipality and a further R3,15 million will be funded from the rollover of funds mentioned previously.
The Bill allocates R790 000 to the North West, NW397, municipality. This is a new municipality formed by the merger of Kagisano and Molopo local municipalities, which were not allocated funds in the 2011 Division of Revenue Act.
The Bill shows that an amount of R50 million was unallocated in the 2011 Division of Revenue Act with respect of the Financial Management Grant. An amount of R11 million has been declared as savings and will be returned to the National Revenue Fund, while R39 million will be allocated to municipalities for a new engineering internship programme. Through this programme recent engineering graduates and technicians from universities of technology and scientists will be employed to deal with water quality issues.
The Bill also provides an amount of R266 million for a once-off gratuity for nonreturning municipal councillors after the 2011 municipal elections. This amount will be reflected on the Vote of the national Department for Co- operative Governance and Traditional Affairs as part of the 2011 Adjustment Appropriation Bill.
In conclusion, we submit that adequate capacity remains a critical concern for municipalities and provincial governments. The availability of appropriately skilled human capital capable of ensuring solid financial management practices and strategic planning will go a long way in addressing some of the challenges facing the three spheres of government. We call on all committees to monitor the utilisation of these additional grant allocations through the in-year monitoring process that forms part of parliamentary oversight. This will enable committees to check whether financial legislation such as the Division of Revenue Act, the Public Finance Management Act and the Local Government: Municipal Finance Management Act are adhered to by the provincial and local government spheres.
The committee will also monitor the efficiency of the administration in compiling and explaining various schedules so that schedules are not incorrectly recorded, classified or misplaced in the process. Hon Chairperson, on that note I move for the adoption of the Bill and the report thereon. Thank you.
Debate concluded.
Question put: That the Bill be agreed to. IN FAVOUR: Eastern Cape, Free State, Gauteng, KwaZulu-Natal, Limpopo, Mpumalanga, Northern Cape, North West, Western Cape.
Bill accordingly agreed to in accordance with section 65 of the Constitution.