Hon Chairperson of the National Council of Provinces, hon Deputy Chairperson of the National Council of Provinces, hon Deputy Minister of Finance, hon MECs and hon members, the Division of Revenue Act sets out three-year allocations for an equitable share and conditional grants for provinces and local government. The contraction of the South African economy in the first half of the 2009-10 fiscal year has meant a reduction in tax revenue.
On behalf of my province, I would like to thank our government for not cutting spending over the coming medium-term even though the tax revenue will only recover slowly from its slumps. We also welcome the provision of a substantial share of nationally collected revenue from provinces to strengthen social services programmes that have an impact on human development and quality of life.
We further welcome the aggregate increase over baseline of the next Medium- Term Expenditure Framework, MTEF, period to sustain the social progress made in recent years. This will strengthen the government's broader developmental objective and further mitigate the effect of the recession on the poor.
With regard to conditional grants, we take note and welcome the introduction of four conditional grants to provinces, in particular the Expanded Public Works Programme for the social sector, which will assist greatly to ensure that home community-based care volunteers are paid. The recapitalisation grant for technical secondary schools will be used to provide equipment and facilities for these schools and improve the levels of skills required by the economy.
However, the creation of the further education and training colleges grant to facilitate the transfer of further education and training colleges to the national government caused great challenges in the Northern Cape. As part of the preparatory stage to shift the function, the amount spent by each province in this grant was ring-fenced to create the baseline for a new national grant.
The amount ring-fenced out of the province's equitable share would be received back and thus there would be no direct impact. Out of the Northern Cape equitable share baseline, an amount of R287,3 million over the MTEF period was taken away and only R160,5 million was reallocated as a conditional grant. A shortfall of R126,7 million must be financed from other equitable shares.
We further note and welcome the introduction of the Dinaledi schools grant with its intention to provide support to Dinaledi schools to enhance the quality of mathematics and science achievement in Grade 12 in these schools. Although the Expanded Public Works Programme Incentive Grant, which was introduced in the Expanded Public Works Programme, EPWP, Phase 2, is not new, we appreciate its intention to reinforce and reward public bodies that actually implement labour-intensive methods and utilise the existing infrastructure location effectively to increase the labour content of infrastructure delivery.
We further welcome the increase in the incentive amount for rural municipalities from R50 to R60 per person for a day's work. However, the challenge with the grant is that provinces and municipalities still find it difficult to integrate it through their infrastructure programme because, although it is allocated to provinces and thus included in the Appropriation Act of the province, the eligibility to access the incentive grant depends on or is based on performance in the previous quarter, once the thresholds have been met. If thresholds are not met, which is the issue in most cases, it will imply that the provinces, in real terms, will underspend their appropriate budget in that particular year. It would, however, be good practice not to appropriate indicative incentive allocations, but instead to claim from the national department as the eligible provincial departments meet their targets.
With regard to the provincial equitable share formula, does the equitable share formula adequately address the expenditure needs of the province? The fiscal disparities arise from two sources: Firstly, provinces may differ in their fiscal capacity - that is their ability to raise a particular level of revenue - given the revenue assigned to them with administrative effect. Secondly, provinces may also differ in their expenditure needs. Even when they have the same fiscal capacity, they may differ in the costs they faced in the provision of a standardised basket of public services due to geographic and climatological conditions.
In this regard, geographically large provinces such as the Northern Cape province will have to spend more on transportation infrastructure and possibly on recurrent operations in order to achieve the same level of service as smaller provinces.
Furthermore, the variations in regional prospectus are caused by two separate phenomena: Firstly, less densely populated areas typically require higher levels of government service and thus create higher costs because it is more costly to serve a population that is more spread out. Secondly, the cost of providing a standard unit of government service may be higher in less densely populated and more remote areas.
Geographically the Northern Cape shares approximately 30% of South African's land area. The institutional component of the provincial equitable share formula, which constitutes 5% of total transfers, is given to provinces in equal amounts to each province, irrespective of the size. The underlying logic is that there are fixed costs associated with the establishment of the institution for the provincial government and delivery of public services.
Given the difference in expenditure needs, does this logic still hold? It must be further noted that during the 2005-06 Division of Revenue Act, the vastness of the area of the Northern Cape was recognised and it was discovered that the amount was top-sliced to address the road infrastructure. However, the cost of delivering the service is not yet recognised. We understand that the current equitable share formula is currently under review and I think as an oversight body we must take up an active role in this process.
In conclusion, the Northern Cape province supports this Bill.