July 22, 2018

Division of Revenue Bill counts costs of grant cuts

The Division of Revenue Bill, which was passed by the National Assembly on 15 March, has got the nod from the National Council of Provinces (NCOP), and is now on its way to the President for his assent, which means it is well on its way to becoming law.

This is the Bill that divides total state revenue between national, provincial and local government, which makes it an important part of the year’s Budget, and by this stage of the financial year the pressure is on to pass the Budget so that government can get on with the job, which requires the go-ahead to spend.

You would expect that so long after Budget Day everything that needs to be said about the Minister of Finance’s Speech would already have been said, but Budget Day itself is just the start of a long process that sees the proposals scrutinised by both Houses of Parliament and public stakeholders. It’s too late to intervene at this point, but it’s never too late to take a closer look at exactly what we will have to adjust to as a country.

By now it’s widely accepted that this year’s Budget has seen an overall drop, and it’s belt-tightening time. Citizens are resigned to paying the 1% VAT increase, and are coming to terms with this and other financial shocks.

Reduction in grants is in part the result of a history of underspending or deferring payment, which is unfortunate because it raises concern about delivery in crucial areas.

Or are they? South Africans are not yet feeling the impact of cuts in government expenditure, but will soon, so it’s worthwhile taking a closer look at what we are in for. Of central importance is the fact that conditional grant allocations have been reduced nationally by R13.7 billion for the 2018 MTEF period.

Two new conditional grants at provincial level have been added. They are:

  • The Title Deeds Restoration Grant, to help eradicate the title deeds backlog. This will receive R519 million in 2018/19; 548 million in 2019/20; and R476 million in the 2020/21 financial year, and
  • The Provincial Emergency Housing Grant, which will enable the Department of Human Settlements to respond rapidly to emergencies by providing temporary housing. The grant has a total allocation of R831.8 million over the 2018 MTEF period, but it is limited to emergency housing needs following the immediate aftermath of a disaster.

The South African Local Government Association (Salga) responded by saying while it supported the creation of provincial and municipal emergency housing grants to rapidly provide temporary housing in case of disasters, it noted that the grants “were not designed to address other situations ... where evictees must be provided with alternate accommodation.

“As municipalities face a critical funding gap in this respect, Salga will be undertaking research to develop recommendations on the most appropriate funding mechanisms for temporary housing for those rendered homeless by eviction. These recommendations must be incorporated in a larger review of the human settlements grant framework envisaged for 2018.”

Reduction in grants is in part the result of a history of underspending or deferring payment, which is unfortunate because it raises concern about delivery in crucial areas.

The Human Settlements Development Grant has been decreased by R7.2 billion. This is significant because this grant was introduced in 2011 and its aim, among other things, is to upgrade informal settlements. In 2014, eradicating backlogs in bucket sanitation was added to this grant.

The School Infrastructure Backlogs Grant is another critical grant that, although inexplicably underspent, is designed to address urgent needs. This is the grant that is supposed to ensure schools, especially in the rural area, are built out of safe and suitable material, and that pit latrines are replaced. It has been reduced by R3.6 billion.

Other grants that have also been reduced include the Health Facility Revitalisation Grant, by R511 million; the Mass Participation and Sport Recreation Grant by R99 million; Community Library Services Grant by R74.9 million in 2018/19; the HIV and AIDS (Life Skills Education) Grant by R51.9 million; and the Maths, Science and Technology Grant by R50.5 million.

Cuts in grants will be felt at all three levels of government. The Municipal Infrastructure Grant has been revised downward by a total of R5.6 billion over the 2018 MTEF. The Integrated National Electrification Programme Grant has been reduced by R5 billion, and the Urban Settlements Development Grant at local level has been revised downwards by R2.2 billion.

Given the current turbulence in public transport it is sobering to note that the local level Public Transport Network Grant has been reduced by R2.1 billion, to be applied proportionately among all 13 participating cities (Buffalo City Metropolitan Municipality, City of Johannesburg Metropolitan Municipality, City of Tshwane Metropolitan Municipality, Ekurhuleni Metropolitan Municipality, eThekwini Metropolitan Municipality, George Local Municipality, Mangaung Metropolitan Municipality, City of Mbombela Local Municipality, Msunduzi Local Municipality, Nelson Mandela Bay Metropolitan Municipality, Polokwane Local Municipality, and Rustenburg Local Municipality).

The Neighbourhood Development Partnership Grant has been reduced by R347 million, which means that the implementation of some planned projects will have to be delayed. Projects that fall under the Regional Bulk Infrastructure Grant, which has been reduced by R327 million, will also be deferred to a later date, although the Bill indicates that the reductions to this grant will not affect water augmentation projects in drought-affected municipalities.

The Water Services Infrastructure Grant has been revised downwards by R259 million, which again means the implementation of some planned projects will have to be deferred to a later date, although again these reductions will also not affect water augmentation projects in drought-affected municipalities.

The Expanded Public Works Grant for Municipalities, which aims to create employment and skills opportunities for the unemployed and marginalised, has been reduced by R116.5 million.

More local level grants that have been reduced are the Local Government Financial Management Grant, Rural Roads Asset Management Systems Grant, the Integrated City Development Grant and the Infrastructure Skills Development Grant.

The Financial and Fiscal Commission said it regarded reduction in infrastructure spending as the biggest casualty. In its submission to the Committee it made the point that most of this spending is by state-owned entities (SOEs) which would continue to remain the biggest driver of capital spend, with provinces and municipalities accounting for 23 and 20 percent, respectively. The Commission made the point that planning and procurement efficiencies were needed to improve the growth effect of capital spending.

It raised concern over the R7.2 billion reduction in the Human Settlements Development Grant, it as saying, according to the Committee report, “this significant reduction in the baseline would further reduce housing outputs already on the decline in recent years while the housing backlog is on the rise.

“In addition, the Education Infrastructure Grant (EIG) has been reduced significantly by R3.6 billion, while the HIV and Aids Grant (Life Skills Education) has been reduced by R51.9 million. The Commission was of the view that cutting the baseline of the EIG, which is key to the provision of school infrastructure, would negatively affect the condition of school infrastructure and the learning processes and outcomes.”

The Commission said it supported the shifting of funds from those grants that underspend, but “it emphasised the importance of finding the root cause of poor performance and addressing those challenges instead of reducing allocations on the basis of poor performance.” The FFC warned that reductions fall disproportionately on infrastructure grants, despite the current focus on infrastructure-led growth.

“Sooner or later this burden on infrastructure grants will become self-defeating as infrastructure will deteriorate and become inadequate for continued provision of basic services, thereby hurting the poor.

“The Commission proposed that, in future, a more rigorous analysis of the performance of each grant be done before cuts are made.” The Commission further emphasised the need to undertake rigorous analysis to ascertain the impact of such reductions on households, businesses and the economy at large ‑ and to draw lessons for the future.”

This was echoed by Salga who said infrastructure spend was meant to be one of the core means of addressing economic growth and alleviating poverty and inequality.

Salga noted that local government continues to get the smallest share of the fiscus, even though by virtue of being closest to the communities, it bears the brunt of service delivery costs.

“Salga reiterated its call for a review of the vertical division of resources in the equitable share formula as well as for municipalities to be given more revenue-generating instruments in order to finance the ever-increasing service delivery needs.”

Additional Info

  • Author: Moira Levy
Last modified on Tuesday, 08 May 2018 01:31

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