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FINAL VOTING MANDATE TO: The Chairperson of the National Council of Provinces.

Hon A Masondo NAME OF BILL: Division of Revenue Bill NUMBER OF BILL: [B2-2023] DATE OF DELIBERATION: 28 April 2023 VOTE OF THE LEGISLATURE: The Gauteng Provincial Legislature supports the principle and detail of the bill and therefore votes in favour of- • Division of Revenue Bill ___________________ HON NTOMBI MEKGWE SPEAKER GAUTENG PROVINCIAL LEGISLATURE Date: 02 May 2023 FINANCE PORTFOLIO COMMITTEE 1.
THE DIVISION OF REVENUE BILL [B2-2023] –FINAL VOTING MANDATE The Chairperson of the Finance Portfolio Committee (Portfolio Committee), Mr. T. Munyai tabled a report on the Division of Revenue Bill [B2-2023] 1.1 INTRODUCTION The Division of Revenue Bill [B2-2023] was tabled by the Minister of Finance in the National Assembly on 22 February 2023.
The Bill is introduced in terms of section 76 of the Constitution of the Republic of South Africa, 1996 (“the Constitution”) and it is widely referred to as a section 76 Bill.

The Bill is introduced annually to give effect to Section 214(1) of the Constitution and the Intergovernmental Fiscal Relations Act, 1990 (“IGFRA”).

The Bill provides for the equitable division of revenue anticipated to be raised nationally among the national, provincial, and local spheres of government for the 2022/23 fiscal year.
The medium-term fiscal policy is focusing on reducing the budget deficit and stabilizing debt-to GDP ratio.

Therefore, over the medium term, restoring fiscal sustainability requires continued restraint in expenditure growth and reforms to raise economic growth.
To this extent the 2023 budget suggests additional allocations to address immediate spending pressures, including extending the COVID-19 social relief of distress grant for 12 months until March 2024, and bolstering provincial transfers for health and education.

Setting aside a portion of higher-than-expected revenue to narrow the budget deficit.

This mitigates the impact of higher interest rates on debt-service costs and improves the longer-term debt outlook.
Finally, supporting economic growth through a range of reforms, including the infrastructure build programme financed through innovative funding mechanisms and supported by improved technical capabilities.

1.2 PROCESS FOLLOWED The Speaker of the Gauteng Provincial Legislature formally referred the Bill to the Finance Portfolio Committee (“Portfolio Committee”) for consideration in terms of Gauteng Provincial Legislature Standing Rule 245(1) read with 247 (1) and 248.
On Friday, 21 April 2023, the Portfolio Committee received a briefing on the Bill from the NCOP permanent delegate, Hon.

Dennis Ryder, supported by officials from National Treasury.

As required by the Standing Rules of the Gauteng Provincial Legislature, the Portfolio Committee invited public submission on the Bill through print media.

No submissions were received.


1 On Tuesday, 25 April 2023, the Portfolio Committee received the Gauteng Executive Council’s view, the socio-economic impact analysis, and the legal opinion on the Bill.

Thereafter, the Committee deliberated on the Bill.

After deliberations, the Committee adopted its report on the Bill to be tabled at the NCOP plenary.
The Portfolio Committee received minutes from the Select Committee of Appropriations on the Negotiating Mandate, on Wednesday, 26 April 2023, which confirmed that there were no amendments to the Bill and 8 provinces voted in favour of the Bill, and the Western Cape province did not vote in favour of the Bill.
On Friday, 28 April 2023, the Portfolio Committee deliberated and adopted a report on the Division of Revenue Bill (Final Voting Mandate) and mandates the Gauteng permanent delegate to vote in favour of the Bill.
1.3 PRINCIPLE AND DETAIL OF THE BILL AND THE GOVERNMENT’S POLICY PRIORITIES FOR THE 2023 MTEF To provide for the equitable division of revenue raised nationally among the national, provincial, and local spheres of government for the 2023/24 financial year; the determination of each province’s equitable share; allocations to provinces, local government, and municipalities from national government’s equitable share; the responsibilities of all three spheres pursuant to such division and allocations; and to provide for matters connected therewith.
The allocations to the three spheres of government for the 2023/24 fiscal year and MTEF are informed by national interest encapsulated in government priorities that benefit the nation.

These priorities are outlined in the National Development Plan, which sets out the countries long-term development trajectory.
Complemented by the strategic integrated projects overseen by the Presidential Infrastructure Coordinating Council and the seven priority outcomes adopted by Cabinet in 2019-2024 Medium Term Strategic Framework (MTSF).
In addition, the Division of Revenue for the 2023/24 financial year is mainly in line with the recommendations made by the Financial and Fiscal Commission (“FFC”), which is mandated by Section 220 of the Constitution to provide information to all organs of state to make informed decisions about complex fiscal matters.

The FFC consults on these matters with all the three spheres of government.
1.4 CONSTITUTIONAL AND STATUTORY FRAMEWORK Section 214 of the Constitution requires that an Act of Parliament must provide for: ➢ The equitable division of revenue raised nationally among National, Provincial, and Local spheres of government; ➢ The determination of each province’s equitable share of the provincial share of that revenue; and ➢ Any other allocations to provinces, local government, or municipalities from the national government’s share of that revenue, and for any conditions on which those allocations may be made.
2 Furthermore, section 7(3) of the Money Bills Amendment Procedure and Related Matters Act, 2009, requires the introduction of the Division of Revenue Bill be at the same time as the Appropriation Bill is introduced.

The Intergovernmental Fiscal Relations Act 97 of 1997 sets out the process for the division of nationally raised revenues between the three spheres of government.

It establishes the Budget Forum, in which local government issues are discussed as part of the national budget process.
It also requires that a Division of Revenue Bill be tabled annually, setting out (among other things) the amounts to be transferred to each municipality.

The Bill seeks to amongst others, give effect to the provisions of Section 214 of the Constitution.
These include national interest and the division of resources, provision for debt costs, national government’s needs and interests, provincial and local government basic services, fiscal capacity and efficiency, developmental needs, economic disparities, obligations of terms of national legislation, predictability, and stability, and of importance, flexibility in responding to disasters.
The Portfolio Committee noted that the introduction of the bill complies with the Constitution, the Intergovernmental Fiscal Relations Act, 1997, and the Money Bills Amendment Procedure and Related Matters Act, 2009.

1.5 OUTCOME OF THE NEGOTIATING PROCESS The Committee mandated Hon.
Ryder to table the negotiating in favour of the Bill, with the following recommendations: 1.5.1 1.5.2 That by virtue of local government being at the coalface of service delivery, National Treasury should consider amending conditional grants into indirect grant as a last resort, but instead capacitate municipalities to spend allocated funds prudently; That National Treasury should ensure that equitable share formula is based on recent data, as lack of up-to-date data due to the suspension of General Household Survey in 2021, compromises informed policy-making decisions; 1.5.3 That National Treasury should explain the conspicuous omission of the funding for the implementation of the Developmental District Model in the 2023 budget; and 1.5.4 That National Treasury should consider capacitating municipalities to harness their own finances to circumvent instances of unfunded budgets, as a consequence of the subdued economic environment.
1.6 OPINION OF THE PROVINCIAL EXECUTIVE COUNCIL ON THE BILL The Portfolio Committee noted that the Provincial Executive Council supports the 2023 Division of Revenue Bill.

1.7 SOCIO-ECONOMIC IMPACT 3 South Africa suffered enormous damage from major shocks – of COVID‐19 pandemic, an outbreak of public violence and the escalating electricity crisis – dealt additional blows to the economy and put the already strained national budget under more pressure.
The continued threat of COVID-19 pandemic and the impact of the Russian-Ukraine war in Europe remains.

These events affect global economy and negatively affect South African and Gauteng economy as well as the lives of citizens.

In addition to these events, the persistent increase in fuel prices, rolling load shedding and slow economic recovery continue to subject the province to operate under difficult fiscal environment.
To promote provincial economic recovery, the Provincial Government has focused on its Growing Gauteng Together 2030 Plan and the Elevated Priorities.

Some of the activities to mitigate negative impact on the economy and lives includes investing in commodities to improve exports; National Treasury commitment to fight crime and support health and education through funding; scrapping of the e-Tolls; and dealing with the ESKOM debt.
These measures support upscaling of the Gauteng Provincial Government GGT2030 plans and the Elevated priorities towards improving the lives of Gauteng residents.

Notwithstanding the challenges brought about by the Covid-19 pandemic, there are some green shoots emerging that signal the economic recovery such as higher than anticipated revenue, and positive economic growth outlook.
The comprehensive agricultural support programme grant aims to support newly established and emerging farmers, particularly subsistence, smallholder and previously disadvantaged farmers.

The grant funds a range of projects, including providing training, developing Agri processing infrastructure and directly supporting targeted farmers.

The 2023 Budget proposes R254 billion in debt relief to Eskom.
This arrangement, subject to strict conditions, will relieve extreme pressure on the utility’s balance sheet, enabling it to conduct necessary maintenance.

It also supports restructuring the electricity market to help South Africa establish a stable, uninterrupted power supply as it transitions to a clean energy future.

The scale of Eskom debt relief increases government borrowing, resulting in debt stabilising later than projected in the 2022 Medium Term Budget Policy Statement.
Public debt is now set to stabilise at 73.6 per cent of GDP in 2025/26 and decline thereafter.

In 2022, the economy is estimated to have grown by 2.5 per cent, supported by high commodity prices and strong third‐quarter performances in agriculture and services.

In 2023, the global economic growth is expected to slow, commodity prices are declining and there is no immediate end in sight to power cuts.
The additional funds are mainly to extend the COVID-19 social relief of distress grant until 31 March 2024, improve investment in local and provincial government infrastructure, and support safety and security, education, and health services.

As a result, main budget non-interest spending increases by a net total of R128.4 billion over the MTEF period compared to the projections included in the 2022 Budget.
Furthermore, the Bill indicated that Government allocates an average of 51 per cent of consolidated spending to the social wage over the medium term, to address poverty and unemployment and to support the economic recovery.

It was reported in 2023 Budget, that healthy public finances could help build a prosperous future while supporting the poor and vulnerable South Africans.

Additional, South Africa spends more to service its debt than it does on health, social development, or peace and security.
There has also been a tendency to favour recurrent expenditure over investment, weakening our growth potential even further.

Over time, stronger public finances will enable government to spend less on debt service, 4 which consumes 18 cents of every rand of revenue, and spend more on developmental priorities, including public infrastructure.
1.8 FINANCIAL IMPLICATIONS OF THE BILL All budgets are about finding a delicate balance, that is, weighing present and future needs, evaluating competing needs encapsulated in the national development plans and managing revenue and expenditure to enhance service delivery.

The South African government is not immune to these budgetary challenges.
Thus, the 2023 Budget strikes a balance between building institutional capacity and ensuring real growth in transfers to provinces and municipalities to meet the needs of growing populations.

The provinces are responsible for basic education, health, roads, human settlements, social development and agriculture.

Whilst municipalities provide basic services such as water, sanitation, electricity reticulation, roads and community services.
To mitigate this delicate situation, the 2023 Budget increases allocations for all three spheres of government to assist with urgent spending pressures.

Over the medium term, direct provincial allocations will increase by R92.7 billion to R2.17 trillion.

This increase consists of R76.9 billion added to the provincial equitable share and R15.8 billion added to direct conditional grants.
Local government allocations will increase by a total of R14.3 billion, made up of R8.1 billion in the local government equitable share and R6.2 billion in direct conditional grants.

This takes the total direct allocation to R521.7 billion over the same period.

These allocations alleviate some of the financial pressures, particularly in health, education and basic services, where the costs of providing services are rising.
The Portfolio Committee welcomes the increase in local government direct and indirect allocations as municipalities are at a coalface of service delivery.

Owing to the improved tax revenue estimates experienced in 2022/23 FY, and projected increases in tax revenue over the 2023 MTEF period, government proposes a minor increase in non-interest spending compared with the 2022 budget projections.
As a result, the total main budget non-interest expenditure is projected to increase by R128.4 billion over the 2023 MTEF period as follows: R37.1 billion in the 2023/24 FY, R42.1 billion in 2024/25 FY and R49.3 billion in 2025/26FY.
The national share of revenue increases at an annual average rate of 0.9%, transfers to provinces increases and an annual average rate of 2.8%, while transfers to local government grow at an average annual average rate of 7.4%, due to higher than inflation growth in the equitable share.

Although the revenue base is concentrated in urban areas, rural areas receive more per capita allocations through the division of revenue.
This is evident in that transfers per household to most rural municipalities are more than twice as large as those to metropolitan municipalities.

Furthermore, rural provinces receive higher allocation per capita than urban provinces.

The Portfolio Committee commends government for providing social safety nets for the poor and encourages redistributive ethos of the division of revenue to continue unabated.
The reprioritisation of government spending aims to redirect public resources to spending areas that promote the attainment of government policy priorities, while remaining within the expenditure envelope.

The 2023 Budget allocates additional funding totalling R227 billion over the MTEF period.
These funds mostly address shortfalls in compensation budgets for provincial education and health departments resulting from previous budget reductions; enable hiring of new staff in safety and security departments and entities to fight crime and corruption while improving service delivery; and improve infrastructure investment in local and provincial government.
5 Excluding the debt-service costs and the contingency reserves, the total revenue raised and to be allocated between the three spheres of government, amounts to R1.70 trillion in the 2023/24 FY, increasing to R1.74 trillion in the 2024/25 FY and climaxing to R1.82 trillion in the 2025/26 FY.
Of importance, the Portfolio Committee noted that these allocations take into consideration government’s spending priorities, economic and fiscal policy considerations, revenue issues, debt and financing considerations and expenditure plans.
CHANGES TO PROVINCIAL ALLOCATIONS Table 1: Total Transfers to provinces, 2023/24 Equitable Share R million Conditional Grants Total Transfers Eastern Cape Free State Gauteng Kwa-Zulu Natal Limpopo Mpumalanga Northern Cape North West Western Cape Unallocated Total Source: National Treasury 73 292 31 380 120 752 115 948 65 349 46 674 15 150 40 096 58 886 - Table 1 above is a graphical representation of total transfers to provinces for the 2023/24 financial year.
Over the MTEF period, provincial transfers will grow at an average annual rate of 2.8 per cent.

In 2023/24, a total of R567.5 billion is allocated to the provincial equitable share and R127.5 billion to conditional grants, which includes an unallocated amount of R146 million for the provincial disaster response grant.

To this extent, Gauteng Province receives R120.7 billion from the equitable share allocation and R27 billion for conditional grants in 2023/24 financial year which amounts to R148 billion.
The Portfolio Committee noted that provincial equitable share grows at an average annual growth rate of 2.5%, whilst conditional grants at 4.3%.

Of importance the fiscal framework takes into consideration different challenges facing each province and allocates larger per capita allocations to poorer provinces, and provinces with smaller populations.

Thereby, reinforcing the redistributive ethos of the equitable share.
1.9 FINAL POSITION ADOPTED BY COMMITTEE After due consideration, the Finance Portfolio Committee in accordance with Rule 163 read with Rule 164, adopted the report in support of the Division of Revenue Bill [B2-2023] Section 76, as referred and recommends its adoption by the House.

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