Debate on the Division of Revenue Bill by Minister Mondli Gungubele in the National Assembly

13 March 2019

Madam Speaker,  Honourable Members

Good afternoon. 

This Division of Revenue Bill appropriates R1.66 trillion to be spent by the three Spheres of government in the next financial year. Over the next three years the amounts allocated to national, provincial and local governments all grow faster than inflation. This means that even after accounting for the rise in prices, each sphere will have more to spend on services than in the previous year. We are also planning to investment R865 billion in public-sector infrastructure projects over the next three years that will lay the foundation for faster economic growth. It is hard to look at a budget like this, with growing spending and investment and call it “an austerity budget.”  

 Yes, we have made cuts where we had to, to free up resources to invest in infrastructure and the turnaround of Eskom. As responsible custodians of the nation’s fiscal resources, we could not spend more on these areas without being willing to make adjustments elsewhere to fund them. But we have tried to limit these reductions and take them only from the programmes where they will have the smallest negative impact on delivery. 

Promoting growth

South Africa is emerging from a long period where our economic growth has been stubbornly below potential. We are determined to change this, and the Budget and this Division of Revenue Bill make a decisive contribution towards that. Over the medium term, this Bill funds investments of R36.5 billion in provincial roads, over R40 billion in school infrastructure (including the eradication of unsafe sanitation facilities), over R23 billion for health facilities and over R130 billion towards municipal infrastructure. 

in roads, basic services, public transport, schools and hospitals that are foundational to our economic prospects. 

We are also introducing changes to promote the increased use of partnerships between provincial and local governments and the private sector and communities to solve public sector challenges. Examples in this Bill include:

  • Assisting the Land Bank to subsidise the cost of loans to emerging farmers.
  • Establishing a market for private companies to fund the retrofitting of municipalities with more energy efficient technologies. Municipalities will be able to use their savings on electricity costs to pay for this infrastructure.
  • Partnering with communities to upgrade informal settlements.
  • The conditional grant system is also being changed to explicitly incentivise greater own-revenue investment by cities in their infrastructure.

These measures are complimented by a review of the municipal borrowing policy that seeks to broaden the number of municipalities that can access private capital to fund investment. Later this year we intend to table amendments to the Municipal Fiscal Powers and Functions Act that will enable regulation of development charges that could add up to R20 billion a year to municipal capital investments. An amount that can make a tremendous contribution to expanding the ability of cities to invest in much needed upgrades to their economic infrastructure!

But these partnerships to increase investment - and indeed our efforts to improve the financial sustainability of municipalities more broadly - will only work if residents pay for the services they receive.  Municipal finances will only be sustainable if residents pay for the services they use. As we said in the Budget

Speech, “Thuma mina, pay your municipal bills on time!”

Protecting the poor

Of course, we also know that there are still too many South Africans who cannot afford to pay for their own basic needs. As a result, the bulk of the spending funded through this Bill is for the provision of free and subsidised services to take care of the poor and vulnerable in our society. 

  • The Local Government Equitable Share funds free basic services subsidies for an estimated 10 million households.
  • The Provincial Equitable Share funds public schools and health facilities that provide free schooling and healthcare to the majority of our people.
  • The National School Nutrition Programme Grant allocated through this Bill funds free meals for over 9 million learners, delivered at 20 000 schools every school day - ensuring even the poorest learners do not have to learn on an empty stomach.
  • The HIV, TB, Malaria and Community Outreach Grant funds the largest programme of antiretroviral treatment in the world providing treatment to over 4 million people.

Funding programmes like these, that provide for the basic needs of people and give our children the start in life they need to build better futures for themselves, are at the heart of what this Bill funds and what government does. 

If a budget is a reflection of how a government prioritises its values, then I think it speaks well of South Africa - and of this government - that more than 60 percent of our consolidated expenditure is allocated to social services like these. 

Redistribution

The Division of Revenue Bill also acknowledges that the legacy of apartheid and selective underdevelopment has impacted parts of the country very differently. In response, the allocations in this Bill serve as a powerful tool for redistribution. In a society as highly unequal as ours, inevitably the majority of our tax base is located in wealthier urban areas. But the allocations to provinces and municipalities made through this Bill redistribute that tax revenue to fund spending across all parts of the country. It compensates for the lower revenue raising ability of rural areas, with allocations per household to rural municipalities that are more than twice as large as those to metropolitan municipalities.

Rebuilding state institutions

The impact of the programmes funded through this Bill ultimately depends on the provinces and municipalities responsible for implementing them. In many cases their institutional capacity needs to be rebuilt to enable them to deliver effectively.  This Bill acknowledges this reality and includes several measures to fund increased capacity and incentivise improved performance4

Conclusion

The 2019 Division of Revenue Bill achieves an impressive redistribution of funds from taxes raised on the wealthy, to fund the provision of services to people in all parts of our country. At the same time, it invests in rebuilding state capacity and strengthening the foundations of future economic growth and promoting new partnerships through which government can improve delivery and stimulate much needed economic growth.