Division of Revenue Bill 2008 B 4 2008

Division of Revenue Bill 2008 [B 4 -2008] Select Committee on Finance 26 February 2008 Lungisa Fuzile, Kenneth Brown, Jonathan Patrick, Jo-Ann Ferreira

Outline • Lay out of Bill and contents • Division of Revenue Bill – Changes to the 2007 Division of Revenue Act • Fiscal Framework • FFC proposals and government’s response • Provincial & LG allocations 2

Changes to the 2007 Act • Technical changes to improve readability of the Bill, better align different sections and further facilitate implementation • Low capacity municipalities: All provisions that provided for the management of grants made to low capacity municipalities by provinces or other municipalities have been deleted 3

Changes to the 2007 Act • Accreditation: The 2007 provisions have been removed • Extension of reporting requirements: Provinces using public entities to deliver functions (such as housing) must report on such transfers and expenditure 4

Changes to the 2007 Act • Municipal Infrastructure Grant: The provisions relating to this grant has been amended to – – extend the reporting obligation of municipalities to include reporting on non-financial performance – place a reporting obligation on the transferring national department to monthly report on the implementation of the grant to the National Treasury and other national departments that have an interest in the grant 5

Changes to the 2007 Act • 2010 FIFA World Cup Stadiums Development Grant: – The conditions of this grant have been extended. Municipalities must ensure, by no later than 1 June 2008, that any financial obligations of the municipality in terms of contracts and sub-contracts entered into for the construction or upgrading of the relevant stadium and supporting infrastructure expenditure are quantified and no longer negotiable 6

Changes to the 2007 Act • Duties of Provincial Treasuries: – The information that must be published as part of the budget documentation of the province has been extended to include detailed housing allocations to municipalities and schools, and the budgets of provincial hospitals – Alignment with municipal IDPs in respect of infrastructure plans a new requirement 7

Changes to the 2007 Act • Stopping of allocations: NT may authorise • Preparations for the next financial year and the 2010/11 financial year: This section has been intervening (s 100 of the Constitution) transferring national officer to spend allocation on behalf of province amended and extended to facilitate better planning. Municipalities receiving the Municipal Infrastructure Grant are required to prepare infrastructure plans and provinces receiving the Integrated Housing and Human Settlement Development allocation must agree allocations with municipalities identified by the transferring national officer in consultation with NT prior to the commencement of the next financial year 8

2008 Division of Revenue Bill • Section 76(4) Bill of Constitution requires that Do. R Bill must be tabled in NA, and go to NCOP thereafter • Clauses 1 -49 of the Bill • Schedules 1 -7 divide revenue between 3 spheres and within spheres • Memo on objectives of Bill • Explanatory attachments: – Annexure W 1 – Appendix W 2 & W 3: Frameworks on all conditional grants (provincial and local) – Appendix W 4 to W 8: LG allocations by municipality for both national & municipal financial year 9

2008 DOR Bill: Schedules • Schedule 1: Division of Revenue between the 3 spheres • Schedule 2: Provincial equitable shares among the 9 provinces • Schedule 3: LG equitable shares among 283 municipalities • Schedule 4: Other transfers to provinces and municipalities supplementing programmes funded from ‘own resources’ • Schedule 5: Specific purpose allocations to provinces • Schedule 6: Specific purpose allocations to municipalities • Schedule 7: Allocations in-kind to municipalities 10

Budget Review Chap 8 & Do. RB Annex W 1 • Chapters 7 and 8 of Budget Review summarise national/provincial/local government funding • Annexure W 1 of Do. RB provides greater detail • Five parts to Annexure W 1 – Part 1: deals with the division of revenue between the 3 spheres and how it takes section 214(2)(a to j) into account – Part 2: Government’s response to FFC proposals – Part 3: deals with the allocations to provinces – Part 4: deals with the local government allocations – Part 5: concludes with fiscal framework issues in prov/LG that need further work 11

Appendices W 2 and W 3 • Grant frameworks in Appendix W 2 & W 3 – To be gazetted within 14 days of Bill taking effect • Thereafter frameworks become legally binding • Measurable outputs & conditions • Allocation criteria – Some use sector data (e. g. enrolment in education) • Past performance – 2006/07 audit outcomes (financial) – 2006/07 non-financial • • Planning for 2009/10 Responsibilities of national departments Grant review process for health grants Transferring dept quarterly reports 12

Appendices W 4 to W 8 • Local government allocations per municipality in Appendices W 4 to W 6 • Total allocation per municipality in W 7 • National AND municipal financial year • W 8 – detailed breakdown of the local government equitable shares per municipality – Formula portion – RSC levies – Councillor remuneration 13

Fiscal Framework Parts 1 and 2 of Annexure W 1

FFC proposals • Response should be viewed against the review of LG and Provincial fiscal frameworks • Budget Council considered provincial proposals • Budget Forum considered LG proposal • All spheres deliberated on the proposals and response at Extended Cabinet 15

Process to consider FFC proposals • FFC Submission: Do. R 2008/09 (including supplementary submissions) – Focus is on 7 issues – Economic impacts of the 2010 FIFA World Cup – Extending the national school nutrition program to secondary schools – Financing school infrastructure and education outcomes – A clear definition of and a separate budget line item for learner support material – Addressing of challenges with the implementation of the nofee school policy – Roads and transport infrastructure • A more effective road management system • Consider provincial road expenditure needs in impending review of the PES – Collection of data on homelessness 16

Other proposals • Part B of the recommendations deal with the supplementary submissions made during 2006/07. These have been dealt with in 2006 and 2007 • Part C of the proposals looks at budget analysis; a model for sharing nationally raised revenue; and provides a framework for assessing function shifts. – Work in progress 17

Division of revenue 18

Division of revenue 19

Division of revenue 20

Provincial fiscal framework Part 3 of Annexure W 1

Provincial priorities • R 45. 7 billion added to provincial share – R 33. 2 billion to the equitable share and R 12. 5 billion to conditional grants • Personnel adjustments – Interventions to recruit and retain social services personnel – 2007 wage agreement – OSD for educators, health professionals, social workers 22

Provincial priorities • In education – Grade R – Learners with special needs (inclusive education) – LSM for grades 10 to 12 (new curriculum statement) – Education infrastructure needs • In health – General baseline adjustment to stabilise the public health system – TB (MDR and XDR) – Comprehensive HIV and Aids strategy (preventative, HBC and ARVs) – Hospital revitalisation 23

Provincial priorities • In social development – ECD (in collaboration with education) – Secure care services for children in conflict with the law – Access home and community based care • Roads, agriculture and SMME development • Housing and human settlements 24

Changes to the provincial equitable share formula • Structure of the formula unaffected – Only updated for latest available data • Data changes to the formula: – 2007 Community Survey – 2007 enrolment, 2006 GHS, 2005 GDP-R • Phasing in – Impact of updates phased in over the next three years 25

Full impact on equitable shares 26

Full impact on equitable shares 27

Full impact on equitable shares 28

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Local Government Allocations Part 4 of Annexure W 1

Local government priorities • Increasing the equitable share envelope (R 6. 5 billion) for : – Increased service delivery costs due to tariff increases – Increased demand following the rollout of basic infrastructure to the poor – Support for poorer municipalities 33

Local government priorities • Infrastructure stepped up R 7 billion • Step up of MIG to the tune of R 3. 8 billion – to allow further rollout of basic municipal infrastructure in poor communities – to provide each municipality with a reasonable minimum MIG allocation • Enhanced funding of capacity-building initiatives in the area of financial management • Further adjustments to ensure the readiness of the host cities for the 2010 FWC 34

Funding poorer municipalities • Formulae used to divide funds must always be objective and ensure certainty…. • LES formula not adjusted to make it more redistributive • Municipal infrastructure grant – Ensure a minimum allocation for municipalities – Formula adjusted to step up funding towards poorer municipalities – Constant element introduced • R 2. 2 million in 2008/09; R 4. 4 million in 2009/10; and R 5 million in 2010/11 35

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Review of LG Fiscal Framework • Differentiated approach to municipal infrastructure development • Permanent replacement for RSC and JSB levies 40

Thank you