1 SALGA COMMENTS ON THE DIVISION OF REVENUE BILL 2009/10 Hearings on the Division of Revenue 25 February 2009 Select Committee on Finance

2 Introduction The submission takes into account engagements that have taken place with National Treasury and discussions at the Budget Forum in October SALGA in general welcomes the Bill as tabled and has formulated a set of comments in relation to both general and conditional grants The fiscal and financial structure of local government, and the challenges it faces are defined by the contexts and the functional competencies of municipalities. (Municipalities in predominantly rural areas, for example, may face significant limitations in revenue due to the small size of their tax base with low levels of economic activity). A differentiated approach is therefore needed in dealing with of the challenges of different categories of municipalities within different geographic contexts.

3 MIG Cities In terms of the treatment of Metros performance targets needs to be included in a matrix which includes agreed outcomes/outputs with National Treasury and this has to be finalised and approved by Council by 1 April This timeline is a concern as municipalities are engaged in their budget and IDP process and perhaps this timeline should be aligned to the Municipality’s IDP approval timeline for 31 May The agreed outcomes and targets need to be incorporated into the Metro IDP’s.

4 EPWP SALGA has raised the following issues with NT and DPW with regards nature of the EPWP wage incentives, the eligibility conditions and employment creation targets: The current proposed phasing in EPWP targets and wage incentives includes a minimum threshold target (based on 2008/09 achievements) which municipalities need to first meet, before will they be eligible to receive the incentives. These targets where however retrospectively applied to all districts and municipalities resulting in many being disqualified for eligibility for the incentive

EPWP After discussions with NT and DPW, SALGA recommends the following: To allow all municipalities who have reported on EPWP to be deemed eligible, to participate in the wage incentive. Encourage incremental performance from a baseline determined by the incentive formula for 2009/10 5

6 Rural Transport Services & Infrastructure Grant While the grant is still in a pilot phase, it is felt that there is a lack of clarity on the alignment of this grant with the MIG portion of municipal service infrastructure. There is also a question about how the specific projects in the framework were prioritised and how will they be prioritised in the future. Salga would like to emphasise on the need to consider rural infrastructure development in a holistic and integrated way, beyond transportation. This will also need to be aligned to a clear rural development strategy.

7 Electricity Demand- Side Management Grant (EEDSM) EEDSM should be seen as an intervention beyond electricity provision. The focus of this grant should be used to get all municipalities (and not only licensed ones) to initiate demand side management measures and efficiency more broadly. Salga proposes that an additional allocation criterion be included in the ESKOM element of the grant: –that ESKOM’s expenditure of the grant conforms to an annual business plan that must be agreed with municipalities in terms of the SLAs.

8 Backlogs in of Electricity, Water and Sanitation in Schools and Clinics Municipalities that were consulted have indicated that they have not had a direct say or been aware in deciding priority recipients in their local areas. This lack of involvement of municipalities in decision making regarding where public sector investment should go in their municipal areas makes it impossible for them to determine patterns of spatial development. Grant for electrification of clinics and schools will result in Eskom being responsible for connecting clinics and schools in areas where municipalities are distributors. It is proposed that this grant be allocated to distributors of electricity ie. to Eskom or municipalities where they are licensed distributors.

Water Services Operating Subsidy Grant It is proposed that there be a third component to the grant in addition to the personnel allocation and the operating allocation. A refurbishment allocation is essential for refurbishment of dilapidated infrastructure that is being transferred to municipalities. Municipalities receiving water services schemes from DWAF are largely receiving schemes whose operating costs are unreasonably high. This is largely because the total life cycle costs of the schemes were not adequately taken into account during the design stages of the schemes. It is proposed that the subsidy decrease must be ring- fenced for the schemes transferred and not be allocated as part of the general equitable share to local government. 9

Integrated National Electrification Programme Grant There is a need for a shift towards renewable sources of energy such as solar and wind in response to climate change. Greater portion of the INEP grant should be going towards municipalities with conditions that it be mostly used to invest in renewable energy sources. The allocation that goes to ESKOM should be accompanied by a condition that it be mostly utilised towards getting the grid ready for receiving feed-in energy from renewable energy sources. Need to prioritise investments that will stimulate the development of the renewable energy sector. 10

Capacity Building Grants It is proposed that an assessment be undertaken to measure the impact of capacity building grants at a local level. 11

12 Replacement of RSC Levies While SALGA welcomes the proposed method of phasing-in the implementation of the general fuel levy for Metros, the following concerns should be recorded: The fuel levy allocation is guaranteed with inflation adjustment for the next three years. From 2012/13 the allocation will be solely based on fuel sales per municipality. In the case of a decline in fuel sales, municipalities will receive less as there are no guarantees. The reliance on fuel levy by metros could have unintended consequences (municipalities could promote use of private motor vehicles to boost fuel sales as opposed to promoting public transport and mechanisms to reduce road traffic).

13 Replacement of RSC Levies SALGA is currently investigating a Local Business Tax as an alternative/appropriate replacement of RSC. SALGA will continue to engage National Treasury and dplg in finding replacement tax for RSC levies.

Duties of Provincial Treasury Section 43 (2) (a) requires Provincial Treasury to disclose its allocations on the same day that its tables budget but not later than 14 April By this time most municipalities have already tabled their draft budget. It is proposed that provinces should disclose their draft budget allocations to municipalities at an earlier date. 14

15 Conclusion Salga would like to emphasise that the further work on Municipal financial allocations consider the impact of unfunded mandates on municipalities. These result because of: Functions that are not local government functions (in terms of the constitution) get assigned to local government by way of sectoral legislation, without related adjustments to the fiscal framework – eg. Disaster Management (Disaster Management Act) – Schedule 4 (A) of of the Constitution Local government functions that are not part of the basket of the four basic services which must be provided to poor households eg. as outlined in Schedule 5 (B) of the Constitution (excluding refuse removal)

16 Conclusion These are not catered for in the Equitable Share formula or other grants. There is therefore no clarity as to how the costs associated to providing services related to these functions should be funded. The resolution of this matter is directly linked to the finalisation of the Local Government review being undertaken dplg. Salga recommends that Parliament set fix timelines for completion of this review.

17 THANK YOU