Division of Revenue Bill 2008 [B4-2008] Portfolio Committee on Finance National Assembly Lungisa Fuzile, Kenneth Brown, Jonathan Patrick, Jo-Ann Ferreira 21 February 2008

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

General The Bill does not propose material changes to the 2007 Division of Revenue Act Changes to the 2007 Act include - Technical changes: A number of technical changes were made to improve the 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 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 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

General 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 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 allocations to municipalities and schools, and the budgets of provincial hospitals Alignment with municipal IDPs in respect of infrastructure plans a new requirement Stopping of allocations: NT may authorise intervening (s100 of the Constitution) transferring national officer to spend allocation on behalf of province Preparations for the next financial year and the 2010/11 financial year: This section has been 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

2008 Division of Revenue Bill Section 76(4) Bill of Constitution requires that DoR 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 W1 Appendix W2 & W3: Frameworks on all conditional grants (provincial and local) Appendix W4 to W8: LG allocations by municipality for both national & municipal financial year

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

Budget Review Chap 8 & DoRB Annex W1 Chapters 7 and 8 of Budget Review summarise national/provincial/local government funding Annexure W1 of DoRB provides greater detail Five parts to Annexure W1 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

Appendices W2 and W3 Grant frameworks in Appendix W2 & W3 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

Appendices W4 to W8 Local government allocations per municipality in Appendices W4 to W6 Total allocation per municipality in W7 National AND municipal financial year W8 – detailed breakdown of the local government equitable shares per municipality Formula portion RSC levies Councillor remuneration

Changes to the provincial equitable share formula Structure of the formula unaffected Only impact is on the 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

Full impact on equitable shares

Full impact on equitable shares

Full impact on equitable shares

Review of Provincial and LG Fiscal Framework Differentiated approach to municipal infrastructure development Permanent replacement for RSC and JSB levies Funding poorer municipalities MIG provided for LES still to be reviewed

Fiscal Framework Part 1 of Annexure W1

Division of revenue

Division of revenue

Division of revenue

Response of National Government to FFC Proposals Part 2 of Annexure W1

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

Process to consider FFC proposals FFC Submission: DoR 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 no-fee 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

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

Provincial allocations Part 3 of Annexure W1

Local Government Allocations Part 4 of Annexure W1

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 R2.2 million in 2008/09; R4.4 million in 2009/10; and R5 million in 2010/11

Thank you