Division of Revenue Bill 2007 [B3-2007] Select Committee on Finance NCOP Lungisa Fuzile and Jo-Ann Ferreira 28 October 2007

2 Intergovernmental Fiscal System The Constitution and IGFR Act –Require an annual Division of Revenue Bill Section 214 of Constitution Section 10(5) of the Intergovernmental Fiscal Relations Act gives effect to Constitution in terms of: –Consultation processes for allocations with Budget Council, Budget Forum and FFC –Explanatory memorandum (Annexure E) on formulae etc Consultations –Budget Council and Budget Forum –National Departments –Extended Cabinet with provincial Premiers and chairperson of SALGA

2007 Division of Revenue Bill

4 The Bill Section 76(4) Bill of Constitution requires that DoR Bill must be tabled in NA, and go to NCOP thereafter 50 clauses Schedules 1-7 divide revenue between three spheres and within spheres Memo on objectives of Bill Explanatory attachments: –Annexure E (also part of Budget Review) –Appendix E1 & E2: Frameworks on all conditional grants (provincial and local) –Appendix E3 to E7: LG allocations by municipality for both national & municipal financial year

5 Key considerations and approach to drafting The current Act was the starting point Then the following questions were asked: –Are there clauses that have become redundant? –Are there new developments that necessitate special and new provisions? –Are there gaps that have been identified in implementing the Act? –Are there current clauses that have unintended consequences?

6 Broad principles underpinning approach Provisions of the Bill must be consistent with other legislation Issues that are best covered in sector legislation and regulations should not be addressed in Bill Issues that are largely administrative are captured in the frameworks The Bill must strike two critical balances: –Between executive authorities & administration –Between executive authorities across spheres

7 Clauses deleted Clauses that dealt with revised provincial and municipal boundaries Responsibilities of the Auditor-General Municipal capacity building Risk management clauses

8 Gautrain Rapid Rail Link allocation –Amended to remove provisions no longer relevant 2010 FIFA World Cup Stadiums Development Grant –New grant. Inserted for the effective management of the grant Bulk Infrastructure Grant –New grant. Consultation & agreement with municipalities critical Project registration for MIG –Project registration facilitated Prior to the implementation of the financial year Improved monitoring No approval projects Allocations in emergency situations Exemption clause simplified New and amended clauses

9 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

Fiscal Framework

11 Medium Term Policy Objectives Accelerating economic growth and job creation Modernising infrastructure and services Reducing poverty and inequality –Investing in long-term income security and protecting the vulnerable

12 Summary of the Budget Continued ROBUST economic growth of about 5% of GDP Spending grows by 7.7% a year –Additional R 89.5 billion infrastructure, skills development/education & fighting crime Tax changes –Scrapping of retirement fund tax –Personal income tax relief of R8.4bn –STC phased out, replaced with a dividend tax at a lower rate –Various thresholds raised Social Security reforms proposed –Wage subsidy –Introduction of a social security tax for retirement, death, disability and unemployment

13 Division of revenue

14 Division of revenue

15 Division of revenue

Re-alignment of provincial fiscal framework to revised provincial boundaries

17 Changes to the PES formula Structure of the formula unaffected; only impact is on the data Data changes to the formula –Re-benchmarking of GHSs –Demarcation Data updated for demarcation Economic activity data not re-organised 2000 IES not re-organised thus poverty component only updated for population –Up to date data used 2006 enrolment, 2005 GHS, 2004 GDP-R 2006 mid-year estimates available for consideration

18 Changes to the PES formula Policy changes to the formula: –Proposal that moving averages be discontinued Use only latest available data Lag in statistics as it does not keep track with actual demographic shifts Re-organising older statistics to new boundaries may pose a challenge –Particularly when re-benchmarked –Impact not phased Expenditure shifts must be funded Only for this round Could still be considered in future

19 Provincial equitable shares

Response of National Government to FFC Proposals

21 FFC proposals (incl. supplementary submissions) –General proposals on conditional grants –Specific proposals on conditional grants HIV & Aids (Health & Education) Hospital Revitalisation Land Care and CASP School Nutrition MIG –Review of Health Conditional Grants National Tertiary Services Health Profession Training & Development Grant

22 FFC proposals (incl. supplementary submissions) –Housing Allocation Formula –Social Welfare Services –Review of provincial own revenue –Basic services component of LES –Development component of LES –Replacement of RSC levies –Re-demarcation of provincial boundaries

23 FFC proposals (incl. supplementary submissions) –Significant % accommodated –Not accommodated: Part of Housing Allocation Formula Basic services component of LES Development component of LES Land Care & CASP Hospital Revitalisation MIG

Provincial allocations

25

26

27

28

Local Government Allocations

30

31

32

33

Discussion