Western Cape Inherited Debt Relief Bill National Treasury 5 March 2009

2 Outline Background and current status – Inherited Debt Purpose of the Bill Accounting Process for Debt Relief Conclusion

3 BACKGROUND Pre-1994 expenditure –Incurred by former TBVC states and former provincial regional structures. Transition period ( ) –Splitting of the Cape Province after 1994 in terms of the 1993 Interim Constitution (into the Eastern Cape, North- West, Northern Cape & Western Cape). –Provision by the Cape Provincial Administration (CPA) of administrative and financial services to new, fledgling provinces, to ensure continuity of service delivery from 1994/95 to 1995/96. –Winding up of the functions of the former House of Representatives (HOR). –The resulting CPA & former HOR debts/ unauthorised expenditure remained on the books and were inherited by the Western Cape.

BACKGROUND The 1998 Inherited Debt Relief Act (Act 54 of 1998) authorised and effectively cleared the inherited debt of provinces affected by the expenditure of former TBVC states. The 2000 Finance Act (Act 35 of 2000) authorised the over- expenditure of former regional structures (e.g. former Transvaal) in order to clear the relevant accounts. However, the inherited debt of the Western Cape was not cleared. This inherited debt was expenditure incurred in both former TBVC states (e.g. Ciskei) as well as part of old regional structures (namely, the Cape Provincial Administration and the House of Representatives/Department of Education and Culture).

5 CURRENT STATUS The CPA Pay-master general (PMG) account has been overdrawn by R799m since the 1995/96 financial year. The HOR PMG account is overdrawn by R112m since 1995/96 financial year. Both negative balances are recorded in the books of the Western Cape Province, as well at a national level as bearing expenditure for the account of the Western Cape.

6 PURPOSE OF THE BILL To authorise the over-expenditure of the former Cape Province regional structures in line with similar arrangements in the 1998 Inherited Debt Relief Act and the 2000 Finance Act. To facilitate the accounting process necessary to clear the overdrawn accounts.

7 PURPOSE OF BILL The clearing of accounts is necessary as they currently reflect unauthorised expenditure against the Province, even though it was not incurred by the Province.

8 ACCOUNTING PROCESS FOR DEBT RELIEF Journal entries to be effected by the Office of the Accountant-General from one set of government accounts (Exchequer) to another set of government accounts (Pay-Master General). The Provincial Accountant-General will similarly effected journal entries to reflect the clearing of the over-drafts. No cash flow implication for either national or provincial government. No impact on general government debt –The PMG accounts are part of government’s consolidated government accounts –These accounts reflect expenditure as though it was incurred by the current Western Cape Province, even though they were never opened or managed by the Western Cape No interest implications

9 Thank you