1 Response to Financial and Fiscal Commission Submission for The Division of Revenue 2010/2011 Presentation to Select Committee on Finance 06 August 2009 DEPARTMENT OF COOPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS

2 The purpose of this presentation is to provide the Department of Cooperative Governance and Traditional Affairs’ Response to Financial and Fiscal Commission Submission for the Division of Revenue 2010/2011. Purpose

3  Department completed the wok on policy review in December 2008 and Presented to the extended Cabinet Lekgotla in January 2009 for noting  The intention is get Cabinet pronouncing on the policy review process within the next few months Response to comment on Policy Review

4  The principles underlying the Department’s comments / responses is based on the need to look at the practical implementation of the FFC’s recommendations.  Focus of comments is on Chapters 1, 2, 6, 7 & 8. Principle Underpinning the Department’s Response

5  The Department understands the challenges that the FFC raises.  Pending the outcome of the policy review process on provincial and local government, there may be a need to consider the financing of provinces. Response - Chapter 1: Review of the Provincial Equitable Share Formula

6  The Department agrees with FFC’s recommendation that there should be a significant increase of departmental baselines with regard to public infrastructure investment in particular provincial and municipal, with special emphasis to rural development.  The Department supports FFC’s recommendation on the need to improve the quality of targeted outcomes of infrastructure investments towards employment creation and poverty reduction.  The Department agrees with the FFC’s recommendation that Government should implement a fully comprehensive national infrastructure maintenance strategy.  Currently, the Department is reconfiguring itself to be in a position to better monitor and enforce accountability in municipalities and provinces with regard to credible budgets, infrastructure maintenance and improved monitoring on the outcomes of infrastructure investment. Response - Chapter 2: Public Infrastructure Investment

7 Financing  The Department recognizes that the road classification (for example, access roads, district and provincial roads) process needs to be finalized by Government. The finalization of the roads classification will provide information on roads that needs maintenance, rehabilitation and the extent of backlogs.  The completion of the road classification would further assist in the issue of the responsibility (powers and functions) for road maintenance, rehabilitation and addressing of backlogs. Currently, information on road maintenance backlogs at the local government sphere is unknown.  The Department notes that while the FFC proposes cost recovery for road investment, the FFC is not clear on how this will be achieved.  Also, the FFC is silent on the actual design of:  Explicitly including a road infrastructure component within the provincial and local government equitable share formulae.  The introduction of a separate conditional grant specifically targeted at building technical capacity within the road management sector of provincial and local government. It is recommended that the FFC take these proposals to their logical conclusions. Response - Chapter 6: Management and Financing of Road Infrastructure

8 Skills  The Department supports the FFC’s recommendation on the need to address the lack of technical skills in road management, especially for the local government sphere.  However, there is also a need to recognize that other critical local government functions such as water, sanitation, electricity and refuse lack technical skills which impact on the ability of municipalities to manage and discharge their functions.  The Department, therefore, recommends that the lack of technical skills in local government be addressed comprehensively across critical municipal functions. Response - Chapter 6: Management and Financing of Road Infrastructure (cont’)

9  The Department agrees with the FFC’s recommendations on the review of the free basic water and sanitation subsidy. It is recommended that the FFC makes concrete recommendations on content matters around the “coherent oversight framework” that will assist water service authorities to manage trade-offs in the design and determination of their water tariffs.  The Department agrees to the FFC’s recommendation on the establishment of an independent National Water Regulator, subject to the actual cost of the proposal and affordability thereof being known up-front and any lessons learned from the regulation of both bulk and retail electricity being taken into account.  The Department of Water Affairs and Environment needs to continue focusing more on the support to local government with regard to water services/resources.  With regard to universal access, the Department has proposed to the National Treasury that the funding for rural water and sanitation infrastructure be determined through the earmarking of a specific allocation from the Municipal Infrastructure Grant (MIG). This is meant at accelerating the universal access in rural communities, mostly in communal land. Response – Chapter 7: Assessment of Universal Access to Water and Sanitation Services

10  The Department agrees with the FFC recommendation that local government should be central to setting the agenda for capacity building programmes.  With regard to the FFC’s proposal that government must establish an intergovernmental wide framework, the Department is of the view that the current National Capacity Building Framework serves this purpose, and can be strengthened or refined to address any deficiencies.  Further, the Department supports the FFC’s recommendation that each capacity-building programme must have a clear outline of measurable objectives, targets and timelines, including the conditions of withdrawal from a specific municipality in respect of certain aspects of the support programme.  The Department agrees with the recommendation that a variety of grant instruments should be used to address different capacity challenges within different functional areas, but proposes that Government strengthen the framework within which DBSA should implement the Siyenza Manje programme (ensure measurable objectives, targets and timelines, interface with other sector players, and municipalities). Thanks! Response - Chapter 8: Assessment of the Institutional and Fiscal Capacity Support Mechanisms of Local Government

11 THANK YOU