1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. Full impact on equitable shares

12. Full impact on equitable shares

13. Full impact on equitable shares

14. 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

15. Fiscal Framework
Part 1 of Annexure W1

16. Division of revenue

17. Division of revenue

18. Division of revenue

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

20. 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

21. 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

22. 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

23. Provincial allocations
Part 3 of Annexure W1

27. Local Government Allocations
Part 4 of Annexure W1

28. 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

33. Thank you