1. Workshop Select Committee on Finance 27 February 2008
Lungisa Fuzile, Kenneth Brown, Jonathan Patrick, Jo-Ann Ferreira
27 February 2008

2. Budget Process Budget process at the heart of government
Guided by policies, priorities & making trade-offs
Not a bean-counting process
Co-ordination between planning, budgeting, policy development and implementation
Budget Preparation
Collectively agreed in Cabinet / EXCO
Involves consultation with provinces and LG through Budget Council, Budget Forum and Extended Cabinet (Premiers and SALGA)
Budget approval after tabling
Role of finance portfolio and standing committees, Joint Budget Committee
Role of all portfolio committees

3. Budget Process Stages Four periods / stages:
Period One: 1 March to 31 May
(Preparation and Reprioritisation)
Period Two: 1 June to 31 August
(Division of Revenue)
Period Three: 1 Sept to 30 November
(Allocation of Resources)
Period Four: 1 Dec to 31 March
(Finalisation of Documentation)

4. Period One (end 31 May) Period One: 1 March to 31 May Three processes
Closure of 2007/08 financial year
31 May deadline for submission of financial statements
IGFR data
Preparations for 2008/09 budget implementation & PFMA reporting
Re-visit baseline info against actual outcome
Initial info on consolidated budgets
Detailed departmental budget info
Capturing info onto the system
DoRA
Preparing for the 2009 MTEF
TCF Strategic Planning session
Budget Council Lekgotla

5. Period Two (1 June to 31 August)
Provincial budget and expenditure review
Will not publish one this year
Will consolidate information for parliament
Work from Cabinet lekgotla
Finalise budget priorities, pressures and policy work of 4 x 4s
Conditional grants (finalised as per appendix to Annexure W1)
Joint Minmecs in October
Budget Council and Budget Forum for division of revenue
Extended Cabinet meeting with Premiers (October)
Provinces submit draft budget to NT on 31 August

6. Period Three (1 Sept to 30 Nov)
From extended Cabinet on DoR to MTBPS
MTBPS published end-October
Revised macro framework
MTBPS to contain draft Annex W1 and draft DORA Bill
MTEC hearings in provinces
Second provincial visit by NT
Adjustments Estimate
(provincial by end-Nov)

7. Period Four (1 Dec to 31 March)
From MTBPS to tabling of budgets
Further priorities
Submission of draft printer’s proofs by 1 Dec
Assessment of provincial budgets (twice)
Info on projected 2008/09 expenditure based on actual expenditure up to end December (s32 report)
Tabling of budgets
Preparation for implementation in 2009/10

8. Major Budget Events Bi-laterals with departments (April to May)
10 X 10 (June)
4 X 4’s (July)
Cabinet Lekgotla (July)
Provincial Visits (End July)
Budget Council Lekgotla (End August)
National and Provincial MTEC (September)
Division of Revenue Workshop/Peer Reviews
Joint Minmecs (October)
Extended Cabinet (20 October)
MTBPS (27 October)
Budget Day (Feb)
Provincial Budgets (within two weeks)

9. Budget documentation Budget legislation Budget documentation
Division of Revenue Bill
Appropriation Bill
Revenue laws
Budget documentation
Budget Speech
Budget Review
Estimates of National Expenditure
Estimates of National Revenue
Provinces have own budget documents
Provincial budgets and expenditure review (post-budget)
Adjustments Appropriation Bill (post-budget)
MT budget policy statement (pre-budget)

10. Departmental budget documents
Portfolio committees can use budget docs to improve oversight over departments
Strategic and performance plans and ENE
Outputs and measurable objectives and targets
In-year quarterly and end-financial year performance targets
Annual report requires reporting against these measurable objectives
Many departments provide poor performance info
Section 32 PFMA monthly and quarterly reports allow for in-year monitoring

11. Budget Reform Agenda Entrenching transparency
Reinforcing accountability
Clarifying and separating roles
Executive
Set policy, oversee delivery by administration and account for outcomes
Administration
Implements, manages budgets, accounts for outputs
Parliament
Exercises oversight over executives
NT runs budget process and produces documents to support all of the above

18. Full impact on equitable shares

20. Local Government Equitable Share
Origin
Sections 214 and 227 of Constitution
Characteristic
Unconditional
Purpose
Assist municipalities

21. Evolution of the LGES Changes to account for the costs of:
Transformation
Data updates
New Priorities

22. Evolution of the LGES 1998/99 – Introduction
2000/01 – incorporation of R293 town subsidies (ex R293 personnel)
2001/02 – incorporation of R293 personnel subsidies, adjustment to the measurement of poverty, increasing the poverty threshold from R800 to R1100,
2002/03 – the re-alignment of functions to the newly demarcated municipalities, the funding of district municipalities and the funding of a nodal component to support the operational costs,
2003/04 – the introduction of free basic services to support poor communities and the alignment of the equitable share to the division of powers and functions between locals and districts,

23. Evolution of the LGES
2004/05 – update data from the 2001 Census, and adjusting the guarantee mechanism to phase in the impact of the new Census results, and
2005/06 – introduction of the new equitable share formula, which is more redistributive with a revenue raising and development component
2006/07 – update data following the repeal of cross boundary municipalities, introduction of environmental healthcare subsidies

24. Formula Grant = BS + D + I - R ± C BS = Basic Services D = Development
I = Institutional Capacity
R = Revenue Raising Capacity Correction
C = Correction and stabilisation factor

25. Basic Services Component
Purpose
Enable municipalities to provide basic services and free basic services
Compliments the MIG
Characteristics
Supports households earning less than R800 per month
Recognises water reticulation, sanitation, refuse removal and electricity reticulation
Distinction between poor households actually serviced and poor households receiving no service

26. Basic Services Component
BS = [Water Subsidy1 * Poor with Water +
Water Subsidy 2* Poor without Water] +
[Sanitation Subsidy1 * Poor with Sanitation +
Sanitation Subsidy2 * Poor without Sanitation]
[Refuse Subsidy1 * Poor with Refuse +
Refuse Subsidy2 * Poor without Refuse]
[Electricity Subsidy1 * Poor with Electricity +
Electricity Subsidy2 * Poor without Electricity]
[Environmental Health subsidy*Total number of households]
Full subsidy for households that currently receive services
Partial subsidy for un-serviced households set at one third of the full subsidy

27. Institutional Support
Purpose
Supplement the funding of a municipality for administrative and governance cost
Structure
I = Base Allocation + [Admin support*Population] +
[Councillor Support*Number of seats]
= R [R1*Population] + [R36 000*Councilors]

28. Revenue Raising Capacity Correction
Recommendation by FFC
Lack of data
No national property valuation roll
Not enough effort to raise revenues
Not equitable to use actual revenue raised
Basic approach:
Demonstrated revenue raising capacity
Municipal Information from SSA
Total available municipal revenue “taxed” at 5%
R1.3 billion contributed towards costs of basic services

29. Development Developmental objectives Future policy
Nodal allocations in previous formula
Currently set at zero
Further research in 2006

30. Stabilising Constraint
Large-scale changes to LGES since 1998
Previous approach provided a 70% guarantee on prior year’s allocation
New approach provides guarantee on indicative outer-year baseline amounts
Ensure that allocations are not negative due to revenue raising correction

31. Other considerations
Powers and Functions
Basic Services allocation goes to municipality that actually performs function
Balancing allocations
Rescaling the BS, D and I components
Grant = Adjustment factor*(BS+D+I) – R ± C
Adjustment factor calculated so as to ensure that the system balances
Two groups: Those who require a “top up” and those that do not
Total size of top up deducted from municipalities that do not require the top up in proportion to the “surplus”

32. Measurement Issues Poverty Census 2001 Income method Servicing Levels
Most municipalities unable to provide cost information per service
Subsidy amounts in new formula are based on study by DPLG
Full Subsidy (Service costs) is R130 for serviced poor households
R45 for un-serviced poor households
All households receive approximately R12 p.a. for environmental health

33. Conclusion Accuracy in measurement of variables is important
Measurement is dynamic and future challenges are in
new data
revenue raising capacity
cost parameters (subsidies)
Allocation process is subject to regular changes and innovation

34. Thank you