1. 1 Portfolio Committee Orientation Workshop Andrew Donaldson National Treasury July 2009 Portfolio Committee Orientation Workshop Andrew Donaldson National Treasury July 2009 The Budget Process and Financial Oversight Water and Environmental Affairs

2. National Treasury2 Budgeting & resource economics Resource management is about much more than government spending: –Regulation of ownership, use and disposal –Pricing of access and use or resources –Regulation and charges for pollution or environmental damage –Long term infrastructure development and rehabilitation and inter- generational equity –Balancing of local, regional, national, international needs –Diverse economic, social and sectoral requirements Budget reflects revenue and spending by government entities – –This is just part of the overall “resource accounting” for the environment or the water sector

3. National Treasury3 Planning, budgeting, reporting… Water and environmental planning begins with science – –Understanding long-term linkages between human activity and resource sustainability The science underlies engineering plans and designs – –Which frequently involve technological options or alternative investment paths… –There is a high degree of ‘path dependence’ in the choices we make Resource economics is about understanding those choices –Analysing the long term ‘costs’ and ‘benefits’ of alternative investments –Setting tariffs and managing infrastructure finance sustainably So our reporting on water & environmental finances needs to be strongly focused on the long term…

4. National Treasury4 Strategic plans and MTEF budgets 3-year Budget (MTEF) 20+ year Infrastructure Investment Programme (Growth and Development Strategy) 5-year Strategic Plan (MTSF) Set out in policy papers, departmental plans, municipal development plans, details of energy, water, transport, industrial projects… Including project and programme plans and budgets, aligned with spatial development plans

5. National Treasury5 In-year budget processes Expenditure Outcomes (May) Rollovers (June) MTEC (July – September) Adjusted Estimates (September – October) …further virements and shifts subject to PMFA limits

6. National Treasury6 Chain of accountability Voters Parliament or Legislature Executive Departments and public entities Headed by Accounting Officers General elections Responsibilities and accountability largely governed by PFMA Mandate and powers limited by law and given effect through delegations and performance contracts Auditor- General

7. National Treasury7 Finance legislation and oversight The Public Finance Management Act 1999 (PFMA) –Provides an accountability framework which seeks to ensure that all stakeholders utilise government resources to maximise service delivery through the effective and efficient use of the limited resources –set out reporting requirements of departments and other state entities The Municipal Finance Management Act 2003 (MFMA) –sets out framework for financing and financial management by local authorities Appropriation Act sets out what funding will be used by whom for what specific intended purposes Division of Revenue Act specifies transfers to provinces & municipalities, and –set out the reporting requirements of national departments (transferring departments), provinces (transferring and receiving departments) and municipalities (receiving departments) –sets tabling dates for reports

8. National Treasury8 Primary fiscal flows to water sector Water related transfers through DWA National: Water Trading Entity Local government: Water services operating subsidy Regional infrastructure grant Schools and clinics Water related transfers through CGTA NT role in transfers Local government: Local government equitable share Municipal infrastructure grant National: Appropriation Bill LG: Division of Revenue Bill

9. National Treasury9 Primary flows to Environmental Affairs NT role in transfers Environment related transfers National: SANSParks Marine Living resource fund South African Weather Service SANational Biodiversity Institute Local government: National Parks Biodiversity areas National: Appropriation Bill LG: Division of Revenue Bill

10. National Treasury10 Sources of water funding Recurrent spending –User charges:  National: Water Trading Entity Revenue (sale of bulk raw water);  Municipal: local water tariffs  Water Boards, irrigation projects (sale of bulk treated water) –Parliamentary appropriation - national (Appropriation Act); –Parliamentary appropriation – to provinces and municipalities (Division of Revenue Act); –Provincial and municipal funding out of own revenue Capital project funding –Earmarked appropriations (eg social infrastructure; MIG) –Market loans: Water boards/TCTA/Water resource utility; –DBSA loan funding, negotiated bank lending, PPPs –Return on past investments: Water trading entity & water boards Donor funding

11. National Treasury11 Sources of funding of environmental investment and services Taxes are both about raising funding and imposing costs on environmental externalities –Eg fuel tax, electricity levy, waste discharge levy, plastic bag charge –Earmarking is sometimes appropriate, sometimes not Regulatory standards have effect of passing costs onto industry or users –Generally aimed at making polluter pay –Eg Mining rehabilitation reserve funding requirements –‘Cap and trade’ regulations Parliamentary appropriations – Research, infrastructure investment, rehabilitation User charges and fees –Tourism related (SANParks) –Resource use related (mining royalties; Fishing levies) EPWP funding: environmental services and investment can have added benefit of job creation –Working for Water, Land Care, Forest Management International funding –Donor support –Clean Development Mechanism credits

12. National Treasury12 Water and related funding sources R mill Medium Term Estimate MTEF Total MTEF Growth 2009/102010/112011/12 DWAF 7 894 8 293 9 463 25 65014% Donor Funding 164 482 52 699-52% WTE Revenue 1 784 1 992 2 277 6 05417% TCTA 2 868 3 034 3 266 9 16810% Water Boards 8 625 9 225 9 889 27 7396% TOTAL 21 336 23 027 24 947 69 3109%

13. National Treasury13 Main sources of funding: Environmental Affairs R million Medium Term Estimate MTEF Total MTEF Growth 2009/102010/112011/12 Department2 303 2 709 2 918 7 93040% Donor Funding 25 28 13 66-49% SANParks 793 869 956 2 61826% MLRF 140 147 150 4369% TOTAL 3 260 3 753 4 037 11 05134%

14. National Treasury14 Funding of municipalities Total budget requirements of a municipality is linked to its service delivery and developmental responsibilities funded through a combination of –user charges (tariffs) + surcharges + property tax + transfers Metros raise revenue from –Property rates, user-charges such as electricity, water, refuse removal Category B can raise all of the above Category C mostly reliant on transfers Borrowing is allowed –Regulated and no bail out/guarantees from national Ability of municipalities to raise revenues from own sources influenced by income levels, affordability criteria and consumption patterns –Municipalities with a large proportion of poor households will struggle to raise own revenues as poor households should receive basic services for free (mostly reliant on transfers from fiscus) –Municipalities with a large economic base would be able to cross-subsidise between services and consumer groups (largely self financed)

15. National Treasury15 Municipal Finances: Expenditure Expenditure –Service delivery and developmental responsibilities –Cost of governance, admin, planning and regulation MINUS Revenues Revenues –Own revenues –Transfers equals Borrowing = financing requirement Water and sanitation Electricity (Category B) Roads and stormwater Municipal solid waste/refuse removal Municipal public services (environmental health, community services, security services, public safety, parks and recreation) Agency services (libraries) Property tax (Categories A and B) User charges for water, sanitation, electricity (authorised municipalities) Surcharges on municipal services (authorised municipalities) Other (donations, etc.) LGES, Infrastructure Grants, Capacity Building Grants, Grants-in-kind, Transfers from provinces Schedule 4 (B) of Constitution Section 229 of the Constitution Section 214 of the Constitution

16. National Treasury16 Examples of the heterogeneity of Municipal Revenue Sources eThekwini Operating Budget 2008/09 = R17.5 Billion Albert Luthuli Operating Budget 2008/09 = R130 million

17. National Treasury17 Transfers to Local Government

18. National Treasury18 Water & environmental functions are key elements in national funding of municipalities Equitable share formula: BS + D + I - R ± C Basic Services THE BASIC SERVICES COMPONENT Is the largest component in formula (92%) Enable municipalities to provide basic services and free basic services to poor households (provides for bulk, operational costs and maintenance) Recognises water reticulation, sanitation, refuse removal, electricity reticulation and environmental health Water & sanitation makes up 44% of this component Complements the MIG Development (not activated) Institutional Capacity Revenue Raising Capacity Correction Correction and stabilisation factor

19. National Treasury19 MIG Formula (incl water & sanitation) Compo- nent Sub-componentParameter % of total MIG B Water and sanitation Number of households with less than adequate water supply Number of HHs with less than adequate sanitation services 54% Roads Number of HHs living in informal dwellings 17.25% “other” Number of HHs with less than adequate refuse removal 3.75% P Number of HHs earning less than a prescribed minimum 15% E Number of HHs earning less than a prescribed minimum 5% N Number of HHs living in areas identified as nodes 5% MIG (F) = B + P + E + N + M B = Basic residential infrastructure P = Public municipal facilities E = Other institutions and micro-enterprises N = Nodal municipalities - urban and rural M = Performance related adjustments (not activated) (similar to equitable share, information is based on Census/Community Survey) The B component makes up 75% of formula

20. National Treasury20 Further information Budgets and plans: Budget Review, Estimates of National Expenditure, Municipal budgets, Local Government Budgets and Expenditure Review –Departmental strategic plans In-year monitoring of expenditure: –Section 32 (PFMA) reports (Monthly) –Section 71 (MFMA) reports – local government –Section 10 (DORA) reports – local government conditional grants Reporting on programmes and projects – requires key non- financial indicators; needs to recognise diverse funding and financial sources www.treasury.gov.za