1. Division of Revenue Bill 2009 [B4-2009] National Council of Provinces Kenneth Brown, Wendy Fanoe, Jonathan Patrick, Jeannine Bednar-Giyose 13 February 2009

2. 2 Outline 2009 Division of Revenue Bill –Changes to the 2008 Division of Revenue Act Layout of Bill and contents Fiscal Framework FFC proposals and government’s response Provincial and local government allocations

3. 3 Changes to 2008 Act Changes to 2008 Division of Revenue Act include technical changes and new clauses –A number of technical changes to improve readability of Bill, better align different sections and further facilitate implementation –Expanded Public Works Programme Incentive: A new type of conditional grant to incentivise provinces and municipalities to create additional employment Payment subject to meeting threshold and performance targets –Gauteng Loan for Gautrain Rapid Rail Link project subject to a loan agreement between Minister of Finance and Premier of Gauteng

4. 4 Changes to 2008 Act (continue) –Municipal Infrastructure Grant (MIG) Differentiated approach to funding infrastructure Reporting requirements amended to account for differences between larger urban and smaller, more rural municipalities –Conversion of Schedule 7 grants: Easier conversion of Schedule 7 to 6 grants during the course of the financial year in order to prevent under-spending on the allocation –Duties relating to Category C Municipal Budgets: Ensure proper flow of funds between category C and B municipalities for providing basic services and infrastructure –Mechanisms added to deal with implementation of re- demarcation of provincial and municipal boundaries which come into operation during 2009/10 (Merafong)

5. 5 2009 Division of Revenue Bill Section 76(4) of Constitution requires that DoR Bill must be tabled in NA, and go to NCOP thereafter Layout of Bill –Bill consists of 53 clauses –Schedules 1 to 8 divide revenue between 3 spheres and within spheres –Memo on objects of Bill –Attachments to Bill Annexure W1: Detailed explanation of division of revenue Appendix W2 and W3: Frameworks on all conditional grants (provincial and local) Appendix W4 to W13: LG allocations by municipality for both national and municipal financial year

6. 6 2009 DOR Bill Schedules Schedule 1:Division of Revenue between 3 spheres Schedule 2:Provincial equitable shares among 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 Schedule 8:Incentives to provinces and municipalities to meet targets for priority government programmes

7. 7 Budget Review Chapter 8 and 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) of the Constitution 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 provinces/LG that need further work

8. 8 Appendices W2 and W3 Grant frameworks in Appendix W2 and W3 –To be gazetted within 14 days of Bill taking effect Thereafter frameworks become legally binding Grant frameworks contain –Measurable outputs and conditions –Allocation criteria Some use sector data (e.g. enrolment in education) –Past performance 2007/08 audit outcomes (financial) 2007/08 non-financial outcomes Planning for 2010/11 Responsibilities of national departments Transferring dept quarterly reports

9. 9 Appendices W4 to W13 Local government allocations per municipality in Appendices W4 to W13 Total allocation per municipality in W8 –National AND municipal financial year W9 – detailed breakdown of the local government equitable shares per municipality –Formula portion –RSC levies replacement grant for district municipalities –Special contribution towards Councillor remuneration

10. 10 Appendices W4 to W13 (continue) W10 and W11 – detailed breakdown of equitable share and MIG allocations respectively, per local municipality per service for district municipalities authorised for services W12 – allocations for the 2010 FIFA World Cup stadiums W13 – breakdown for bulk infrastructure grant allocations per local municipality per project

11. Fiscal Framework Part 1 of Annexure W1

12. 12 Division of revenue

13. 13 Division of revenue

14. 14 Division of revenue

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

16. 16 FFC proposals Response should be viewed against the review of LG and Provincial fiscal frameworks Budget Council considered provincial proposals Budget Forum considered LG proposals All spheres deliberated on the proposals and response at Extended Cabinet FFC recommendations consist of 3 parts: provincial, local government and cross-cutting

17. 17 FFC proposals (provinces) FFC Submission on DoR 2009/10 related to provinces –Financing of basic education Re-ranking of schools Learner transport –Financing of health care Fiscal performance of community health clinics sub- programme Infrastructure for primary health care and health outcomes –Transport Classification and earmarking of roads –Housing Addressing bottlenecks hampering housing service delivery

18. 18 FFC proposals (LG) FFC Submission on DoR 2009/10 related to local government –Augmenting LG revenue Replacement tax for the abolished RSC levies –Electricity pricing generation and distribution Restructuring of the electricity distribution industry (EDI) Electricity investments and electricity pricing policy –World Cup 2010 Transport infrastructure Financing of public transport

19. 19 FFC proposals (cross-cutting) FFC Submission on DoR 2009/10 related to intergovernmental data issues –Performance monitoring framework Education Health Public works and transport Housing –Local government data requirements

20. Provincial allocations Part 3 of Annexure W1

21. 21 Changes to provincial equitable share formula Structure of the formula unaffected –Only impact is on the data Data changes to the formula: –2008 mid-year population and 2007 Community Survey –2008 enrolment, 2007 GHS, 2006 GDP-R and 2005 IES Phasing in –Impact of updates phased in over the next three years

22. 22 Full impact on equitable shares

23. 23 Full impact on equitable shares

24. 24 Total transfers to provinces

25. 25 New conditional grants to provinces 5 new conditional grants –Expanded Public Works Programme Incentive grant for provinces: Incentives to provinces to increase number of EPWP employment opportunities created on infrastructure projects –Public transport operations grant: To fund bus subsidies to operators (previously funded through agency agreement between NG and provinces) –Technical secondary schools recapitilisation grant (2010/11): To provide for equipment and facilities at such schools –Two disaster related grants (2009/10 only): Health disaster response (cholera) grant Housing disaster relief grant

26. 26

27. 27 Conditional grants to provinces (1 of 2)

28. 28 Conditional grants to provinces (2 of 2)

29. Local Government Allocations Part 4 of Annexure W1

30. 30 Funding poorer municipalities Formulae used to divide funds must always be objective and ensure certainty…. LGES formula adjusted to make it more redistributive –LG equitable share formula reviewed to improve funding of poorly resourced municipalities Differentiated “tax” rates from 2009 Budget to improve redistribution through the revenue-raising capacity correction Further possible reforms (for 2010 Budget) include further possible improvements to formula and updating formula with 2007 Community Survey results (2001 Census results currently used) Municipal infrastructure grant –Formula adjusted to step up funding towards poorer municipalities –Ensure a minimum allocation for municipalities –Constant element introduced R4.4 million in 2009/10 and R5 million from 2010/11

31. 31 Revisions to LG baselines

32. 32

33. 33 New conditional grants to LG –Expanded Public Works Programme Incentive for municipalities grant: Incentives to municipalities to increase the number of EPWP employment opportunities created on infrastructure projects –Rural transport services and infrastructure grant: G rant created in 2008/09 to improve rural infrastructure by upgrading rural access roads, construction of pedestrian bridges and walkways, rural freight logistics facilities and inter- modal public transport facilities –Electricity demand-side management grant: To address energy-efficiency demand-side management in residential dwellings, government and commercial buildings to reduce lower burden on national grid so as to reduce risk of planned and unplanned power cuts

34. 34

35. 35

36. 36 Future work on provincial and LG fiscal frameworks Refinements to the local government equitable share to –direct more resources to poorer municipalities –possible updates with 2007 Community Survey results Progressive implementation of differentiated approach to municipal infrastructure funding

37. Thank you