1. 1 FFC SUBMISSION ON THE DIVISION OF REVENUE 2007/08 PRESENTATION TO THE SELECT COMMITTEE ON FINANCE _____________________ 17 MAY 2006

2. 2 Structure of Presentation  Part A: Review of Conditional Grants  Review of Conditional Grants;  Review of Health Conditional Grants;  Review of National Housing Allocation Formula

3. 3 Structure Cont….  Part B: Review of the Equitable Sharing of Nationally Raised Revenue  Review of Welfare Services Financing through the Provincial Equitable Share;  Review of the Local Government Equitable Share Allocations;  Trends in Provincial Own Revenue

4. 4 Part A: Review of Conditional Grants  General Recommendations:  Reiterate that conditional grants be used strictly to fund spill-over benefits and national priorities: Phase into the ES after being institutionalized in provincial budget processes  National departments should set norms and standards for concurrent responsibility: Monitor performance to ensure compliance with targets

5. 5 Review of Conditional Cont…  Specific Recommendations  (Health), HIV/AIDS Conditional Grant should continue: Ensure sufficient focus and resources for addressing the problem; Consistent with the FFC’s position on the financing of HIV/AIDS

6. 6 …Continued  Hospital Revitalization Grant be incorporated into the Provincial Infrastructure Grant: Convergence of purpose; Under-spending occurs due to stricter conditions and preference for provincial infrastructure grant Would enable provinces to address health infrastructure more comprehensively  (Agriculture), Merge Land Care and Comprehensive Agriculture Support Programme Grants into one Schedule 4 grant: Overlapping objectives and reduction of administrative burdens; Agriculture dependent provinces will spend according to their circumstances

7. 7 …Review of Conditional Grants cont..  (Education), Refine conditions relating to business plans’ development and approval: Minimise time spent on plans and their submission by provinces; Previous FFC recommendation on the relaxation of conditions for decision space purposes still applies  Continue the HIV Life Skills Education Programme Grant: Focus the allocation mechanism on actual enrolment rather than using the education component in the PES

8. 8 Review of Conditional grants Cont…  (Local Government),  The Municipal Infrastructure Grant should go beyond funding the Basic residential infrastructure (B), the Public municipal service (P) and Social institutions and micro-enterprises (S) but should also cover operational and maintenance cost

9. 9 Health Conditional Grants (NTSG)  Allocation for the National Tertiary Services Grant (NTSG) based on approved policy norms and standards be introduced;  Norms and standards be specified according to types of beds, theatre, supporting staff, casualty, outpatients, and staff ratio and non- staff cost per health care service;  Government should urgently develop a national service plan that includes level 1;

10. 10 Health Conditional Grants cont..  NDoH establish a Chief Directorate for technical assistance in administering NTSG;  Service redistribution be achieved through separate capital accounts  NTSG should be retained as a conditional grant: Ensure no unilateral downgrading of referral services as part of a package of public sector services by provinces

11. 11 Health Conditional Grants (HPTDG)  Organizational structure of NDoH should include unit with sufficient technical capacity;  Establish a standing committee where all role-players will make joint decisions on policy targets, inputs and funding flows;  Policy targets should be set and gazetted as minimum norms and standards for the funding of healthcare professionals

12. 12 HPTDG Cont…  Funded institutions be externally audited annually;  Nationally policy framework underpinning health professionals training: Allocation to NDoH be a conditional grant; Allocation to NDoE be an earmarked subsidy to tertiary education institutions

13. 13 HPTDG Cont…  Convert HPTDG to a specific purpose grant: based on target enrolment by type of health professional;  Allocation towards pathology students using National Health Laboratory Services be incorporated into HPTDG

14. 14 National Housing Allocation Formula  Eliminate bias through the use of variable to account for provincial disabilities and peculiarities: Viz. traditional housing, delivery capacity & development potential Perceived as biased by rural provinces due to non-inclusion of traditional housing; Inclusion of poverty component favoring rapidly urbanizing provinces

15. 15 Housing Cont…  Recognize variation in regional cost: Cost differ across provinces for same housing standard; Different building and land cost impact on housing construction cost & standard thereof  Improve rural development funding for communities to access economic opportunities & livelihood

16. 16 Housing Cont…  Enhance compliance with minimum quality standards for rapid housing delivery with no compromised quality: Poor quality impacts negatively on costs and backlogs; Demand and need is greater than what can provide and increased funding will be limited by industry capacity and implementation constraints

17. 17 Part B: Welfare Service Financing  Incorporate a social development component in PES based on population, population in poverty and institutional capacity: Simplicity and maintenance of provincial discretion in delivery; Ensure data collect on institutional capacity for proper financing  Maximize the reach of welfare services by accounting for the spreading of institutions and human resources

18. 18 Local Government Equitable Share Formula  Revise the current estimated cost (R130) of delivering basic services Current estimate may be an under-estimation of true costs  Consider raising the estimated cost to R175 at this will ensure grant are directed at strengthening poor municipalities: Simulation exercises reflect that under revenue neutrality, R175 allocates more to categories A and B and raises LES by R22 million

19. 19 LES Cont..  Increase the effectiveness of LES: Review and assessment of basic services cost will enhance LES ability to achieve its principles and objectives; Review and assessment must consider differences in demographic disabilities and their composition; It must also consider regional and geographic disparities as they affect quality and quantity of services

20. 20 Provincial Own Revenue Trends  FFC notes general progress by provinces since implementation of Provincial Tax Regulation Process Act of 2001;  Notes general progress in implementation of National Treasury’s and FFC’s recommendations made in 2003 on own revenue collection and restructuring of Provincial Treasuries’ Revenue Directorates