1. FINANCIAL AND FISCAL COMMISSION
Submission for the Division
of Revenue Bill 2009/10
12 February 2009

2. Outline
Submission in terms of Chapter 13 S 214 (2) and Section 9 of the IGFR Act 1997
Addresses issues pertaining to the division of revenue for 2009/10 fiscal year and organised as follows:
Strategic issues
General observations on the Bill
Comments on allocation to sub national government
Introduction of new conditional grants to sub national government
Comments on government’s response to FFC recommendations
Conclusion

3. Key Strategic Issues
Complexity of the Division of Revenue Bill and size of document
DORA becoming complex, voluminous and too broad
Commission calls for a comprehensive review of the DoRA
Conditional Grant Proliferation
Strong pressure to proliferate conditional grants this year
All new grants should be subjected to rigorous analysis before introduction
Capacity grants not channelled through DORA
There must be transparency in the appropriation of capacity development grants
Capacity Building programmes should be coordinated and evaluated together
Implementation of boundary re-demarcations
Commission re-iterate its proposal for a full account of the fiscal capacity implications associated with the transition phase of demarcation
Norms and standards differ across provinces and municipalities

4. Strategic Issues Intergovernmental Loan Agreements
Delays in key policy implementation
Delays in implementing REDs and accreditation of municipalities
Stalling may be partly due to uncertainty associated with ongoing DPLG Policy Review on the System of Provincial and Local Government.
Leads to uncertainty and poor service delivery (poor maintenance, unfunded mandates and poor housing delivery)
Fixing timelines to DPLG process can bring certainty and movement on the policy implementation
Intergovernmental Loan Agreements
Government extended a loan to fund Gautrain Rapid Rail Link
Decision consistent with Borrowing Powers of Provincial Government Act (1996)
Commission pointed out in 2007 the potential risks for the IGFR system and principles of no bail-outs
Commission recently received documentation on the loan
Recommendations to be submitted to Minister of Finance in line with the BPoPG Act 1996 and Section 230 of the Constitution (1996)

5. General Observations on the Bill
Section 15, Municipal Infrastructure Grant (Cities)
Replace “other investment” by “support of” as this would tie down the objective towards investment in the built environment.
Section 23, Expanded Public Works Programme Incentive
Attempts at addressing employment through Government expenditure programs welcomed
Adopt cautious approach, monitor and evaluate skills developed
Section 24 (c), Conversion of Schedule 7 to Schedule 6 allocation
Welcomed because it builds flexibility and spending
Section 42, Duties relating to Category C Municipal Budgets
Welcomed as it improves transparency and certainty of funding and allow better planning for expenditure.
Section 38, Approval of expenditure for emergencies
Welcomed as changes speed up the flow of funding

6. Conditional Grants to Provinces
9 conditional grants valued at R18 billion added to provincial fiscal framework.
(1)Agriculture Disaster grant R60 million,
(2)Housing Disaster Grant R150 million and
(3)Health Disaster Grant R50 million
(4)Public Transport Operations Grant with R11.5 billion, (5)Expanded Public Works Programme at R1.4 billion, (6)Agriculture’s ILima Letsema at R650 million,
(7) Technical secondary Schools Re-capitalisation grant at R280 million,
(8) Sani Pass at R34 million and
(9)Overload Control grant at R21 million
Carry out in-depth study of disaster management framework
Move towards increased conditional grants not encouraged unless such grants are deemed entirely necessary

7. Local Government Conditional Grants
Rural Transport Services and Infrastructure Grant
This grant is in Pilot Phase
DOT to give feedback before this eventually is rolled out
The Commission will be evaluating the effectiveness of this grant
Capacity Development Grants (LGFMG:NT) and MSIG:DPLG)
Assess impact of these grants against improvements suggested in Auditor-General’s report for municipalities
Give priority to expand these grants to poorer and weaker municipalities with need.
National Energy Efficiency and Demand Side Management
The Commission submits that the grant framework should be further developed.

8. Comments on Government’s response to 2009 MTEF Recommendations
Generally Commission welcomes the in-depth response to all its recommendations by government
There is an agreement between the Commission and Government on most of the Commission’s recommendations
However, caution made in respect of other recommendations
Commission is of the view that Government should in future provide details around implementation of recommendations and progress over the medium term expenditure period

9. Specific issues and Commission Comments
Education
Commission recommended that the location for learner transport function needed to be defined and government agreed
Whilst Government response that the department of education is responsible for the function of Learner Transport and the department of transport is responsible for regulatory function for Learner Transport
However there are provincial departments of education that do not agree

10. Cont.. Augmenting Local Government Revenue
The Commission recommended the criteria of a good local tax to replace RSC levies and Government agreed
Government has been utilising VAT zero-rating of municipal property rates and a replacement grant as transition measure since the abolition of the RSC levy
In 2009 government is proposing the sharing of fuel levy amongst Metropolitan cities as replacement
While the Commission welcomes this measure which improves revenue adequacy, the submission is that it still falls far short of the criteria of a good local tax:
Municipalities have no discretion over the base and rate of the tax
Link between agents who bear the incidence of the fuel levy and the beneficiaries of the services funded by fuel levy revenue sharing is tenuous – accountability at the margin is not thereby enhanced
Municipalities should continue searching for appropriate taxes

11. Cont.. Electricity Investments and Pricing
Government agreed with recommendation to promote greater efficiency of resource allocation, technological innovation and increased investment in renewable energy sources
Government has in the 2008 Budget Review proposed the imposition of a 2c/kWh tax on the sale of electricity generated from non-renewable sources
Commission encourages these measures aimed at diversifying electricity supply towards sustainable development
However, further fiscal and regulatory instruments should be developed to allow renewable energy technologies to compete with fossil based technologies. The Commission is investigating some of these matters.

12. Conclusion
Commission notes and welcomes changes introduced through the 2009 Division of Revenue Bill
Commission invites the Committee to note the strategic issues that have been highlighted and the work that it will be carrying out in this regard
Submission makes observations on certain clauses of the Bill with a view at enhancing clarity and transparency
The Commission reiterates its position that government should address the reasons behind the proliferation of conditional grants and move towards more consolidation
The Commission supports the basic principles behind most of the new conditional grants
Cautious approach in respect of issues of implementation and how the grants will be rolled out
Commission welcomes the in-depth response to recommendations
Government should in future provide details around implementation of recommendations and progress