1. Division of Revenue Bill 2008 [B4-2008]
Select Committee on Finance
Lungisa Fuzile, Kenneth Brown, Jonathan Patrick, Jo-Ann Ferreira
26 February 2008

2. Lay out of Bill and contents Division of Revenue Bill
Outline
Lay out of Bill and contents
Division of Revenue Bill
Changes to the 2007 Division of Revenue Act
Fiscal Framework
FFC proposals and government’s response
Provincial & LG allocations

3. Changes to the 2007 Act
Technical changes to improve readability of the Bill, better align different sections and further facilitate implementation
Low capacity municipalities: All provisions that provided for the management of grants made to low capacity municipalities by provinces or other municipalities have been deleted

4. Changes to the 2007 Act
Accreditation: The 2007 provisions have been removed
Extension of reporting requirements: Provinces using public entities to deliver functions (such as housing) must report on such transfers and expenditure

5. Changes to the 2007 Act
Municipal Infrastructure Grant: The provisions relating to this grant has been amended to –
extend the reporting obligation of municipalities to include reporting on non-financial performance
place a reporting obligation on the transferring national department to monthly report on the implementation of the grant to the National Treasury and other national departments that have an interest in the grant

6. 2010 FIFA World Cup Stadiums Development Grant:
Changes to the 2007 Act
2010 FIFA World Cup Stadiums Development Grant:
The conditions of this grant have been extended. Municipalities must ensure, by no later than 1 June 2008, that any financial obligations of the municipality in terms of contracts and sub-contracts entered into for the construction or upgrading of the relevant stadium and supporting infrastructure expenditure are quantified and no longer negotiable

7. Duties of Provincial Treasuries:
Changes to the 2007 Act
Duties of Provincial Treasuries:
The information that must be published as part of the budget documentation of the province has been extended to include detailed housing allocations to municipalities and schools, and the budgets of provincial hospitals
Alignment with municipal IDPs in respect of infrastructure plans a new requirement

8. Changes to the 2007 Act
Stopping of allocations: NT may authorise intervening (s100 of the Constitution) transferring national officer to spend allocation on behalf of province
Preparations for the next financial year and the 2010/11 financial year: This section has been amended and extended to facilitate better planning. Municipalities receiving the Municipal Infrastructure Grant are required to prepare infrastructure plans and provinces receiving the Integrated Housing and Human Settlement Development allocation must agree allocations with municipalities identified by the transferring national officer in consultation with NT prior to the commencement of the next financial year

9. 2008 Division of Revenue Bill
Section 76(4) Bill of Constitution requires that DoR Bill must be tabled in NA, and go to NCOP thereafter
Clauses 1-49 of the Bill
Schedules 1-7 divide revenue between 3 spheres and within spheres
Memo on objectives of Bill
Explanatory attachments:
Annexure W1
Appendix W2 & W3: Frameworks on all conditional grants (provincial and local)
Appendix W4 to W8: LG allocations by municipality for both national & municipal financial year

10. 2008 DOR Bill: Schedules
Schedule 1: Division of Revenue between the 3 spheres
Schedule 2: Provincial equitable shares among the 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

11. Budget Review Chap 8 & 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) 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 prov/LG that need further work

12. Appendices W2 and W3 Grant frameworks in Appendix W2 & W3
To be gazetted within 14 days of Bill taking effect
Thereafter frameworks become legally binding
Measurable outputs & conditions
Allocation criteria
Some use sector data (e.g. enrolment in education)
Past performance
2006/07 audit outcomes (financial)
2006/07 non-financial
Planning for 2009/10
Responsibilities of national departments
Grant review process for health grants
Transferring dept quarterly reports

13. Appendices W4 to W8
Local government allocations per municipality in Appendices W4 to W6
Total allocation per municipality in W7
National AND municipal financial year
W8 – detailed breakdown of the local government equitable shares per municipality
Formula portion
RSC levies
Councillor remuneration

14. Fiscal Framework
Parts 1 and 2 of Annexure W1

15. FFC proposals
Response should be viewed against the review of LG and Provincial fiscal frameworks
Budget Council considered provincial proposals
Budget Forum considered LG proposal
All spheres deliberated on the proposals and response at Extended Cabinet

16. Process to consider FFC proposals
FFC Submission: DoR 2008/09 (including supplementary submissions)
Focus is on 7 issues
Economic impacts of the 2010 FIFA World Cup
Extending the national school nutrition program to secondary schools
Financing school infrastructure and education outcomes
A clear definition of and a separate budget line item for learner support material
Addressing of challenges with the implementation of the no-fee school policy
Roads and transport infrastructure
A more effective road management system
Consider provincial road expenditure needs in impending review of the PES
Collection of data on homelessness

17. Other proposals
Part B of the recommendations deal with the supplementary submissions made during 2006/07. These have been dealt with in 2006 and 2007
Part C of the proposals looks at budget analysis; a model for sharing nationally raised revenue; and provides a framework for assessing function shifts.
Work in progress

18. Division of revenue

19. Division of revenue

20. Division of revenue

21. Provincial fiscal framework
Part 3 of Annexure W1

22. Provincial priorities
R45.7 billion added to provincial share
R33.2 billion to the equitable share and R12.5 billion to conditional grants
Personnel adjustments
Interventions to recruit and retain social services personnel
2007 wage agreement
OSD for educators, health professionals, social workers

23. Provincial priorities
In education
Grade R
Learners with special needs (inclusive education)
LSM for grades 10 to 12 (new curriculum statement)
Education infrastructure needs
In health
General baseline adjustment to stabilise the public health system
TB (MDR and XDR)
Comprehensive HIV and Aids strategy (preventative, HBC and ARVs)
Hospital revitalisation

24. Provincial priorities
In social development
ECD (in collaboration with education)
Secure care services for children in conflict with the law
Access home and community based care
Roads, agriculture and SMME development
Housing and human settlements

25. Changes to the provincial equitable share formula
Structure of the formula unaffected
Only updated for latest available data
Data changes to the formula:
2007 Community Survey
2007 enrolment, 2006 GHS, 2005 GDP-R
Phasing in
Impact of updates phased in over the next three years

26. Full impact on equitable shares

27. Full impact on equitable shares

28. Full impact on equitable shares

32. Local Government Allocations
Part 4 of Annexure W1

33. Local government priorities
Increasing the equitable share envelope (R6.5 billion) for :
Increased service delivery costs due to tariff increases
Increased demand following the rollout of basic infrastructure to the poor
Support for poorer municipalities

34. Local government priorities
Infrastructure stepped up R7 billion
Step up of MIG to the tune of R3.8 billion
to allow further rollout of basic municipal infrastructure in poor communities
to provide each municipality with a reasonable minimum MIG allocation
Enhanced funding of capacity-building initiatives in the area of financial management
Further adjustments to ensure the readiness of the host cities for the 2010 FWC

35. Funding poorer municipalities
Formulae used to divide funds must always be objective and ensure certainty….
LES formula not adjusted to make it more redistributive
Municipal infrastructure grant
Ensure a minimum allocation for municipalities
Formula adjusted to step up funding towards poorer municipalities
Constant element introduced
R2.2 million in 2008/09; R4.4 million in 2009/10; and R5 million in 2010/11

40. Review of LG Fiscal Framework
Differentiated approach to municipal infrastructure development
Permanent replacement for RSC and JSB levies

41. Thank you