Division of Revenue Bill 2007 [B3-2007]

1. Division of Revenue Bill 2007[B3-2007] Select Committee on Finance NCOP Lungisa Fuzile and Jo-Ann Ferreira 28 October 2007

2. IntergovernmentalFiscal System • The Constitution and IGFR Act • Require an annual Division of Revenue Bill • Section 214 of Constitution • Section 10(5) of the Intergovernmental Fiscal Relations Act gives effect to Constitution in terms of: • Consultation processes for allocations with Budget Council, Budget Forum and FFC • Explanatory memorandum (Annexure E) on formulae etc • Consultations • Budget Council and Budget Forum • National Departments • Extended Cabinet with provincial Premiers and chairperson of SALGA

3. 2007 Division of Revenue Bill

4. The Bill • Section 76(4) Bill of Constitution requires that DoR Bill must be tabled in NA, and go to NCOP thereafter • 50 clauses • Schedules 1-7 divide revenue between three spheres and within spheres • Memo on objectives of Bill • Explanatory attachments: • Annexure E (also part of Budget Review) • Appendix E1 & E2: Frameworks on all conditional grants (provincial and local) • Appendix E3 to E7: LG allocations by municipality for both national & municipal financial year

5. Key considerations and approach to drafting • The current Act was the starting point • Then the following questions were asked: • Are there clauses that have become redundant? • Are there new developments that necessitate special and new provisions? • Are there gaps that have been identified in implementing the Act? • Are there current clauses that have unintended consequences?

6. Broad principles underpinning approach • Provisions of the Bill must be consistent with other legislation • Issues that are best covered in sector legislation and regulations should not be addressed in Bill • Issues that are largely administrative are captured in the frameworks • The Bill must strike two critical balances: • Between executive authorities & administration • Between executive authorities across spheres

7. Clauses deleted • Clauses that dealt with revised provincial and municipal boundaries • Responsibilities of the Auditor-General • Municipal capacity building • Risk management clauses

8. New and amended clauses • Gautrain Rapid Rail Link allocation • Amended to remove provisions no longer relevant • 2010 FIFA World Cup Stadiums Development Grant • New grant. Inserted for the effective management of the grant • Bulk Infrastructure Grant • New grant. Consultation & agreement with municipalities critical • Project registration for MIG • Project registration facilitated • Prior to the implementation of the financial year • Improved monitoring • No approval projects • Allocations in emergency situations • Exemption clause simplified

9. 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

10. Fiscal Framework

11. Medium Term Policy Objectives • Accelerating economic growth and job creation • Modernising infrastructure and services • Reducing poverty and inequality • Investing in long-term income security and protecting the vulnerable

12. Summary of the Budget • Continued ROBUST economic growth of about 5% of GDP • Spending grows by 7.7% a year • Additional R 89.5 billion • infrastructure, skills development/education & fighting crime • Tax changes • Scrapping of retirement fund tax • Personal income tax relief of R8.4bn • STC phased out, replaced with a dividend tax at a lower rate • Various thresholds raised • Social Security reforms proposed • Wage subsidy • Introduction of a social security tax for retirement, death, disability and unemployment

13. Division of revenue

14. Division of revenue

15. Division of revenue

16. Re-alignment of provincial fiscal framework to revised provincial boundaries

17. Changes to the PES formula • Structure of the formula unaffected; only impact is on the data • Data changes to the formula • Re-benchmarking of GHSs • Demarcation • Data updated for demarcation • Economic activity data not re-organised • 2000 IES not re-organised thus poverty component only updated for population • Up to date data used • 2006 enrolment, 2005 GHS, 2004 GDP-R • 2006 mid-year estimates available for consideration

18. Changes to the PES formula • Policy changes to the formula: • Proposal that moving averages be discontinued • Use only latest available data • Lag in statistics as it does not keep track with actual demographic shifts • Re-organising older statistics to new boundaries may pose a challenge • Particularly when re-benchmarked • Impact not phased • Expenditure shifts must be funded • Only for this round • Could still be considered in future

19. Provincial equitable shares

20. Response of National Government to FFC Proposals

21. FFC proposals (incl. supplementary submissions) • General proposals on conditional grants • Specific proposals on conditional grants • HIV & Aids (Health & Education) • Hospital Revitalisation • Land Care and CASP • School Nutrition • MIG • Review of Health Conditional Grants • National Tertiary Services • Health Profession Training & Development Grant

22. FFC proposals (incl. supplementary submissions) • Housing Allocation Formula • Social Welfare Services • Review of provincial own revenue • Basic services component of LES • Development component of LES • Replacement of RSC levies • Re-demarcation of provincial boundaries

23. FFC proposals (incl. supplementary submissions) • Significant % accommodated • Not accommodated: • Part of Housing Allocation Formula • Basic services component of LES • Development component of LES • Land Care & CASP • Hospital Revitalisation • MIG

24. Provincial allocations

29. Local Government Allocations

34. Discussion