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Division of Revenue Bill 2004 [B4-2004]

Division of Revenue Bill 2004 [B4-2004]. Portfolio Committee on Finance Ismail Momoniat. 20 February 2004. Intergovernmental Fiscal System. Section 214 of Constitution and IGFR Act Requires an annual Division of Revenue Bill

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Division of Revenue Bill 2004 [B4-2004]

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  1. Division of Revenue Bill 2004[B4-2004] Portfolio Committee on Finance Ismail Momoniat 20 February 2004

  2. Intergovernmental Fiscal System • Section 214 of Constitution and IGFR Act • Requires an annual Division of Revenue Bill • Section 10(5) of the Intergovernmental Fiscal Relations Act gives effect to Constitution • Consultation processes for all allocations • Explanatory memorandum (Annexure E) • Budget Council and Budget Forum • FFC • Extended Cabinet with provincial Premiers and chairperson of SALGA

  3. 2004 Division of Revenue Bill • Section 76(4) Bill and has to start in NA • Most important Budget Bill, not a s75 money bill! • Clauses 1-35 of the Bill • Schedules 1-7 divides revenue bet 3 spheres • Memo on the 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 E6: LG allocations by municipality for both national & municipal financial year • Appendix E7 Demographic data for Local Government Equitable share and Municipal Infrastructure Grant

  4. DOR: Schedules • Schedules 1 to 7 • Equitable Share allocations (Schedules 1-3) • Schedule 1 divides eq share between 3 spheres • Schedules 2 divides provincial equitable share between 9 provinces • Schedule 3 divides local equitable share between 284 municipalities • Conditional Grant allocations (Schedules 4-6) • Schedules 4 and 5 on provincial grants, by province • Schedules 6 on LG grants (no division by muni) • Allocations by municipality in explanatory attachments • Allocations-in-kind (Schedules 7)

  5. Fiscal framework

  6. Division of revenue

  7. Response of National Govt to FFC Proposals Part 1 of Annexure E

  8. Key Proposals on DoR • Census 2001 results released in 2003 • Update formulae with new data for 2004 • Comprehensive review of formula for provincial and LG equitable share grants for 2005 MTEF • Review of all conditional grants • Review of LG Fiscal Framework • Restructuring of electricity distribution • Division of functions 3 Jan 2003 • Review of RSC and municipal service levy

  9. Process to consider FFC proposals • FFC Submission: DoR 2004/05 • Focus is on two main sets of issues • First set deals with DOR issues pertaining to each sphere of government • Second set focus on the intergovernmental system • Response should be viewed against the review of LG and Provincial fiscal review • Budget Council considered prov proposals • Budget Forum considered LG proposal • Premiers invited at Extended Cabinet • Cabinet decides on div of revenue thereafter

  10. FFC Provincial Recommendations • HIV and Aids funding and health conditional grants • Equitable share formula • Education component • Health component • Welfare component • The FFC also made overall proposals regarding the equitable share formula • Framework for Comprehensive Social Security Reform

  11. Response of N Govt to FFC provincial proposals • Governments current approach to HIV and Aids funding is largely in line with FFC recommendations • The proposal to consolidate all HIV and Aids grants will be explored during the review of provincial fiscal framework • It is difficult to evaluate ES spending on HIV and Aids • On health conditional grant proposals • national Departments of Health and Education and the National Treasury review the funding of academic and tertiary hospitals • PSNP to be administered by education in 2004/05

  12. Response of N Govt to FFC provincial proposals • Health component of ES formula • Regular updates not possible due to lack of updated data • Replacement of current datasets used in component with alternative data being explored • Education component of ES formula • ‘out-of-school’ enrollment retained as stabiliser • ECD phase into ES formula by adjusting the age co-hort to 5-17 • ABET proposal will form part of the broader review • On welfare component of ES formula • Should be viewed against current developments pertaining to the shifting of social security function • Two Bills before parliament • Increasing the weight of welfare component will not address FFC concerns as other areas of spending are crowded out

  13. FFC proposals on LG • Revenue capacity and the ES formula • Municipal institutional capacity • Financing development nodes • Differentiated approach to municipalities

  14. Response of NG to FFC on LG • On the revenue capacity of LG and the ES formula • Government supports the FFC proposals • Recognise the need for a review of LG fiscal framework • On I-element • Will form part of the broader LG fiscal framework review • Capacity building CG • Will form part of LG fiscal review and steps are to be taken to minimise the number of CG in system • Grants will be assessed in terms of outputs and outcomes

  15. Response of NG to FFC on LG • On financing development nodes • FFC is raising valid issues on ISRDS and URP • The current ES transfers still fund transitional programmes and can only be phased out in a few years time • Funding for nodes will be explored with the fiscal framework review • Gov agrees that the programmes be evaluated • On the differentiated approach to municiaplities • Legislation provides for a differentiated approach • Consideration is being given to a differentiated approach based on capapcity

  16. FFC proposals on intergov system • Bulk of proposals are work-in-progress • Proposals related to CBS, expenditure assignment, costed-norms,performance management,building institutional capacity, funding instruments for poverty-alleviation • Gov response just an initial response • Gov welcomes the emphasis on the need for certainty in functions • Expenditure assignment is complex and calls for greater cooperation • Re-assignment of social grants underway • CBS taken account of in vertical and horizontal DOR

  17. Provincial Allocations Part 4 of Annexure E

  18. Provincial Allocations • Total provincial share allocation increases from R161,5 bn in 2003/04 to R181,1 bn 2004/05 and to R216 bn at end of MTEF • Biggest allocation to KZN at R36,9 bn in 2004/05 (compared to R32,2 bn 2003/04) • Next highest EC (R30 bn), Gtg (R29 bn) • Lowest to NC (R4,4 bn) • Equitable share R159,9 bn, or 88,3% • Conditional grant R21,2 bn

  19. Total transfers to provinces 2002/03 to 2006/07

  20. National transfers to provinces(1) • National transfers make up 97% of total provincial revenue in 2004/05 • Equitable share makes up 88,3% of national transfers to provinces • Rises from R144,7bn in 2003/04 to R159,9bn in 2004/05 and will peak at R186,4 bn by 2005/06 • R19,7 bn added to ES over the next three years, a growth rate of 8,8 %

  21. National transfers to provinces(2) • Conditonal grants grow from R16,7 bn in 2003/04 to R21,2bn in 2004/05, and will rise to R30bn by 2006/07 • Growth in CGs largely linked to • Child support extension grant • R3,7bn, R6,9bn and R9,3bn • Food relief of R388m each MTEF year • HIV and Aids in health • R782 million, R1,1bn and R1,7bn • R750 million for CASP • Growing infrastructure grants • 19 Conditional grants • 2002/03 Audit concerns

  22. Local Government Allocations Part 5 of Annexure E

  23. Local Government priorities • Bulk of pro-poor spending is in provinces and local government • Accelerate the rollout of free basic services • Electricity, water and sanitation, refuse removal • Municipal infrastructure development • MIG to provide the infrastructure to rollout free basic services • Contributing to job creation • Capacity building grants to support MIG implementation • MFMA implementation • Building in-house capacity in planning, budgeting and financial management

  24. Local Government Allocations • National allocations an important and growing source of revenue for municipalities • Comprise about 14,4 per cent of total LG budgets, but can be as high as 90 per cent in some municipalities • Increases by R3,9 bn over the next 3 years • Total allocations grows to R17,1 billion in 2006/07 from R12,4 billion in 2003/04 • Equitable share is most significant comprising 55 per cent of allocations • allowing greater discretion at local level • Equitable share increase to R9,4 billion in 2006/07 from R6,4 billion in 2003/04

  25. LG Allocations (continued) • R21,6 billion earmarked transfers made to LG over the MTEF • Infrastructure grants also receive a major boost to address backlogs • Grow to R6,0 bn in 2006/07 from R4,1 bn in 2003/04 – R1,7 bn increase over baseline • Capacity building and restructuring grants are allocated R2,2 bn over the three years • Mainly to support the implementation of MIG and the MFMA • Support municipal restructuring

  26. Clauses in the Bill

  27. Division of Revenue Bill 2004 • Bill largely same as 2003 DOR Act • Substantive changes: • New clauses to align the Bill with MFMA (additional definitions, 1(2 and 3), 14(3), 16(3), 18(3)) • 3 additional clauses in section 8 to strengthen the regulation of provision of municipal services through public entities • 4 new sub-clauses in section 11 to facilitate the phasing in of infrastructure grants to MIG, facilitate better planning and reporting on performance

  28. Division of Revenue Bill, 2004 • Substantive changes • additional clause in sections 23 and 26 to restrict reallocation of grants between municipalities • additional clause in section 23 as interim measure to deal with uncertainties regarding possible take up of additional funds to HIV/Aids for roll out of ARV treatment plan • New section 35 to deal with underspending of capital grants

  29. Analysis of transfers

  30. Analysis of Provincial Formula • Formula updated education, population and economic data (2001 Census) • Weighting for social grants is 18%, but provinces will spend29,3% of eq share I 2003/04, and rising • Allocations are redistributive, as can be seen in Table E21 in Annexure E • Gauteng, W Cape and to a lesser extent KZN get less than per capital average

  31. Local Government Transfers • As reflected in tables E17, E22 and E23 in annexure E • Total transfers as percentage of municipal budgets average 13,7% country wide • as high as 55,2% in Limpopo municipalities, • as low as 4,0% in Gauteng municipalities • Total transfers as percentage of budgets for sample municipalities • only 3,0% in Cape Town • only 3,2% in Johannesburg • as high as 92,1% in Bohlabela (Bushbuckridge)

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