Understanding Division of Revenue Bill: Legal Basis & Process

1. Division of Revenue BillConditional grants schedules, transfers to provinces, funds returned to NRF Media pre-budget workshop Presenter: Kenneth Brown | National Treasury | 21 February 2011

2. Outline • Why a division or revenue bill? • How is it different from other “budget” legislation/documentation? • The process that culminates in the Bill • The Bill’s contents • Does Bill get amended and why? • Where do you find amounts allocated per province/municipality for a specific grant? • How can the Bill be used?

3. The legal basis of the DOR Bill (1) • The Constitution and IGFR Act • Require an annual Division of Revenue (DoR) 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 on formulae, data etc • Section 76(4) of Constitution requires that DoR Bill must be tabled in NA, and go to NCOP thereafter

4. The legal basis of the DOR Bill (2) • How does DoR Bill relate to other “budget” legislation/documentation? • DoR Bill is in terms of section 214 of Constitution (“section 76” legislation) • Appropriation Bill is in terms of section 213 of Constitution (“section 77” legislation) • money may be withdrawn from the National Revenue Fund only through an appropriation by an Act of Parliament • Legislation is a Money Bill (“section 77” legislation) when it • appropriates money and/or imposes, abolishes or reduces national taxes, levies, duties or surcharges • authorises direct charges against the National Revenue Fund, except a Bill envisaged in section 214 authorising direct charges

5. The legal basis of the DOR Bill (3) • Money Bills Amendment Procedure and Related Matters Act (MBAPRMA) impact on DOR Bill • When budget is tabled, a report must also be tabled that responds to the recommendations made by the Parliamentary Committees on Appropriations regarding the proposed division of revenue and conditional grant allocations to provinces and local governments as contained in MTBPS • The report must explain how the DoR Bill and the national budget give effect to, or the reasons for not taking into account, the recommendations contained in the Committee reports • Such report will be submitted with the 2010 Budget (first time)

6. The process • The DOR Bill is an outcome of extensive consultations • Comments on drafts of bill from stakeholders implemented where possible • Budget Council and Budget Forum • National Departments • Extended Cabinet with provincial Premiers and chairperson of SALGA • The current Act serves as the point of departure • Sets out baseline DOR: both ES and CGs • Contains clauses governing or regulating transfers and amendments are informed by: • 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?

7. The Bill’s contents • The Bill contains: • A vertical division of revenue • Schedules setting allocations • Global amounts per sphere • Shares/allocations per province and municipality • Clauses • Generally applicable to all transfers • Applicable to specific transfers • Frameworks for each grant • Annexure W1 which is a detailed explanation of all decisions taken and a response to the FFC recommendations • Appendixes indicating thresholds for incentives grants

8. More on the schedules/allocations • 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 provinces and municipalities • Schedule 8: Incentives for special programmes • Schedule 9: Provision for disaster funding

9. Transfers to Provinces and their oversight • Provinces: • Payment schedule is finalised 14 days after the DORA comes into effect • Transfers for the Provincial Equitable Share are agreed with provinces – is an unconditional transfer • Transferring National Officer of conditional grants determine payment schedule for grant • Aligned with purpose and conditions of grants • National department must oversee implementation of grants they implement and ensure compliance with conditions • Non compliance may lead to withholding, stopping and possible re-allocation • Schedule 4 reported as part of budget reporting • Specific reports for Schedule 5 • Provinces to surrender unspent funds to the NRF

10. Role of Provincial Treasuries • Provincial Treasuries are given their role in Section 18 of the PFMA: • Prepare budget, exercise control over implementation, promote and enforce transparency and sound management of resources, ensure fiscal policies complement national economic policies • Critical role player in ensuring: • national priorities are expressed in provincial budgets • Control over use of provincial resources • Adherence to approved budgets • Provincial departments stay within budgets and spend on government priorities • Strong treasuries have significant impact on fiscal governance in provinces

11. Does the DoR Act get amended? • In terms of section 12(4) of the MBAPRMA the Minister of Finance must table a Division of Revenue Amendment Bill with the revised fiscal framework if such revisions impact on the division of revenue act of the relevant year • Any amendments to fiscal framework that impact on the Division of Revenue Act will require a Division of Revenue Amendment Bill/Act • Any amendments to fiscal framework contained in schedules to Division of Revenue Act, i.e. which forms part of the gazette required within 14 days after enactment of Division of Revenue Act, could be dealt with through a Gazette by Minister of Finance • A gazette on adjustments, including new allocations per province/municipality, is issued around December • The content of the bill is not amended

12. Possible uses of the Bill • Around budget tabling • Is the division equitable? • Is it aligned to the priorities? • How much is due to each municipality of province? • Key tool for administration and accountability • During the course of the FY • Compliance • Duties and responsibilities of various parties • After the end of the FY • Ex post audit