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Briefing to the Select Committees on Finance and Appropriations

Briefing to the Select Committees on Finance and Appropriations. For an Equitable Sharing of National Revenue. 15 July, 2014. Presentation Outline. Role and Function of the FFC Parliamentary Budget Oversight Cycle and the FFC Support and Interventions Provided by FFC

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Briefing to the Select Committees on Finance and Appropriations

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  1. Briefing to the Select Committees on Finance and Appropriations For an Equitable Sharing of National Revenue 15 July, 2014

  2. Presentation Outline • Role and Function of the FFC • Parliamentary Budget Oversight Cycle and the FFC • Support and Interventions Provided by FFC • FFC work on the Local Government Fiscal Framework • FFC Recommendations for the 2014/15 Division of Revenue and Government’s Response • FFC Ongoing Work in Support of NDP • Conclusion Introduction to the Financial and Fiscal Commission 2014

  3. 1. Role and Function of the Financial and Fiscal Commission

  4. Role and Function of the FFC • What is the FFC? • Permanent statutory body established in terms of Section 220 of Constitution • Independent and subject only to Constitution and the law • Must function in terms of an act of Parliament • What is the mandate of Commission? • Makes recommendations as envisaged in Chapter 13 of the Constitution • How? Enabling legislation • Section 214 (2), 218(2), 228 (2), 229(5), 230(2) 230A(2) of the Constitution • FFC Act (No 99. of 1997) IGFR Act (No. 97 of 1997) • Provincial Tax Regulation Process Act, Municipal Fiscal Powers and Functions Act, Borrowing Powers of Provincial Government Act • FFC in IGFR system • Municipal Finance Management Act, Municipal Systems Act, Money Bills Amendment Procedure and Related Matters Act, Intergovernmental Fiscal Relations Act Introduction to the Financial and Fiscal Commission 2014

  5. General Principles • FFC is concerned with intergovernmental fiscal relations (IGFR) • Legislative provisions or executive decisions that affect either provincial or local government from a financial and/or fiscal perspective • Includes regulations associated with legislation that may amend or extend such legislation • Commission must be consulted in terms of the FFC Act • Important stakeholders for consultation in IGFR • Ministry of Finance, The Presidency, Organised Local Government, Ministry of Cooperative Governance and Traditional Affairs, Parliament, Provinces, National Planning Commission and other sector departments and municipalities Introduction to the Financial and Fiscal Commission 2014

  6. The FFC And Policy • Identify weakness within the IGFR system • Propose evidence-based policy proposals • Interact and participate with/in forums and institutions responsible for IGFR policy • Information dissemination – invitations from nine provincial legislatures • Interact with various committees within parliament Introduction to the Financial and Fiscal Commission 2014

  7. Enforcement of Recommendations • Recommendations of the Commission • Recommendations are made to Parliament so that the legislature can examine the financial and fiscal decisions of government against them and understand why they have been accepted or rejected • Section 4(4)(c) of the Money Bills Amendment Procedures and Related Matters Act (MBAPRMA) requires Parliament to consider the recommendations of the Commission when deliberating on Money Bills • The Minister is obligated through the Constitution to explain how the FFC recommendations have been considered in arriving at the division of revenue for any particular year • The response is tabled in Annexure W1 of the DoR Bill and of the Budget Review Introduction to the Financial and Fiscal Commission 2014

  8. 2. Parliamentary Budget Oversight Cycle and the FFC

  9. FFC’s Role in the Budget Process • FFC’s primary outputs/reports in terms of Section 221 of the Constitution and Money Bills Procedures and Related Matters Act (MBPRMA): • Annual Submission on the Division of Revenue (DoR) • Submitted 10 months prior to tabling of the DoR by the Minister • Contains recommendations/proposals for the following fiscal year and medium terms expenditure framework (MTEF) • Submission on the DoR Bill • Submitted to Parliament in February and outlines the FFC’s response to DoR Bill and relevant annexures • Submission on the Fiscal Framework and Revenue Proposals • Contains FFC’s response to the fiscal framework and revenue proposals contained in the budget tabled by the Minister Introduction to the Financial and Fiscal Commission 2014

  10. FFC’s Role in the Budget Process [cont.] • Submission on the Medium Term Budget Policy Statement (MTBPS) • Contains the FFC’s response to the MTBPS and adjustments to the division of revenue • Submission on the Appropriation Bill • Submission made to the Standing/Select Committee on Appropriations • Annual Report • Any other special reports made at own initiative or request by organs of state Introduction to the Financial and Fiscal Commission 2014

  11. 3. Summary of FFC Support and Interventions

  12. Summary of FFC Support and Interventions Introduction to the Financial and Fiscal Commission 2014

  13. FFC Public Hearings • FFC has hosted three public hearings focussing on: • Local government fiscal framework (2012) • Housing finance (2013) • Child welfare services (2013) • Rationale behind use of public hearings approach: • To share, validate and expand FFC’s understanding of the problems, preliminary findings and outcomes of the area being researched • To provide a platform for stakeholders to engage and exchange views on the funding and service delivery challenges and possible solutions in area being researched • To listen to the views of major stakeholders before making its recommendations to Parliament

  14. 4. FFC Work on the Local Government Fiscal Framework

  15. Why the Local Government Fiscal Framework is Important • Local government (LG) sphere continuously evolving • Local government fiscal framework (LGFF) needs to be robust to cater for changing needs of LG • To be sensitive to various needs of municipalities • Urban/rural dimension • Balancing urban built environment needs with rural development • Increased urbanisation • Increasing devolution of powers and functions • Poor municipal expenditure and revenue performance • Poor coordination and support between and amongst spheres • Are municipalities appropriately funded and capacitated? • Continues to hide non-fiscal problems • Complements government wide initiatives to review LGFF

  16. Contextualising the LGFF

  17. Contextualising the LGFF • LGFF structure is complex and multi-dimensional • Aim of the LGFF is to ensure adequate service delivery to communities through appropriate funding of municipalities • Recipients of municipal services are non-residential (private sector, non-governmental organisations etc.) and low-income and high-income households • Service delivery to communities is achieved with municipal expenditure supported by various revenue streams • Nexus between service delivery, consumers and municipal own revenues takes the form of the principle of a social contract, • A comprehensive system of governance and regulation informs the operation of the LGF Introduction to the Financial and Fiscal Commission 2014

  18. Key Issues Regarding the LGFF • The LGFF needs to be informed by a differentiated approach • The aggregate amount covering operational expenditure is adequate, but needed to be targeted better • There is a vertical fiscal gap in relation to capital expenditure and rehabilitation which must be addressed • Commission is concerned about the revenue situation in municipalities • Commission reiterates its previous concerns about conditional grants • There is a need for several transitional and implementation arrangements in achieving an effective LGFF Introduction to the Financial and Fiscal Commission 2014

  19. Differentiation • The framing of the LGFF needs to account for: • Variation in municipal context (exogenous factors): poverty; economic activity within a municipality, spatial factors such as topography and population density; powers and functions assigned; population dynamics (migration) • Variation in municipal performance (endogenous factors): debt collection, expenditure efficiency, vacancy rates; ability to plan and execute budgets • System needs to reward good performance and sanction poor performance Introduction to the Financial and Fiscal Commission 2014

  20. Differentiation Framework for Local Government

  21. Understanding the Vertical Fiscal Gap actual own revenue maximum own revenue costs incurred in providing services at a reasonable level of expenditure for a properly managed service gap gap gap actual costs Structural gap Actual gap actual costs inefficiency REVENUE REVENUE EXPENDITURE EXPENDITURE fiscal capacity fiscal effort 20 Introduction to the Financial and Fiscal Commission 2014

  22. Issues on Vertical and Horizontal Equity • Vertical division adequate for operating expenditure • Total LES package in 2014 was R44.5 billion • LES formula is R39.4 billion • Replacement grant and councillor support is R5.1 billion • The quantum of resources allocated to local government for operating expenditure is sufficient but there are inequities in its distribution across municipalities • Commission notes that new LES formula addresses horizontal concerns • Commission estimates shortfall in vertical division on capital expenditure –This needs to be addressed • Estimated at R42 billion without grants • Total shortfall of R25 billion with infrastructure grants at R16.8billion Introduction to the Financial and Fiscal Commission 2014

  23. Concerns on LG Conditional Grants • Commission is concerned about conditional grants • Inadequate planning and implementation of conditional grants • Poor monitoring and evaluation • Continued proliferation of LG conditional grant system (see next slide) • Poor targeting of grants – allocations do not reflect need • Commission supports a rationalised LG conditional grant system that: • Does not duplicate aims and objectives of conditional grants • Is easy to monitor and implement and does not lead to an unnecessary administrative burden being placed on both the transferring department and municipality • Ensures there is capacity to spend grants before grants are allocated • Is based on outputs and outcomes and not just spending patterns • Commission supports the infrastructure grants review that is being undertaken Introduction to the Financial and Fiscal Commission 2014

  24. Conditional Grants - Proliferation

  25. Ensuring an Effective LGFF • LG performance needs to improve to ensure objectives of LGFF are achieved • Internal controls • Act on AG’s concerns • Greater support for LG from other spheres • As per Section 154 of the Constitution • Improved monitoring and evaluation • Improved capacity support • Direct and structured intervention • Appropriate implementation of Sections 139 and 216(2) of the Constitution • Ensure Municipal Finance Management Act and Municipal Systems Act provisions for competent municipal officials are enforced Introduction to the Financial and Fiscal Commission 2014

  26. 5. RECOMMENDATIONS FROM THE FFC’S SUBMISSION FOR THE DoR 2014/15 AND RESPONSE BY GOVERNMENT

  27. Fiscal Levers for National Development

  28. Presentation Outline

  29. Briefing on the 2014 Appropriation Bill Presentation Outline

  30. 6. 2014/19 FFC Research Agenda in Support of NDP

  31. The theme: IGFR in support of national development Dynamics of economy & social issues (equity)(1) Balance between accumulation & breakthrough: Managing past recommendations (2) Capable state issues: Efficiency effectiveness collective goods (3) • Elimination of poverty and reduction of inequality to 0.6 • Need for “Institutional transformation” • Toward a new model?

  32. Value Add of the FFC • FFC can provide advice, analysis and training to assist the work of the Committee • Specialised IGFR training to committee members and/or parliamentary researchers • Provision of recommendations that are founded on evidence based research • Technical support with respect to parliamentary fiscal oversight activities Introduction to the Financial and Fiscal Commission 2014

  33. 7. Conclusion

  34. Concluding Remarks • Institution building is a long term process • FFC is keen to engage and support Parliamentary Committees in their fiscal oversight role • FFC’s intergovernmental fiscal relations conference will be hosted in Cape Town from 11-13 August 2014 • Theme: An African Perspective on Decentralisation Introduction to the Financial and Fiscal Commission 2014

  35. FFC’s Website: www.ffc.co.za Introduction to the Financial and Fiscal Commission 2014

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