INTERGOVERNMENTAL FISCAL REVIEW 2003 dplg INPUT TO SELECT COMMITTEE ON FINANCE May 14, 2003

1. INTERGOVERNMENTAL FISCAL REVIEW 2003 dplg INPUT TO SELECT COMMITTEE ON FINANCE May 14, 2003

2. CHALLENGES IDENTIFIED BY dplg AT THE PUBLIC HEARINGS ON THE DIVISION OF REVENUE BILL • Planning and budgeting:  Intergovernmental Relations  Targeted Support to Municipalities  Budget Certainty, Predictability and alignment of IDPs • Disbursements, Expenditure and Reporting:  Strengthening monitoring of conditional grants

3. CHALLENGES IDENTIFIED BY dplg AT THE PUBLIC HEARINGS ON THE DIVISION OF REVENUE BILL • Management Information Systems:  Clear definition of role of different spheres with regard to reporting and information systems • Developing Treasury Capabilities of Municipalities:  Targeted at weaker municipalities

4. POLICY BACKGROUND • Building a developmental state:  Unitary state with clear national development objectives  Strong state with capacity to address developmental challenges Three spheres work in an integrated, cooperative and complementary manner Ability to adapt to address new/emerging challenges

5. CHAPTER 2:TRENDS IN PROVINCIAL BUDGETS • Provinces have responsibility for: • Social Services (health, education, welfare) • Housing • Provincial Roads • Agriculture Support • Environment and tourism

6. PROVINCIAL REVENUE • Provinces generate very little own revenue • Major source of revenue is national transfers • Major source of own revenue is road traffic fees • Other own revenue sources: • Patient fees • Gambling fees • Horseracing fees • Casinos • Interest

7. PROVINCIAL EXPENDITURE • Real Growth of 7,1% in 2003/04 and real average annual growth of 5,5% over 2003/04 MTEF in social services expenditure • Share of social development increasing while share of education and health decreasing • Steady decline in personnel expenditure from 59,1% in 1999/00 to 51,6% in 2002/03 and projected to drop to 46,4% by 2005/06 • Overall, improvement in provincial spending

8. KEY CHALLENGES IDENTIFIED IN REVIEW Ensuring that: • Growing budgets are spent efficiently and effectively • Quality services are delivered

9. ADDITIONAL CHALLENGES IDENTIFIED BY dplg • Planning:  Integrated planning and alignment between provincial and national departments  Alignment of integrated planning to budgeting • Implementation:  Enhancement of investment in socio-economic infrastructure

10. ADDITIONAL CHALLENGES IDENTIFIED BY dplg • Monitoring and Evaluation: Need for national departments to monitor non-financial performance of provinces Need for provinces to monitor performance of municipalities, especially with regard to roll out of free basic services

11. PCC RESOLUTIONS ON STATE OF PROVINCIAL FINANCES • Premiers to take corrective measures necessary to improve spending capacity and prevent fiscal dumping • Investigation of challenges with regard to low capital expenditure spending and encouraging of private sector participation

12. PCC RESOLUTIONS ON STATE OF PROVINCIAL FINANCES • Introduction of necessary interventions to build capacity, develop skills and improve integrated planning to improve capital expenditure • National Treasury to provide reasons for and an analysis of rapid take-up in social disability grant

13. KEY dplg INITIATIVES • Policy Framework on Intergovernmental Relations and Intergovernmental Relations Bill: Platform for inter-sphere planning and budgeting Focus on intergovernmental structures and intergovernmental dispute resolution • Policy Framework for Assignment of Powers and Functions to Local Government: Provides guidelines about what assignments are, when they should be made and how they should be managed

14. KEY dplg INITIATIVES • Review of Schedules 4 and 5 of the Constitution:  Concrete proposals on best allocation of powers and functions across the three spheres of government • Roll out of National Planning Framework:  Ensure identification of strategic priorities that should inform financial and medium-term expenditure frameworks

15. CHAPTER 3:LOCAL GOVERNMENT BUDGET TRENDS • Local government has responsibility for: • Water • Sanitation • Electriciy • Refuse removal • Roads • Stormwater drainange • Municipal health • Firefighting services

16. MUNICIPAL PROFILE • 284 municipalities as of December 5, 2000, (reduced from over 1,200 in 1993 and 843 in 1996):  6 Category A (metropolitan)  231 Category B (local)  47 Category C (district)

17. MUNICIPAL BUDGETS • Total for 2002/03: R74,5 billion (15,7% more than 2001/02) • Capital budgets: R13,1 billion • Operating budgets: R61,4 billion • Share of different categories: • Category A: 64% • Category B: 33% • Category C : 4%

18. MUNICIPAL REVENUE • Own revenue: • User charges for water and electricity (Category A, B and C) • Property Rates (Category A and B) • Regional Services Council (RSC) levies (Category A and C) • Other user charges • Grants from National and Provincial government

19. MUNICIPAL EXPENDITURE • Operating expenditure: • Personnel costs continue to form largest share: R19,8 billion (1% increase from 31% in 1999/00 to 32% in 2002/03) • Capital expenditure: • 82% for general infrastructure (largest proportion for housing, water reservoirs and reticulation, roads, bridges, pavements, and electricity distribution) • Actual expenditure is less than budgeted (due to 1-year budgeting, poor cash-flow and implementation plans, and lack of secure funding)

20. KEY CHALLENGES IDENTIFIED IN REVIEW • Finalising establishment and consolidation • Expanding capacity to provide services, particularly free basic services • Impact of restructuring of electricity distribution industry • Modernising delivery, budgeting and financial management systems • Improving debt management • Improving revenue collection

21. ADDITIONAL CHALLENGES IDENTIFIED BY dplg • Policy:  Clear fiscal framework for local government and implications for different categories of municipalities  Sufficiency of revenues to meet expenditure needs  Measures needed to ensure financial viability of municipalities with weak economic and tax base

22. ADDITIONAL CHALLENGES IDENTIFIED BY dplg • Planning:  Linking integrated development planning to budgeting • Monitoring and evaluation:  Municipal performance in reducing backlogs in service delivery  Ensuring that grants are being spent for intended purposes

23. KEY dplg INITIATIVES • Policy:  Division of powers and functions between Category B and C municipalities finalized and published in January 3, 2003  Property Rates Bill before Parliament  Policy Framework on Division of Fiscal Powers and Functions between Category B and C municipalities  Policy Framework on Reform of RSC Levy

24. KEY dplg INITIATIVES • Implementation: Establishment of Municipal Revenue Enhancement Fund Consolidation of Capacity Building Grants • Consolidation of Municipal Infrastructure Grants • Monitoring and Evaluation: Project Viability monitoring of municipal finances

25. CHAPTER 10: PERSONNEL • Provinces ahead of local government in restructuring personnel regimes • Due to the fact that municipalities have recently undergone final phase of demarcation in December 2000 (after interim phases in 1993 and 1996) • Nevertheless, both spheres focusing on improving skills profile, dealing with surplus staff, attracting professional and managerial expertise, andimproving work performance

26. KEY CHALLENGES IDENTIFIED IN REVIEW • Improvement in performance management • Development of performance-based remuneration and reward systems • Adoption of more flexible personnel frameworks

27. ADDITIONAL CHALLENGES IDENTIFIED BY dplg • High level of staff turnover in municipalities • Unfilled posts at managerial level in municipalities • Transfer of DWAF staff to municipalities with transfer of water schemes • Coordination between SALGA, sector SETA and dplg wrt training and capacity

28. KEY dplg INITIATIVES • Establishment and Piloting of Performance Management System • Analysis of Creation of Single Public Service • Development of Guidelines on Remuneration of Municipal Managers

29. KEY INTERVENTIONS WITH REGARD TO PCC RESOLUTIONS • Intergovernmental Relations: dplg to finalise drafting and implementation of legislation on IGR • Integration in Planning, Budgeting, Implementation and Monitoring: Provinces to finalise review of Provincial Growth and Development Strategies (PGDS) dplg to develop generic and sector guidelines to inform and strengthen IGR and supportmunicipal IDPs

30. KEY INTERVENTIONS WITH REGARD TO PCC RESOLUTIONS • Targeted Support Programme for Provinces: Supporting Premier’s office to coordinate IGRs within provinces and national government  Aligning provincial and local IDPs and service delivery • Intergovernmental Fiscal Relations: Review local government equitable share formula Consolidate conditional grant system into MIG

31. KEY INTERVENTIONS WITH REGARD TO PCC RESOLUTIONS Municipal Viability and Debt Management: • National Revenue Enhancement Programme Indigent policy, credit control and billing systems • Capacity Building and Leadership Development:   Establishment of PIMSS centres  Establishment of LOGOLA

32. KEY INTERVENTIONS WITH REGARD TO PCC RESOLUTIONS • Infrastructure Investment and LED: Consolidation of infrastructure grants into MIG • Free Basic Services:  Focus on municipalities that do not have basic infrastructure in place Ensure that each Premier’s office establishes an Intergovernmental Task team on FBS

33. CONCLUSION Intergovernmental Fiscal Review 2003: • Substantial progress • Challenges Remain • Interventions

34. THANK YOU