Division of Revenue Bill[B5-2002]

25 February 2002Budget Hearings

Portfolio Committee on FinanceIsmail Momoniat, Malijeng Ngqaleni, Vuyo Kahla

Intergovernmental Fiscal System

• Intergovernmental system evolving– provinces developing

– municipalities have a long way to go

• Section 214 of Constitution and IGFR Act– Section 10(5) Of the IGFR Act

– Processes for consultation for allocations

– Budget Council and Budget Forum

– FFC

• Total allocations– Equitable share plus conditional/other grants

– Add own revenue and borrowing for total budget

IG Budget Documents• Chapter 7 & Annexure E of Budget Review

• Division of Revenue Bill– Bill and Schedules to be passed as an Act– Memo of objectives (usual as for any bill)– Annexure E of Budget Review – Appendices for each allocation in Schedules 3-6– Further explanation on LG grant framework– Interim Framework for LG infrastructure – Interim Framework for LG capacity-building

• Still to come – Allocations by municipality within 14 days– Gazettes when Bill is enacted

Chapter 7 and Annexure E• Chapter 7 summarises fiscal framework

– Provides equitable share and conditional grant allocations to provinces and local govt

• Annexure E provides greater detail– Explanatory memo required by IGFR Act

• Five parts to Annexure E– Part 1: Govt’s response to FFC proposals– Part 2 deals with fiscal framework, Part 3 with how how 10

factors in s214(1) of Const taken into account• Covered in detail in Budget Review, esp in ch 3, 6 and 7

– Part 4 and 5 provide details on prov/local allocations• Read with appendices (and Schedules) in Div of Revenue Bill

Fiscal Framework

Part 2 of Annexure E

Fiscal framework• 2001/02 outcome

– Additional R15 billion in revenue– Spending R4,3 billion over 2001 Budget– Deficit of 1,4%

• 2002/03 Budget– Revenue base for estimates revised upwards– Debt services costs decline from 4,8% of

GDP in 2001/02 to 4,1% by 2004/05– Deficit up to 2,1% in 2002/03– Real growth in non-interest spending of 4,1%

R billion 2001/02 2002/03 2003/04 2004/05

National Revenue FundRevenue 248.4 265.2 288.7 313.2 Expenditure 262.6 287.9 311.2 334.6 Main budget deficit 14.1 22.7 22.5 21.4 % of GDP 1.4 2.1 1.9 1.7 RDP Fund & foreign technical cooperation Receipts 1.0 0.8 0.8 0.8 Social security fundsRevenue 8.6 9.6 10.0 10.3 Expenditure 8.2 9.1 9.6 10.2 Consolidated national budgetRevenue 257.4 275.2 299.2 324.1 % of GDP 26.0 25.4 25.4 25.4 Expenditure 270.7 297.4 321.4 345.4 Deficit 13.3 22.1 22.2 21.2 % of GDP 1.3 2.0 1.9 1.7 GDP 990.0 1,082.8 1,178.9 1,277.5

National budget framework

Additional allocations• R13,4 billion in 2002/03 and R17,9 billion in

2003/04• Positive real growth in all three spheres:

– National R6,6 and R8,5 billion– Provincial R5,3 and R7 billion– Local R1,6 and R2,4billion

• National share includes restructuring SA Post Office, UIF, currency depreciation and fight against crime

• Provincial priorities - social security grants, education, capital investment and maintenance

• Infrastructure and capacity building at local government level

Fiscal capacity and functions• Provinces

– Raise 3.5% of own revenue

– Social services (85%) and roads are public goods

• Local Government– Raise over 90% of own revenue

– Only one third of functions are public goods

– Two thirds of functions are user charge services

• National Government– Over half actual spending on protection services

– Other national functions: higher education, admin, policy or regulatory

Division of Revenue

• Strong growth to provinces (7,9% a year) and local government (18,3% a year) over MTEF

• Priority pro-poor, social and housing:– Extension of basic municipal services

– Higher social grants and increased take-up of child support grant

– Social, municipal, housing and economic infrastructure

– Bolster health system against the impact of HIV/Aids

– Extending tertiary health services and training

– Early childhood education programme

Division of Revenue

2001/02 2002/03 2003/04 2004/05

R billion Revised Medium-term estimates

National allocation 87.3 96.1 103.3 109.9

Provincial allocation 121.2 132.4 142.8 152.4 Equitable share 107.5 119.5 128.5 137.1 Conditional grants 13.7 13.0 14.4 15.3

Local government allocation 6.6 8.6 10.2 10.9 Equitable share 2.6 3.9 5.0 5.5 Conditional grants 3.9 4.7 5.2 5.4

Allocated expenditure 215.1 237.1 256.4 273.1

Percentage shares

National 40.6% 40.5% 40.3% 40.2%

Provinces 56.4% 55.8% 55.7% 55.8%

Local government 3.0% 3.6% 4.0% 4.0%

Division of Revenue• Revenue to be shared:

– Revenue plus borrowing, exc RDP & social security funds

• National share – Remains stable, from 40,6% in 2001/02 to 40.5% in 2002/03 to

40,2% in 2004/05%

• Provincial share – Decreases from 56,4% in 2001/02 to 55,8% in 2002/03– Decline due to once off R2 bn payment for social security grants– Static over MTEF

• Local share– Increases to 4% in 2002/01 from 3,6% in 2001/02– Double the 2000/01 Budgeted share 2,0% – Static over MTEF

Reconciliation with DoR Bill• Schedule 1: legal vs economic/functional

• National share-– National allocation (appropriated and some

direct charges)– Debt servicing and contingency reserve– Conditional grants (provincial and local)

• Provincial share– Equitable share only, excludes cond grants

• Local share– Equitable share only, excludes cond grants

Future changes to Fiscal Framework• Provinces

– Provincial Tax Regulation Act

• Takes effect for 2003/04 Budget

– Borrowing

• Subject to further discussion by Budget Council

• Local Government– Transformation process still in progress

– Mergers completed for 2003-04 mun budgets

– Division of Functions finalised between cat Bs and Cs

– Three year allocations to be announced

– Significant new legislation still to be passed

• MFM Bill, Property Rates, RSC levies

Response of National Govt to FFC Proposals

Part One of Annexure E

Process to consider FFC proposals• FFC Submission: DoR 2002/03 -2004/05

– Proposals on budget process

– 9 provincial and 13 LG proposals

– LG govt proposals are new

• Budget Council considered prov proposals

• Budget Forum considered LG proposal

• Premiers invited at Extended Cabinet

• Cabinet decides on div of revenue thereafter

• Draft DoR Bill published with attachments – Published 6 Dec based on MTBPS allocations

FFC process recommendations

• National govt responsibility:– manage economic, fiscal affairs– determine tax bases, level and cost of servicing

national debt, overall borrowing requirement– deduction of debt servicing and contingency

• National govt and FFC agree on process and approach to what funds are available to be shared between the spheres

FFC recommendations on use of sub-national revenue

• FFC notes that provinces and local govts must prioritise spending on constitutionally-mandated obligations– prioritisation of basic services– use of both own revenue and equitable share

• Changes to existing equitable share formula should reflect priorities determined by political process

• National govt & FFC agree on revenue use

Limitations of costing approach• FFC suggests const obligations should be in terms of a

costing formula– Detailed response in 2001/02 Budget

• Methodologically difficult for allocation process– Demand for funds exceeds supply– Prioritisation and pressures drives choices– Division is for marginal (additional) allocations– Costing useful for analysis, not allocations

• Practically, data not available for costing approach– 2002 IGFR indicates data difficulties– BUT activity-based costing is the objective

FFC recommendations for provincial and local spheres

• Institutional component for each sphere• Equitable share takes account of

constitutionally mandated obligations• Other obligations funded with cond grants• Need for separate infrastructure funding• National govt agrees with all four above

– Increasing fiscal capacity may affect equitable share formula

– Limit in number of conditional grants

– Developing defns, norms and standards complex and will take time

FFC provincial recommendations• FFC on Own Revenue Proposals

– Surcharges on Personal Income Tax, fuel levy– Making Tax Room for provincial taxes, and

allow choice within tax bands• National Govt agrees with broad approach, but

differs on feasibility of surcharge on PIT• FFC on use of contingency reserve

– Govt has an open consultative process, and not sure every province should have own contingency, but will explore further with FFC

FFC recommendations on LG• FFC on definitions and costing of mun services

– NG reservations on approach outlined earlier

• FFC recommends alterations to eq share formula– National Govt agrees important to evaluate and improve fiscal

capacity factor– Poor info on new municipal budgets, so premature to make

significant changes now

• Increase discretion of LG over use of RSC levy– NG agrees, but wait until functions sorted out, and new

municipal budget formats rolled out

• Agree on FFC recommendations on borrowing– Well-developed capital markets in SA mean rules-based

approach not necessary

FFC recommendations on LG• Areas of further work• Scope for cross-subsidies and effect on efficiency• Devolution and funding for district health services

– Complex process

– Agree on need for more disaggregated info first

– Many issues to resolve, including definitions, different systems of remuneration etc

Provincial Allocations

Part 4 of Annexure E

Total transfers to provincesTable 7.3 Total transfers to provinces

2000/01 2001/02 2002/03 2003/04 2004/05

Outcome Budget Revised Medium-term estimates

R million estimate

Eastern Cape 18 273 19 515 19 784 22 020 23 639 25 252

Free State 7 394 8 036 8 157 8 966 9 604 10 299

Gauteng 17 650 19 321 19 530 21 712 23 469 25 009

Kw aZulu-Natal 21 621 23 292 23 585 26 477 28 873 30 819

Mpumalanga 7 288 7 903 8 312 9 122 9 973 10 637

Northern Cape 2 534 2 764 2 810 3 153 3 408 3 645

Northern Province 14 172 15 307 15 510 17 401 18 861 19 979

North West 8 829 9 471 9 602 10 680 11 484 12 339

Western Cape 11 144 11 778 11 915 12 889 13 534 14 384

Unallocated1 – – 2 000 – – –

Total 108 904 117 387 121 206 132 420 142 844 152 363

1 Reflects funds earmarked for social security backlog which are unallocated at this stage.

Provincial Allocations

• Total provincial share grows at 7,9 % pa over MTEF

• Equitable share grows at 8,5% pa– Includes shift from supplementary grant

• Biggest transfer to KZN at R26,4 bn, followed by EC (R22 bn), Gtg (R21,7bn)

• Smallest grant to NC at R3,2 bn

2002/03 Composition of total transfersTable 7.4 Transfers to provinces 2002/03

Conditional grants

Equitable Health Finance Housing Other¹ Total

R million share

Eastern Cape 20 498 437 356 581 148 22 020

Free State 7 996 457 152 291 71 8 966

Gauteng 18 224 2 418 157 825 88 21 712

Kw aZulu-Natal 24 343 922 331 734 147 26 477

Mpumalanga 8 428 177 209 248 59 9 122

Northern Cape 2 907 84 53 78 31 3 153

Northern Province 16 145 301 461 393 101 17 401

North West 9 993 178 135 308 67 10 680

Western Cape 10 919 1 425 96 386 62 12 889

Total 119 452 6 400 1 950 3 844 774 132 420

1 Includes small grants mainly in education, provincial and local government and welfare.

Equitable share formula• Jointly recommended by FFC and govt

• Adopted in 1998, full phase-in 2003/04

• System takes into account fiscal imbalances

• Seven factors taken into account

• Two changes to current formula– Increase in welfare weighting by one, at cost of

economic weighting• IGFR showed welfare weighting averages 19%

– Update on education enrollment data• Three year average for 1998, 1999 and 2000

Components of the formula

• Education share - 41 per cent

• Health share - 19 per cent

• Social security share - 18 per cent

• Basic share - 7 per cent

• Backlog component - 3 per cent

• Economic component - 7 per cent

• Institutional component - 5 per cent

2001 IGFR actual budget shares• Comparing actual spending share to eq formula• Education share - 39 per cent

– Two per cent less than formula

• Social security share - 19 per cent– One per cent more than formula

• Health share - 24 per cent– Five per cent more than formula– Tertiary services funded from conditional grant– 19 per cent share in formula higher than share for

provinces with no academic hospitals

• Social service share 82% – Excluding academic hospital and training grant, this is

closer to 78%, which is same as formula

Division of provincial equitable share Table 7.5 Provincial equitable shares

2000/01 2001/02 2002/03 2003/04 2004/05

Outcome Budget Revised Medium-term estimates

R million estimate

Eastern Cape 17 139 18 344 18 550 20 498 21 856 23 324

Free State 6 685 7 184 7 269 7 996 8 538 9 111

Gauteng 14 840 16 149 16 329 18 224 19 736 21 061

Kw aZulu-Natal 19 693 21 468 21 708 24 343 26 416 28 190

Mpumalanga 6 692 7 352 7 435 8 428 9 221 9 840

Northern Cape 2 393 2 582 2 609 2 907 3 120 3 329

Northern Province 13 171 14 295 14 464 16 145 17 459 18 631

North West 8 344 8 936 9 038 9 993 10 666 11 382

Western Cape 9 441 9 948 10 056 10 919 11 453 12 221

Total 98 398 106 260 107 460 119 452 128 466 137 089

Conditional grants• Legally from the national equitable share

– To fund:• National priority programmes• Compliance with national norms and standards• Cross-border spill-overs

• Two types:– General or Assigned function (R6,8 bn)

• Provincial infrastructure, health tertiary & training

– Specific purpose conditional grants• Housing subsidy R3,8 bn, other health R1.5 bn

• Total R13 bn in 2001/02– R14,3 bn and R15,2 bn in outer years

– National Treasury R2,2 supp grant phased out

Table 7.6 Conditional grants to provinces2001/02 2002/03 2003/04 2004/05

R million Revised¹ Medium-term estimates

Agriculture 28 24 38 –

Land Care Projects 28 24 38 –

Health 5 984 6 400 6 805 7 257

National Tertiary Services 3 460 3 667 3 893 4 152

Health Professions Training and Development 1 234 1 279 1 299 1 393

Hospital Revitalisation 500 520 543 576

Nkosi Luthuli Academic Hospital 104 – – –

Pretoria Academic Hospital 50 70 90 –

HIV/AIDS 54 157 267 380

Integrated Nutrition Programme 582 582 582 617

Hospital Management Improvement – 124 130 138

National Treasury 3 948 1 950 2 514 2 853

Supplementary Allocation 2 248 – – –

Provincial Infrastructure 800 1 550 2 314 2 853

Infrastructure Rehabilitation 600 400 200 –

Section 100(1)(a) Agreement 300 – – –

Education 298 418 440 373

Financial Management and Quality Enhancement 213 224 234 248

HIV/AIDS 64 142 117 125

Early Childhood Development 21 52 88 –

Housing 3 326 3 844 4 247 4 462

Housing Subsidy 3 226 3 740 4 138 4 346

Human Resettlement Development 100 104 109 116

Social Development 2 024 57 64 68

Financial Management and Social Security System 10 11 – –

Social Security Backlog 2 000 – – –

HIV/AIDS 13 47 64 68

Woman Flagship 1 – – –

Provincial and Local Government 261 274 271 261

Local Government Support 160 170 160 144

Consolidated Municipal Infrastructure Programme 99 104 111 117

Disaster Relief 3 – – –

Total 15 869 12 967 14 378 15 274

1 The total includes the supplementary grants to the amount of R2,124 billion, which have been phased into the equitable share, with effect from the 2002/03 financial year.

Provinces: Major grants 2002/03• Health - R6,4 billion, mainly for tertiary

hospitals, training, rehab and nutrition (7)

• Treasury - R1,9 billion for provincial infrastructure (1)

• Housing - R3,8 bn billion (2 grants)

• Education - R418 million (3 grants)

• New grants:– R274 mil for 2 grants to prov and local govt

– Agriculture and poverty-alleviation (grants-in-kind)

• HIV/AIDS grant spread in 3 depts

Main dedicated funding streams for HIV/Aids and TB

R Thousands 2000/01 2001/02Revised

2002/03 2003/04 2004/05

Health - Conditional grant to provinces 16 819 54 398 157 209 266 576 380 480

Voluntary counseling & testing programme 8 629 22 000 49 000 54 830 58 216

Provincial management 0 0 6 709 8 386 8 386

Home-based care 8 190 12 100 46 500 64 235 68 185

Mother to child prevention program 0 20 298 25 000 79 125 155 693

Step-down care 0 0 30 000 60 000 90 000

EducationConditional grant to provincesNational Department

27 000 63 5005 200

142 0006 000

117 4006 000

124 9246 000

Social DevelopmentConditional grant to provincesNational Department

6 000 12 500900

46 5001 500

64 235 1 600

68 1851 600

National Department of Health 164 329 212 464 250 996 277 457 309 023

NGOs 19 013 34 572 53 000 45 850 73 050

Core DOH (condoms, media, TB) 145 316 142 892 157 996 186 607 215 973

Love Life programme 0 25 000 25 000 25 000 0

SA National AIDS Council 0 10 000 10 000 15 000 15 000

South African AIDS Vaccine initiative 0 0 5 000 5 000 5 000

Targeted increase in provincial equitable share 400 000 600 000 900 000

Total 214,148 348,962 1,004,205 1,333,268 1,790,212

Tertiary and Training Health Grants• Some provinces providing tertiary with no

extra funds, using own revenue & eq share

• Shift in funding from 10 central hospitals to 27 hospitals providing tertiary services

• Widening scope of health professional training to provinces without academic hosp

• Exciting reforms that should increase no. and distribution without adverse effects– Challenge to medical schools to take advantage of more

funding for new specialist posts in poor provinces

National tertiary services grant

Current 2002/03 2003/04 2004/05Eastern Cape 62,373,000 123,745,711 190,515,662 264,302,908Free State 249,813,000 287,424,364 327,914,879 373,244,863Gauteng 1,568,945,000 1,602,980,657 1,636,902,409 1,678,624,533KwaZulu Natal 427,525,000 480,679,209 537,751,559 601,853,012Mpumalanga 37,588,000 38,413,546 39,237,276 40,249,015Northern Cape 16,700,000 24,061,862 32,052,475 40,908,319Northern Prov 44,500,000 44,837,816 45,115,924 45,545,146North West 34,200,000 34,188,519 34,106,749 34,110,821Western Cape 1,011,436,000 1,030,509,945 1,049,252,386 1,072,702,974Total 3,453,080,000 3,666,841,629 3,892,849,318 4,151,541,591

Actual Provincial Expenditure• Wait for provincial budgets over coming 10

days

• Detailed report in 2002 IGFR

• Provincial capital expected to be R12,8 bn– Growth of 17,9% pa over MTEF

• Table is a guesstimate at this stage

• Challenge is on efficiency of spending

Guesstimate of prov expenditureTable 7.7 Consolidated provincial expenditure according to function1

1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05

Outcome Outcome Outcome Revised Medium-term estimates

R million estimate

Education 38 723 39 828 43 255 47 243 50 778 54 654 57 541

Health 24 025 25 110 27 621 30 731 32 871 35 418 37 409

Welfare 18 441 19 373 20 929 23 843 30 265 31 621 34 274

Housing and Community 5 315 4 507 5 161 5 398 6 160 6 660 7 021

Development

Other functions 10 772 11 250 13 560 15 183 17 822 18 936 20 586

Unallocated reserve – – – – 295 278 266

Total expenditure 97 275 100 068 110 526 122 399 138 189 147 567 157 096

Total revenue 97 842 103 628 113 731 125 822 136 523 147 293 157 169

Surplus/(deficit) 566 3 559 3 206 3 423 -1 666 - 274 73

Economic classification

Current expenditure 90 896 93 857 102 884 112 769 125 129 132 981 141 039

Of which remuneration 57 339 59 461 63 912 67 818 72 838 77 768 82 190

Capital expenditure (incl. Housing) 6 380 6 211 7 642 9 630 12 765 14 308 15 792

Percentage shares of total expenditure

Social services 83.5% 84.3% 83.1% 83.2% 82.4% 82.5% 82.3%

Other functions(Incl. Housing) 16.5% 15.7% 16.9% 16.8% 17.4% 17.3% 17.6%

Contingency reserve 0.2% 0.2% 0.2%

1 Inherited debt, local government transfers and unallocated reserves have been deducted from total provincial spending.

Projected Trends: Prov RevenueTable 7.2 Provincial revenue

2001/02 2002/03 2003/04 2004/05

Budget Revised Medium-term estimates

R million estimate¹

Transfer from national 117 387 121 206 132 420 142 844 152 363

Equitable share 106 260 107 460 119 452 128 466 137 089

Conditional grants 11 127 13 745 12 967 14 378 15 274

Ow n revenue 3 957 4 313 4 103 4 448 4 806

Total 121 344 125 519 136 523 147 293 157 169

Percentage growth

Transfers from national – – 9.3% 7.9% 6.7%

Equitable share – – 11.2% 7.5% 6.7%

Conditional grants – – -5.7% 10.9% 6.2%

Own revenue – – -4.9% 8.4% 8.0%

Total – – 8.8% 7.9% 6.7%

1 The total differs from the total revenue in table 7.7 due to an amount of R303 million transferred to provinces from extra budgetary institutions.

Local Govt Allocations

Part 5 of Annexure E

Local government transfers

R million 2001/02 2002/03 2003/04 2004/05

Equitable share & related 3,856 4,752 5,798 6,229

Capital 2,241 3,282 3,859 4,000

Capacity building & restructuring 456 548 577 624

Total transfers to local government 6,552 8,581 10,234 10,854

National transfers to Local Government

• Rising rapidly by 18,3% from R6,5 bn in 2001/02 to R10,8 bn in 2004/05

• Increases by R1,1 bn. R1,8 bn and R2,3 bn over MTEF

• Totals over 10% of LG budget – Smaller municipalities receive larger share

– Include transfers to category C municipalities

– Municipal infrastructure development, especially in poor nodes identified in ISRDS and URP

Addressing Local Government Challenges

• Establishment of new municipalities• Restructuring service delivery• Delivery of free basic services• Expanding infrastructure• Co-ordination of capacity building• Financial management reforms based on

Municipal Finance Management Bill

Allocations to Local GovtTable 7.8 National transfers to local government

R million 2001/02 2002/03 2003/04 2004/05

Equitable share1 2 618 3 852 5 021 5 461

Transition grant 578 200 – –

Water & sanitation operating 660 700 776 768

Subtotal equitable share & related 3 856 4 752 5 798 6 229

Consolidated Municipal Infrastructure Programme 927 1 655 2 096 2 374

Water Services Project 758 884 1 012 818

Community Based Public Works Programme2 349 260 260 290

Local Ecomomic Development Fund2 99 99 117 127

Sport & Recreation facilities2 36 84 123 137

National Electrif ication Programme – 228 210 210

Urban Transport Fund 38 40 41 44

Integrated Sustainable Rural Development 33 32 – –

Subtotal capital 2 241 3 282 3 859 4 000

Restructuring grant 350 300 315 343

Financial management grant 60 154 162 149

Disaster Relief 3 – – –

Municipal Systems Improvement 43 93 100 132

Subtotal capacity building & restructuring 456 548 577 624

Total transfers to local government3 6 552 8 581 10 234 10 854

1 R293 municipal portion (R358 m) incorporated into equitable share from 2001/02.

2 Allocations in 2004/05 are subject to review by Cabinet of all poverty relief programmes.

3 The administrative overheads of grants have been shifted to the national and/ or provincial share to reflect more accurate spending

Local Govt Equitable Share

• Water operating and transition grant ultimately part of

formula-driven equitable share

• Two components in formula-driven eq share

– Institutional I and Basic Services S

– Page 60-64 in Annexure E in DoR Bill

• I grant extended to poor category C municipalities

– contribution towards cost of governance in categ B and C

– Category A too rich to qualify

– 42% increase over original 2001/02 budget

Local Govt Equitable Share• S basic services grant

– Targets poor households

– Share of households earning below R1100 per month

– Stats SA estimates on imputed household expenditure by

municipality adjusted from last year

• New nodal component for 13 rural and 8 urban nodes

– R200 mil, R212 mil and R220 mil over MTEF

• All municipalities qualify, but no duplication

– Require info division of fncs between category B and C

• Equitable share per muni to be published next week

Municipal Infrastructure Grant• 8 different grants totalling R3.3 bn rising to

R4 bn over MTEF

• Biggest are CMIP and Water at R2.5 bn

• Interim Framework for Mun Infrastructure– Objective is to consolidate 8 grants into one– Expect 3 or 4 windows within one grant– Allocation is by formula, rather than by project

• Three-year allocations by municipality– Slow take-up in 2001-02 due to start-up delays

Municipal Capacity-building and Restructuring Grants

• Many grants, not clear which is effective

• Objective is to have one consolidated grant

• Two grants shifted to provinces as spending is by province

• Financial mngt grant includes a component to gear in World Bank programme

• Restructuring grants also available

Consolidated Mun Expenditure Table 7.9 Consolidated municipal expenditure budgets

98-99 99-00 % change 00-01 % change 01-02 % change % of

R billion budget

Salaries 12.8 13.8 7.8% 15.9 15.2% 17.9 12.6% 34.0%

Bulk services 12.8 13.8 7.8% 14.9 8.0% 14.5 -2.7% 27.5%

Other1 15.6 16.9 8.3% 17.3 2.4% 20.3 17.3% 38.5%

Operating budget 41.1 44.4 8.0% 48.1 8.3% 52.7 9.6%

Capital budget 13.7 13.7 0.0% 13.7 0.0% 11.7 -14.6%

Total 54.8 58.1 6.0% 61.8 6.4% 64.4 4.2%

Consolidated Mun RevenueTable 7.10 Consolidated municipal operating income budgetsR billion 1998-99 1999-00 % change 2000-01 % change 2001-02 % change

Property tax 7.8 8.4 7.7% 10.1 20.2% 11.5 13.4%

Bulk services 19.7 23.1 17.3% 23.6 2.2% 29.6 25.5%

RSC levies 3.3 3.1 -6.1% 3.9 25.8% 3.9 -1.0%

Other 10.3 9.8 -4.9% 10.6 8.2% 9.3 -12.1%

Total 41.1 44.4 8.0% 48.1 8.3% 54.3 12.8%

Division of Revenue Bill

Division of Revenue Bill, 2000 • Required by Constitution (section 214)

• IGFR Act (no 97of 1997) - section 10– Bill– Annexure E in Budget Review

• Section 76(1) process in terms of s 76(4)– not a money bill– introduced in National Assembly– introduced in NCOP after NA passes bill– back to NA if any NCOP amendments

Changes to the Bill

• Few changes to 2001 Act• To remove the implied exclusion of category C

municipalities from receiving equitable share allocations

• Excludes clauses that clearly no longer apply– Old section 8 on detailed info on all grants, as

appendix is now published with the Bill– Phasing out of supplementary grant – Delaying and with-holding

Budgeting principles

• Comprehensive budgeting process• Three year budgets in all spheres• Transparency of criteria for division• Use of generally accredited data• Timeous preparation of grants• All grants on budget of beneficiary govt• Clear accountability arrangements• Monitoring to focus on performance

Types of Grants in Bill

• Schedule 1 - equitable share (vert division)

• Schedule 2 - division between provinces

• Schedule 3 - general and allocated-functions

• Schedule 4 - grants to provinces

• Schedule 5- grants to local government

• Schedule 6 - indirect grants

Clause-by-clause

• Section 1 - minor changes in definitions

• Part II - only change is in clause 5(2) to ensure category C munis not excluded from equitable share

• Part III - essentially the same, but remove old section 8 because of improvements, and on reference to supplementary grant

• Part IV - essentially the same

Clause-by-clause• Part V - same as before

• Part VI - small change to withholding of equitable share, to take account of new constitutional amendments. Clauses 21 and 22 on delays and withdrawals apply to cond grants only

• Clause 6 a transitional issue to allow reallocations between municipalities

• Small technical changes effected in the bill