Presentation to the Select Committee on FinanceNational Council of Provinces

by

Ms Lindiwe Msengana-Ndlela

Director-General: Provincial & Local Government

DIVISION OF REVENUE (DOR) BILL 2009/10

Cape Town,

25 February 2009

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Outline of the Presentation

1. Introduction – Purpose of Grants 3

2. Progress on Conditional Grants 4

2.1 Allocations in current term (2004/05 - 2009/10) 52.2 Future estimates (2010/11 - 2011/12) 82.3 Future estimates – Provincial Dynamics 9

3. Nature of the Problem 11

4. Engagements on DoR Bill in 2008/09 12

5. Proposed Engagements in 2009/10 15

6. Principles underlying current & future engagements 16

7. Conclusion 17

Slide no:

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• Local Government Equitable Share (unconditional) The grant is intended to supplement municipal own-revenue to achieve universal access to free basic services to poor households and to improve governance and administrative systems

• Municipal Infrastructure Grant (conditional) The grant is intended to provide capital finance for basic municipal infrastructure for poor households, micro-enterprises and social institutions; provide for new, rehabilitation and upgrading of municipal infrastructure; and eradicate bucket sanitation system mainly in urban townships

• Municipal Systems Improvement Grant (MSIG) (Conditional)The grant is intended to assist municipalities in building in-house capacity to perform their functions and stabilise institutional and governance systems

1. Introduction - Purpose of the Grants

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Some of the highlights in the 2007/8 financial year include:

• Through MIG: • The cumulative households benefited by end June 2007: water (610

293), sanitation (399 662), storm water (99 542), solid waste (238 552)

• A cumulative total of 2934 SMME’s utilised in the implementation of MIG projects

• Through MSIG: • Support provided to a total of 96 municipalities on financial management

aspects, including the compilation of Annual Financial Statements

• A total of 68 out of the 124 municipalities that implemented Municipal Property Rates Act projects had successfully completed all the processes involved in the MPRA implementation process

2. Progress on Conditional Grants

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2.1 Progress on Conditional Grants

Allocations in the current 2004/05 – 2009/10

Grant 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10

LGES R7,6 bn R9,6 bn R18 bn R20,6 bn R25,5 bn R23,8 bn

MIG R4,4 bn R5,4 bn R5,7 bn R8,2 bn R8,6 bn R11 bn

MSIG R182 m R200 m R200 m R200 m R200 m R200 m

TOTAL R12,1 bn R15,2 bn R23,9 bn R29 bn R34,3 bn R35 bn

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Allocations in the current term (2004/05 – 2009/10):

• LGES has been increasing from R7,6 bn (2004/05) to R23,8 bn (2009/10), representing a 68% increase

• MIG has been increasing from R4,4 bn (2004/05) to R11 bn (2009/10), representing a 60% increase

• MSIG has been increasing from R182m (2004/05) to R200m (2009/10), representing a 9% increase – a matter of concern

• Total transfers from R12,1 bn (2004/05) to R35 bn (2009/10), representing a 66% increase

2.1 Progress on Conditional Grants

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Local Government Transfers 2009/10 2010/11 2011/12

  Medium-term estimates

  MTEF Baseline

Equitable Share (LGES) 23,846,502 29,267,706 31,889,901

Municipal Systems Improvement Grant (MSIG)

200,000 212,000 224,720

Municipal Infrastructure Grant (MIG)

11,084,860 12,528,884 15,068,551

Total 35,131,362 42,008,590 47,183,172

2.2 Progress on Conditional Grants: Future Estimates

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2.3 Progress on Conditional Grants: Future Estimates

Note:

• The gap in growth of allocations between Municipal Systems Improvement Grant (MSIG) (dplg) and Financial Management Grant (FMG) (NT) – both the two recurrent grants face the similar challenges.

Grant 2009/10 2010/11 2011/12

MSIG 200 mil 212 mil 224.7 mil

FMG 299 mil 364.5 mil 384.6 mil

Difference

(Increasing)

(99 mil) (152 mil) (160 mil)

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2.3 Provincial Dynamics: MIG Allocations

2009/2010 2010/2011 2011/2012

R'000 R'000 R'000

EASTERN CAPE 2,124,945 19% 2,375,973 19% 2,857,594 19%

FREE STATE 745,501 7% 869,071 7% 1,045,236 7%

GAUTENG 1,513,651 14% 1,770,429 14% 2,129,304 14%

KWAZULU-NATAL 2,616,529 24% 2,756,807 22% 3,315,625 22%

LIMPOPO 1,446,350 13% 1,688,105 13% 2,030,292 13%

MPUMALANGA 838,914 8% 978,689 8% 1,177,074 8%

NORTHERN CAPE 307,242 3% 353,283 3% 424,896 3%

NORTH WEST 892,574 8% 1,040,716 8% 1,251,674 8%

WESTERN CAPE 599,154 5% 695,810 6% 836,854 6%

TOTALS 11,084,860 100% 12,528,883 100% 15,068,549 100%

% Share % SharePROVINCES % Share

Provincial allocations are informed by, amongst other things, the extent of backlogs and poverty-weighted data.

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2.3 Provincial Dynamics: MSIG Allocations

Provincial allocations are informed by municipal capacity and past expenditure performance.

PROVINCE

2009/10(R’ 000)

% Share

2010/2011

R’000 % Share

2011/2012

R’000 % Share

EASTERN CAPE 28,870 14% 33 950 16% 35 840 16%

FREE STATE 18,465 9% 19 250 9% 20 370 9%

GAUTENG 7,175 4% 8 000 4% 8 420 4%

KWAZULU NATAL

41,040 19% 45 050 21% 48 180 21%

LIMPOPO 19,675 10% 21 000 10% 22 370 10%

MPUMALANGA 16,895 8% 16 450 8% 17 570 8%

NORTHERN CAPE

28,810 14% 25 600 12% 26 820 12%

NORTH WEST 19,325 10% 19 200 9% 20 340 9%

WESTERN CAPE

19,735 10% 23 500 11% 24 810 11%

TOTAL 200 000 100% 212 000 100% 224 720 100%

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3. Nature of the Problem (whilst noting some progress)

Capacity, resources and local leadership accountability• Uneven capacity: spatial rural-urban areas, nature of development,

decision-making, skills, planning, project management, cash flow management, performance and contract management

• Limited resources – large scale/ bulk infrastructure• Uneven levels of local political and municipal leadership

Symptoms

• Poor operations & maintenance of infrastructure: under-spending, poor regulations enforcement, low quality of service delivery, health hazards

• Other matters have been raised in the Policy Review process on the system of provincial and local government – to be dealt with by the incoming administration post 2009 Elections

Note: We would like to thank the Select Committee, which has invited us over the past years, for extensive oversight sessions in various provinces,

municipalities and in Parliament – to address the nature of the problem outlined above.

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4. Engagements on DoR Bill in 2008/09

• Consultative engagements between the dplg and National Treasury on the Division of Revenue Bill started in June 2008.

• Comprehensive comments were formally submitted to the National Treasury by end of August 2008.

• Further engagements during December 2008 and January 2009.

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4. Engagements on DoR Bill in 2008/09 … outstanding matters

• Some of the inputs from dplg have been incorporated in the current version, except for the following:

• Infrastructure grant for cities – the new clause in the bill suggests that transfers go through dplg vote but monitoring and reporting only to National Treasury. This is contrary to the mandate of Vote 29 and duties of the national transferring officer (in this case dplg) – sec 9(1) and (2);

• The need to increase funds for municipal systems improvements;

• Enabling mechanisms for dplg to report to Parliament on performance of municipalities with regard to conditional grants. For example, the current framework does not enable the dplg to reallocate funds to municipalities who have the capacity to spend; and

• Addressing MIG performance audit findings, as indicated below:dplg 25 February 2009 13

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4. Engagements on DoR Bill in 2008/09 … outstanding matters

Issues raised by Auditor-General in the performance audit of MIG

• The crafting of DoRA in relation to municipal infrastructure is restricting dplg’s role in the management of the grant.

• The following issues were raised by the AG and has also informed our input to the 2009 Bill:

• The dplg has limited powers to address under-performance by municipalities;

• Funds from conditional grants should be deposited into a separate bank account by each municipality to ensure proper monitoring; and

• Based on the above proposal, VAT reimbursements from SARS and interest received w.r.t MIG funds should be ploughed back to MIG projects by each municipality.

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5. Proposed Engagements on DoR Bill in 2009/10

• Greater effort to be directed at poor and low capacity municipalities (not only cities)

• Utilisation of Schedule 7 of DoRA in the management of MIG

- In view of the need for SA to meet its development targets and the Millennium Development Goals

- Informed by infrastructure programmes identified in the municipal Integrated Development Plan (IDP), Provincial Growth & Development Strategies (PGDS), the National Development Perspective and the Comprehensive Infrastructure Planning (CIP).

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6. Principles underlying current & future engagements, in all spheres

• Principle of developmental local government

• Intergovernmental relations

• Improving performance management and the role of dplg

• Local leadership

(Also refer to Annexure A)

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7. Conclusion

• The Select Committee on Finance to:

Note the progress made in the current term (2004/5 – 2009/10) and in the context of the Fifteen year Review of Government (1994 – 2009);

Note the underlying problem that is being addressed in local governance, w.r.t. the relevant grants managed by the dplg;

Discuss the engagements held with National Treasury and matters that remain to be addressed (slides 12 – 15)

Note the principles underlying current and future engagement in all spheres.

THANK YOU

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Annexure A

What did we indicate to the Select Committee on Finance in the past years?

A selection of slides …

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Tuesday, 8th March 2005

Cape Town

By the Director-General of the

Department of Provincial & Local

Government (dplg),

Ms Lindiwe Msengana-Ndlela

Presentation to the Select Committee on Finance

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Key Challenges & Future Action (08/03/2005)

• Late submission of the MSIG Business Plans.

• Poor spending by district municipalities.

• Roll-overs at the end of the financial year.

• Non-compliance with the DORA by some municipalities,

especially reporting requirements.

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Key Challenges & Future Action … (08/03/2005)

• Lack or little consultative processes with local

municipalities by districts in the compilation of business

plans and in the implementation of projects.

In response to these challenges, a Programme of

Support to municipalities has been developed and is

being implemented within the context of Project

Consolidate.

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• Department of Provincial and Local Government (dplg): Administers the MIG and convenes Municipal Infrastructure Task Team meetings.

• Other key Departments:a) Department of Water Affairs and Forestry (DWAF)b) Department of Public Works (DPW)c) Department of Minerals and Energy (DME)d) Department of Transport (DoT)e) Department of Housing (DoH)f) Sport and Recreation South Africa (SRSA).

• Sector Departments and their provincial counter parts retain the policy making and regulatory functions and retain the constitutional role to support municipalities. They also need to provide oversight and monitor sector outcomes.

MIG - Roles and Responsibilities (08/03/2005)

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• Provincial Departments responsible for Local Government:

Ensure that municipal IDPs are vertically integrated with the PGDS & ensure that IDPs give priority to the basic

needs of communities Promote the development of local government capacity Monitor the financial status of municipalities.

• Municipalities are to:

Structure and manage municipal administration, budgeting and planning processes Participate in national and provincial programmes Manage MIG funding for specific projects.

MIG - Provincial and Municipal Roles and Responsibilities (08/03/2005)

Presentation to the Select Committee on Finance

By the Director-General of the By the Director-General of the Department of Provincial and Local Government Department of Provincial and Local Government

(the dplg),(the dplg),Ms Lindiwe Msengana-NdlelaMs Lindiwe Msengana-Ndlela

Wednesday, 8 March 2006Wednesday, 8 March 2006Cape TownCape Town

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Refining DoRA (08/03/2006) • Resource allocation must support policy and strategic

imperatives

• The process of refining DoRA is necessary and will be enhanced by an Intergovernmental Fiscal Relations system which provides for:

• Improved monitoring and evaluation of performance;

• Greater certainty provided to municipalities;

• Alignment with objectives of the Intergovernmental Relations Framework Act and Local Government Legislation; and

• An integrated approach to service delivery and development of all three spheres.