FFC Submission on DoR 2003/04

1
FFC Submission Division of Revenue Bill
2007 Presentation to The Select Committee on
Finance National Council of Provinces ____________
_________ Cape Town, 28 February 2007
2
Presentation Contents

• Part 1 Introduction
• Part 2 General issues on DoR Bill 2007
• Part 3 FFC Comments on Governments response to
  its Recommendations
• Part 4 2007 Division of Revenue Allocations
  Spending Priorities and Performance

3
Introduction

• Submission in terms of Chapter 13 of the
  Constitution and the IGFR Act S 214 (1), (2)
  a-j, S220 (3)
• Equitability of shares other considerations
• Consultation with National Treasury
• Issues arising during the budget process
• Observations on allocations

4
General Observations on the 2007 DoR Bill

• Reallocation and stopping of funds
• Commission supports the principle
• Commission is of the view that principles
  application needs to be tightened
• Ensure that no unintended consequences arise
• Strengthen the role of the Treasuries and Budget
  Council
• Accreditation of municipalities in housing
• Commission is of the view that the clause should
  be kept and that the process be expedited through
  the HoD of Housing
• Commission made this recommendation in 2004 and
  government supported it

5
Funding mega projects Gautrain Rapid Rail Link

• There are at least 2 ways of funding mega
  projects
• Borrowing Powers Act
• Request National Government to borrow on its
  behalf
• Latter shifts immediate burden of debt servicing
• The need to take into account s214 (2) a-j
• No fears at this stage of debt unsustainability
• But if viewed as precedent setting, this can
  threaten debt sustainability

6
2010 FIFA World Cup

• Huge commitment to hosting of World Cup
• Via conditional grant and equitable share
• Unlikely that normal services will be crowded out
  within the equitable share
• Still a need for extra safeguard measures
• Another threat is limited productive resources
• Funding of legacy effects needs clarification

7
Comments on Governments Response to FFCs
Recommendations

• Submission covered
• Conditional grants
• Financing welfare services
• Local government equitable share formula
• Provincial own revenue and the PTRP Act
• Supplementary Submissions
• Western Cape Fuel Levy
• The implications of the re-demarcation process
• Municipal fiscal Powers and functions
• This submission focuses primarily on areas of
  difference between FFC and areas of future work

8
Conditional grants

• Generally, there is agreement with the two key
  principles that the Commission proposed with
  respect to the use of Conditional grants
• Grants should be used to deal with spillovers and
  to fund new priorities that require
  institutionalisation in sub-national budget
  processes
• Definition of norms and standards in areas of
  concurrent responsibility to enable monitoring of
  service delivery and ensure compliance with
  minimum requirements for the grants

9
Specific grants

• Hospital revitalisation Grant
• Government is exploring issues around the two
  grants (provincial infrastructure grant) and will
  report in the 2008 Budget
• Commission will await the findings of
  governments work
• Land Care and Comprehensive agricultural Support
  Grants
• Government is of the view that these two serve
  different objectives.
• Commission was concerned with the administrative
  burden
• National School Nutrition Program Grant
• Government currently reviewing the grant and will
  consider Commissions recommendations in the
  context
• Commission will be making further recommendations
  on the grant for 2008 division of revenue
• Currently finalising a report on this grant for
  the SCoF as requested last year
• Municipal Infrastructure Grant
• Government is of the view that municipalities are
  required (MFMA) to budget for maintenance and
  operation of infrastructure
• Commission subscribes to this view as well but
  believes that for municipalities that do not have
  sufficient revenue raising capacity, the
  infrastructure that is rolled out may be
  deteriorating fast as there is no automatic link
  between the LES formula and the MIG

10
Grants Cont.

• HIV/AIDS Life skills education grant
• Government is of the view that the long-term
  approach should be to phase this grant into the
  equitable share formula
• Commission agrees with government as this is
  consistent with its recommendation that in the
  long term programs funded by grants should be
  integrated into the budget processes of
  sub-national governments
• Health professions training and development grant
• Government highlights the challenges that are
  associated with implementing the Commissions
  recommendations
• Commission appreciates the challenges and will
  continue doing further work in order to address
  some of these
• National Human Settlement Development Grant
• Government does not agree that the formula should
  cater for differences in regional costs on
  grounds that this will be a difficult exercise
  that might complicate the formula
• Commission notes the governments response but
  also observes that these differences are quite
  significant
• Commission is conducting further research on the
  matter as part of its long-term research agenda

11
2007 D.o.R. Provincial Allocations Spending
Priorities Performance

• A.S.G.I.S.A. and Other Policy Priorities
  Performance
• Implies cross-departmental emphasis on capital
  (infrastructure machinery) and training
  (personnel beneficiaries) over personnel
• Average real growth of provincial budgets over
  2007 MTEF is 4.13 p.a. Capital budgets grow at
  5.46 training at 7.35 and personnel at 2.29.

12
Provincial Infrastructure Services

• A.S.G.I.S.A. and World Cup emphasize
  infrastructure services. For provinces, this is
  transport, housing and agriculture.
• Transport no longer prioritized, despite rapid
  growth and low under-spending over past 3 years
  (growth drops from 11.2 to 2.1 p.a.).
• Housing is being prioritized with real growth of
  9.3 p.a. projected, after 3 years of stagnation.

13
Cont.

• Agriculture continues to grow at above the
  provincial average but real growth rates halved
  to 4.31 p.a.
• Growth path of infrastructure budgets and
  spending very volatile. This hampers effective
  planning and delivery.
• Provincial Social Services
• Education Health constitute 70 of provincial
  budgets but are personnel-intensive and exhibit
  more stable growth paths.

14
Cont. Provincial Social Services

• Both education and health grow at below average
  rates and contribute to keep spending growth
  below revenue growth.
• Provincial Governance Services
• After 3 years of higher than average growth of
  Premiers Offices and even higher growth of
  Provincial Legislature spending (7 13.7
  respectively) both functions are projected to
  grow at negligible rates over the 2007
  medium-term budget.

15
Cont. Provincial Governance Services

• Within Premiers Offices, the Policy Governance
  programs have been growing fastest. Personnel
  spending has been and is projected to grow faster
  than average. Capital spending has generally been
  declining save for anomalously big capital spends
  in KZN Limpopo in 2006.
• Under-spending rates vary between 3 6 over
  past 3 years but much higher in capital budgets
  (11 to 23).

16
Cont. Provincial Governance Services

• Within Provincial Legislatures, the Policy
  Governance programs have also been the fastest
  growing components. Personnel budgets have grown
  at below average rates, whilst capital spending
  has been declining, implying that transfers may
  have been the primary cost-drivers. Budgeted
  growth for all components in very moderate for
  the 2007 MTEF.
• Overall under-spending rates varied between 4 and
  7, whilst on capital they have ranged between
  25 and 55 over past 3 years.

17
Conclusion

• Departmental policy performance against
  priorities, spending against budget performance
  and availability of data on service delivery will
  be further discussed at Select Committee of
  Finances Departmental Hearings on DoRB 2007 next
  week.