Workshop

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Workshop

• Select Committee on Finance
• Lungisa Fuzile, Kenneth Brown, Jonathan Patrick,
  Jo-Ann Ferreira

27 February 2008
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Budget Process

• Budget process at the heart of government
• Guided by policies, priorities making
  trade-offs
• Not a bean-counting process
• Co-ordination between planning, budgeting, policy
  development and implementation
• Budget Preparation
• Collectively agreed in Cabinet / EXCO
• Involves consultation with provinces and LG
  through Budget Council, Budget Forum and Extended
  Cabinet (Premiers and SALGA)
• Budget approval after tabling
• Role of finance portfolio and standing
  committees, Joint Budget Committee
• Role of all portfolio committees

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Budget Process Stages

• Four periods / stages
• Period One 1 March to 31 May
• (Preparation and Reprioritisation)
• Period Two 1 June to 31 August
• (Division of Revenue)
• Period Three 1 Sept to 30 November
• (Allocation of Resources)
• Period Four 1 Dec to 31 March
• (Finalisation of Documentation)

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Period One (end 31 May)

• Period One 1 March to 31 May
• Three processes
• Closure of 2007/08 financial year
• 31 May deadline for submission of financial
  statements
• IGFR data
• Preparations for 2008/09 budget implementation
  PFMA reporting
• Re-visit baseline info against actual outcome
• Initial info on consolidated budgets
• Detailed departmental budget info
• Capturing info onto the system
• DoRA
• Preparing for the 2009 MTEF
• TCF Strategic Planning session
• Budget Council Lekgotla

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Period Two (1 June to 31 August)

• Provincial budget and expenditure review
• Will not publish one this year
• Will consolidate information for parliament
• Work from Cabinet lekgotla
• Finalise budget priorities, pressures and policy
  work of 4 x 4s
• Conditional grants (finalised as per appendix to
  Annexure W1)
• Joint Minmecs in October
• Budget Council and Budget Forum for division of
  revenue
• Extended Cabinet meeting with Premiers (October)
• Provinces submit draft budget to NT on 31 August

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Period Three (1 Sept to 30 Nov)

• From extended Cabinet on DoR to MTBPS
• MTBPS published end-October
• Revised macro framework
• MTBPS to contain draft Annex W1 and draft DORA
  Bill
• MTEC hearings in provinces
• Second provincial visit by NT
• Adjustments Estimate
• (provincial by end-Nov)

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Period Four (1 Dec to 31 March)

• From MTBPS to tabling of budgets
• Further priorities
• Submission of draft printers proofs by 1 Dec
• Assessment of provincial budgets (twice)
• Info on projected 2008/09 expenditure based on
  actual expenditure up to end December (s32
  report)
• Tabling of budgets
• Preparation for implementation in 2009/10

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Major Budget Events

• Bi-laterals with departments (April to May)
• 10 X 10 (June)
• 4 X 4s (July)
• Cabinet Lekgotla (July)
• Provincial Visits (End July)
• Budget Council Lekgotla (End August)
• National and Provincial MTEC (September)
• Division of Revenue Workshop/Peer Reviews
• Joint Minmecs (October)
• Extended Cabinet (20 October)
• MTBPS (27 October)
• Budget Day (Feb)
• Provincial Budgets (within two weeks)

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Budget documentation

• Budget legislation
• Division of Revenue Bill
• Appropriation Bill
• Revenue laws
• Budget documentation
• Budget Speech
• Budget Review
• Estimates of National Expenditure
• Estimates of National Revenue
• Provinces have own budget documents
• Provincial budgets and expenditure review
  (post-budget)
• Adjustments Appropriation Bill (post-budget)
• MT budget policy statement (pre-budget)

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Departmental budget documents

• Portfolio committees can use budget docs to
  improve oversight over departments
• Strategic and performance plans and ENE
• Outputs and measurable objectives and targets
• In-year quarterly and end-financial year
  performance targets
• Annual report requires reporting against these
  measurable objectives
• Many departments provide poor performance info
• Section 32 PFMA monthly and quarterly reports
  allow for in-year monitoring

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Budget Reform Agenda

• Entrenching transparency
• Reinforcing accountability
• Clarifying and separating roles
• Executive
• Set policy, oversee delivery by administration
  and account for outcomes
• Administration
• Implements, manages budgets, accounts for outputs
• Parliament
• Exercises oversight over executives
• NT runs budget process and produces documents to
  support all of the above

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Full impact on equitable shares
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Local Government Equitable Share

• Origin
• Sections 214 and 227 of Constitution
• Characteristic
• Unconditional
• Purpose
• Assist municipalities

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Evolution of the LGES

• Changes to account for the costs of
• Transformation
• Data updates
• New Priorities

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Evolution of the LGES

• 1998/99 Introduction
• 2000/01 incorporation of R293 town subsidies
  (ex R293 personnel)
• 2001/02 incorporation of R293 personnel
  subsidies, adjustment to the measurement of
  poverty, increasing the poverty threshold from
  R800 to R1100,
• 2002/03 the re-alignment of functions to the
  newly demarcated municipalities, the funding of
  district municipalities and the funding of a
  nodal component to support the operational costs,
• 2003/04 the introduction of free basic services
  to support poor communities and the alignment of
  the equitable share to the division of powers and
  functions between locals and districts,

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Evolution of the LGES

• 2004/05 update data from the 2001 Census, and
  adjusting the guarantee mechanism to phase in the
  impact of the new Census results, and
• 2005/06 introduction of the new equitable share
  formula, which is more redistributive with a
  revenue raising and development component
• 2006/07 update data following the repeal of
  cross boundary municipalities, introduction of
  environmental healthcare subsidies

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Formula

• Grant BS D I - R C
• BS Basic Services
• D Development
• I Institutional Capacity
• R Revenue Raising Capacity Correction
• C Correction and stabilisation factor

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Basic Services Component

• Purpose
• Enable municipalities to provide basic services
  and free basic services
• Compliments the MIG
• Characteristics
• Supports households earning less than R800 per
  month
• Recognises water reticulation, sanitation, refuse
  removal and electricity reticulation
• Distinction between poor households actually
  serviced and poor households receiving no service

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Basic Services Component

• BS Water Subsidy1 Poor with Water
• Water Subsidy 2 Poor without Water
• Sanitation Subsidy1 Poor with Sanitation
• Sanitation Subsidy2 Poor without Sanitation
• Refuse Subsidy1 Poor with Refuse
• Refuse Subsidy2 Poor without Refuse
• Electricity Subsidy1 Poor with Electricity
  
• Electricity Subsidy2 Poor without
  Electricity
• Environmental Health subsidyTotal number of
  households
• Full subsidy for households that currently
  receive services
• Partial subsidy for un-serviced households set
  at one third of the full subsidy

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Institutional Support

• Purpose
• Supplement the funding of a municipality for
  administrative and governance cost
• Structure
• I Base Allocation Admin supportPopulation
  
• Councillor SupportNumber of seats
• R350 000 R1Population R36
  000Councilors

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Revenue Raising Capacity Correction

• Recommendation by FFC
• Lack of data
• No national property valuation roll
• Not enough effort to raise revenues
• Not equitable to use actual revenue raised
• Basic approach
• Demonstrated revenue raising capacity
• Municipal Information from SSA
• Total available municipal revenue taxed at 5
• R1.3 billion contributed towards costs of basic
  services

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Development

• Developmental objectives
• Future policy
• Nodal allocations in previous formula
• Currently set at zero
• Further research in 2006

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Stabilising Constraint

• Large-scale changes to LGES since 1998
• Previous approach provided a 70 guarantee on
  prior years allocation
• New approach provides guarantee on indicative
  outer-year baseline amounts
• Ensure that allocations are not negative due to
  revenue raising correction

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Other considerations

• Powers and Functions
• Basic Services allocation goes to municipality
  that actually performs function
• Balancing allocations
• Rescaling the BS, D and I components
• Grant Adjustment factor(BSDI) R C
• Adjustment factor calculated so as to ensure that
  the system balances
• Two groups Those who require a top up and
  those that do not
• Total size of top up deducted from
  municipalities that do not require the top up in
  proportion to the surplus

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Measurement Issues

• Poverty
• Census 2001
• Income method
• Servicing Levels
• Most municipalities unable to provide cost
  information per service
• Subsidy amounts in new formula are based on study
  by DPLG
• Full Subsidy (Service costs) is R130 for serviced
  poor households
• R45 for un-serviced poor households
• All households receive approximately R12 p.a. for
  environmental health

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Conclusion

• Accuracy in measurement of variables is important
• Measurement is dynamic and future challenges are
  in
• new data
• revenue raising capacity
• cost parameters (subsidies)
• Allocation process is subject to regular changes
  and innovation

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Thank you