To provide for the equitable division of revenue raised nationally among the national, provincial and local spheres of government for the 2011/12 ï¬nancial year and the responsibilities of all three spheres pursuant to such division; and to provide for matters connected therewith.
''accreditation'' means accreditation of a municipality, in terms of section 10(2) of the Housing Act, 1997 (Act No. 107 of 1997), to administer national housing programmes, read with Part 3 of the National Housing Code, 1999 (Financial Interventions: Accreditation of Municipalities); ''category A, B or C municipality'' has the meaning assigned to each category in terms of the Municipal Structures Act; ''conditional allocation'' means a conditional allocation to a province, local government or municipality from the national government's share of revenue raised nationally, contemplated in section 214(1)(c) of the Constitution of the Republic of South Africa, 1996; ''corporation for public deposits account'' means a bank account of the Provincial Revenue Fund held with the Corporation for Public Deposits, established by the Corporation for Public Deposits Act, 1984 (Act No. 46 of 1984); ''Disaster Management Act'' means the Disaster Management Act, 2002 (Act No. 57 of 2002); ''ï¬nancial year'' means the ï¬nancial year commencing on 1 April 2011 and ending on 31 March 2012; ''framework'' means the conditions and other information in respect of a conditional allocation published by the National Treasury in terms of section 14; ''level one accreditation'' means accreditation to render beneï¬ciary management, subsidy budget planning and allocation, and priority programme management and administration; ''level three accreditation'' means accreditation to render ï¬nancial administration in addition to the responsibilities under a level one accreditation and a level two accreditation; ''level two accreditation'' means accreditation to render full programme management and administration of all housing instruments and housing programmes in addition to the responsibilities under a level one accreditation; ''Municipal Finance Management Act'' means the Local Government: Municipal Finance Management Act, 2003 (Act No. 56 of 2003); ''Municipal Structures Act'' means the Local Government: Municipal Structures Act, 1998 (Act No.
in relation to a province, means a bank account of the Provincial Revenue Fund held with a commercial bank which the head of the department in the provincial treasury has certiï¬ed to the National Treasury as the bank account into which all conditional allocations, other than the Gautrain Rapid Rail Link Grant, in terms of this Act must be deposited; and in relation to a municipality, means the bank account of the municipality as determined in terms of section 8 of the Municipal Finance Management Act; ''Public Finance Management Act'' means the Public Finance Management Act, 1999 (Act No.
in relation to a Schedule 4, 5, 8 or 9 allocation transferred to a province, means the accounting officer of the provincial department which receives that allocation or a portion thereof for spending via an appropriation from its Provincial Revenue Fund; or in relation to a Schedule 4, 6, 7, 8 or 9 allocation transferred to or provided in kind to a municipality, means the accounting officer of the municipality; ''this Act'' includes any framework or allocation published, or any regulation made under this Act; ''transferring national officer'' means the accounting officer of a national department that transfers a Schedule 4, 5, 6, 8 or 9 allocation to a province or municipality or spends a Schedule 7 allocation on behalf of a municipality.
promote transparency and accountability in the resource allocation process, by ensuring that all allocations are reï¬ected on the budgets of receiving provinces and municipalities and by ensuring that the expenditure of conditional allocations is reported on by the receiving provinces and municipalities.
An envisaged division of revenue anticipated to be raised in respect of the next ï¬nancial year and the 2013/14 ï¬nancial year, and which is subject to the provisions of the annual Division of Revenue Acts in respect of those ï¬nancial years, is set out in Column B of Schedule 1.
Each province's equitable share of the provincial share of revenue raised nationally in respect of the ï¬nancial year is set out in Column A of Schedule 2.
An envisaged division for each province of revenue anticipated to be raised nationally in respect of the next ï¬nancial year and the 2013/14 ï¬nancial year, and which is subject to the provisions of the annual Division of Revenue Acts for those ï¬nancial years, is set out in Column B of Schedule 2.
Each province's equitable share allocation contemplated in subsection (1) must be transferred to the corporation for public deposits account of the province, in accordance with a payment schedule determined by the National Treasury in terms of section 21.
Each municipality's share of local government's equitable share of revenue raised nationally in respect of the ï¬nancial year, is set out in Column A of Schedule 3.
An envisaged division between municipalities of revenue anticipated to be raised nationally in respect of the next ï¬nancial year and the 2013/14 ï¬nancial year, and which is subject to the provisions of the annual Division of Revenue Acts for those ï¬nancial years, is set out in Column B of Schedule 3.
Each municipality's equitable share contemplated in subsection (1) must be transferred to the primary bank account of the municipality in three transfers on 7 July 2011, 30 November 2011 and 23 March 2012, in accordance with a payment schedule determined by the National Treasury in terms of section 21.
If actual revenue raised nationally in respect of the ï¬nancial year falls short of the anticipated revenue set out in Schedule 1, the national government bears the shortfall.
If actual revenue raised nationally in respect of the ï¬nancial year exceeds the anticipated revenue set out in Schedule 1, the excess accrues to the national government, subject to subsection (3), to be used to reduce borrowing or pay debt as part of its share of revenue raised nationally, in addition to its share in Column A of Schedule 1.
national departments; or provinces or municipalities, as a conditional or an unconditional allocation; and increase a conditional allocation to a province or municipality through a virement under section 43 of the Public Finance Management Act or section 28(2)(d) of the Municipal Finance Management Act, as the case may be.
Schedule 9, specifying funds that are currently not allocated to speciï¬c municipalities, that may be released to local government or municipalities to fund disaster response within a period from three days up to three months following a declared disaster in terms of the conditions of the Disaster Management Act.
An envisaged division of conditional allocations to local government from the national government's share of revenue anticipated to be raised nationally for the next ï¬nancial year and the 2013/14 ï¬nancial year, which, with the exception of what is provided in subsection (4) in relation to the Public Transport Infrastructure and Systems Grant, is subject to the annual Division of Revenue Acts for those years, as set out in Column B of the Schedules referred to in subsection (1).
The National Treasury must, in terms of section 14, publish the share or indicative allocation of each municipality in respect of the local government allocations contemplated in subsections (1)(a) to (d) and (2) in the Gazette.
Despite subsection (2), in respect of the Public Transport Infrastructure and Systems Grant, funding which is speciï¬cally approved by the National Treasury in relation to transport contracts for capital projects must be regarded as being ï¬rm allocations for the next ï¬nancial year and the 2013/14 ï¬nancial year that will not be altered downwards in the Division of Revenue Acts in respect of those ï¬nancial years.
complying with the requirements of the applicable framework; and evaluating the performance of programmes funded or partially funded by the allocation and the submission of such evaluations to the National Treasury, within four months in respect of a province, and six months in respect of a municipality, after the end of the ï¬nancial year.
Municipalities that receive the Urban Settlements Development Grant must report expenditure and non-ï¬nancial performance information against their capital budgets, in accordance with section 11 of this Act and with the requirements of section 71 of the Municipal Finance Management Act.
Provinces that receive the Education Infrastructure Grant, the Health Infrastructure Grant or the Provincial Roads Maintenance Grant must report expenditure and non-ï¬nancial performance information against their capital budgets, in accordance with section 11 of this Act and with the requirements of section 32 of the Public Finance Management Act.
Provinces that receive the Education Infrastructure Grant, the Health Infrastructure Grant and the Provincial Roads Maintenance Grant must provide the transferring national officer, not later than 14 days after this Act takes effect, with a list of infrastructure projects for education, health and roads which the provinces will implement during the 2011/12 to 2013/14 ï¬nancial years, in a format that will be determined by the National Treasury.
The transferring national officer must publish the information in terms of paragraph (d) in the Gazette, in a format that will be determined by the National Treasury, not later than 28 days after this Act comes into effect.
Failure to comply with paragraphs (d) and (e) may result in withholding of the allocations in terms of section 16.
be consistent with section 11(2).
deposit funds only into the primary bank account of a province or municipality, or, where appropriate, into the corporation for public deposits account of a province or the bank account designed for the transfer of the Gautrain Rapid Rail Link Grant; and ensure that all other arrangements or requirements as stipulated in this Act or in the relevant framework for the particular allocation necessary for the transfer of an allocation have been complied with prior to the start of the ï¬nancial year, and are complied with throughout the ï¬nancial year.
The transferring national officer must submit all relevant information and documentation referred to in subsection (1)(a) to the National Treasury within 14 days after this Act takes effect.
A transferring national officer who has not complied with subsection (1) must transfer the allocation in the manner instructed by the National Treasury, including transferring the allocation as an unconditional allocation.
Before making the ï¬rst transfer of any allocation, the transferring national officer must take note of any notice in terms of section 30(1) from the National Treasury outlining the details of the account for each province or municipality.
any matter or information that may be prescribed in the relevant framework for the particular allocation; and such other issues as the National Treasury may determine.
A transferring national officer must submit a quarterly performance report within 45 days after the end of each quarter to the National Treasury, in accordance with the requirements of the relevant framework.
The transferring national officer must evaluate the performance of programmes funded or partially funded by the allocation and submit such evaluations to the National Treasury, within four months in respect of a province, and six months in respect of a municipality, after the end of the ï¬nancial year.
complying with the framework for a Schedule 4 allocation as published in terms of section 14; and the manner in which a Schedule 4 allocation is allocated and spent.
non-ï¬nancial performance against programmes, in respect of Schedule 4 Grants other than the Urban Settlements Development Grant; and performance for that quarter against the targets stipulated in the infrastructure performance framework that is required in terms of the grant framework, in respect of the Urban Settlements Development Grant.
The National Treasury must make the report submitted to it in terms of subsection (2)(b) or (c) available to any other national departments that have responsibilities relating to the grant.
submit, as part of the report required in section 40(4)(c) of the Public Finance Management Act, reports to the relevant provincial treasury on spending and performance against programmes; and submit a quarterly performance report within 30 days after the end of each quarter to the relevant provincial treasury, and the National Treasury.
The receiving officer must report against programmes funded or partially funded by a Schedule 4 allocation against the relevant framework in its annual ï¬nancial statements and annual report.
The receiving officer must, within two months after the end of the ï¬nancial year, and where relevant, the municipal ï¬nancial year, evaluate the performance of the province or municipality, as the case may be, in respect of programmes funded or partially funded by an allocation and submit such evaluation to the transferring national officer.
With respect to the Education Infrastructure Grant, the Health Infrastructure Grant, the Provincial Roads Maintenance Grant and the Urban Settlements Development Grant, reporting on performance will be based on the overall capital budget of the provincial department or the municipality concerned.
The receiving officer of a Schedule 5, 6, 8 or 9 allocation must ensure compliance with the requirements of the relevant framework.
a municipality, as part of the report required in terms of section 71 of the Municipal Finance Management Act, report on the matters referred to in subsection (4) and submit a copy of the section 71 report to the relevant provincial treasury, the National Treasury and the relevant transferring national officer; and a province or a municipality, submit a quarterly performance report within 30 days after the end of each quarter to the transferring national officer, the relevant provincial treasury and the National Treasury.
any matter or information that may be prescribed in the relevant framework for the particular allocation; and such other issues and information as the National Treasury may determine.
Subsections (2) and (3) do not apply to the receiving officer of the Gautrain Rapid Rail Link Grant.
The receiving officer of the Gautrain Rapid Rail Link Grant must, at the end of each quarter, submit a report to the transferring national officer, detailing the payment made in that quarter to meet its payment obligation in terms of the public-private partnership agreement entered into by the province in accordance with regulations issued under the Public Finance Management Act.
Copies of payment certiï¬cates issued in terms of the public-private partnership agreement must be submitted together with the report referred to in paragraph (b).
A receiving officer must, within two months after the end of the ï¬nancial year, and where relevant, the municipal ï¬nancial year, evaluate its performance in respect of programmes or functions funded or partially funded by an allocation and submit such evaluation to the transferring national officer.
Duties in respect of annual ï¬nancial statements and annual reports for 2011/12 13.
certify that all transfers to a province or municipality were deposited into the primary bank account of a province or municipality or, where appropriate, into the corporation for public deposits account of a province; and indicate the funds, if any, utilised for the administration of the allocation by the receiving officer.
indicate to what extent the allocation achieved its objectives and outputs; and indicate any non-compliance with this Act or the relevant framework, and the steps taken to deal with such non-compliance.
indicate the total amount of actual expenditure on all allocations except Schedule 4 allocations; and certify that all transfers in terms of this Act to the province were deposited into the primary bank account of the province or, where appropriate, into the corporation for public deposits account of a province.
contain any other information that may be speciï¬ed in the relevant framework for the allocation; and contain such other information as the National Treasury may determine.
The 2011/12 ï¬nancial statements and annual report of a municipality must be prepared in accordance with the Municipal Finance Management Act.
The National Treasury may determine how transferring departments and receiving municipalities report on local government allocations on a quarterly basis, to facilitate the audit of allocations for both the national and municipal ï¬nancial years.
the indicative allocations for provinces and municipalities, along with their initial threshold and performance targets, in respect of Schedule 8 allocations; and the framework for each allocation in Schedules 4 to 9.
any revised allocations in respect of Schedule 7 Grants; and any revised indicative allocations, performance and threshold targets for the Expanded Public Works Programme Incentive Grant.
The National Treasury may at any time, after consultation with or at the written request of a transferring national officer, revise or amend a framework published in terms of subsection (1) or (2), to correct any error or omission.
An amendment, revision, virement or re-allocation takes effect on publication thereof in the Gazette, with the exception of a Schedule 9 Grant.
Despite anything to the contrary contained in any law, an allocation referred to in Schedules 4 to 9 may only be utilised for the purpose stipulated in the Schedule concerned and in accordance with the framework published in terms of section 14.
the receiving officer has certiï¬ed to the National Treasury that the transfer is not an attempt to artiï¬cially inï¬ate its spending estimates and that there are good reasons for the advance payment or transfer; and the National Treasury has approved the advance payment or transfer.
No public entity, other than Eskom Holdings Limited in respect of funds received from the Department of Energy and water boards in respect of funds received from the Department of Water Affairs and the Department of Human Settlements for the implementation of Schedule 7 allocations, may receive funds for the provision of a municipal service or municipal function on behalf of a municipality from a national or provincial organ of state, except via the municipality responsible for that service or function, unless the National Treasury approves otherwise in respect of municipalities it deems to have low capacity.
entering into a payment schedule; and submitting the payment schedule to the National Treasury for approval.
A receiving officer must request the National Treasury to amend the payment schedule referred to in subsection (4), in accordance with the procedure set out in section 22, in instances where a transfer to a municipality with level three accreditation has been withheld or stopped in terms of section 16 or 17.
roll-overs of conditional allocations approved by the National Treasury in accordance with section 20 have not been spent; or expenditure on previous transfers during the ï¬nancial year reï¬ects signiï¬cant under-spending, for which no satisfactory explanation is given.
A maximum of ï¬ve per cent of the Health Professions Training and Development Grant and the National Tertiary Services Grant may be withheld in terms of this section.
written notice of the intention to withhold the allocation; and an opportunity to submit written representations as to why the allocation should not be withheld; and inform the relevant provincial treasury and the National Treasury, and in respect of any conditional grant to local government, also the provincial department responsible for local government.
A notice contemplated in subsection (3) must include the reasons for withholding the allocation and the intended duration of the withholding.
facilitate compliance with this Act or the conditions to which the allocation is subject; or minimise the risk of under-spending.
A transferring national officer must, when requesting the withholding of an allocation in terms of this subsection, submit proof of its compliance with subsection (3) and any representations received from the receiving officer, to the National Treasury.
The transferring national officer must again comply with subsection (3) when the National Treasury instructs or approves a request by the transferring national officer in terms of paragraph (a).
if a function is reassigned from a province to a municipality; or if a province implementing an infrastructure project does not comply with best practice standards and guidelines made in terms of section 5 of the Construction Industry Development Board Act, 2000 (Act No. 38 of 2000).
comply with the requirements set out in section 16(3)(a), and in respect of a municipality, also with the requirements of section 38 of the Municipal Finance Management Act; and inform the relevant provincial treasury of its intention to stop the allocation.
Any stopping of an allocation contemplated in subsection (1) must, together with an explanatory memorandum, be published by the National Treasury in the Gazette.
The Minister may, by notice in the Gazette, approve that an allocation or any portion of such allocation stopped in terms of subsection (1), be utilised to meet that province's or municipality's outstanding statutory and contractual ï¬nancial commitments.
The utilisation of funds contemplated in this subsection is a direct charge against the National Revenue Fund.
(a) The National Treasury may, when it stops a Schedule 4, 5 or 6 allocation in terms of section 17, after consultation with the transferring national officer and the relevant provincial treasury, determine that a portion of the allocation that will not be spent be reallocated, as the same type of grant allocation as it was allocated originally, to one or more provinces or municipalities, on condition that the allocation will be spent in the ï¬nancial year or the next ï¬nancial year.
The reallocation of a portion of an allocation or the full allocation on condition that the allocation will be spent in the next ï¬nancial year, in terms of paragraph (a), must be deemed to be a roll-over approved by the National Treasury in terms of section 20(2)(a), and the roll-over process set out in Treasury Regulation 6.4.2 would not need to be followed.
in relation to section 150 of the Municipal Finance Management Act, the relevant transferring national officer to spend an allocation stopped in terms of section 17 on behalf of the relevant municipality.
An allocation that is spent by the transferring national officer or intervening province referred to in paragraph (a) must, for the purposes of this Act, be regarded as a Schedule 7 allocation from the date on which the authorisation is given.
The National Treasury may, after consultation with the transferring national officer, determine a portion of the allocation that will be reallocated in the event of the reassignment of a function from a province to a municipality.
The National Treasury may, in its discretion or at the request of the transferring national officer, convert an allocation listed in Schedule 6 to become an allocation listed in Schedule 7, or convert an allocation listed in Schedule 7 to become an allocation listed in Schedule 6, if the National Treasury is satisï¬ed that the conversion will prevent under-spending on the allocation.
underspending on the allocation; or a lesser level of service delivery compared to if the allocation is provided to the province as a Schedule 7 grant-in-kind.
An allocation that is converted in terms of this section must be paid to or expended on behalf of the same province or municipality to which the allocation was originally made.
A conversion referred to in subsections (1) and (2) takes effect on the date of publication referred to in section 14(2)(c).
The National Treasury must inform the transferring national officer and each affected receiving province or municipality of a conversion.
Despite the provisions of the Public Finance Management Act or the Municipal Finance Management Act relating to roll-overs, any conditional allocation, excluding the Gautrain Rapid Rail Link Grant and the Expanded Public Works Programme Incentive Grant, that is, in the case of a province, not spent at the end of a ï¬nancial year or, in the case of a municipality, at the end of a municipal ï¬nancial year, reverts to the National Revenue Fund, unless the relevant receiving officer can prove to the satisfaction of the National Treasury that the unspent allocation is committed to identiï¬able projects.
a roll-over from a conditional allocation to the next ï¬nancial year; and spending of a portion of a conditional allocation on activities related to the purpose of that allocation, where the province or municipality projects signiï¬cant unforeseeable and unavoidable over-spending on its budget.
Any funds which must revert to the National Revenue Fund in terms of subsection (1), and which have not been approved by the National Treasury to be retained in terms of subsection (2), must be repaid to the National Revenue Fund.
in the case of a province, against future advances for conditional grant allocations to that province; and in the case of a municipality, against future advances for the equitable share or conditional grant allocations to that municipality.
propose an alternative payment schedule in terms of which the unspent allocations will be repaid to the National Revenue Fund.
A notice contemplated in subsection (5) must include the intended amount to be offset against allocations, and the reasons for offsetting the amounts.
Despite this section, the retention of funds which should revert to the National Revenue Fund in terms of subsections (1) and (3), and which have not been approved by the National Treasury to be retained in terms of subsection (2), constitutes ï¬nancial misconduct in terms of section 34.
(a) The National Treasury determines the payment schedule for the transfer of a province's equitable share allocation, after consultation with the head of the department in the provincial treasury.
In determining the payment schedule, the National Treasury must take account of the monthly spending commitments of provinces and seek to minimise risk and debt servicing costs for national and provincial government.
Despite paragraph (a), the National Treasury may, for cash management purposes relating to the corporation for public deposits account or when an intervention in terms of section 100 of the Constitution is taking place, on such conditions as it may determine, advance funds to a province in respect of its equitable share or a portion of it which has not yet fallen due for transfer in accordance with the payment schedule.
Any advances in terms of paragraph (c) must be offset against transfers to the province which would otherwise become due in terms of that payment schedule.
The National Treasury determines the payment schedule for the transfer of a municipality's equitable share allocation, after consultation with the accounting officer of the national department responsible for local government.
Despite paragraph (a), the National Treasury, after consultation with the accounting officer of the national department responsible for local government, may, for cash management purposes in the municipality or when an intervention in terms of section 139 of the Constitution or section 137, 139 or 150 of the Municipal Finance Management Act is taking place, on such conditions as it may determine, approve a request or direct that the equitable share or a portion of the equitable share which has not yet fallen due for transfer in accordance with the payment schedule, be advanced to a municipality.
Any advances in terms of paragraph (b) must be offset against transfers to the municipality which would otherwise become due in terms of the applicable payment schedule.
The National Treasury must approve the payment schedule for the transfer of an allocation listed in Schedules 4 to 9 to a province or municipality.
The transferring national officer of a Schedule 4, 5, 6 or 8 allocation must submit a payment schedule to the National Treasury for approval within 14 days after this Act takes effect.
in relation to a Schedule 5 or 6 allocation, consult the relevant province or municipality.
The transferring national officer of a Schedule 4, 5 or 6 allocation must provide the receiving officer with a copy of the approved payment schedule prior to making the ï¬rst transfer in accordance therewith.
Schedule 4 and 6 transfers must be done in line with the municipal ï¬nancial year.
Subject to subsection (2), a transferring national officer of a Schedule 4, 5 or 6 allocation must, within seven days of the withholding or stopping of an allocation in terms of section 16 or 17, amend a payment schedule as a result of the withholding or stopping of an allocation in terms of this Act and submit the amended payment schedule to the National Treasury prior to any further transfers being made.
the accounting officer of a provincial treasury, in the case of a provincial allocation; and the accounting officer of the national department responsible for local government, in the case of a local government allocation.
the revenue at the disposal of provinces or municipalities; and the minimisation of risk and debt servicing costs for all three spheres of government.
An amendment of a payment schedule in terms of subsection (2) prevails over any amendment made in terms of subsection (1).
The transferring national officer must immediately inform the receiving officer of any amendment to a payment schedule in accordance with subsection (1) or (2).
Despite anything to the contrary contained in any law, the transfer of an allocation to a province, municipality or public entity in error or fraudulently is regarded as not legally due to that province, municipality or public entity, as the case may be.
A transfer contemplated in subsection (1) must be recovered, without delay, by the responsible transferring national officer.
Despite subsection (2), the National Treasury may instruct that the recovery contemplated in subsection (2) be effected by set-off against future transfers to the province, municipality or public entity, which would otherwise become due in accordance with a payment schedule.
a re-allocation referred to in section 18 or in respect of the Expanded Public Works Programme Incentive Grant; or a revised indicative allocation in respect of a Schedule 7 or 8 Grant, which is not listed in the Schedules referred to in sections 7 and 8, may only be made in terms of section 6(3).
The National Treasury must publish the allocations referred to in subsection (1) and frameworks for such allocations in the Gazette, prior to the transfer of any funds to a province or municipality.
The national transferring officer must notify the relevant provincial treasury and the National Treasury of the excess incentive payment earned to be appropriated either in the provincial adjustments appropriation bill, if made before the end of November each year, or in the appropriation bill for the next ï¬nancial year.
Subsection (2) does not apply to Schedule 9 allocations.
A transfer to a province or municipality as a Schedule 9 allocation may only be made after the National Treasury has approved the transfer.
The transferring national officer must notify the relevant provincial treasury and the National Treasury in writing within 14 days of a transfer of a Schedule 9 allocation to a province or municipality.
The National Treasury must publish a Schedule 9 allocation in the Gazette within 16 days after being notiï¬ed in terms of paragraph (a).
Schedule 9 allocations must be appropriated or authorised either in the provincial adjustments appropriation legislation, municipal adjustments budgets or other appropriations legislation.
(a) A municipality (the releasing municipality) from which a particular area is transferred at the commencement of or through the implementation of legislation, which re-demarcates municipal boundaries and addresses associated matters, must continue to spend its allocations for the 2011/12 ï¬nancial year made in terms of this Act, in that particular area or municipality, as if that area was not transferred to another municipality (the receiving municipality), unless the affected municipalities have entered into an agreement that ensures that the relocated area or municipality is not negatively affected.
The transferring national officer of an allocation made in terms of this Act and the receiving municipality must monitor that the releasing municipality complies with paragraph (a).
The releasing municipality must, at the request of the transferring national officer, the receiving municipality or the National Treasury, demonstrate compliance with paragraph (a).
The provisions of sections 16 and 17 apply with the necessary changes where a releasing municipality fails to comply with subsection (1) (a) or (c) in respect of a Schedule 4, 6 or 7 allocation.
The National Treasury may, where it withholds or stops an allocation in terms of paragraph (a), after consultation with the transferring national officer, determine that a portion of the allocation be reallocated to the receiving municipality.
The National Treasury may, where a releasing municipality fails to comply with subsection (1) (a) or (c), reallocate a portion of the releasing municipality's equitable share allocation referred to in section 5 to the receiving municipality.
The allocations referred to in sections 5 (2) and 8 (2) are subject to adjustments necessitated by the implementation of the legislation which re-demarcates the municipal boundaries.
The transferring national officer of a Schedule 4, 6 or 7 allocation must, by 15 September 2011, inform the National Treasury of any adjustments to the allocations referred to in section 8 (2) that must be reï¬ected in the Division of Revenue Act for the next ï¬nancial year.
agree on the provisional allocations and the projects to be funded from those allocations in the next ï¬nancial year and the 2013/14 ï¬nancial year with each category B municipality within the category C municipality's area of jurisdiction; and submit to the transferring national officer- (aa) the provisional allocations referred to in subparagraph (i); and (bb) the projects referred to in subparagraph (i), listed per municipality to be funded from the allocations for the next ï¬nancial year and the 2013/14 ï¬nancial year.
Where a category C municipality and a category B municipality cannot agree on the allocations and projects referred to in paragraph (a), the category C municipality must request the relevant transferring national officer to facilitate agreement.
The transferring national officer must take all necessary steps to facilitate agreement as soon as possible, but no later than 60 days after receiving a request referred to in paragraph (b).
Any proposed amendment or adjustment of the allocations that is intended to be published in terms of section 29(3)(b) must be agreed with the relevant category B municipality, the transferring national officer and the National Treasury, prior to publication, and prior to the submission of the allocations referred to in paragraph (a)(ii).
Should agreement not be reached between the category C municipality and the category B municipality on the provisional allocations and projects referred to in paragraph (a) prior to 3 October 2011, the National Treasury may proceed to determine the provisional allocations and provide those provisional allocations to the municipalities concerned and the transferring national officer.
The ï¬nal allocations based on the provisional allocations referred to in paragraphs (a)(i) and (ii) and (e) must be submitted to the National Treasury by 7 December 2011.
If the transferring national officer fails to submit the allocations referred to in subparagraph (i) by 7 December 2011, the National Treasury may determine the appropriate allocations, taking into consideration the envisaged allocations for the next ï¬nancial year.
in the format to be determined by the National Treasury.
Any proposed amendment or adjustment for the next ï¬nancial year of the allocation criteria of an existing conditional allocation must be agreed with the National Treasury prior to the submission of the provisional allocations and draft frameworks referred to in paragraph (a)(ii) and (iii).
the draft frameworks for the allocations referred to in paragraph (a)(iii), and submit that information to the relevant provinces or municipalities.
The ï¬nal allocations based on the provisional allocations referred to in paragraph (a)(i) and (ii) must be submitted to the National Treasury by 7 December 2011.
The National Treasury may, in preparation for the next ï¬nancial year, instruct transferring national officers, receiving officers and municipalities to submit to it such plans and information for any conditional allocation as it may determine at speciï¬ed times prior to the start of the next ï¬nancial year.
Expenditure prior to commencement of Division of Revenue Act, 2012 27. Despite sections 3(2), 7(2) and 8(2), if the annual Division of Revenue Act for the next ï¬nancial year has not commenced before or on 1 April 2012, the National Treasury may determine that an amount not exceeding 45 per cent of the total amount of each allocation made in terms of sections 3(1), 7(1) and 8(1) be transferred to the relevant province or municipality as a direct charge against the National Revenue Fund.
(a) In addition to the requirements of the Municipal Finance Management Act, the accounting officer of a category C municipality must, no later than 14 days after this Act takes effect, submit to the National Treasury and all category B municipalities within that municipality's area of jurisdiction, the budget, as tabled in accordance with section 16 of the Municipal Finance Management Act, for the 2011/12 municipal ï¬nancial year, and the two following municipal ï¬nancial years.
The budget must indicate all allocations from its equitable share and conditional allocations to be transferred to each category B municipality within the category C municipality's area of jurisdiction and disclose the criteria for allocating funds between the category B municipalities.
A category C municipality that is providing a municipal service must, before implementing any capital project for water, electricity, roads or any other municipal service, consult the category B municipalities within whose area of jurisdiction the project will be implemented, and agree in writing which municipality is responsible for the operational costs and the collection of user fees.
the category C municipality retains the power or function in terms of the Municipal Structures Act; and a service delivery agreement for the provision of services by the category B municipality on behalf of the category C municipality has not been concluded.
entering into a service delivery agreement with the category C municipality which is authorised to perform the function in terms of the Municipal Structures Act; or obtaining the legal authorisation to perform the function in terms of the Municipal Structures Act.
A category C municipality and a category B municipality must, before the commencement of a municipal ï¬nancial year, agree to a payment schedule in respect of the allocations referred to in subsection (1)(b) to be transferred to the category B municipality in that ï¬nancial year, and the category C municipality must submit that payment schedule to the National Treasury before the commencement of a municipal ï¬nancial year.
A category C municipality must make transfers in accordance with the payment schedule submitted in terms of paragraph (a).
submit a payment schedule in accordance with subsection (5)(a).
Sections 16(3) and 17(3) and (4) of this Act and section 216 of the Constitution apply, with the necessary changes, to the withholding and stopping of an allocation in accordance with paragraph (a).
The National Treasury may, where it stops an allocation in terms of this section, after consultation with the transferring national officer, determine that a portion of the allocation that will not be spent be reallocated to one or more municipalities, on condition that the allocation will be spent in the ï¬nancial year or the next ï¬nancial year.
A municipality must ensure that any allocation made to it in terms of this Act, or by a province or another municipality, that is not reï¬ected in its budget as tabled in accordance with section 16 of the Municipal Finance Management Act, is reï¬ected in its budget to be considered for approval in accordance with section 24 of the Municipal Finance Management Act.
In respect of the Human Settlements Development Grant, the ï¬nancial and non-ï¬nancial reporting that is required to be submitted by a municipality with a level three accreditation in terms of the grant framework must relate to the requirements speciï¬ed in the grant framework.
A municipality with a level three accreditation must submit the required monthly ï¬nancial and quarterly performance reports to the receiving officer, the transferring national officer and the National Treasury.
The provincial treasury must reï¬ect Schedule 5 allocations separately in the province's appropriation bill or a schedule to its appropriation bill.
the conditions and other information in respect of the allocations referred to in subparagraphs (i), (ii) and (iii) to facilitate performance measurement and the use of required inputs and outputs; and the budget of each hospital in a format determined by the National Treasury.
The allocations and budgets referred to in paragraph (a) must be deemed to be ï¬nal if the legislature passes the appropriation bill without any amendments.
In the event that the legislature amends the appropriation bill, the accounting officer of the provincial treasury must publish amended allocations and budgets in the Gazette within 14 days of the legislature passing the appropriation bill, which allocations must align to the appropriation bill as passed by the legislature, and which must be deemed to be ï¬nal.
Despite subsection (2) or any law, a provincial treasury may, in accordance with a framework determined by the National Treasury, amend the allocations referred to in subsection (2) or make additional allocations to municipalities that were not published in terms of subsection (1) or (2).
Any amendments to the allocations published in terms of subsection (2)(a) must be published in the Gazette not later than 14 February 2012.
The allocations referred to in paragraph (a) must be deemed to be ï¬nal if they are published in the Gazette in accordance with paragraph (b).
actual transfers made by the province to municipalities, and actual expenditure by municipalities on such allocations, based on the most up to date information available from municipalities at the time of reporting.
The report contemplated in paragraph (a) must include reports for each quarter, and be in the format and include the information as may be determined by the National Treasury.
that a payment schedule is agreed between each provincial department and receiving institution referred to in subsection (2)(a); and that transfers are made promptly in accordance therewith.
submit the payment schedules to the National Treasury within 14 days of this Act taking effect.
Should a provincial treasury fail to comply with the requirement to make transfers promptly to a receiving officer in accordance with the agreed payment schedule, as required in terms of subsection (5)(a), the receiving officer concerned may request the provincial treasury to immediately make the transfer to the receiving officer, or to provide written reasons within three business days as to why the transfer has not been made.
Should a provincial treasury fail to either make the transfer requested by the receiving officer or provide reasons within the period stipulated in subsection (6), or if the receiving officer disputes the reasons provided by the provincial treasury as to why the transfer has not been made, then the receiving officer may request the National Treasury to investigate the matter with the provincial treasury concerned.
When the National Treasury is requested to investigate a failure by a provincial treasury to promptly effect transfer to a receiving officer in terms of subsection (7), the National Treasury must investigate the matter, assess any reasons given by the provincial treasury as to why the transfer was not effected, and either direct the provincial treasury to immediately effect the transfer, or provide reasons to the receiving officer concerned conï¬rming why the provincial treasury was correct in not effecting the transfer, and advise the provincial treasury and the receiving officer as to what steps should be taken.
The National Treasury must, within 14 days of this Act taking effect, submit a notice to all transferring national officers, containing the details of the bank accounts of each province and municipality.
The National Treasury must, together with the monthly report contemplated in section 32(2) of the Public Finance Management Act, publish a report on actual transfers of all allocations listed in the Schedules referred to in sections 7 and 8 or made in terms of section 24.
The National Treasury may, in any report it publishes that aggregates reports published by provincial treasuries contemplated in section 71(7) of the Municipal Finance Management Act, and in any report in respect of municipal ï¬nances, include a report on the equitable share and conditional allocations provided for in this Act.
The accounting officer of a provincial department or municipality that receives funds from a public entity as a grant, sponsorship or donation, must disclose in its ï¬nancial statements the purpose and amount of such grant, sponsorship or donation received.
An organ of state involved in an intergovernmental dispute regarding any provision of this Act or any division of revenue matter or allocation must, before approaching a court to resolve such dispute, make every effort to settle the dispute with the other organ of state concerned, including exhausting all mechanisms provided for the settlement of disputes in relevant legislation.
In the event that a dispute is referred back by a court in accordance with section 41(4) of the Constitution, due to the court not being satisï¬ed that the organ of state approaching the court has complied with subsection (1), the expenditure incurred by that organ of state in approaching the court must be regarded as fruitless and wasteful.
The amount of any such fruitless and wasteful expenditure must, in terms of a prescribed procedure, be recovered without delay from the person who caused the organ of state not to comply with the requirements of subsection (1).
in respect of the Gautrain Rapid Rail Link Grant, the dedicated banking account conï¬guration established for the transfer of the Gautrain Rapid Rail Link Grant in accordance with the directive issued by the National Treasury under section 10(2)(a) of the Division of Revenue Act, 2006 (Act No. 2 of 2006); or any transfer made or spending of an allocation in contravention of this Act or a framework published in terms of this Act.
Despite anything to the contrary contained in any law, any serious or persistent non-compliance with a provision of this Act or a framework published in terms of this Act constitutes ï¬nancial misconduct.
Section 84 of the Public Finance Management Act and section 171 of the Municipal Finance Management Act apply in respect of ï¬nancial misconduct contemplated in subsection (1).
The Minister may, in writing, delegate any of the powers entrusted to the National Treasury in terms of this Act and assign any of the duties imposed on the National Treasury in terms of this Act, to an official of the National Treasury.
may authorise that official to subdelegate, in writing, the delegated power or assigned duty to another National Treasury official; and does not divest the National Treasury of the responsibility concerning the exercise of the delegated power or the performance of the assigned duty.
The Minister may conï¬rm, vary or revoke any decision taken by an official as a result of a delegation, subject to any rights that may have vested as a consequence of the decision.
A Member of the Executive Council responsible for ï¬nancial matters in a province may, in writing, delegate any of the powers entrusted to the Provincial Treasury of that province in terms of this Act and assign any of the duties imposed on the Provincial Treasury in terms of this Act, to an official of the Provincial Treasury.
Subsections (2) and (3) apply with the necessary changes to a delegation or assignment in terms of subsection (4).
The National Treasury may, on written application by a transferring national officer, province or municipality, exempt such officer, province or municipality in 5 writing from complying with a provision of this Act.
Any exemption granted in terms of subsection (1) must set out the period and conditions, if any, to which it is subject and must be published in the Gazette.
The Minister may, by notice in the Gazette, make regulations regarding- 10 anything which must or may be prescribed in terms of this Act; and any ancillary or incidental administrative or procedural matter that it is necessary to prescribe for the proper implementation or administration of this Act.
Repeal of laws 15 38. (1) Subject to subsection (2), the Division of Revenue Act, 2010 (Act No. 1 of 2010), with the exception of sections 28(8) and 38(1), is hereby repealed.
The repeal of the Division of Revenue Act, 2010 (Act No. 1 of 2010), does not affect any duty or obligation set out in that Act, the execution of which is still outstanding.
This Act is called the Division of Revenue Act, 2011, and takes effect on 1 April 2011 or the date of publication thereof by the President in the Gazette, whichever is the later date.
National share includes conditional allocations to provincial and local spheres, general fuel levy sharing with metropolitan municipalities, debt service cost and the contingency reserve.
The direct charges for the provincial equitable share are netted out.
(Vote 31)HumanSettlements Urban Settlements Development Grant To improve the efficiency and coordination of investments in the builtenvironment by providing large municipalities with appropriate resources and control over the selection and pursuit of investment programmes in the builtenvironment.
(Vote 3)CooperativeGovernance andTraditionalAffairs Municipal Systems Improvement Grant To assist municipalities in building in-house capacity to perform their functions and stabiliseinstitutional and governance systems as required in the Municipal Systems Act and relatedlegislation, policies and local government turnaround strategy.
(Vote 10)NationalTreasury Local Government Financial ManagementGrant To promote and support reforms in financial management by building capacity in municipalities toimplement the Municipal Finance Management Act (MFMA). As part of strengthening financial andasset management in municipalities, the grant provides funding for water and energy internshipprogramme to graduates in selected water boards and municipalities.
Water Affairs(Vote 38) Water Services Operating Subsidy Grant To subsidise and build capacity in water schemes owned and/or operated by the Department of Water Affairs or by other agencies on behalf of the department and transfer these schemes to localgovernment.
(Vote 3)CooperativeGovernance andTraditionalAffairs Municipal Infrastructure Grant To provide specific capital finance for basic municipal infrastructure backlogs for poor households, micro enterprises and social institutions servicing poor communities.
Energy(Vote 29) (a) Integrated National ElectrificationProgramme (Municipal) Grant To implement the Integrated National Electrification Programme (INEP) by providing capitalsubsidies to municipalities to address the electrification backlog of occupied residential dwellings, the installation of bulk infrastructure and rehabilitation and refurbishment of electricity infrastructurein order to improve quality of supply.
Electricity Demand Side Management(Municipal) Grant To implement the Electricity Demand Side Management (EDSM) programme by providing subsidiesto licenced distributors to address EDSM in residential dwellings, communities and municipalinfrastructure in order to mitigate the risk of load shedding and supply interruptions.
NationalTreasury(Vote 10) Neighbourhood Development PartnershipGrant To support neighbourhood development projects that provide community infrastructure and createthe platform for other public and private sector development, towards improving the quality of life ofresidents in targeted underserved neighbourhoods (townships generally).
Transport(Vote 37) (a) Public Transport Infrastructure andSystems Grant To provide for accelerated planning, construction and improvement of public and non-motorisedtransport networks.
Rural Transport Services andInfrastructure Grant To assist rural district municipalities to set up rural road asset management systems, and collect roadand traffic data in line with the Road Infrastructure Strategic Framework for South Africa.
Water Affairs(Vote 38) Municipal Drought Relief Grant To provide capital finance for construction of appropriate water infrastructure to alleviate furtherimpacts of drought in Nelson Mandela Bay metropolitan municipality for affected households, microenterprises and social institutions.
(Vote 10)NationalTreasury Neighbourhood Development PartnershipGrant To support neighbourhood development projects that provide community infrastructure and create the platform for other public and private sector development, towards improving the quality of life ofresidents in targeted underserved neighbourhoods (townships generally).
Energy(Vote 29) (a) Integrated National ElectrificationProgramme (Eskom) Grant To implement the Integrated National Electrification Programme (INEP) by providing capitalsubsidies to Eskom to address the electrification backlog of occupied residential dwellings, theinstallation of bulk infrastructure and rehabilitation and refurbishment of electricity infrastructure inorder to improve quality of supply.
Electricity Demand Side Management(Eskom) Grant To implement the Electricity Demand Side Management (EDSM) programme by providing subsidiesto Eskom to address EDSM in residential dwellings and communities in order to mitigate the risk ofload shedding and supply interruptions.
Water Affairs(Vote 38) (a) Water Services Operating SubsidyGrant To subsidise and build capacity in water schemes owned and/or operated by the Department of Water Affairs or by other agencies on behalf of the department and transfer these schemes to localgovernment.
Regional Bulk Infrastructure Grant To develop regional bulk infrastructure for water supply to supplement water treatment works at resource development and link such water resource development with the local bulk and localdistribution networks on a regional basis cutting across several local municipal boundaries. In thecase of sanitation, to supplement regional bulk collection as well as regional waste water treatmentworks.
(Vote 31)HumanSettlements Rural Households Infrastructure Grant To provide specific capital funding for the eradication of rural water and sanitation backlogs and istargeted at existing households where bulk-dependent services are not viable. The grant also fundstraining for beneficiaries on health and hygiene practices and how to maintain the facilities provided.
Incentive Grant for Municipalities culture programmes through the use of labour-intensive methods and the expansion of job creation in 679 583 line with the Expanded Public Works Programme (EPWP) guidelines.
Municipal Disaster Grant To provide for the immediate release of funds for disaster response.
the determination of each province's equitable share of the provincial share of that revenue; and any other allocations to provinces, local government or municipalities from the national government's share of that revenue, and for any conditions on which those allocations may be made.
1.2 Section 10 of the Intergovernmental Fiscal Relations Act, 1997 (Act No. 97 of 1997) (''the IGFRA''), requires that, as part of the process of the enactment of the Act of Parliament referred to in paragraph 1.1, each year when the annual budget is introduced, the Minister of Finance must introduce in the National Assembly a Division of Revenue Bill (''the Bill'') for the ï¬nancial year to which that budget relates.
the extent to which account was taken of any recommendations of the Financial and Fiscal Commission (''the FFC'') that were submitted to the Minister of Finance or were raised during consultations with the FFC; and any assumptions or formulae used in arriving at the respective shares of the three spheres of government and the division of the provincial share between the nine provinces.
1.4 In terms of section 7(4) of the Money Bills Amendment Procedure and Related Matters Act, 2009 (Act No. 9 of 2009) (''the MBAPRMA''), when tabling the budget, a report must also be tabled that responds to the recommendations made in the reports by the Parliamentary Committees on Finance on the proposed ï¬scal framework in the Medium Term Budget Policy Statement (''the MTBPS'') and the reports by the Committees on Appropriations regarding the proposed division of revenue and the conditional grant allocations to provinces and local governments as contained in the MTBPS. The report must explain how the Bill and the national budget give effect to, or the reasons for not taking into account, the recommendations contained in the Committee reports.
The memorandum referred to in paragraph 1.
1.4 above will be tabled with the budget.
1.6 The Bill is introduced in compliance with the requirements of the Constitution, the IGFRA, and the MBAPRMA, as set out in paragraphs 1.1 to 1.4 above.
Schedule 9 provides for the release of funds to provinces and municipalities for disaster response.
Clauses 37 to 39 provide for regulations, the repeal of laws and the short title.
the South African Local Government Association; and national and provincial departments.
This memorandum outlines the proposed division of revenue between the three spheres of government, and the ï¬nancial implications to government are limited to the total transfers to provinces and local government as indicated in the Schedules to the Bill.
This Bill gives effect to section 214 of the Constitution.
6.1 The State Law Advisers and the National Treasury are of the opinion that this Bill must be dealt with in accordance with the procedure prescribed by section 76(1) of the Constitution, since it provides for legislation envisaged in Chapter 13 of the Constitution, and it includes provisions affecting the ï¬nancial interests of the provincial sphere of government, as contemplated in section 76(4)(b) of the Constitution.
Website ''Annexure W1'' to the 2011 Budget Review: Explanatory Memorandum to the Division of Revenue 56 2. Annexure W2: Frameworks for Conditional Grants to Provinces 99 3. Annexure W3: Frameworks for Conditional Grants to Municipalities 149 4. Annexure W4: Speciï¬c Purpose Allocations to Municipalities (Schedule 6): Recurrent Grants 177 5. Annexure W5: Infrastructure Grant Allocations to Municipalities (Schedules 4, 6 and 9) 200 6. Annexure W6: Allocations-In-Kind to Municipalities (Schedule 7) 243 7. Annexure W7: Incentives to Municipalities to meet Targets with regards to Priority Government Programmes (Schedule 8) 276 8. Annexure W8: Equitable Share and Total Allocations to Municipalities by National and Municipal Financial Years 288 9. Appendix W1: Equitable Share Allocations to Municipalities (Equitable Share Formula Allocations + RSC Levies Replacement + Special Contribution towards Councillor Remuneration) 300 10. Appendix W2: Breakdown of Equitable Share Allocations per Local Municipality per Service for District Municipalities authorised for Services 311 11. Appendix W3: Breakdown of MIG Allocations per Local Municipality for District Municipalities authorised for Services 323 12. Appendix W4: Breakdown of Regional Bulk Infrastructure Grant Allocations per Local Municipality per Project 334 13. Appendix W5: Breakdown of EPWP Social Sector Allocations per Provincial Department 340 14. Appendix W6: Incentives to Provinces and Municipalities to meet Targets with regards to Priority Government Programmes 342 15.
The allocation of resources to the three spheres of government is a critical step in the budget process, required before national government, nine provinces and 278 municipalities (after the 2011 municipal elections) can determine their own budgets. The allocation process takes into account the powers and functions assigned to the three spheres of government. The process for making this decision is at the heart of cooperative governance as envisaged in the Constitution.
To foster transparency and ensure smooth intergovernmental relations, section 214(1) of the Constitution requires that every year a Division of Revenue Act determine the equitable division of nationally raised revenue between the three spheres of government. The Intergovernmental Fiscal Relations Act (1997) prescribes the process for determining the equitable sharing and allocation of revenue raised nationally. Sections 9 and 10(4) of the act set out the consultation process to be followed with the Financial and Fiscal Commission (FFC), including the process of considering recommendations made with regard to the equitable division of nationally raised revenue.
This explanatory memorandum to the 2011 Division of Revenue Bill fulfils the requirement set out in section 10(5) of the Intergovernmental Fiscal Relations Act that requires the Division of Revenue Bill to be accompanied by an explanatory memorandum detailing how the bill takes account of the matters listed in sections 214(2)(a) to (j) of the Constitution, government's response to the recommendations of the FFC, and any assumptions and formulas used in arriving at the respective divisions among provinces and municipalities.
x Part 1 lists the factors that inform the division of resources between the three spheres of government.
x Part 2 describes the 2011 division of revenue between the three spheres of government.
x Part 3 sets out how the FFC's recommendations on the 2011 division of revenue have been taken into account. x Part 4 explains the formula and criteria for the division of the provincial equitable share and for conditional grants to provinces. x Part 5 sets out the formula and criteria for the division of the local government equitable share and conditional grants between municipalities. x Part 6 summarises issues that will form part of subsequent reviews of provincial and local government fiscal frameworks.
The Division of Revenue Bill and its underlying allocations are the culmination of extensive consultation between national, provincial and local government. The Budget Council deliberated on the matters discussed in this memorandum at several meetings during the year. The approach to local government allocations was discussed with organised local government at technical meetings with the South African Local Government Association (SALGA), culminating in a meeting of the Budget Forum (Budget Council plus SALGA) on 5 October 2010. An extended Cabinet meeting involving ministers, provincial premiers and the chairperson of SALGA was held on 13 October 2010, and the division of revenue was agreed for the next three years.
Section 214 of the Constitution requires that the annual Division of Revenue Act be enacted only after account is taken of factors in sub-sections (2)(a) to (j) of the Constitution. These include national interest, provision for debt, needs of national government and emergencies, the allocation of resources to provide basic services and meet developmental needs, fiscal capacity and efficiency of the provincial and local spheres, reduction of economic disparities, and promotion of stability and predictability. The constitutional principles taken into account in deciding on the division of revenue are briefly noted below.
The national interest is encapsulated by those governance goals that benefit the nation as a whole. The spending priorities for the medium-term expenditure framework (MTEF) are informed by the 12 priorities adopted at the Cabinet lekgotla held from 20 to 22 January 2010, which are derived from the medium-term strategic framework (MTSF). A detailed analysis of how these have been allocated in government budgets can be found in Chapter 4 of the 2010 Medium Term Budget Policy Statement and Chapter 8 of the 2011 Budget Review.
The resources shared among the three spheres of government include proceeds from national government borrowing used to fund spending by all spheres. National government provides for the resulting debt costs to protect the integrity and credit reputation of the country.
The Constitution assigns exclusive and concurrent powers and functions to each sphere of government. National government is exclusively responsible for functions that serve the national interest and are best centralised. National and provincial government have concurrent responsibility for a range of functions. Changes have been made to a number of national transfers to provincial and local government to improve their efficiency, effectiveness and alignment with national strategic objectives.
Provinces and municipalities are assigned key service delivery functions such as school education, health, social development, housing, roads, and provision of electricity, water and municipal infrastructure. They have significant autonomy to allocate resources to meet basic needs and respond to provincial and local priorities, while giving effect to nationally agreed priorities. The division of revenue provides equitable shares to provinces and local government. This year's division of revenue provides additional resources to provinces for the public-sector wage agreements of 2010, to address the occupation-specific dispensation (OSD) agreements in the health and education sectors, and to fund policies on HIV and Aids treatment, agricultural support programmes and infrastructure provision for education and roads. These additions, especially in the case of HIV and Aids treatment and prevention and education infrastructure, build on significant additions to baselines in previous budgets. In the 2010 division of revenue, government reinforced its commitment to free basic services at the municipal level through a substantial increase to the local government equitable share. The 2011 division of revenue protects these baselines, ensuring that municipalities are able to deal with the cost pressures of providing free basic services due to increased electricity charges.
The Constitution assigns the primary government revenue-raising power to the national sphere. Provinces have limited revenue-raising capacity relative to the resources required to deliver provincial functions that do not lend themselves to self-funding or cost recovery. Local governments finance most of their expenditure through property rates, user charges and fees. It is recognised, however, that rural municipalities raise significantly less revenue than larger urban and metropolitan municipalities. To compensate for this, provinces receive the largest share of nationally raised revenue, and local government a portion that is substantial and will continue to grow over the medium term. The provincial equitable share formula was reviewed in 2010 and the recommendations will be implemented in 2011. A new health component will be introduced and constantly improved to ensure that its objectives are achieved. A review of the local government equitable share is under way. Both reviews should lead to significant changes that result in more efficient and effective funding arrangements.
Developmental needs are encapsulated in the equitable share formulas for provincial and local government and in specific conditional grants. In particular, the various infrastructure grants and growing capital budgets aim to boost the economic and social development of provinces and municipalities. Developmental needs are accounted for at two levels: first, in the determination of the division between the three spheres, which explains the continued commitment to grow provincial and local government shares of nationally raised revenue, and second, in the determination of the division within each sphere, through the formulas used for dividing national transfers among municipalities and provinces.
Both the equitable share and infrastructure grant formulas are redistributive towards poorer provinces and municipalities. Government remains committed to investing in economic infrastructure (roads) and social infrastructure (schools, hospitals and clinics) to stimulate economic development and job creation, and address economic and social disparities.
While the Constitution confers autonomy on provincial governments and municipalities to determine priorities and allocate budgets, national government retains responsibility for policy development, national mandates and the monitoring of implementation for concurrent functions. New national mandates and priorities result in increased allocations to provincial and local government, in addition to their existing baseline allocations. The 2011 MTEF and division of revenue provides additional funding for OSD agreements in health and education and HIV and Aids prevention and treatment programmes. Resources have also been made available to address backlogs in education infrastructure.
Provincial and local government equitable share allocations are based on estimates of nationally raised revenues. These allocations are protected. In the event that nationally raised revenue falls short of the estimates, the equitable share will not be adjusted downwards. Allocations are assured (voted, legislated and guaranteed) for the first year and are transferred according to a payment schedule. To contribute to longer-term predictability and stability, forward estimates for a further two years are published alongside the annual proposal for appropriations. Changes in the forward estimates or revisions to the equitable share formulas are phased in to ensure minimal disruption.
Government has flexibility to respond to emergencies through a contingency reserve that provides a cushion for emergencies and unforeseeable events. The 2011 division of revenue introduces two new conditional grants to allow for the swift allocation and transfer of funds to provinces and municipalities affected by emergencies that could not be provided for through the budget or adjustment budget processes. Sections 16 and 25 of the Public Finance Management Act (PFMA) (1999) make specific provision in relation to allocation of funds to deal with emergency situations while section 30(2) deals with adjustment allocations in respect of unforeseeable and unavoidable expenditure. Section 29 of the Municipal Finance Management Act (MFMA) (2003) allows a municipal mayor to authorise unforeseeable and unavoidable expenditure in an emergency or extraordinary circumstances. The 2011 Division of Revenue Bill introduces special provisions for funding immediate responses to disasters through new disaster conditional grants to provinces and municipalities.
In preparation for the 2011 MTEF, all spheres of government have identified cost savings, eliminated non-essential expenditure and are focusing on high-priority programmes. While the economic outlook has improved in the past year, government had to raise debt significantly to ensure budget baselines were protected following the economic downturn of 2008/09. Increases to government expenditure are aimed at specific priorities; however these increases are moderate to ensure that debt costs remain within sustainable levels.
Excluding debt service costs, allocated expenditure to be shared between the three spheres amounts to R812.3 billion, R877.3 billion and R949 billion over each of the MTEF years. These allocations take into account government's spending priorities, the revenue-raising capacity and functional responsibilities of each sphere, and inputs from various intergovernmental forums and the recommendations of the FFC. The local and provincial equitable share formulas are designed and implemented in a manner that ensures desirable, stable and predictable revenue shares, and that economic and fiscal disparities are addressed.
x Enhancing the quality of basic education and skills development.
x Improving the quality of health care and infrastructure.
x Investing in new infrastructure and proper maintenance of social and economic infrastructure networks. x Acceleration of job creation.
Government has responded to the recession by maintaining social expenditure and continuing to invest in infrastructure, leading to improved access to basic services, expanded public transport and more schools and hospitals. These investments form part of a long-term commitment to the economy's growth.
Substantial additional resources are allocated to provinces to cover the 2010 wage agreements, the OSD agreements, the carry-through effect of previous agreements in education and health, infrastructure in education and roads, and HIV and Aids treatment.
Given the continuous large-scale rural-urban migration to South Africa's cities, infrastructure grants have been reorganised to develop the urban built environment and upgrade informal settlements.
Table W1.1 shows how the additional allocations are apportioned to the priority areas across the three spheres of government.
Table W1.2 presents medium-term macroeconomic forecasts for the 2011 Budget. It sets out the growth assumptions and fiscal policy targets on which the fiscal framework is based.
National budget framework Revenue Percentage of GDP Expenditure Percentage of GDP Main budget balance1Percentage of GDP 643.2 666.6 23.8% 25.0% 818.1 809.9 30.3% 30.4% -174.9 -143.4-6.5% -5.4% 721.7 729.9 24.3% 25.0% 888.3 888.9 29.9% 30.5% -166.6 -159.1-5.6% -5.5% 807.9 806.4 24.5% 25.2% 964.3 968.1 29.3% 30.2% -156.4 -161.7-4.7% -5.1% 904.3 25.6% 1 053.0 29.8% -148.7 -4.
A positive number reflects a surplus and a negative number a deficit.
Table W1.3 sets out the division of revenue for the 2011 MTEF, taking new policy priorities into account.
Debt-service cost 52 877 54 394 57 129 Non-interest expenditure 488 566 581 560 690 068 Percentage increase 16.9% 19.0% 18.7% 66 570 743 353 7.7% 76 579 90 808 104 036 812 345 877 324 948 992 9.3% 8.0% 8.
Percentage increase 15.2% 17.5% 17.5% 8.4% 9.8% 8.9% 8.
National departments 49.7% 49.7% 50.0% 48.3% 47.0% 47.2% 47.
Provinces 42.5% 42.4% 42.5% 43.5% 44.3% 43.9% 43.
Local government 7.9% 7.8% 7.5% 8.2% 8.7% 8.9% 8.
Regional Services Council (RSC) and Joint Services Board (JSB) levies for metros and district municipalities.
From 2009/10 the RSC levies replacement grant will only be allocated to district municipalities.
Table W1.4 shows how additional resources are divided among the three spheres of government. The new priorities and additional allocations are accommodated through shifting of savings towards priorities.
Allocated expenditure 20 741 29 573 43 796 1. Excludes shifting of savings towards priorities over the MTEF.
Table W1.5 sets out schedule 1 of the Division of Revenue Bill, which reflects the legal division of revenue between the three spheres. In this division, the national share includes all conditional grants to the other two spheres in line with section 214(1) of the Constitution, and the provincial and local government allocations reflect their equitable shares only.
National share includes conditional grants to provinces and local government, general fuel levy sharing with metropolitan municipalities, debt service cost and the contingency reserve.
The 2011 Budget Review sets out in detail how constitutional issues and government's priorities are taken into account in the 2011 division of revenue. It focuses on the economic and fiscal policy considerations, revenue issues, debt and financing considerations, and expenditure plans of government. This memorandum should be read with the 2011 Budget Review, as aspects of national, provincial and local government financing are discussed in some detail in Chapter 8 of the review.
Section 214 of the Constitution and section 9 of the Intergovernmental Fiscal Relations Act (1997) require the FFC to make recommendations in April every year, or soon thereafter, on the division of revenue for the coming budget. The FFC complied with this obligation by tabling its Submission for the Division of Revenue 2011/12 to Parliament in May 2010. This part of the explanatory memorandum complies with the Constitution and section 10 of the Intergovernmental Fiscal Relations Act by setting out how government has taken the FFC's recommendations into account when determining the division of revenue for the 2011 MTEF.
The 2011/12 recommendations cover four interrelated areas. The first chapter deals with the global economic crisis, fiscal frameworks and coping with vulnerabilities; the second chapter discusses options for social assistance reform during a period of fiscal stress; the third chapter focuses on an effective, efficient and transparent intergovernmental fiscal system and the fourth chapter discusses the intergovernmental fiscal issues in urban public transport.
The FFC recommends that in the short term, government should continue to strive for fiscal consolidation by limiting the growth in entitlement spending to successful programmes, and refocus expenditure on improved service quality. In particular, child support and old-age pension grants should be expanded, and the high access levels to education and health services achieved despite the global economic crisis must be maintained. Government should also reprioritise expenditure towards repair and maintenance by emphasising existing projects and initiating new ones.
Government agrees that the implications of the global economic crisis and reduced fiscal space necessitate fiscal consolidation. Government has refocused existing budgets towards government priorities and more efficient spending. The number of social grant beneficiaries has more than tripled between 2002/03 and 2010/11 and a committee of inquiry is in place to investigate more cost-effective beneficiary payment options for the South African Social Security Agency.
The majority of additions to baseline over the 2011 MTEF target health, education, roads and the eradication of informal settlements. These additions are on top of substantial increases in previous budgets and will enable provinces to increase the quality of health and education services through improved infrastructure, conditions of employment, and provision of medicines. Government is finalising asset registers as it implements the Government Immovable Asset Management Act (2007) to ensure that infrastructure assets are properly maintained.
The FFC recommends that government should introduce a block grant for education, health and social development over the medium to long term, to fund clearly defined and costed outcomes.
As part of the review of the provincial equitable share formula, government considered proposals made by the FFC in 2009, which were included in their recommendations on the 2010/11 division of revenue. These proposals dealt with challenges created by the design of the intergovernmental fiscal system and a number of issues related to the provincial equitable share formula. Government has not fully considered decentralising further fiscal powers to provinces. Thus, government agreed to separate the review of the provincial equitable share formula from the devolution of fiscal powers.
Government considered the proposal on block grants as part of the provincial equitable share review, and it has concluded that block grants are potentially unconstitutional.
Undertake independent cost effectiveness and quality reviews of education, health and the social wage in both the public and private sectors.
Government agrees that independent cost effectiveness and quality reviews should be undertaken. The Ministry of Performance Monitoring and Evaluation would perform such reviews in the period ahead.
The FFC recommends that during a period of fiscal stress, government should protect social assistance expenditure as far as possible during fiscal consolidation. Government should protect the relative simplicity of the social assistance system, especially when contemplating reform options. The FFC also recommends that government pilot conditional cash transfer and workfare programmes on a small scale and evaluate them to expand successful pilots, strengthen non-cash complementary social developmental services by emphasising quality improvements within defined resource limits, and avoid universal income grants.
Government supports these recommendations with the exception of the piloting of a workfare programme. Although exploring potential policy initiatives through pilot programmes has many benefits, giving cash benefits to individuals can be problematic. It will be extremely difficult for government to exclude people from the pilot and if it fails it will be complicated to withdraw support.
The FFC recommends that when introducing and terminating conditional grants, national departments must introduce a mandatory, systematic process for designing and planning individual conditional grants that covers incentive effects, administrative accountability arrangements and stipulates regular review periods and exit strategies of the grant. Government should also ensure there is an independent evaluation of the grant performance at entry, midterm and end of the grant.
Guidelines on how to introduce and terminate conditional grants are available and the recommendation that criteria for disbanding the grant should be identified upon introduction is welcomed. It will be beneficial in the long term to develop capacity within national and provincial departments, provincial treasuries and municipalities to perform independent evaluations of grant performance. However, the fiscal system should continue to be responsive to the needs of government. Government should have the flexibility of introducing and terminating conditional grants where there is a clear rationale to do so.
The FFC recommends that government should make the criteria for dividing grant allocations transparent.
The allocation criteria for grants are explained in the relevant conditional grant frameworks.
The FFC recommends that government continue to emphasise the importance of non-financial data reporting, linking outer-year allocations to independently evaluated performance information and gazette expected deliverables.
Government agrees and will continue to emphasise the importance of non-financial performance reporting. Performance audits at provincial level should bring about substantial improvements to the quality of performance information. Reforms are in place to develop proper reporting systems for financial reporting in municipalities, and once these are in place the focus will shift to non-financial reporting. Government seeks to improve alignment of budgets and measurable objectives through its budget reforms.
The FFC recommends that through incentive grants, national departments must make accounting for delivery a prerequisite for most conditional grants. They should encourage designing grants that explicitly promote innovation in sub-national governments and strengthen incentives for optimal service delivery.
Government supports this recommendation. However, the administrative ability in provincial and local government must be strengthened before incentives for innovation are likely to have the desired effect.
The budget allocation process must specifically follow the conditional grant frameworks and this should be monitored periodically through section 32 of the PFMA and section 71 of the MFMA.
Government agrees with the proposal and monitoring is taking place through section 32 of the PFMA and section 71 of the MFMA.
The FFC recommends that government adopt standard indicators or early warning systems to measure and detect fiscal stress in municipalities. In addition to those already prescribed, these indicators should be pre-conditions for instigating mandatory provincial interventions. Monthly budget statements should report on actual revenue per source and on the percentage of collected revenue to the total value of billed revenue.
Government should legislate ratios for revenue collection as one of the key performance areas against which to assess overall municipal performance. Collection and coverage ratios must be used as standard indicators to revenue collection performance assessment across municipalities.
Excessive levels of municipal debt must be reduced through constant taxpayer education and incentives to improve the quality of services in general. Local government should be able to issue garnishee orders and the judicial system should have dedicated courts to deal with outstanding municipal accounts until the debt is reduced to acceptable levels.
The FFC recommends that government should make a concerted effort to estimate the fiscal capacity and fiscal effort of municipalities to dispel the perception that certain municipalities will never be financially viable.
Municipalities should have broad revenue improvement programmes that focus on administrative streamlining as well as revenue and expenditure interventions, and efficiency-based interventions. These interventions should be specific to local economic circumstances so that the emphasis is appropriate.
Effective revenue management processes, good financial management and the provision of good quality services should underpin revenue improvement programmes. These should only be conducted when municipalities have maximised the collection of local and outstanding revenue sources and should be subject to empirical tests.
National government agrees that improving municipalities' management of their own revenue sources is an essential part of placing local government finances on a more sustainable base, while strengthening local accountability and service delivery. National government's estimates indicate that improving municipalities' management of their revenues has the potential to yield substantially greater returns than the additional funds local government is budgeted to receive through the local government equitable share and conditional grants over the 2011 MTEF.
National government supports the recommendation that each municipality should have a broad revenue improvement programme in place. It is for this reason that national government has emphasised the importance of fostering a culture of payment for local government services through various initiatives, and why National Treasury and the Department of Cooperative Governance and Traditional Affairs are working together to provide practical support to municipalities on initiatives to strengthen their own revenue policies, procedures and processes.
National government has an early warning system that monitors municipal finances. This system is anchored by the budget formats prescribed in terms of the municipal budget and reporting regulations, the associated funding compliance assessment (see MFMA Circular 42) and monthly financial reports required in terms of section 71 of the MFMA. This system has proved to be very effective at identifying fiscal stress in municipalities. The real challenge is finding people with the necessary skills and integrity to tackle the identified problems.
The new budget and reporting formats emphasise cash-flow budgeting and reporting, which lays the foundation for closely monitoring actual revenue collections against billed revenues. However, it is not practical to insist on one-to-one reporting of revenue collected against revenue billed - because of the way systems are set up, the manner in which payments are allocated to settle bills, and the impact that debt repayments have on current revenue numbers.
The relevant acts that govern revenue collection by municipalities place positive obligations on municipal councils and municipal managers to put policies, processes and systems in place to ensure sound management of the various own revenue sources. National government is progressively strengthening its ability to monitor compliance with this legislation. The primary challenge is to get municipalities to make it a priority and manage it effectively.
Legally, municipalities may apply to a court for a garnishee order to recover outstanding debts from a customer. However, this is a costly approach and is therefore not widely used. National government believes that at this stage there is far more to be gained from improving the accuracy and completeness of municipal billing systems, and putting in place proper customer relations capacity. Experience has shown that these yield far better results for debt collection, but the idea of creating municipal debt courts can be considered in the medium term.
The notion that certain municipalities will never be financially viable is a misrepresentation of both the design of the local government fiscal framework and the practical reality of local economies. The fiscal framework is intended to ensure an equitable distribution of resources between the rich and poor areas of the country - but it does not absolve municipalities of the responsibility to raise property rates and services charges for the non-poor living within their municipal boundaries. Information on municipal own revenues indicates that many smaller municipalities are failing to do so. National government is investigating the issue of developing measures of fiscal capacity - it is by no means a straightforward task given the impact that traditional land and different modes of service delivery have on many municipalities' rates bases and service revenues.
The FFC recommends that the institutional component and revenue-raising correction component are reformed, so that the institutional component assists poor municipalities and the step structure of the differentiated tax mechanism of the revenue-raising correction component is removed. The current method of using actual property rates and own revenues collected to calculate the correction is problematic as poor fiscal effort and reporting is used as a measure for additional funding, which could be seen as a contradiction of section 227(2) of the Constitution. The FFC recommends that this practice is replaced with alternative methods of revenue prediction.
Government agrees that changes are required to improve the way the local government equitable share is allocated between municipalities. To assess whether the local government equitable share formula results in an equitable division among individual municipalities (horizontal division) as stipulated in sections 214 and 227 of the Constitution, the formula should be analysed as a whole - rather than subcomponents in isolation. Several adjustments are made to the local government equitable share formula this year and further changes will be made after a full review of the formula in 2011 (discussed in part six of this annexure).
The institutional component has been changed in 2011, adjusting the amount allocated to municipalities in terms of their poverty rate. This means that poorer municipalities will receive increased allocations. Details of this change are set out in part five of this annexure.
The revenue-raising correction component was introduced in 2005 following the FFC's recommendation that equitable share allocations should be adjusted to take account of the ability of municipalities to raise their own revenues. The original model used to predict municipal revenue-raising capacity became distorted over time and was replaced in 2008 with a simple model that uses reported revenue raised in previous years to predict future revenue-raising capacity. Although the Municipal Property Rates Act (2004) has been amended to take effect by not later than 1 July 2011, stipulating that municipalities must implement valuation rolls, the system is not yet at a stage where property rates revenue estimates can inform municipal equitable share allocations. In the absence of accurate property valuation rolls for all municipalities and with no official data on economic activity at municipal level, it is very difficult to construct a model that would provide fair estimates of municipalities' capacity to raise their own revenues.
During 2010, National Treasury has worked together with officials from the FFC, SALGA and the Department of Cooperative Governance and Traditional Affairs to try to develop an alternative model. Due to the lack of adequate data, these attempts did not succeed in producing a model that could provide plausible predictions of the revenue-raising capacity of all municipalities. Using these models in the formula would have produced large distortions in allocations to municipalities and would risk contravening section 214(2)(i) of the Constitution that requires that allocations "take into account the desirability of stable and predictable allocations of revenue shares." The current method used for predicting municipalities' capacity to raise own revenues is therefore the fairest and most accurate method available at present and cannot be changed this year.
Government agrees to the recommendation to remove the stepped structure from the revenue-raising correction and a smooth curve has been used instead to calculate the differentiated "revenue correction" rate applied to each municipality. As outlined in part five of this annexure, the value of the revenueraising correction has also been reduced in this MTEF to compensate for demographic changes not reflected in the formula, due to the use of 2001 Census data. The total value of the revenue-raising correction component of the formula will be reduced, giving it less of an impact on the allocations to individual municipalities.
The FFC does not support the blanket regionalisation approach proposed in the 17th amendment to the Constitution. The electricity distribution industry (EDI) restructuring process should consider an approach that allows for differences in performance.
The FFC made a number of recommendations with respect to the EDI restructuring and establishment of regional electricity distributors.
The FFC recommendations were proposed before government resolved not to continue with the restructuring and establishment of the regional electricity distributors. The FFC's recommendations are therefore moot.
The FFC recommends that the Passenger Rail Agency of South Africa (PRASA) and cities should ensure that investment projects on rail and roads infrastructure are aligned and coordinated for optimal use of resources.
The regulation function for public transport is being developed in municipalities to support the alignment and coordination of investment and planning for public transport services. Changes to funding flows to improve coordination include the transfer of the public transport operations grant in the 2011 Division of Revenue Act. Talks are also under way with the national Department of Transport to discuss the transfer of rail operational subsidies to cities, rather than directly to PRASA, to ensure integrated network design and management.
The FFC recommends that government make an immediate decision on the funding for the Municipal Land Transport Fund, as delays could negatively affect the financial position of affected municipalities.
The National Land Transport Act (NLTA) (2009) requires the creation of a municipal land transport fund in each municipality. Municipalities can deposit grants from national and provincial governments into the Municipal Land Transport Fund, as well as user charges from transport services and revenue from local taxes. If municipalities need to raise additional local taxes for the fund, they can apply to the Minister of Finance to authorise such a tax. To date no such request has been received.
The FFC recommends that PRASA should ensure that funding for investment on the commuter rail sector prioritises corridors already identified as A and B in the National Rail Plan.
Government supports the proposal.
The FFC recommends a comprehensive review conducted by relevant stakeholders into the costs associated with current urban form in a selection of major South African cities. This review will improve the efficiency of land-use patterns. The current mechanisms and basis for distributing transport subsidies should be reviewed by the Department of Transport, National Treasury and other key stakeholders to promote the efficiency of urban transport and land-use systems, taking equity and distributional effects on households into account.
Government recognises the need to review fiscal and financing arrangements for large cities, particularly in light of recent policy development resulting in the transfer of public transport, human settlements and land management functions to cities. This requires the development of new fiscal instruments, monitoring and capacity-support arrangements. The introduction of the new urban settlements development grant to address informal settlements and accelerate urban land release should help to improve the efficiency of land-use patterns. The current system of transport subsidies is not linked to ridership levels in cities, nor does it cover the full cost of ridership, thus placing ridership risks with the cities. Government will consider possible further changes to the financing of urban housing and public transport. A key challenge is to improve service delivery while breaking down the apartheid settlement patterns that continue to marginalise the poor in cities.
Cities will require capacity support to take on these new roles. Government looks forward to FFC analysis and recommendations on key fiscal issues, options and risks regarding this issue.
The FFC recommends that government examines the potential financial implications of the NLTA on municipalities, and identifies dedicated funding streams for public transport.
Funding has been allocated to the Department of Transport for the implementation of the NLTA over the MTEF. National Treasury will review funding options to support the creation of regulatory capacity at local level. Funding also needs to be shifted from provinces to local government, as the act transfers the function from provinces to municipalities.
The FFC recommends that the Department of Transport should regularly update the South African National Household Travel Survey.
Government supports the recommendation. Funding has been allocated to the Department of Transport to begin updating the National Household Travel Survey in 2011/12.
Sections 214 and 227 of the Constitution require that an equitable share of nationally raised revenue be allocated to provincial government to enable it to provide basic services and perform the other functions allocated to this sphere.
An amount of R40.2 billion is added to the provincial baseline over the next three years. The provincial equitable share baselines are revised upwards by R30.1 billion and conditional grants are increased by R10.1 billion. National transfers to provinces increase from R323.1 billion in 2010/11 to R357.9 billion in 2011/12.
7.8 per cent to R404.3 billion in 2013/14.
Table W1.6 below sets out the total transfers to provinces for the 2011/12 financial year, which amounts to R357.9 billion, with R288.5 billion allocated to the provincial equitable share and R69.4 billion to conditional grants, which includes an unallocated R305 million for the provincial disaster grant, but does not include an indirect transfer to provinces of R700 million for the school infrastructure backlogs grant.
At 80.6 per cent of national transfers to provinces in 2011/12, the equitable share constitutes the main source of revenue for meeting provincial expenditure responsibilities. The proposed revisions of R7.8 billion, R10.3 billion, and R12 billion bring the equitable share allocations to R288.5 billion in 2011/12, R305.7 billion in 2012/13, and R323.6 billion in 2013/14. These revisions result in the provincial equitable shares increasing 8.8 per cent between 2010/11 and 2011/12, and 6.9 per cent over the MTEF in nominal terms.
The revisions to baseline equitable share allocations provide for personnel and policy adjustments. The personnel adjustments provide for the 2010 wage agreements and additional resources to provinces to deal with outstanding OSD costs in education and new and outstanding OSD costs in health. Policy adjustments seek to improve access to health services and to help provinces stabilise their health systems and prepare for the introduction of national health insurance.
Section 227 of the Constitution entitles provinces to an equitable share of nationally raised revenue to enable them to provide basic services and perform their functions. Section 214 of the Constitution requires that before providing for the equitable division of revenue through the Division of Revenue Act, government must consider a number of factors listed in Section 214(2)(a) to (j), which provide a framework to guide revisions to the provincial equitable share formula.
In 2004 it was decided that national government should take responsibility for social assistance. These funds were taken out of the provincial equitable share and the formula was reviewed and some minor changes were made.
An objective redistributive formula is used to divide the equitable share among provinces. In 2006 the Budget Council called for a comprehensive review of the provincial equitable share formula to address concerns that it was not flexible enough to deal with expenditure responsibilities driving provincial budgets. The review was conducted in two phases; the first phase was concluded by the FFC in 2009. The FFC identified the policy imperatives that should underpin the review and proposed options for reform of the provincial fiscal powers and the provincial fiscal framework. National Treasury lead the second phase of the review and the recommendations were presented to Budget Council on 4 October 2010. Government responds to the FFC's recommendations relating to the formula and the provincial division of revenue, but has not considered FFC's proposed changes to the fiscal powers of provinces.
Based on the review, a number of reforms will be introduced to the provincial equitable share formula for the 2011 Budget. The structure of the provincial equitable share (six components) remains unchanged. A new health component will be introduced and the weights of the education, health and basic components will be revised. The unconditional nature of the equitable share formula, the oversight and support responsibilities of national departments in charge of concurrent functions and the discretion of provincial governments have not been affected by these changes.
The formula consists of six components. The components' respective weights should be considered together, along with the interrelated functions that provinces perform, taking into account the autonomy provinces have regarding the way in which they address government priorities.
Of the six components, only the institutional component and the economic activity component, which account for 6 per cent of the provincial equitable share, are not informed by demographic data. Therefore 94 per cent of the equitable share is influenced by population movements and the characteristics of provincial populations.
The education component encourages enrolment at schools, but due to the weighting of the subcomponents, penalises provinces that allow retention and repetition. The value of any province's health component, even in its new form, will not change significantly if the demand for health services in the province falls. This creates an incentive for provinces to manage their overall health care and social programmes well and improve the health of their population, reducing the burden on the health system and freeing up resources for other purposes.
The poverty component ensures the formula is redistributive and the economic component creates an incentive for provinces to create favourable economic conditions. The economic component is weighted according to the limited economic functions provinces are required to perform. The fixed institutional component ensures all provinces receive administrative funding, and due to the fixed value of this component, provinces that are administratively efficient are able to free up resources for service delivery.
The provincial equitable share is agreed to during the vertical division of revenue and the amount allocated to it is an indication of the value placed on the functions performed by provinces relative to the responsibilities of the two other spheres of government. The role of the formula is to ensure that each province receives its share of the provincial equitable share.
The provincial equitable share formula, as a blunt instrument, facilitates robust democratic engagement and provincial priority setting, which is consistent with the principles of the intergovernmental fiscal system. Resource allocation and budgeting decisions are made at the provincial level. Thus, poor resource and budgeting decisions cannot be attributed to the formula.
The intergovernmental fiscal system and implementation of concurrent functions can be improved through the strengthening of two key institutions. First, national departments responsible for concurrent functions must ensure that the policy standards for their sector are in place and legislated, so that provinces can align their activities with these standards. By requiring compliance with norms and standards, national departments allow provinces to choose how to achieve compliance, which encourages efficiency and innovation. Second, the capacity of provincial treasuries needs to be strengthened so that the cost implications of policies can be fully understood and monitored. A capacitated provincial treasury enables the provincial executive to prepare and defend a balanced budget that addresses government priorities.
A number of new components to the formula were considered, but all options were constrained by the availability of regularly updated official demographic data sets.
A new social development component was considered, but as the key dependent variable was poverty, it was agreed that it would be more efficient to simply use Statistics South Africa (StatsSA) poverty estimates, used in the existing poverty component. As the poverty component already exists it was decided that a social development component was unnecessary. A number of possibilities were considered for the education formula, particularly the costed norms approach often promoted by the FFC. However, this approach is too subjective, and as the incentives created by the existing component are supported it was left unchanged.
Since the last review of the provincial equitable share formula, the expenditure shares of education and health have changed. Health and education are still the two largest expenditure items on provincial budgets. Total enrolment has stabilised and is starting to fall off, however the pressure on health budgets continues and the relative share of these sectors has changed. The average expenditure on health and education as a proportion of total provincial expenditure for the period 2007/08 to 2009/10 was used to estimate new weights for these components.
The health sector proposed a new formula for the health component and it is discussed in detail below.
The formula is reviewed and updated with new data annually. For the 2011 MTEF, the equitable share formula has been updated with data from the 2010 mid-year population estimates, 2010 Education School Realities and output data from the health sectors. The risk-adjusted capitation index is based on data from the Risk Equalisation Fund, the 2008 gross domestic product by region (GDP-R) and the 2005 Income and Expenditure Survey. The impact of these updates on the provincial equitable shares is to be phased-in over three years (2011/12 to 2013/14).
Because the formula is largely population driven, the allocations it generates capture shifts in population across provinces, leading to changes in the relative demand for public services.
To mitigate the impact of the new data updates on provincial equitable shares, and the new health component, the new shares are phased in over the MTEF. Table W1.7 shows the revised weighted provincial equitable shares for the period 2010/11 to 2013/14.
The formula, shown in Table W1.8 below, consists of six components that capture the relative demand for services between provinces and take into account specific provincial circumstances. The components of the formula are neither indicative budgets nor guidelines as to how much should be spent on those functions in each province or by provinces collectively. Rather, the education and health components are weighted broadly in line with historical expenditure patterns to provide an indication of relative need. Provincial executive councils have discretion regarding the determination of departmental allocations for each function, taking into account the priorities that underpin the division of revenue.
Eastern Cape 16.7% 14.1% 13.5% 16.7% 7.5% 11.1% 15.
Free State 5.6% 5.9% 5.7% 5.9% 5.2% 11.1% 6.
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.
For the 2011 Budget, the weight of the education component changes from 51 per cent to 48 per cent, the weight of the health component changes from 26 per cent to 27 per cent and the basic component changes from 14 per cent to 16 per cent. The new weights for the education and health components are aligned with their expenditure shares, excluding expenditure on conditional grants over the past three years. The basic share is a residual component, changing to capture the balance in the changes mentioned above.
x An education share (48 per cent) based on the size of the school-age population (ages 5-17) and the number of learners (Grade R to 12) enrolled in public ordinary schools.
x A health share (27 per cent) based on a combination of risk-adjusted capitation index for the population, which takes into account the health risks associated with the demographic profile of the population and the relative share of case loads in hospitals. The risk-adjusted capitation is given a 25 per cent weighting and the case load (output component) is given a 75 per cent weighting.
x A basic share (16 per cent) derived from each province's share of the national population. x An institutional component (5 per cent) divided equally between the provinces. x A poverty component (3 per cent) reinforcing the redistributive bias of the formula. x An economic output component (1 per cent) based on GDP-R data.
The education component is intended to enable provinces to fund school education, which amounts to about 90 per cent of provincial education spending. The formula uses school-age population (ages 5-17), based on Census 2001, and actual enrolment data drawn from the 2010 Education School Realities to reflect relative demand for education, with each element assigned a weight of 50 per cent. Table W1.9 shows the impact data updates on the education component shares.
Eastern Cape 2 151 992 2 076 400 2 052 386 -24 014 16.8% 16.7% -0.
Free State 760 486 656 754 654 704 -2 050 5.6% 5.6% -0.
The previous health component was based on population with medical aid, using the 2009 General Household Survey. Mid-year population estimates are used to update the subcomponent "people without medical aid." People without medical aid were weighted four times as much as people with medical aid.
Government has adopted a new health component that will be used in the 2011 division of revenue. This component combines a risk-adjusted capitation index based on the Risk Equalisation Fund (REF) and output data from public hospitals to estimate each province's share of the health component. These two methods work together to balance needs (risk-adjusted capitation) and demands (output component).
Cost curves have been developed from the REF using data on consumption of health services in the private sector. These curves are based on health services used by people on medical aid and disaggregated by age and gender. For the purposes of the health formula, these curves have been weighted for HIV and Aids and pregnancy. The resulting curves are used to estimate an age- and genderadjusted weighted population for each district and province. The risk-adjusted capitation is estimated using demographic data of the non-insured population in each district and province drawn from the basic population estimates in the General Household Survey (2009). In the absence of data on health consumption patterns in the public sector, the health formula has had to rely on REF data.
Output data or workload data (patient-day equivalent) has been provided by the District Health Information System (DHIS) for 2007/08 to 2009/10. Hospitals are divided by level of care, based on classifications used in the DHIS. A normative estimate of the care mix per hospital level has been developed, and average unit costs for this mix of care have been formulated, so that the relative cost of services provided at the different levels can be estimated. The estimated level of care is based on a modified version of the National Planning Framework's bed mix by hospital and standard bed-topopulation ratios. This approach is normative to deal with the various types of hospitals in provinces.
The unit costs used are derived from a combination of actual data (BAS and DHIS) and previous information comparing normative costs for different hospital types. Each patient-day equivalent is multiplied by a normative costing to estimate a normative health budget per district and aggregated to the provincial level. This is used to estimate a total health budget and each province's share of the output component is based on their share of the total normative budget.
Table W1.10 compares the weighted shares for the health component using the old formula with the new formula. The first column shows the weighted shares in 2010 and what they would be in 2011 using the updated General Household Survey population estimates. The first two columns on the left show the weighted share for 2010 and what the shares would be in 2011 with data updates if the health formula was not changed. The weighted share 2011 column is estimated by weighting the risk-adjusted component (75 per cent) and the output component (25 per cent). These weights will be reviewed as more data becomes available.
Eastern Cape 14.0% 14.1% 14.1% 0.
Free State 5.9% 5.6% 5.9% 0.
Northern Cape 2.4% 2.2% 2.3% 0.
North West 6.7% 6.5% 7.0% 0.
Western Cape 10.1% 9.6% 10.5% 0.
Total 100.0% 100.0% 100.
The poverty component introduces a redistributive element within the formula and is assigned a weight of 3 per cent. The poor population consists of persons who fall in quintiles 1 and 2 based on the 2005 Income and Expenditure Survey. Each province's share is then expressed as the percentage of the poor population residing in that province, where the population figure is drawn from the 2010 mid-year population estimates. Table W1.11 shows the poverty quintiles of the Income and Expenditure Survey, basic component value and the weighted share of the poverty component per province.
Total 49 321 19 809 100.0% 49 991 20 087 100.
The economic activity component is a proxy for provincial tax capacity and is assigned a weight of 1 per cent. For the 2011 MTEF, 2008 GDP-R data is used. Table W1.12 shows the impact of the revised weighted shares of the economic activity component. The right-hand column shows changes as a result of relative growth of provincial contributions to GDP.
Total 1 999 087 100.0% 2 283 822 100.
The institutional component recognises that some costs associated with running a provincial government and providing services are not directly related to the size of a province's population. It is therefore distributed equally between provinces. It constitutes 5 per cent of the total equitable share, of which each province receives 11.1 per cent.
The basic component is derived from the proportion of each province's share of the national population. Following the review of the provincial equitable share formula, the weight of this component increases from 14 per cent to 16 per cent to balance the total change in weights for the education and health components. For the 2011 MTEF, population data are drawn from the 2010 mid-year population estimates. Table W1.13 shows the impact of the revised weighted shares of the basic component.
Total 49 321 49 991 671 1.4% 100.0% 100.
There are four types of provincial conditional grants. Schedule 4 sets out general grants that supplement various programmes partly funded by provinces, such as infrastructure and central hospitals. Transfer and spending accountability arrangements differ, as more than one national or provincial department may be responsible for different outputs expected from the grant. Schedule 5 grants fund-specific responsibilities for both the transferring and receiving of provincial accounting officers. A schedule 8 grant, introduced in 2009/10, is intended to provide provinces (and municipalities) with an incentive to meet or exceed prescribed targets. A schedule 9 grant, introduced in 2011/12, provides for the swift allocation and transfer of funds to a province to assist it in dealing with a disaster.
The 2011 MTEF introduces two new conditional grants: the school infrastructure backlogs grant and the provincial disaster grant. The school infrastructure backlogs grant is a short-term grant introduced to deal with the backlog in inappropriate structures and access to basic services in education. To improve alignment of provincial infrastructure transfers with sector needs, the infrastructure grant to provinces has been restructured. The portion of the grant that was earmarked for health is now allocated to the new health infrastructure grant. The portion that was earmarked for roads is now put into the provincial roads maintenance grant, which will be administered by the Department of Transport. The portion of the grant earmarked for education is now in the new education infrastructure grant.
Table W1.14 shows the revisions to provincial conditional grants, which provide for technical, policy and inflation adjustments. Including additions funded from savings and after accounting for shifts from provincial conditional grants to municipal grants, revisions to conditional grant baseline allocations total R2.2 billion, R3.4 billion and R5.9 billion over the MTEF, and bring the new conditional grant baselines to R69.4 billion in 2011/12, R74.7 billion in 2012/13 and R80.6 billion in 2013/14. This excludes the school infrastructure backlogs grant, which is an indirect transfer.
Indirect transfers Basic Education School infrastructure backlogs 700 700 700 2 315 2 315 2 315 5 189 5 189 5 189 8 2048 204 8 204 1. Some national shifts and savings are not recorded in provincial conditional grant baselines.
Table W1.15 provides a summary of conditional grants by sector for the 2011 MTEF. More detailed information, including the framework and formula for each grant, is provided in Annexure W2 of the 2011 Division of Revenue Bill. The frameworks provide the conditions for each grant, the outputs expected, the allocation criteria used for dividing each grant between provinces, a summary of the audit outcome in 2009/10 and any other material issues to be addressed.
The comprehensive agricultural support programme aims to provide support for newly established and emerging farmers. Included in this grant is the extension recovery programme, which focuses on improving extension services through training programmes and providing equipment for extension officers. The grant also targets farm infrastructure and provides support for dipping, fencing and rehabilitation of viable irrigation schemes. An amount of R400 million is added to this grant over the MTEF.
The land care programme grant: poverty relief and infrastructure development aims to increase productivity and the sustainable use of natural resources. Provinces are encouraged to use this grant to create jobs through the expanded public works programme. An amount of R282 million is allocated over the medium term.
The Ilima/Letsema projects grant is intended to boost food production. The grant is aimed at assisting previously disadvantaged South African farming communities to achieve an increase in agricultural production and receives R1.3 billion over the MTEF.
The community library services grant is administered by the Department of Arts and Culture. The purpose of the grant is to enable South Africans to gain access to knowledge and information that will improve their socioeconomic situation. The grant is allocated to the relevant provincial department and either administered by that department or through a service-level agreement with municipalities. This grant is allocated R1.7 billion over the MTEF.
The Department of Basic Education administers the national school nutrition programme grant, the Dinaledi schools grant, the technical secondary schools recapitalisation grant and the HIV and AIDS (life skills education) grant. The new school infrastructure backlogs grant and the education infrastructure grant will be administered by the department over the 2011 MTEF.
The national department will administer the school infrastructure backlogs grant - a grant-in-kind for provinces to ensure a national, coordinated and high-impact approach to eradicating backlogs in inappropriate structures and access to basic services at schools. The grant has been allocated R8.2 billion over the MTEF during which all backlogs will be eradicated and the grant will cease to exist at the end of this period.
The new education infrastructure grant is the portion of the infrastructure grant to provinces that was earmarked for education, and has been allocated R17.6 billion over the MTEF. The best-practice planning principles established through the infrastructure grant to provinces will continue to be implemented through this grant.
The Department of Basic Education will coordinate the implementation of these infrastructure grants to ensure provinces manage their entire education asset stock efficiently and effectively. Key to the success of these grants is the institutionalisation of best-practice infrastructure procurement practices that lead to the packaging of many small- and medium-sized infrastructure projects into single projects, which are delivered through a single contracting process.
The national school nutrition programme seeks to improve nutrition of poor school children, enhance active learning capacity and improve attendance in schools. An amount of R14.7 billion is allocated to this grant over the MTEF.
The technical secondary schools recapitalisation grant provides for equipment and facilities in technical high schools. This grant came into effect in 2010/11 and R632 million is allocated to it over the MTEF.
The Dinaledi schools grant starts in 2011/12. The grant will support Dinaledi schools to improve teaching in mathematics and sciences. The grant is allocated R276 million over the MTEF.
The HIV and Aids (life skills education) grant provides for life skills training, sexuality and HIV and Aids education in primary and secondary schools and is fully integrated into the school system, with learner and teacher support material provided for grades 1 to 9. This grant is allocated R629 million over the MTEF.
The new conditional provincial disaster grant is introduced in the 2011 MTEF. This grant will be administered by the National Disaster Management Centre in the Department of Cooperative Governance and Traditional Affairs as an unallocated grant to provincial government. A new schedule and clauses have been inserted into the Division of Revenue Act to create special provisions for this grant, enabling the National Disaster Management Centre to disburse disaster response funds immediately after a disaster is declared, without the need for the transfers to first be gazetted. Over the MTEF, R675 million is available for disbursement through this grant.
The national tertiary services grant aims to provide strategic funding to enable provinces to plan, modernise, and transform tertiary hospital service delivery, in line with national policy objectives. The grant operates in 26 hospitals across the nine provinces, concentrated in urban Gauteng and the Western Cape. Consequently, the Western Cape and Gauteng receive the largest shares of the grant as they provide the largest proportion of these high-level, sophisticated services for the benefit of the health sector countrywide. The grant has been increased by R1.5 billion over the MTEF to provide for OSD agreements for doctors and implementation of norms and standards in hospitals.
The health portion of the infrastructure grant to provinces will be transferred through the new health infrastructure conditional grant. The capacity-building programmes that supported the infrastructure grant to provinces will continue and the national department will support provinces to implement bestpractice planning and project implementation processes through this grant, which has been allocated R5.4 billion over the MTEF.
The hospital revitalisation grant plays a key role in the large-scale transformation and modernisation of infrastructure and equipment in hospitals. This grant remains separate to the health infrastructure grant to enable the national Department of Health to manage projects funded through this grant closely. Taking into account revisions to the baseline of this grant, R12.5 billion is allocated over the MTEF. During 2011/12, work will begin on merging the health infrastructure grant and the hospital revitalisation grant into a single consolidated source of infrastructure funding for health.
The health professions training and development grant funds the training of health professionals, and the development and recruitment of medical specialists. It enables the shifting of teaching activities from central to regional and district hospitals. This grant is allocated R6.2 billion over the medium term.
The comprehensive HIV and Aids grant enables the health sector to develop a specific response to HIV and Aids. In addition to prevention programmes, the grant supports specific interventions that include voluntary counselling and testing, prevention of mother-to-child transmission, post-exposure prophylaxis and home-based care. In addition to substantial increases to this grant over the 2010 MTEF and additions to the provincial equitable share over the 2011 MTEF for HIV and Aids programmes, R1.5 billion is added to this grant over the 2011 MTEF to fund the higher-than-expected demand for treatment and prevention programmes. The grant is allocated R26.9 billion over the MTEF.
The forensic pathology services grant assists with the transfer of medico-legal mortuaries from the South African Police Service to the health sector and supports the provision of comprehensive forensic pathology services for the criminal justice system. This grant will be phased into the provincial equitable share from 2012/13 and is allocated R590 million in 2011/12.
The further education and training colleges grant was introduced in 2010/11 to protect spending on these colleges by provinces while the legislative processes required to shift this function to national government are completed. An amount of R1.8 billion is added to this grant over the MTEF to cover the cost of wage agreements, carry-through effects of OSD agreements and to provide for increased enrolment.
The human settlements development grant facilitates the establishment of habitable, stable and sustainable human settlements in which all citizens have access to social and economic amenities. From 2011/12 the portion of this grant that should go to cities for internal infrastructure to houses will be taken out of the grant and added to the urban settlements development grant, formerly the municipal infrastructure cities grant. The baseline of the human settlements development grant has accordingly been revised to R47 billion over the MTEF. As more municipalities with large urban centres are able to take on these responsibilities, they will join the urban settlements development grant and their portion of the human settlements development grant will be transferred. This should accelerate the eradication and formalisation of informal settlements. In cases where municipalities are accredited in terms of the Housing Act (1997), the municipalities will receive the grant directly from national government.
The devolution of property rate funds grant ensures that provinces take over the responsibility of paying property rates and municipal charges on properties that were administered by national government on their behalf. An amount of R2.2 billion is added to this grant over the MTEF, as more information about property ownerships and municipal rates has become available.
The expanded public works programme incentive grant for provinces provides incentives to provinces to increase spending on labour-intensive programmes. It is awarded to provinces based on the number of work opportunities they create through specific programmes. The baseline of this grant has been revised to provide for the social sector expanded public works programme incentive grant for provinces and is in line with provincial department's capacity to perform. Over the MTEF, R994 million is allocated to this grant. In the 2010 Budget, the Department of Public Works introduced a subsidy grant: the expanded public works programme for the social sector. That grant has been restructured into an incentive grant for the social sector to increase employment in non-profit organisations working in this sector and to improve the reach and quality of their services. The grant has been allocated R728 million over the MTEF.
The Department of Transport is allocated R5.3 million in 2011/12, through the gautrain rapid rail link grant, as a final contribution to the construction of the Gautrain Rapid Rail Link to cover the cost of any foreign exchange losses. This is the last year of this grant.
The public transport operations grant subsidises commuter bus services. The payment of bus subsidies to operators was previously funded on an agency arrangement between national and provincial government, and this grant enables government to take greater responsibility in ensuring contractual obligations are met. This grant will amount to R13.1 billion over the MTEF.
The portion of the infrastructure grant to provinces earmarked for provincial roads has been allocated to the provincial roads maintenance grant, which comes into effect in 2011/12. An amount of R3.4 billion is added to the earmarked portions from the infrastructure grant to provinces over the MTEF to enable provinces to expand their maintenance activities and to cover the cost of rehabilitation work created by coal haulage in Mpumalanga and Gauteng. The provincial roads maintenance grant will require provinces to follow best-planning practices according to road asset management systems and to keep these systems updated regularly. The grant has been allocated R22.3 billion over the MTEF.
The Department of Sports and Recreation administers the mass sport and recreation participation programme grant to encourage mass sports participation within communities and schools through selected activities. This grant is allocated R1.4 billion over the MTEF.
A number of changes are made to the fiscal framework and allocations to local government this year. Revisions have been made to conditional grants to differentiate between and better respond to the needs of rural and urban municipalities. The formula used to allocate the equitable share to municipalities has also been adjusted to direct more funds towards poorer municipalities. These changes will be built on after a review of the local government fiscal framework to be conducted during 2011.
This section outlines what transfers are made to local government and how these funds are distributed between municipalities. Funds raised by national government are transferred to municipalities through conditional and unconditional grants. These funds help municipalities to meet their constitutional mandate to deliver basic services and meet the public service needs of all their residents, while promoting local economic development. National transfers to municipalities are published to enable them to plan fully for their coming 2011 budgets, and to promote better accountability and transparency by ensuring that all national allocations are included in municipal budgets.
The 2011 MTEF provides for an additional R1.2 billion for the local government equitable share over the MTEF, which results in a growth for unconditional allocations to municipalities over the period, from R30.6 billion in 2010/11 to R40 billion in 2013/14, at an average annual rate of 9.4 per cent. This growth follows several years of significant increases that saw the local government equitable share grow 971 per cent in the decade between 2001/02 and 2011/12 and more than double the proportion of the total national budget it accounts for - growing by an annual average rate of 30.1 per cent. This growth rate could not be sustained indefinitely and will level off over the MTEF. Changes to the local government equitable share in this budget are focused on adjustments to improve the allocative efficiency of the formula. Including additions funded from savings, an amount of R7.6 billion is added to direct transfers and R952 million is added to indirect transfers over the MTEF.
The primary role of the local government equitable share is to distribute local government's share of nationally raised revenue, supplementing municipal own revenues, to assist municipalities in providing basic services to poor households.
Local government's share of nationally raised revenue is allocated between municipalities using a formula that takes account of the different demographics and service levels in municipalities. The equitable share formula ensures that each municipality receives a share that allows it to meet its basic service obligations, taking account of both the operational costs of providing those services and administrative and governance costs incurred in running a municipality. Allocations are corrected to account for the varying ability of municipalities to raise their own revenues.
Government recognises that the current equitable share formula could be improved on and intends to introduce a new equitable share formula for local government after a thorough review of the local government fiscal framework over the medium term (more details on this review are provided in part six of this annexure). However, it is likely that this new formula will only be introduced after the data from the 2011 Census is made available, and it may only affect allocations in 2014/15. Several adjustments have been made to the current formula to ensure that some of the flaws are addressed over the MTEF. In particular, adjustments to the formula are made to ensure that a greater proportion of funds are allocated to municipalities in the poorest areas of the country to improve service delivery, and changes are made to the basic services, institutional and revenue-raising capacity correction components of the formula.
To ensure stability in municipal allocations, municipalities are guaranteed to receive at least 90 per cent of the indicative allocation for 2011/12 published in the 2010 Division of Revenue Act and 100 per cent of their 2010/11 allocation. The majority of municipalities (and all local municipalities), poor municipalities in particular, will receive more than their guaranteed amounts.
The adjustments to the formula are described in detail in the subsections that follow. Their net effect is to increase the equitable share allocations to the 70 poorest municipalities by an average of 6.7 per cent and to the 21 district municipalities that provide water and sanitation services by an average of 5 per cent. These increases are in addition to the increases in funds added to the local government equitable share, which benefits all municipalities.
The purpose of this component is to assist municipalities in providing basic services to poor households and with meeting municipal health service needs for all. For each subsidised basic service there are two levels of support: a full subsidy for poor households that are connected to municipal services, and a partial subsidy for poor households that are not yet connected to municipal networks. In the past, the allocation for un-serviced households was set at a third of the cost of the subsidy to serviced households. In the 2011 MTEF this has been increased to 45 per cent of the value of subsidy to serviced households. This increase acknowledges that progress has been made in connecting more poor households to services, increasing the service costs to municipalities. It is not possible to adjust the number of serviced households accurately until the next census results are released, so a general increase to the value of allocations against un-serviced households has been made to help cover these additional costs. This has a significant impact on municipalities in the poorest parts of the country, as they tend to have the highest service backlogs.
x Supporting poor households earning less than R800 per month in 2001 prices. x Distinguishing between poor households connected to services and those that are not connected to services and may be provided with alternatives. x Recognising water reticulation, sanitation, refuse removal and electricity reticulation as core municipal services. x Providing for municipal health services to all households (through funding allocated to district and metropolitan municipalities).
This component is currently inactive. The review of the local government fiscal framework which will commence in 2011 will consider how best the formula can respond to the development needs of the different types and categories of municipalities.
The average low- or medium-capacity municipality (typically in rural areas or small towns), spends more than half of its own revenue on administrative and governance costs, leaving a reduced portion available for the provision of basic services to residents. Given the existing capacity challenges in these municipalities, the institutional support component of the equitable share formula offers assistance in meeting some of these requirements, providing a supplement to augment, but not fully cover, institutional costs.
The institutional support component has been adjusted in the 2011 formula to take account of the level of poverty in a municipality and its relative ability to fund administrative and governance costs from own revenue. Previously, this component was largely determined by the population size of a municipality. The adjusted formula still reflects the relative sizes of different municipalities, but this is now adjusted by their poverty rate.
The base allocation is an amount that will go to every municipality. The second term of this formula recognises that administrative costs go up with the size of a municipality and the ability of a municipality to fund these costs from their own revenue is lower the greater the proportion of its residents that are poor. This second term incorporates two elements; an allocation per councillor that reflects the relative size of a municipality (councillor numbers are determined by the population of a municipality) and a poverty factor calculated as the proportion of poor households in a municipality (poor households divided by total households). The municipality with the highest proportion of poor households receives a poverty factor of 100 per cent (the poorest municipality has 83 per cent of its households below the R800-a-month poverty line according to 2001 prices), so 17 per cent is added to the proportion of poor households in each municipality to calculate the poverty factor.
This component (together with the special support for councillor remuneration to poor municipalities provided outside of the equitable share formula) provides sufficient resources for municipalities to pay their councillors' salaries and a significant portion of their administrative costs without having to use the funds allocated through the basic services component.
The number of seats that will be recognised for purposes of the formula is determined by the Minister of Cooperative Governance and Traditional Affairs for elections and composition.
To account for the varying fiscal capacities of municipalities, the formula must account for each municipality's ability to raise revenue for the purposes of fulfilling its constitutional mandate. This component therefore takes into account income from property rates and the fuel levy sharing with metropolitan municipalities. In the absence of proper information on property valuation rolls across the spectrum of municipalities and as an interim measure, previous property rate collections between 2004/05 and 2006/07 have been used as a basis for determining future capacity to collect income from this source.
The formula does not look at changes in the levels of revenue collection after 2006/07, to avoid penalising municipalities that have improved their revenue collection efforts. The projected capacity of a municipality to raise revenue from property rates is assumed to be the average of past revenue collection grown to reflect the impact of inflation. In the case of fuel levy sharing with metropolitan municipalities, the revenue-raising capacity correction is calculated using the allocations published for the MTEF.
In order to achieve greater horizontal equity in the allocation system and to acknowledge the revenueraising constraints faced by smaller municipalities, a differentiated "revenue correction" rate on property rates income is applied. The applicable revenue correction rate for a municipality is based on the level of per capita own operating revenue (based on 2004/05 to 2006/07 figures), and own operating revenue is the difference between past actual total operating revenue and income from grants and subsidies.
The revenue correction rates range from 1 per cent for municipalities with the lowest operating revenue per capita to 7 per cent for those municipalities with the highest operating revenue per capita.
The application of revenue-raising capacity correction in the local government equitable share formula means that municipalities are expected to use between 1 per cent and 7 per cent of the revenue they raise from property rates to top-up the funds provided through the equitable share.
District municipalities do not collect property rates, so the revenue-raising capacity correction component of the formula is applied as a flat "tax" of 6 per cent of the value of the regional services council RSC / Joint Services Board (JSB) levy replacement grant, allocated to each district. This grant is an unconditional allocation that replaces the major source of own revenue for district municipalities prior to 2006.
There have been two changes in this component of the formula for the 2011 MTEF. The previous stepped taxation structure for property rates (in which municipalities were placed into eight bands with one revenue correction rate applying to all municipalities in each band) has been replaced with the smoothed curve structure described above. This is fairer to municipalities that were on the outer edges of the bands in the previous formula, as they will now have their own revenue correction rate. In addition, the rate of revenue correction has been reduced for all municipalities.
1.5 per cent to 9.5 per cent, now it ranges from 1 per cent to 7 per cent.
These changes reduce the impact of this component on the final allocations to municipalities by 12 per cent. The revised component takes account of the substantial migration to more prosperous municipalities since 2001. These municipalities are funding the provision of services to larger numbers of poor residents through cross-subsidisation from their own revenue. Reducing the revenue correction rate in this component will free up more funds within these municipalities for cross-subsidisation.
With the publication of three-year budget allocations, a guarantee mechanism is applied to the indicative outer-year baseline amounts with the aim of ensuring that municipalities are given what was indicated in the previous MTEF, as far as this is possible, given overall budget constraints and the need to amend the formula to increase allocations to poorer municipalities. In the 2010 MTEF, the applicable guarantees on the allocations are 100 per cent for 2010/11 and 90 per cent for 2011/12. In the schedules of the 2011 Division of Revenue Act, the applicable guarantees are 100 per cent for the 2011/12 allocations, 90 per cent for the 2012/13 allocations, with no guarantee on the indicative 2013/14 allocations published.
To deal with these constraints, municipalities are divided into two groups: municipalities that require a "top-up" in order to meet the stabilising constraints and those that do not. The total size of the top-up is calculated and deducted from those that do not require a top-up amount in proportion to the "surplus."
All district management areas (DMAs) have been incorporated into local municipalities as part of the redemarcation of municipal boundaries that comes into effect with the 2011 local government elections. Previously, district municipalities received the equitable share funds allocated on the basis of households in the DMAs. As these district municipalities are no longer responsible for providing services in the DMAs, the guarantees on their equitable share allocations (described above) were applied after subtracting the amounts previously allocated to them for the DMAs.
The formula outlined above has to be rescaled to make allowance for intricacies in the allocation process. In particular, powers and functions must be taken into account, and the overall budget must balance.
Local government is divided into categories A, B and C.1 The division of powers and functions between local and district municipalities differs - and this is also true between the different local municipalities within the same district. In order to deal with these differences, the formula has to ensure that the allocations made in terms of the basic services component go to the municipality that is authorised to perform that function. To enhance transparency in the budget process, local government equitable share and municipal infrastructure grant (MIG) allocations to district municipalities are published per unauthorised local municipality in the relevant district municipality.
The horizontal division of allocations made between municipalities depends on the size of the overall allocation made to the local government sphere, usually decided through a separate consultative process to determine the equitable share of nationally raised revenue for each of the three spheres of government (the vertical division). As there is no guarantee that allocations made in terms of the horizontal division add up precisely to the amount allocated to the local government equitable share, such allocations need to be adjusted to fit within the constraints outlined above.
1 Category A are metropolitan municipalities, category B are local municipalities and category C are district municipalities.
This adjustment factor is calculated to ensure that the system balances.
The integrity of the data is as important as the set of equations in determining whether the allocations meet the constitutional requirement of equity. Although extensive work has been undertaken to try update the data used in the formula, Census 2001 remains the only source of data that is reliable down to municipal level for population, income and service access data. Data for the number of councillors per municipality is provided by the Independent Electoral Commission and the Municipal Demarcation Board, and data on property rates collected between 2004/05 and 2006/07 is sourced from the reports that municipalities submit to National Treasury in terms of section 71 of the MFMA.
Household income is used to estimate poverty at a municipal level, as it allows for a cross-tabulation of poverty against servicing levels. The majority (over 90 per cent) of funds allocated through the formula are based on the service delivery needs of poor households.
The Municipal Demarcation Board announced in September 2010 that a series of municipal boundary changes would come into effect with the local government elections in 2011. Buffalo City and Mangaung will shift from local municipalities to metropolitan municipalities, and Metsweding district municipality and its local municipalities will be incorporated into the Tshwane metropolitan municipality. Several local municipalities will shift into different district municipalities, some municipalities will merge, and certain wards will move from one municipality to another. All district management areas will be eliminated. These sparsely populated areas were previously serviced by district municipalities, but will now be incorporated into local municipalities. To reflect these changes in the allocations for the 2011 MTEF, the 2001 Census data used to calculate the equitable share has been updated by StatsSA.
The basic services subsidy for poor households is a key determinant in the current formula. There is no accurate data on these service costs across all municipalities, and so these allocations are based on estimates on the relative costs of services and the amount of funds available. As outlined in the basic services section, it is now assumed that providing alternative services to households that did not have services when Census 2001 was conducted is 45 per cent of the cost of providing full services. After the adjustment factor and other components are applied, the actual subsidies per basic service made available through the equitable share are set out in table W1.19.
Electricity Water Sanitation Refuse 188.04 208.31 125.36 138.84 125.36 138.82 125.36 138.82 222.05 148.03 148.03 148.03 84.62 93.76 99.92 56.41 62.53 66.61 56.41 62.52 66.61 56.41 62.52 66.
Total 564.12 624.79 666.15 253.85 281.32 299.
Prior to 2006, district municipalities raised levies on local businesses within their districts through either an RSC levy or a JSB levy. This source of revenue was replaced in 2006/07 with the RSC/JSB levies replacement grant, which was allocated to all district and metropolitan municipalities, based on the amounts they had previously collected through the levies. In the 2011 MTEF, the RSC/JSB levies replacement grant is grown by 9 per cent a year for municipalities authorised for water and sanitation functions and 3 per cent for unauthorised municipalities, acknowledging the very different service responsibilities of these district municipalities.
The redemarcation that will come into effect with the 2011 local government elections will see two district municipalities disestablished and the boundaries of a further five district municipalities changed substantially. Alfred Nzo, Xhariep and Thabo Mofutsanayana district municipalities will expand to include additional local municipalities. The RSC levy replacement grant to these district municipalities will be increased. The value of this increase will be calculated as a portion of the RSC levy replacement grant of the district municipality that each local municipality used to form part of, in proportion to their share of that district's population. OR Tambo and Amatole districts will both reduce in size but their RSC levy replacement grant will not be changed. Motheo and Metsweding districts will both be disestablished; their RSC levy replacement grant will be returned to the local government equitable share and allocated to all municipalities through the formula. Both new metropolitan municipalities (Mangaung and Buffalo City) will receive funds from the fuel levy sharing with metropolitan municipalities and Tshwane metropolitan municipality's allocation will be increased to account for its incorporation of Metsweding district (details in part six of this annexure).
Councillors' salaries are subsidised in poor municipalities. This support is calculated separately to the local government equitable share and is additional to the governance costs allocation provided in the institutional support component. The level of support provided to each municipality is published in the government gazette issued by the Minister of Cooperative Governance and Traditional Affairs, determining the upper limits of salaries, allowances and benefits of members of municipal councils. The gazette classifies municipal councils into six grades based on their total income and population size. Special support is provided to the lowest three grades of municipal councils (the smallest and poorest municipalities).
Conditional grants to local government aim to eradicate backlogs and build institutional financial capacity in local government. The total value of conditional grants directly transferred to local government, including the water operating subsidy, increase from R27.5 billion in 2011/12, to R30.4 billion in 2012/13 and R32.7 billion in 2013/14.
Conditional grant allocations to local government are being reconfigured to increase differentiation between the funding of urban and rural municipalities. The most significant change to be introduced in 2011 is the creation of a new urban settlements development grant for metropolitan municipalities to fund the upgrading of informal settlements. This means that metropolitan municipalities no longer receive allocations through the MIG. Several other grants also provide for specific rural and urban challenges, including the rural transport infrastructure grant and rural households infrastructure grant, which fund rural municipalities while the public transport infrastructure and systems grant funds public transport projects in large cities. A new municipal disaster grant has also been introduced to enable the speedy allocation and transfer of funds to municipalities affected by disasters.
National transfers for infrastructure, including indirect or in-kind allocations to entities executing specific projects in municipalities, amount to R29.5 billion, R33.1 billion and R35.5 billion for each of the 2011 MTEF years.
The largest infrastructure transfers are through the MIG, which supports government's objective of expanding service delivery and alleviating poverty. The MIG funds the provision of infrastructure to provide basic services, roads and social infrastructure for poor households in all non-metropolitan municipalities. MIG previously also included the MIG cities grant - a schedule 4 allocation to metropolitan municipalities, but from 2011/12 MIG cities forms part of the baseline of the new urban settlements development grant.
The MIG allocations are based on a formula with a vertical and horizontal division. The vertical division allocates resources to sectors or other priority areas, and the horizontal division is based on a formula that takes account of poverty, backlogs, and municipal powers and functions. There are five main components of the formula, as demonstrated in the box below. A constant component of R5 million ensures that a reasonable minimum allocation is made to poor municipalities.
The total MIG allocations grow to R11.4 billion, R13.9 billion and R14.7 billion over the 2011 MTEF. This represents real growth of 28 per cent during the period. Amounts of R493 million, R600 million and R633 million have been removed from the MIG baseline and added to the previous MIG cities baseline to create the urban settlements development grant. Table W1.21 shows the weighted share per sector and the respective amounts that flow through the vertical division of the MIG funds.
B Component 75.0% 75.0% 75.0% 75.
Water and sanitation 72.0% 72.0% 72.0% 72.
Electricity 0.0% 0.0% 0.0% 0.
Roads 23.0% 23.0% 23.0% 23.
Other 5.0% 5.0% 5.0% 5.
P Component 15.0% 15.0% 15.0% 15.
E Component 5.0% 5.0% 5.0% 5.
N Component 5.0% 5.0% 5.0% 5.
This is a new grant introduced in the 2011 division of revenue. It is allocated to metropolitan municipalities to supplement their capital budgets, enabling them to better leverage their resources todevelop sustainable human settlements. The grant funds the provision of basic municipal services to new housing projects and will allow municipalities to plan and budget for both services and the construction of housing as they attain authorisation for the human settlements function. The grant is created with funds previously allocated to these cities through the MIG cities grant and the internal infrastructure portion of the provincial human settlements development grant, as well as additional allocations of R2.1 billion over the MTEF. The total urban settlements development grant is allocated R6.2 billion in 2011/12, R7.4 billion in 2012/13 and R8.1 billion in 2013/14.
This grant is administered by the Department of Transport, and aims to provide passenger transport networks in cities, particularly public transport and non-motorised transport infrastructure. This includes the provision of bus rapid transit systems. The grant has an allocation of R4.8 billion in 2011/12, to R5 billion in 2012/13 and R5.6 billion in 2013/14.
This grant aims to improve rural transport infrastructure, and will fund the collection of accurate data on the condition of rural roads in 2011/12, in line with the Road Infrastructure Strategic Framework for South Africa. The grant will support rural district municipalities in establishing databases on the condition and usage of all the municipal roads in their area, so that the spending of infrastructure funds (from the MIG and elsewhere) can be properly planned. The grant has an allocation of R35 million in 2011/12, R37 million in 2012/13 and R39 million in 2013/14.
The grant supports the development of community infrastructure and aims to attract private-sector investment that improves the quality of life in townships. The grant is administered by National Treasury and is allocated R850 million in 2011/12, to R880 million in 2012/13 and R855 million in 2013/14 for both the technical assistance (indirect) and capital (direct) grant.
Government plans to spend R9.1 billion over the next three years on its national electrification programme, to sustain the progress made in supplying electricity to poor households. Of this amount, R3.5 billion will be spent by municipalities directly and R5.6 billion by Eskom on behalf of municipalities. This programme was instrumental in the connection of 80 per cent of all households in the country to the national electricity grid, as reported in the 2007 Community Survey.
The grant aims to improve energy efficiency demand-side management in residential dwellings and commercial buildings, reducing energy consumption. The grant has been allocated R399 million in 2011/12, and it is scheduled to end after the 2011/12 financial year. A review of the grant's performance will be conducted during 2011 and will inform any decision on whether to extend the life of the grant.
This grant aims to provide regional bulk water and sanitation across several municipal boundaries. In the case of sanitation, it supplements regional bulk collection and regional wastewater treatment works. The grant has an allocation of R1.7 billion in 2011/12, to R2.0 billion in 2012/13 and R2.2 billion in 2013/14.
A new conditional grant for disasters is introduced in the 2011 MTEF. This grant will be allocated to the National Disaster Management Centre in the Department of Cooperative Governance and Traditional Affairs as an unallocated grant to local government. A new schedule and clauses have been inserted into the Division of Revenue Act to create special provisions for this grant that enable the immediate disbursement of disaster response funds after a disaster is declared, without the need to gazette the transfers. Over the MTEF, R1.2 billion is available for disbursement through this grant.
R450 million is allocated in the 2011/12 financial year to provide assistance to the Nelson Mandela Metropolitan Municipality for drought relief.
The capacity-building grants aim to assist municipalities in building management, planning, technical, budgeting and financial management skills. The current MTEF expands the capacity-support programme to assist weaker or poorer municipalities, particularly with the implementation of financial management reforms. Total allocations for capacity-building grants amount to R2 billion in 2011/12, R1.8 billion in 2012/13 and R2 billion in 2013/14.
The financial management grant under the National Treasury vote, funds the modernisation of financial management, including building in-house municipal capacity to implement multi-year budgeting, linking integrated development plans to budgets, producing quality and timely in-year and annual reports, and generally supporting municipalities in the implementation of the MFMA. Total allocations for the financial management grant amount to R1.4 billion over the three year cycle.
This grant encourages municipalities to hire more people in public works projects. The grant is allocated R680 million in 2011/12, to R666 million in 2012/13 and R779 million in 2013/14.
The water services operating subsidy is a grant with schedule 6 (direct) and schedule 7 (in-kind) components used to fund water schemes. The grant covers staff-related costs and direct operating and maintenance costs, while provision is also made for the refurbishment of infrastructure. The allocation per municipality is based on the operational budget for each scheme and the funding requirements identified and agreed on in the transfer agreement. These schemes were administered by the Department of Water Affairs prior to 1994 and are now being transferred to municipalities. At the end of 2009/10, 59 agreements had been signed, 4 903 staff transferred and 1 643 schemes (including rudimentary schemes) with a total asset value of about R6.4 billion transferred to municipalities. In the 2011 MTEF, R1.5 billion is allocated for the water services operating grant (direct and indirect transfers), to enable the transfer of staff to water schemes. It is a transitional grant and is expected to be phased out over time.
The new formula for the health component of the provincial equitable share formula is one of the first steps towards the introduction of national health insurance. The health formula will be improved as more information on the provincial consumption of health services becomes available. These improvements will complement the implementation of the national health insurance system.
Local government is South Africa's youngest sphere of democratic government, the system of wall-towall, democratically elected local municipalities is only just over a decade old. This is an appropriate time to evaluate the fiscal framework's performance in supporting local government. Government has already achieved significant success in creating a system of intergovernmental transfers that is stable, predictable and transparent. Building on this foundation in the second decade of democratic local government, the fiscal framework can do more to promote the efficient and equitable delivery of services. Towards this end, an extensive review process will be undertaken in 2011 that may lead to significant changes in the future shape of the local government fiscal framework.
Although municipalities have made significant strides in building their institutions and delivering services, they have failed to achieve their full potential, and finances are a contributing factor. Government will review the fiscal system and identify reforms to create the right incentives for more effective local government in the future.
For reforms to be successful, a differentiated approach to local government needs to be adopted and conditional grants (separate grants for rural and urban municipalities) are likely to play a major role in future. National Treasury will conduct a full review of the equitable share formula during 2011/12, with the aim of introducing a new formula in time for the release of the Census 2011 data. The formula review will include an examination of municipal services and their costs, different municipal functions, and how the data used in the formula could be updated between censuses. The changes that follow the review processes in 2011 have the potential to substantially alter the nature and effectiveness of the local government fiscal framework.
The Municipal Property Rates Act regulates the power of municipalities to impose rates on properties in accordance with section 229(1)(a) of the Constitution. Income derived from municipal property rates is an important own revenue source.
The original four-year transitional period given to municipalities to implement the Municipal Property Rates Act (up to 1 July 2009) was extended by two years (up to 1 July 2011) through a legislative amendment to the act in 2009 to allow those municipalities that had failed to implement new valuation rolls to continue to use existing valuation rolls and supplementary valuation rolls until 30 June 2011. There are eight municipalities that are expected to implement valuation rolls in terms of the act for the first time on 1 July 2011.
The Department of Cooperative Governance and Traditional Affairs intends to introduce further amendments to the act in 2011/12 to improve its implementation and minimise legal ambiguities. In addition, a number of the proposed amendments make provision that property rating by municipalities is undertaken in the national interest.
The Municipal Fiscal Powers and Functions Act (MFPFA) of 2007 provides for the authorisation of taxes, levies and duties that municipalities may impose under section 229 of the Constitution. The MFPFA does not deal with property rates or municipal tariff charges and fees.
In terms of section 12 of the act, a municipality had to apply to the Minister of Finance by 9 September 2009 for the authorisation of an existing tax. All municipalities submitted applications to the Minister of Finance by the deadline stipulated. These applications were analysed and municipalities, SALGA, FFC and appropriate national departments were advised of the preliminary rulings by the Minister of Finance. Out of 155 applications received from 55 municipalities, only 19 in 17 municipalities potentially complied with the criteria of a municipal tax. The affected municipalities gave extensive feedback, and this will result in some adjustments to the preliminary determinations. To conclude this process, draft regulations need to be published for public comment and submitted to Parliament. Based on feedback received from these processes, the Minister of Finance will gazette the final determinations.
Section 5 of the MFPFA requires that a municipality, group of municipalities or organised local government apply to the Minister of Finance for the authorisation of a municipal tax, levy or duty, other than property rates, before imposing such a tax. An application for a municipal tax must set out the reasons for the proposed tax and how the revenue from the tax will be used. An application for a new municipal tax is more likely to succeed if it is proven that the municipality's own revenue is insufficient to meet service delivery needs.
To date, National Treasury has received one application that complies with the requirements stipulated in section 5 of the MFPFA. The application is for the introduction of a rural-based development levy in areas where the municipality faces difficulties in implementing valuation rolls. Similar applications were identified during the verification process of taxes that existed prior to the act. Authorisation of this tax needs to be informed by the criteria of good municipal tax, and whether it can run alongside the property rates system and be applicable to other municipalities.
In terms of section 8 of the MFPFA, the Minister of Finance may prescribe compulsory national norms and standards for imposing municipal surcharges, including maximum municipal surcharges that may be imposed by municipalities. Surcharges currently form part of a tariff (when regulations are introduced in terms of section 8 of the act, these will be split). Due to the interrelationship between tariffs and surcharges, it is important that National Treasury's regulatory processes regarding surcharges be aligned to the regulatory processes of sector departments regarding municipal tariffs. The National Electricity Regulator of South Africa is currently in the process of introducing an economic regulation framework in metropolitan municipalities, which will be subsequently rolled out in other smaller municipalities. The regulation of municipal tariff practices regarding water and waste are moving at a much slower pace, therefore the introduction of norms and standards for municipal surcharges will only be over the medium to long term.
The sharing of the general fuel levy with metropolitan municipalities was introduced in the 2009 Budget as the primary replacement to the former RSC and JSB levies, in addition to the VAT reforms introduced in 2006. The sharing of the general fuel levy is a direct charge and is formalised annually through a government gazette under schedule 1 of the 2009 Taxation Laws Amendment Act.
To facilitate the smooth transition from the RSC levy replacement grant system to the sharing of the general fuel levy system, implementation has been phased-in over three years. In 2011/12, metropolitan municipalities receive 25 per cent of the former RSC levy replacement grant and 75 per cent of the sharing of the general fuel levy. Allocations in 2012/13 will be based on fuel sales only. The 2011/12 allocations will include two additional metropolitan municipalities that will be introduced after the 2011 local government elections. The fuel levy data has also been updated for those existing metropolitan municipalities whose boundaries change after the 2011 local government elections.
This annexure provides a brief description of the framework for the grants set out in Schedules 4, 5, 7, 8 and 9 of the 2011 Division of Revenue Bill.
The attached frameworks are not part of the Division of Revenue Bill, but are published in order to provide more information on each grant to parliament, legislatures, municipal councils, officials in all three spheres of government and the public. Once the 2011 Division of Revenue Bill is enacted, these frameworks will be gazetted in terms of the Act.
The financial statements and annual reports for 2011/12 will report against the Division of Revenue Act, Division of Revenue Amendment Act and their schedules, and the grant frameworks as gazetted in terms of the Act. Such reports must cover both financial and nonfinancial performance, focusing on the outputs achieved.
Past performance 2009/10 audited financial outcomes x Allocated and transferred R50 million to provinces x Of the total available R70.9 million (including roll overs), R66.9 million (94.
Past performance 2009/10 audited financial outcomes x Allocated and transferred R51 million to provinces x Of the total available of R54 million to provinces (including provincial rollovers), expenditure was R52 million (96.
Conditions x The provincial business plans must be developed in accordance with identified priority areas x This funding must not be used as a replacement funding for provinces x Provinces may use a maximum of 5 per cent of the total amount allocated to them for capacity building and provincial management of the grant.
Past performance 2009/10 audited financial outcomes x Allocated and transferred R441 million to provinces x Of the total available R471 million (including provincial rollovers), R418 million (88.
Conditions x x x x Provinces may only procure through suppliers identified by the Department of Basic Education (DBE). Provinces must submit procurement plans for materials purchased for Dinaledi Schools to the DBE by 6 May 2011 for approval.
Conditions x Provincial Education Departments (PEDs) must submit tabled User Asset Management Plans (U-AMPs), (formerly Infrastructure Plans) with prioritised project lists that are signed-off for the 2011 MTEF by 8 April 2011 to the national Department of Basic Education (DBE) and the relevant Provincial Treasuries. This deliverable is required for the transfer of the first instalment of the grant x The flow of the second instalment depends on the receipt by DBE of fourth quarter infrastructure reports for the 2010/11 financial year and final list of projects captured on the IRM by 21 April 2011. These reports must be submitted to the relevant Provincial Treasury x The flow of the third instalment is dependent upon receipt by DBE of the draft 2012/13 U-AMPs including the initial list of prioritised projects as captured in the Infrastructure Programme Management Plan (IPMP). The 2012/13 project list must be drawn from the prioritised project list for the MTEF tabled in 2011/12. Changes to the MTEF prioritised list of projects must be motivated to the DBE x The flow of the third, fourth and fifth instalments are conditional upon submission and approval of signed-off quarterly infrastructure reports and education project assessments forms x Quarterly reports on the implementation of infrastructure projects via the Infrastructure Reporting Model (IRM) are required in addition to monthly In-Year Monitoring expenditure reports. Client departments must enter into service delivery agreements (SDAs) with their Implementing Agents. The development or review of the SDA should continue in parallel with the development of the IPMP x Provincial Education Capacity plans must be approved by the DBE x All immovable asset management and maintenance responsibilities as prescribed by the Government Immovable Asset Management Act of 2007 (GIAMA) and the Infrastructure Delivery Management Toolkit must be adhered to x PEDs must provide School Governing Bodies with maintenance guidelines to conduct minor maintenance x Major maintenance function must be budgeted and planned for at the provincial level and carried out through the district department.
2012/13 business plans DBE by 12 August 2011, or a later date as may be determined by DBE x Submission of IPMPs for 2012/13 by Client Departments to Implementing Agents by 2 September 2011 x Implementing Department(s) or Agent(s) must submit the Infrastructure Programme Implementation Plans (IPIP) for 2012/13 to Client departments by 30 November 2011.
Conditions x As agreed to at the interprovincial meeting of the National Department of Basic Education and Provincial Education Departments on 3 and 4 December 2010, provinces must distribute the grant allocation in accordance with the following weights for the key performance areas.
HIV and Aids (Life Skills Education) Grant x The above percentages are guidelines and may only be deviated from if a deviation is motivated to and approved by the national accounting officer.
Reason not incorporated in equitable share x To enable the DBE to provide overall guidance, to ensure congruency, coherence and alignment with the government's HIV and Aids and STI National Strategic Plan 20072011.
Past performance 2009/10 audited financial outcomes x From the total allocation of R183 million (including roll-overs), provinces spent R169 million (91.
Outcome statements Outputs Priority outcome(s) of government that this grant primarily contributes to Details contained in the business plan Conditions x Enhanced learning capacity and improved access to education x Nutritious meals served to learners x Outcome 1: Improved quality of basic education x Outcome indicators x Output indicators x Inputs x Key activities x Risk Management Plan x Develop national and provincial business plans x A minimum of 95 per cent of the grant must be used for school feeding at both secondary and primary schools. A maximum of 5 per cent of the grant may be used for administration and other activities x Provinces must adhere to the following minimum feeding requirements:  provide nutritious meals to all learners in quintile 1 to 3 primary and secondary schools (as per gazetted national quintiles) as well as identified special schools on all school days  cost per meal per learner in primary schools as well as identified special schools at an average of R2.46 and in secondary schools at an average R3.36, inclusive of cooking fuel and honorarium  a minimum honorarium of R640 per person per month, in line with a food handler to learner ratio of 1:200. A ratio of 1:120 is recommended for schools where learner enrolment is 250 or fewer  comply with recommended food specifications and approved menu  fresh fruit/vegetables must be served daily and vary between green and yellow/red on a weekly basis  a variety of protein food must be served per week in line with approved menu options. Soya should not be served more than twice a week  pilchards should be served at least once a week. High quality protein products can replace pilchard in areas where it is not socially acceptable. In areas where fresh milk/maas is unavailable, only whole powdered milk may be used  meals should be served to learners by 10h00 x The 10 May 2011 budget transfer (as per payment schedule) is for cooking facilities, equipment and utensils for quintile 1-3 primary schools as per equipment specifications provided by the Department x Provinces must promote sustainable food production and nutrition education x Provincial business plans will be approved in line with the above minimum requirements and available resources.
Reason not incorporated in x The National School Nutrition Programme (NSNP) is a government programme for poverty equitable share alleviation, specifically initiated to uphold the rights of children to basic food and education.
Projected life x Given the need for the grant and negative impact of factors associated with poor nutrition has on education, the grant will be necessary for a number of years.
Conditions x Three year provincial recapitalisation plans for technical schools must be submitted to and approved by the Department of Basic Education (DBE) x Technical schools should develop detailed yearly (operational) business plans that must demonstrate how the approved funding would be spent x Deviations of between 2 per cent and 5 per cent from category allocations in business plans must be authorised by the Director-General: Basic Education x Should the entire recapitalisation process not be completed within the stipulated timeframe, an additional six (6) months will be added to complete the project. If the funds are not completely utilized, it will be redirected to other schools within the same province x Recapitalisation business plans assessed against: &#16; contribution of technical schools to provincial growth plans &#16; record of student enrolment and growth &#16; access, equity and redress &#16; poverty index: rural and urban mix x Recapitalisation funds to be managed at provincial level unless in the event where provinces have proven to the Department of Basic Education that the schools have the capacity, systems and controls to receive the funds directly for procurement and payment purposes x Procurement processes to be managed at provincial level unless in the event where provinces have proven to the Department of Basic Education that the schools have the capacity, systems and controls to manage the procurement processes on their own. In this case, payments will still be effected by the province x Procurement of technical subjects equipment, tools and machinery to comply with the Department's minimum specifications for technology subjects requirements.
Responsibilities of the Responsibilities of the national department transferring national officer x DBE will convene and chair meetings of the NSC during which projects assessed for funding and receiving officer through this grant and those that will be supplemented by the Education Infrastructure Grant to Provinces will be approved to ensure that the funding from the grants is directed to projects that are aligned with respective grant objectives x The DBE must agree in writing with the provinces on projects that the DBE will administer on behalf of the province x Develop a Sector Procurement Strategy and procurement strategy for this grant in terms of the practice guide prescribed by the Infrastructure Delivery Management Toolkit.
Process for approval of 2012/13 business plans x Consolidate and submit quarterly reports to National Treasury and National Council of Provinces (NCOP) within 45 days after the end of each quarter x Conduct site visits to selected projects on a monthly basis to assess performance x Create the necessary organisational structures and build capacity within the department to oversee and monitor the implementation of the grant x In consultation with National Treasury convene the NSC that will approve Project Implementation Plans.
Conditions x x x The following priority areas must be supported through the grant: 1. ART related interventions; 2. Home Community Based Care (HCBC); 3. Condom distribution and related interventions; 4. PMTCT; 5. Programme Management Strengthening (PM); 6. Regional Training and Quality Assurance Centres (RTC); 7. TB/HIV and SDC; 8 HCT; 9. MMC Provinces must submit monthly financial reports (IYM) and the monthly break-down report per sub-programme to the National Department of Health by the 15th of the following month using standard formats as determined by the national department.
Past performance 2009/10 audited financial performance x Allocated and transferred R4 376 million to provinces x Of the total available R4 378 million (including provincial roll overs), R4 310 million (98.
Responsibilities of the provincial departments x Quarterly performance output reports to be submitted within 30 days following the reporting period using standard formats as determined by the national department.
x To ensure provision of impartial professional forensic evidence for the criminal justice system concerning death due to unnatural causes x To continue the development and provision of adequate forensic pathology services in all provinces x Comprehensive Forensic Pathology Service (FPS) in all provinces x New forensic pathology facilities built, refurbished and equipped x Human resource organograms filled with qualified personnel x Operational standards for mortuaries published and implemented x Outcome 2: A long and healthy life for all South Africans x Outcome indicators x Output indicators x Inputs x Key activities x Grant administration should be coordinated and monitored by the Programme Manager in consultation with provincial Grant Managers x Provincial Health Departments should ensure a complete ring-fencing of the grant to facilitate an expeditious procurement of goods and services and filling of vacant posts.
x Provincial Health Departments should provide copies of a Business Case for every mortuary under construction x The Chief Financial Officer/Delegate and Public Works delegate/s need to be present at all provincial visit meetings x In accordance with the National Project Plan, as modified for demarcation and inflation x The grant funds the transfer of the service from the South African Police Services to the national Department of Health (DoH) to establish an integrated Forensic Pathology Service.
&#16; immovable assets requirements &#16; acquisition plan &#16; refurbishment plan &#16; repairs and maintenance business plan x Provincial Departments of Health must submit tabled U-AMPs (formerly Infrastructure Plans) with prioritised project lists that are signed-off by HOD for the 2011 MTEF by 14 April 2011 to the national Department of Health (DoH). Tabled U-AMPs must include the projects listed in the approved Infrastructure Programme Implementation Plans (IPIPs) for 2011/12 and sector procurement strategy as per guideline in the Infrastructure Delivery Management System (IDMS) Toolkit. The flow of the first instalment of this grant is dependent upon receipt by the DoH of this project list and satisfaction that the list meets required detailed and alignment with infrastructure planning information submitted in 2010/11 or earlier. These plans must also be submitted to the relevant provincial treasury x The flow of the third quarter transfers is dependent upon receipt by DoH of the draft 2012/13 U-AMPs including the initial list of prioritised projects as captured in the Infrastructure Programme Management Plan (IPMP).
x Provinces must adhere to the Infrastructure Alignment Model in terms of programme implementation and in year reporting. Quarterly performance reports must be submitted to the National Council of Provinces within 45 days after the end of each quarter x The provinces must put in place a Provincial Progress Review Committee as approved by the National Health Council for monitoring and oversight for both the Health Infrastructure Grant and the Hospital Revitalisation Grant x Provinces must submit a list of projects in the required format to DoH within 14 days after the 2011 Division of Revenue Act comes into effect. Provinces must also submit quarterly performance reports, drawn from their infrastructure reporting model to the National Council of Provinces within 45 days after the end of each quarter.
Reason not incorporated in equitable share 2009/10 audited financial outcomes Past performance x Allocated and transferred R1 760 million to provinces.
Process for approval of 2012/13 format by end of February 2012.
&#16; key activities business plan x Provinces must implement projects in line with the Project Implementation Plans, as guided by the Project Implementation Manual (PIM) for 2011/12 that has been be approved by the national Department of Health (DoH) for the 2011/12 financial year x With the exception of funding for costs incurred for planning, all projects commencing construction in 2011/12 must have business cases and Initial Project Implementation Plans (IPIPs) approved before funds can be released for such projects x All the new projects should follow Peer Review stages as per prescribed in Reporting Format incorporated in the Project Implementation Manual (PIM) 2011/12 x Provinces must submit draft 2012/13 U-AMPs including the initial list of prioritised projects as captured in the Infrastructure Programme Management Plan (IPMP) to DoH by 30 September 2011. The monthly instalment following this deadline is dependent on receipt of this information x Monthly reports for all projects funded in 2011/12 financial year in this grant must be submitted through the prescribed comprehensive reporting as prescribed by 2011/12 PIM and Infrastructure Reporting Model (IRM).
Reason not incorporated x This grant funds large projects requiring substantial capital investment.
&#16; referral responsibilities x Completion of SLA and business plan in the prescribed format signed by each provincial department or receiving officer, and the transferring officer by 28 February 2011 x The grant must contribute a maximum of 85 per cent of each tertiary hospital/complex budget x Provinces must gazette allocations to individual hospitals/complexes as per SLA and be hospital/complex specific x Institutions receiving the grant must report on expenditure and patient activity monthly to the provincial department x Provinces must maintain a separate budget for each of the 26 hospitals/complexes x Province must communicate in writing to each benefiting hospital/complex the allocation made, with the agreed upon service specifications which must be rendered. For monitoring purposes this information must be supplied to the DoH by 29 April 2011 x Distribution of cost of designated tertiary services as determined by the ongoing reviews of patient activity x Approved plans for the modernisation of tertiary services x There are significant cross boundary flows and spill effects associated with tertiary services that are not affected by provincial boundaries due to their specialised nature.
&#16; Provincial tertiary services performance was measured against the Service Level Agreements and the total patient activity rendered is as follows: &#16; 551 436 inpatient separations &#16; 3 087 857 inpatient days &#16; 2 216 183 day patient separations &#16; 868 614 outpatient first visits &#16; 1 555 207 outpatient follow up visits x Support for tertiary services will continue because of the cross boundary flows and spill over effects.
plan x The funding of each of the following outputs will depend on the priority set for each college within available funding x The national enrolment plan linked to funding norms will be used as a guideline for allocating the grant to each college. Any upward deviation from these enrolments must be funded by the college or entity causing such deviation x On receipt of a conditional grant transfer for a college, the PEDs must transfer the relevant portion of the funds to the respective colleges within 14 days of receipt thereof.
New grant x The projected life will be determined by the legislative process that needs to take place to give effect to the shifting of the FET College function to the Department of Higher Education and Training.
Grant purpose Outcome statements Outputs Details contained in the business plan Priority outcome(s) of government that this grant primarily contributes to Conditions x x x x x x x x x x x x x x x x x x x x x x x To provide funding for the creation of sustainable human settlements The facilitation and provision of basic infrastructure, top structures and basic social and economic amenities that contribute to the creation of sustainable human settlements Financial interventions and measures that improve access to human settlement development and the property market Number of informal settlement households upgraded Number of social and rental housing units developed Hectares of well located land and property acquired and developed Number of Rural Housing units developed Number of serviced sites developed and provided Outcome indicators Outputs Key Activities Monitoring and Reporting Outcome 8: Sustainable human settlements and improved quality of household life Funds for this grant will only be released upon: &#16; receipt of signed off provincial business plans supported by a project list per housing programme that indicate the readiness of projects for implementation, including cash flow projections report and compliance certificates &#16; provision of allocations to municipalities receiving the Urban Settlements Development Grant for publishing in a government gazette as required by section 10(8) of the 2011 Division of Revenue Act Transfers to provinces will be contingent on their performance as assessed in reports submitted through the Housing Subsidy System (HSS) for project and programme administration Provinces may, if a proven need exists, utilise up to 5 per cent of the provincial allocation for the Operational Capital Budget Programme (OPSCAP) to support the implementation of the approved national provincial housing and accredited municipal programmes and priorities The Minister for Human Settlements may identify and approve a project as a priority project upon pronouncement by the State President, Cabinet, the Minister and/or Human Settlements MinMec A national priority project will satisfy one or more of the following conditions: &#16; the project promotes a national development interest including poverty eradication, sustainable development and/or dignity of communities and citizens &#16; the project promotes the targets and outputs contained in Outcome 8 &#16; the project promotes good practices in human settlement development &#16; the approval of the project will result in the alleviation of an emergency and/or a life threatening situation To expedite the completion of the high impact projects the provincial departments of human settlements must allocate the stipulated amounts from the provincial grant allocation per project as indicated below: &#16; Gauteng; Khutsong Resettlement project: R105 million &#16; Gauteng; Doornkop: R200 million &#16; Gauteng; Diepsloot: R100 million &#16; Eastern Cape; Duncan Village: R120 million &#16; Gauteng; Sweet Waters: R50 million &#16; KwaZulu-Natal; Cornubia: R132 million &#16; Limpopo; Lephalale: R318.8 million &#16; Western Cape; Drommedaris: R68.
Past performance 2009/10 audited financial outcomes x Allocated and transferred R12 442 million to provinces x Of the total available of R12 442 million, R12 250 million (98.
Past performance 2009/10 audited financial outcomes x Allocated and transferred R1 350 million to provinces x Of the total available R1 486 million (including provincial roll overs), R1 214 million (81.
Requirements in the EPWP Incentive Manual x Once received by the eligible provincial department, the incentive grant must be used for continuing or expanding job creation programmes.
Conditions x To be eligible for an incentive allocation in 2011/12, a provincial department must have: &#16; reported EPWP performance by 22 April 2010 &#16; met the threshold FTEs to qualify x A nominal allocation of R680 000 is provided when: &#16; public bodies report after 22 April 2010 but before 22 October 2010 &#16; public bodies do not meet the minimum threshold x The nominal allocation can be accessed if public bodies meet their threshold in-year x Incentive allocations are based on a targeted number of FTEs each provincial department should create above the set minimum threshold.
Allocation criteria x This grant is intended to incentivise and reward performance on the EPWP.
Allocation criteria x To be eligible for an incentive allocation in 2011/12, a provincial department must have: -reported EPWP performance by 22 April 2010 for an incentive allocation to be calculated based on 2009/10 performance -must have met at least 35 per cent of their Full Time Equivalent (FTE) target for the 2009/10 financial year x Each provincial department's performance is assessed against a set of EPWP performance indicators to determine the size of the incentive allocations for those years.
Conditions x Provincial departments responsible for sport are required to enter into formal agreement with Sport and Recreation South Africa (SRSA) after approval of business plans prior to the start of the financial year x Provinces must appoint permanent staff on their establishments for the programme in consultation with the national department.
Reason not incorporated x A conditional grant is necessary to ensure national coordination, monitoring and facilitation in equitable share Past performance 2009/10 audited financial outcomes x Allocated and transferred R402 million x Of the total available R412 million (including provincial roll overs), R382 million (92.
Reason not incorporated in equitable share Past performance x The conditional grant is made for a specific, large public transport infrastructure project being undertaken by the Gauteng Province, as endorsed by Cabinet. The total cost of the project is unaffordable to the Province within the limits of its equitable share.
Projected life MTEF allocations Payment schedule Responsibilities of the transferring national officer and receiving officer x The grant comes to an end in 2011/12 x 2011/12: R5.
Responsibilities of the provincial departments x The Gautrain Management Agency (GMA) on behalf of the Gauteng Provincial Government manages the Public-Private Partnership (PPP) Agreement and reports on progress and expenditure to DoT in accordance with the above-mentioned conditions. x In line with the DoRA and the PFMA requirements, the Gauteng Province will submit reports to the DoT at the end of each quarter, detailing: &#16; interim payments and the final payment made to the Concessionaire according to the General and Key Milestone payment schedules in that quarter.
Outputs Priority outcome(s) of government that this grant primarily contributes to Details contained in the business plan Conditions x x x x x x x x x x x x x x x x x x x x Collected traffic volumes data and pavement condition data Updated road asset management systems Squared kilometres of of preventative, routine and emergency maintenance work Percentage of roads for which condition of roads changed from poor and very poor to at least fair Weighbridges Percentage of roads in good or very good condition maintained in that condition Number of EPWP jobs created Number of S3 students provided with experiential internships Number of emerging contractor opportunities created Outcome 6: An efficient, competitive and responsive economic infrastructure network This grant uses a Road Asset Management Plan, which contains the following details: -levels of service -network condition and traffic volumes -project lists for 2011/12 to 2013/14 -financial summary -organisational and support plan Provincial departments must submit quarterly infrastructure reports to the national Department of Transport (DoT) that comply with the infrastructure reporting model and toolkit Final list of projects must be captured on the Infrastructure Reporting Model and submitted to the relevant Provincial Treasury and Department of Transport by the 21 April 2011 A detailed Asset Management Plan, that is compliant with the requirements of the Government Immovable Assets Management Act (2007) and based on the Road Asset Management System must be submitted by 31 August 2011 to DoT and National Treasury by 30 November 2011 All immovable asset management and maintenance responsibilities as prescribed by the Government Immovable Asset Management Act, 2007 (GIAMA), and the Infrastructure Delivery Management Toolkit must be adhered to The payment of the second instalment of this grant is dependent on receipt by DoT of the quarterly performance reports for the fourth quarter of 2010/11. The third instalment is dependent on receipt by DoT of the first quarter report for 2011/12 and the final instalment is dependent on receipt of the second quarterly performance reporting for 2011/12 Expenditure of this grant must be in accordance with maintenance requirements as identified by a road asset management system, set within the relevant budget limit, to improve conditions of the roads and extend the lifespan of road infrastructure Allocations for 2013/14 will be conditional on updated systems and data. Data on roads and bridges needs to be updated every two and five years respectively Projects for which tendered contracts have been entered into or funding committed before 31 March 2011 will be exempted from the conditions above apart from the quarterly reporting requirements on the infrastructure reporting model Mpumalanga and Gauteng provinces must allocate the following amounts to coal haulage projects: -Mpumalanga: R511 million in 2011/12, R659 million in 2012/13 and R808 million in 2013/14 -Gauteng: R74 million in 2011/12, R4.4 million in 2012/13 and R0.
Allocation criteria x x x x Criteria will include performance in relation to key performance indicators as agreed to between DoT and the provinces Allocations are retained at 45 per cent of the Infrastructure Grant to Provinces in relation of proportional allocations shown in the 2010 Division of Revenue Act for 2011/12 and 2012/13 Allocation criteria from 2013/14 onwards will be based on the extent of the provincial road network, the traffic volumes, the visual condition indices on the network and geo-climatic and topographic factors.
Conditions x The conditional grant is the national contribution to subsidised service contracts entered into by the provincial departments of transport and public transport operators for the provision of affordable subsidised services x All contracts concluded must be done as per relevant legislation and in compliance with the Public Transport Strategy x Designs and operators' business plans detailing subsidised services will have to be approved by the Public Transport Integration Committee comprising of the three spheres of Government to ensure alignment with Integrated Public Transport Networks (IPTNs). Where an Intermodal Planning Committee is established at municipal level, in terms of the National Land Transport Act no. 5 of 2009, the functions of the two committees must be consolidated to ensure integration of planning, services and modes x Supervision, monitoring and or verification must be done to certify the correctness of the operator's claim in terms of km of services provided and report to Department of Transport (DoT) monthly x If the operating licence function is transferred to any municipality before the 2011/12 adjusted budget, the appropriate portion of the grant will also be devolved to the municipality. This devolvement must include all services in that city at once. To have the money devolved in the adjusted budget the municipality will have to have received the function by 1 September 2011. Should the function be devolved later than that the money will only be shifted in 2012/13.
Past performance 2009/10 audited financial outcomes x Allocated and transferred R3 532 million to provinces x Of the total available of R3 532 million (including provincial rollovers), R3 523 million (99.
This annexure provides a brief description for each grant in Schedules 4, 6, 7, 8 and 9 of the 2011 Division of Revenue Bill.
Conditions x Funds from this grant can only be used to fund the items as described in the NDMC guideline and will only be released on request of a provincial government through the Provincial Disaster Management Structure x Funds can only be released after a disaster has been declared in terms of the Disaster Management Act x Municipalities must fund a portion of the costs of the disaster response from their own budget or prove that they are not able to do so.
Outputs Priority outcome(s) of government that this grant primarily contributes to Details contained in the business plan x x x x x x x x x x x x x x x Number of additional poor households receiving basic water and sanitation services per annum Number of additional kilometres of municipal roads developed Number of additional sport and recreation facilities servicing poor communities developed Number of work opportunities created using Expanded Public Works Programme (EPWP) guidelines for above outputs Outcome 9: A responsive, accountable, effective and efficient local government system Project description (specific details, e.g. number of kilometres of roads to be constructed) Project funding (Municipal Infrastructure Grant (MIG) funding, private as well as municipal own funding) Project category (B-Component, P-component, E-component or N-component) in terms of MIG allocation formula Population benefiting from the project (the grant is biased to rural poor households) Project location (this includes GPS coordinates of the project) Operation and maintenance budget projections Employment generation of the projects Specific indicators (depending on level of service to be provided, e.g.
Conditions x x x x x x x x x Prioritise basic residential infrastructure for water, sanitation, refuse removal, streets lighting, solid waste, connector and internal bulk infrastructure, and other municipal infrastructure like roads, sport and recreation and community facilities in line with the MIG policy framework (2004) and/or other government sector policies existed before the amalgamation of various grants into MIG Funds can be used for new or upgrading basic bulk and connector component of residential infrastructure as a result of the formalisation of settlements subject to compliance with sector policy and compliance on condition that backlogs as at 2001 has been addressed Compliance with Chapter 5 of the Municipal Systems Act (2000).
Allocation criteria x x x Part 5 of Annexure W1 spells out the MIG formula in detail.
Past performance Projected life MTEF allocations Payment schedule Responsibilities of the transferring national officer and receiving officer 2009/10 audited financial outcome x Allocated R11 077 million to municipalities with R9 019 million (78.
2009/10 service delivery performance x Cumulative households benefiting from MIG by end June 2010: water 1 232 643, sanitation 703 121, storm water 166 151, solid waste 312 424, street/community lighting 391 164 x 21 990.51km of roads developed x A cumulative total of 3 934 SMMEs and 2 436 BEE companies were utilised in the implementation of MIG projects x The programme will continue up to 2013 subject to review x 2011/12: R11 444 million, 2012/13: R13 914 million and 2013/14: R14 679 million x Transfers are made in accordance with a payment schedule approved by the National Treasury Responsibilities of national departments x Submit a report within 20 days after the end of each month to National Treasury and other national departments that have responsibilities relating to the grant.
Responsibilities of municipalities x The receiving officer of MIG must, by 2 August 2011, submit all the project registrations forms for the projects to be implemented in 2011/12 to the provincial department responsible for local government x Municipalities must submit to the national department by 28 October 2011, detailed project implementation plans for all the projects to be implemented in the 2012/13 financial year.
Past performance 2009/10 audited financial outcomes x Allocated R200 million to municipalities with R186 million (94.
Conditions x Eligible municipalities must sign a standard incentive agreement with the national Department of Public Works (DPW) x Municipalities must report on all projects for which they are claiming the incentive via national DPW's EPWP reporting systems x Reports must be loaded on the EPWP reporting systems within 22 days after the end of every quarter in order for performance to be assessed for an incentive payment 45 days after the end of each quarter x Municipalities must maintain beneficiary and payroll records as specified in the audit requirements in the EPWP Incentive Manual x Once received by the eligible municipality, the incentive grant must be used for continuing or expanding job creation programmes. Municipalities may use a maximum of 5 per cent of the grant to fund on-site management capacity that is contract-based and required to manage data capturing and on-site management costs related to the use of labour intensive methods.
Allocation criteria x Incentive allocations for each municipality are based on the targeted number of FTEs each municipality must create above the set minimum threshold.
Process for approval of 2012 MTEF allocations x Municipalities must report performance on EPWP projects for the 2010/11 financial year by 21 April 2011.
Local Government Financial Management Grant Allocation criteria x Funds allocated to municipalities to assist in the implementation of financial management reforms, attendance at accredited training and capacity building programmes on financial management x Additional support to selected municipalities in the employment of an appropriately skilled, experienced and suitably qualified chief financial officer x Funds allocated to selected municipalities to improve asset management through the employment of technical interns on water and electricity amounting to R50 million in 2011/12, R75 million in 2012/13 and R100 million in 2013/14 x To address special requests linked to financial reforms as pilot initiatives for wider application to all municipalities x Render support to national and provincial departments for administration of the programme, not exceeding 2.
Reason not incorporated in and energy to lend assistance for the implementation of the MFMA and regulations equitable share 2009/10 audited financial outcomes Past performance x Allocated and transferred R300 million to 283 municipalities of which R256 million (85.
Asset Transfer Regulations x 220 MFMA implementation plans submitted x Effectiveness and efficiency of the BTOs in 283 municipalities assessed and feedback provided to 17 large municipalities, while consolidated data on the 266 municipalities provided to provincial treasuries to strengthen their oversight role and provide the relevant feedback to their delegated municipalities x Support and guidance through the MFMA mailbox provided to municipalities on implementation and interpretation of the reforms x Training of municipal councillors on governance and oversight undertaken upon request x The programme is designed to support and implement the MFMA and associated reforms.
Allocation criteria x Allocations are made to 57 qualifying municipalities who demonstrated the need for township developments that catalyse commercial and social upliftment.
Past performance 2009/10 audited financial outcomes x R551 million allocated in Schedule 6 direct transfers to municipalities, R508 million transferred and R505 million (99.
Process for approval of 2012/13 business plans x NDPG business plans are typically approved on a multi-year basis.
Past performance 2009/10 audited financial outcomes x Allocated R175 million and R171 million was transferred to municipalities of which R86 million (50.
Conditions x Adhere to the labour intensive construction methods in terms of the Expanded Public Works Programme (EPWP) guidelines for activities such as trenching, planting of poles, etc x Register master plans for bulk infrastructure with INEP and abide by the directives of the department regarding the central planning and co-ordination for such bulk infrastructure.
Past performance 2009/10 audited financial outcome: x R932 million was allocated and R914 million was transferred to municipalities with R806 million (88.
Grant purpose x The grant is intended to provide specific capital funding for the eradication of rural water and sanitation backlogs and is targeted at existing households where bulk-dependent services are not viable.
Rx x x x x x x esponsibilities of Water Services Authorities (WSAs) Determine through municipal participatory structures the most appropriate technology per project area Municipality will be responsible for selection of the project areas that provide total coverage as per available funds (e.g. whole ward, village etc) The ownership of assets and schemes developed through the project will not necessarily reside with either of the parties to the service level agreement.
Process for approval of 2012 MTEF allocations x Based on current concentrations of backlogs in rural sanitation as a priority, the Department of Human Settlements must determine the municipalities and specific communities where funding will be spent. Similarly, in respect to the eradication of rural household water backlogs, allocations will be determined in consultation with the Department of Water Affairs.
Reason not incorporated in equitable share x This is a supplementary infrastructure grant with conditions, objectives and distribution criteria, (e.g.
Details contained in the business plans x The allocation of Public Transport Infrastructure and Systems (PTIS) funds must be aligned with the Integrated Transport Plan (ITP) and its IRPTN components as approved by the relevant municipal council x From the start of operations, IRPTN systems must recover all the direct operating costs of contracted operators from fare revenue, other local funding sources and, if applicable, from any Public Transport Operations Grant contributions. These direct operational costs include fuel, labour and vehicle maintenance. City-wide networks must ultimately also recover the capital costs of vehicles x If buses are bought with grant funds and are used by contracted operators, the municipality must retain ownership x Cities are required to establish specialist capacity to manage and monitor IRPTN system contracts and operations as well as to plan future expansions of the network. This capacity must be in place in advance of the first IRPTN operator commencing with service provision to the public x Up to R10 million in the 2011/12 financial year may be used to prepare for the public transport regulatory function (see Responsibilities of Municipalities).
Reason not incorporated in share allocations equitable share 2009/10 audited financial outcomes Past performance x Allocated and transferred R2 418 million to municipalities with R4 279 million (176.
2009/10 service delivery performance x 43 vehicles were delivered to the City of Cape Town and 24 vehicles to Nelson Mandela Bay municipality x The Phase 1a trunk service supported by complimentary and feeder services is operating in the City of Johannesburg. It is 25.5 km with 33 stations and carrying a peak of 34 000 passengers/day x City of Cape Town has constructed 17 km of West Coast route and 17 stations between the Civic Centre and Bayside. An 18.5 km Airport to Civic Centre trunk service is currently operating x Nelson Mandela Bay has constructed 8.45 km of bus way at an average cost of R34.6 million per kilometre x Other cities that have completed operational plans (Tshwane, Polokwane and Rustenburg) have spent most of the PTIS funds allocated up to June 2010 on infrastructure and services for the FIFA World Cup. Tshwane spent over R600 million on road and non-motorised transport infrastructure. eThekwini spent R332 million on strategic projects including R65 million on Warwick Junction, R30 million on electronic ticketing and R20 million on an inner-city distribution system.
Past performance 2009/10 audited financial outcomes x Allocated and transferred R9.8 million to Chris Hani District municipality and R7.1 million (72.
Past performance 2009/10 audited financial outcomes x Schedule 6 direct transfers to municipalities, allocated R871million and transferred R849 million to municipalities with R862 million (98.
2009/10 service delivery performance x 59 agreements signed, 4 903 staff transferred in total, 1 051 staff transferred during 2009/10. Total number of schemes transferred is 1 643 this includes 1 155 rudimentary schemes and 488 schemes with a total asset value of approximating R6.
National Total 34 107 901 37 573 396 39 960 288 34 107 901 37 573 396 39 960 288 65 590 428 71 768 388 76 657 988 65 883 055 71 693 388 76 557 988 1. Includes equitable share formula allocations, RSC levies replacement and special contribution towards Councillor remuneration, but excludes the sharing of the general fuel levy with metropolitan municipalities. See Appendix W1.
Note: The above components of the local government equitable share formula are neither indicative nor guidelines on how much should be spent on these functions.
School(Primary/secondary/specialised;admin block; water; electricity; sanitation/toilet; fencing, etc.) Units(i.e. number of classrooms or facilities orsquare meters) Date: Start Date: Finish 2011/12 2012/13 2013/14 1.
Hospital(Regional/district/central; clinic;community health centre;pharmaceutical depots; mortuary, etc.) Units(i.e. number of beds orfacilities) Date: Start Date: Finish 2011/12 2012/13 2013/14 1.
Surfaced; gravel (include earth and access roads); public transport;bridges; damage structures, etc. Units(i.e. number ofkilometres/squaremetres/facilities) Date: Start Date: Finish 2011/12 2012/13 2013/14 1.