The 2001 MediumTermBudgetPolicyStaternenttabledinParliament on 30 October 2001 contained the 2002 Budget proposals. Chapter 5 and 6 of that document provided infomation on the proposed division of revenue between the three spheres of government, including all grants to provincial and local governments for their 2002103 to 200405 budgets.
This document expands on the MediumTermBudgetPolicyStatement, and provides more detailed information, including the division of grants. between provincial and local governments.
draft of the Division-of Revenue Bill, together WitKan explanatory memorandum,. is published in this document. These documents have in the past only being publishedon Budget Day -the earlier publication for the next budget will enable various stakeholders a second opportunity to comment on the various grants.
The main component of the 2002 Division of Revenue Bill is its Schedules, which contain all the allocations. The memorandum provides further information on the various formulae for dividing suchgrants, and any conditions that may apply. It also outlines the process of consultation to determinethisdivision of revenue, and the response of the national governmentto proposals presented by the Financial and Fiscal Commission. This is also a legal requirement in terms of the Constitution and related legislation.
The Draft Division of Revenue Bill.
Members of Parliament, provincial legislatures, municipal councils, the South AfricanLocal GovernmentAssociation(SALGA)anditsprovincialassociations, the Financial and Fiscal Commission and the public are invited to comment on the four parts of this document: the Bill, its Schedule of Allocations, the Explanatory Memorandumand its Appendix. Comments must be submitted no later than 21 January 2002 in order to be taken into account for the 20 February 2002 Budget. Further participation is also possible during the Parliamentary hearings after the tabling of the Budgets.
All allocations in this document are preliminary, and may change when the Budget is tabled on 20 February 2002. The occasional small differences betweenthe amounts in the memorandumand those in the scheduleof the Bill are due to rounding off of figures.
Like with all National Treasury documents, this document and the Medium Term Budget Policy Statement are available onthe National Treasury website, www.treasury.gov.za.
Section 214 of the Constitution requires that every year an Act of Parliament (Division of Revenue Act) determine the equitable division of resources between the three spheres of government, and the horizontal divisionamong provinces. It also spelis out the criteria for determining the division of revenue, and the consultations necessary before the enactment of the Division of Revenue Act.
The Intergovernmental FiscalRelationsAct, .1997 (Act No 97 of 1997) giveseffect to the Constitution by spelling outthe process of consultation in enacting the Division of Revenue Bill. It establishes the Budget Council and Budget Forum-the consultative intergovernmental forums for the budget process. Sections 9 and lO(4) of the Act set out the consultation process, including consideration of recommendations of the Financial and Fiscal Commission(FFC)on the equitable division of nationally-raised revenues. Section lO(5) of the Act alsorequires an explanatory memorandum detailing how the Division of Revenue Bill takes account of -each of the matters listed in Section 214(2)(a) to (i) of the Constitution; recommendations of the Financial and Fiscal Commission (FFC); and assumptions and formulae used in arrivingat the respective shares contained in schedules 1and 2 of the Bill.
This document is an initialdraft of the explanatory memorandumrequired in terms ofsection 106) of the Intergovernmental Fiscal Relations Act. Although the Act requires this memorandum to be tabled withtheBudgetinFebruary2002,itispublished earlier to allow stakeholders a second opportunity to commenton the proposed allocations. This will also allow Parliament more timetoassess the division of revenue for the 2002 MediumTermExpenditureFramework (MTEF). This documentexpands on the Medium TermBudgetPolicyStatementtabledin Parliament on 30 October 2001.
considered. Part 2 outlines the fiscal framework that informs the division of resources between the three spheres of government. Part 3 sets out how the Bill and the division of resources take into account the matters listed in Section 214(2)(a) to (i) of the Constitution. Part 4 explains the underlyingformulaand criteria for the division of the provincial equitable share between provinces, as well as for the division of conditional grants. Part5 sets out the formula and criteria for dividing the local governmentequitable share and conditional grants among municipalities.
The Division of Revenue Bill and the underlying allocations represent the culminationof extended in-depth consultation. The Budget Council, made upof the Ministerof Finance and the MECs for Finance of all nine provinces, deliberatedon these issues at its annual Lekgotlaon 6 and 7 July and at other meetingson 14 August, 20 September, and 23 October 2001. Consultations over the local government share allocation involvedaMinisterialTaskTeamappointed by Cabinet, a Joint MinMec held on 2 August, and several technical meetings that included the South African Local the FFC were also made at the meetings of the Budget Council and Budget Forum.
Committee on the Budget, composed of national government Ministers, deliberatedon the division of revenue before forwarding it to Cabinet for its consideration.
Cabinet and Premiers of provinces, was also convened on 26 September 2001 to discuss budget priorities and the division of revenue.
The nine provincial-related proposalsare grouped in the following categories: Equitable share (four proposals) Provincial own revenue (three proposals) Contingencyreserveproposal Capitalgrantproposal. The thirteen proposals related to local governments are grouped'in the following categories: Equitable share (two proposaIs) Funding basic municipal services proposal Municipal powers and functions (four proposals) Municipal health services provision (two proposals) Infrastructure funding (two proposals) Borrowing(twoproposals).
0 The need for infrastructure funding, which shouldvary according to policy priorities.
National government concurs with the FFC that it is an overall national responsibility to manage economic and fiscal affairs, and determine the tax bases, tax rates, the level and cost Of servicing thenational debt, and the overall-borrowing requirement. The FFC Supports the approach of national government to deduct debt servicing costs and contingency reserves as a first charge on total revenue collections. The FFC also notes that "any changes to the existing equitable share formula should current as by political The reflect prioritiesdetermined a process". recommendations reflect a need to address a wider spectrum of fiscal issues than in last Year's costed norms proposals.
Government supports the general thrust of the FFC proposals. In fact, the CUrrent approach to the division of revenue and the equitable share allocations assumes that each sphere and each Province and/or local government should be able to fulfil its constitutional mandate beyond the Provision of basic services. It is also informed by variations in fiscal capacities Of the different spheres, but given the poor quality of information available on own revenue, other proxies have to be used to take fiscal effort into account.
The Current approach to the division of revenue is broadly consistent with aspects of the FFC'~ 2001 recommendations.
The 2001 Intergovernmental Fiscal Review emphasised the extent to which the quality of information still has to improve in the public sector. This process, started in 1997, still has to be expanded to the local government sphere and includes the implementation of new budget formats for municipal budgets and the implementation of the Public Finance Management Act and the coming Municipal Finance Management Bill. Whileisitnot possible to properly measurethe cost of services under the current outdatedmunicipalbudgetingand financial system until these reforms are implemented, it is recognised thatbetterinformation on thecost of services is important for further reforms of the fiscal system.
Governmentagreeswith the FFC that provincial andlocalgovernmentsmust prioritise their spending(bothfromtheirownrevenueand equitable share allocation) on constitutionally mandated obligations including the provisionof basic services. However, compliance can only be measured once budget reforms are fully implemented. Provinciallegislatures and municipal councils have a critical role to play in this respect, aided by the annual Intergovernmental Fiscal Review.
The response of the national government is outlined below. Since most of the FFCs provincial proposals are not new, government's response to them is not significantly different from its own past response. However, theFFC's proposals on local government are new, so the response of the national government below is also its first response.
The four 2001 FFC recommendations for the equitable share allocation reflect an ongoing enquiry into the mechanisms for objectively and consultatively determining allocations to provinces. This approach builds on foundations laid in the 2000 recommendations. This memorandum therefore presents the response to the 2000 recommendationsas a precursorto the detailed exposition on this year's recommendations.
The Budget CouncilandCabinetconsidered the 2000 FFC proposals.
A large portion oftherequired information is not currently available. Manyof he desired Output measures, policy parameters and input costs do not currently exist and are difficult or might not be cost-effectivetoprovide. Further, the weights attachedto some of these parameters necessarily involve political judgements.
The allocation process could become biasedin favour of services that can be more easily cost& as opposed to those that are more difficult to cost. Comprehensiveandcross-sectoral determination and agreement on norms and costsseems necessary and this would be a lengthy and difficult exercise.
The cost-based approach can create perverse incentives where provinces are able to act in ways thatincreaseordistortcostsand funding levels. It is unclear how the approach would distinguish cost differentials due to differences in efficiency from those due to factom beyond control of spending agencies. Littleconsideration has been given by the FFC on how such 'moral hazards' can be negatedor minimised.
Policynormsusedtodevelopcost estimates could likely be ambitious, yield unaffordable expenditure projections and reinforce cost-raising tendencies.
The "costed nom approach" could generate unrealistic expectations for additional funds. This could distract from the need by public sector managers to address underlying structural issues that hinder improved service delivery and the effective and equitable use of resources.
This approach creates the impression that provincial education, health and welfare budgets can be calculated at the national level by formula. Overall, dividing resources among spheres by formula appears irreconcilable with the determination of priorities through a political process and could undermine accountabilityfor outcomes flowing from utilisationOfsuch resources.
A review of the current equitable share formula should start by involving the relevant role players in a study to provide clear definitions of constitutionally mandated basic services and other constitutional obligations.
The institutional element for each sphe.
0 The need for infrastructure funding, which should vary accordingto policy priorities.
c. The determination of the equitable shares of nationally collected revenue must proceed from the principle that constitutionally mandated basic services and other constitutional obligations should be prioritised and progressively realised.
8 No. 22920 GAZETTE, d. A review of the current equitable share formula should take account of the pending legislation relating to section228 (Provincial Taxes) of the Constitution and the proposed introduction of a capital grants scheme.
In light of government concerns about the "costed norms approach" (as outlined above), the FFC has been invited to reconsider its Equitable Share proposals. Government concurs that there is a need to develop more precise information to determine the cost of constitutionally mandated basic services and obligations. Such information will improve budget decision-making and could be an important step activity-based In information the 2001 toward costing. collecting for Intergovernmental Fiscal Review, the National Treasury noted the lack of any activity-based cost information, even for large spending centers like hospitals. The collection of more decentralised or activity-based information is being prioritised, but will only be fully achieved in the medium-term, as new budget formats andother reforms are implemented.
The most feasible form of provincial own revenue source are surcharges on personal income taxandfuel levies, in addition to girnbling and bettingtaxes, which are already dedicated provincial revenue sources.
Provinces should be allowed the flexibility to determine their own tax rates within the bands determined by the Minister of Finance.
However, for (a) and (b) above to be operational, given the current tax-to-GDP target adopted by government, taxroomshouldbe created in order to maintain the tax burdenwithin nationally determined targets.
The WC proposals relate to provincial own revenues: proposals for specific taxation authorities; provincial flexibility to determine their own tax rates; and creation of tax room within national targets. These proposals are not new,'and were previously tabled in 1996. National government responded by referring this matter to the Katz Commission in 1998, and thereafter approved a framework in November 1999 in line with the recommendations of the Budget Council Lekgotla. Subsequently, governmentfinaliseda draft Provincial Tau Regulation Process Biz1 that was approved by Cabinet and is currentlybefore Parliament.
The Provincial Tax Regulation Process Bill defines procedures by which the power of provinces to impose taxes is regulated. Under these procedures, a province has control over both the initiation of a provincial tax proposal in accordance with the powers granted to it'under section 228(1), and its ultimate enactment by the provincial legislature.
Budget Council. The submission requirements will facilitate the national review of provincial tax proposals by assisting National Treasury, Budget Council, the FFC and other interested parties in reviewing the merits of each provincial taxation proposal. This includes considering the extent to should be provided within nationally determined taxation targets.
The FFC proposals on provincial own revenue are consistent with government's approach. There are however, slight differences on matters of detail. For instance the ProvinciaI TQX&g&tion Process BiZZ, which is currently before Parliament, envisions identification of specific taxes and rates as an outcome of a technical and political consultative process. In contrast, the FFC has put forward a list of taxes that provinces shouldbe allowed to impose.
One of the taxes proposed by the FFC is a surcharge on personal income tax, a tax option which extensive collaborative research between National Treasury, the South African Revenue Service and the Katz Commission concluded would not be feasible in the current environment. A number of concerns make a personalincome tax surcharge undesirable. These include additional exacerbation of inter-provincial inequalities.
National government, the . Budget Council, and the Katz Commission concluded that a fuel levy surcharge would be less of an administrative burden and has more potential as a future option if concerns about its potential impacts on the nationaleconomy, inflation, and equity canbe resolved. In exploring this option, it willalso be necessary to give consideration to its implications for provincial fiscal capacity and equitable share allocations.
Given the approach of government, it follows that the three FFC recommendations above will be considered in relation to specific taxation proposals made by provinces.
needs for all government spheres and the amounts are approvedin an adjustments budget.
available for equitable share funding and that provinces need financial stability, predictability, and flexibility. Accordingly, itproposes the use of objective criteria in the use Of thecontingency reserve. Althoughtheseconcerns are important, the current process for allocating contingency reserve amounts involves substantial consultation.
On the contingency reserve, government has always engaged in an open consultative process for dividing the reserve amounts, taking into account the spread of unforeseeable and unavoidable spending commitment across spheres. National government is not at this point convinced that it is more efficient for every province to have its o'wn contingency fund. It will nonetheless explore with the FFC opportunities to improve mechanisms for provincial contingencies. This will include the use of criteria for allocating unexpended contingency amounts.
andlor its regulations to ensure stability and predictability inthe use of contingency reserves.
The model is developed for the education, health and social welfare sectors and can be used 10 calculate service and province specific capital needs, as wellas the relative shares for each social sector in a province. The model couldbe extended to cover other functions.
actual grants received and actual capital expenditures. If funds were insufficient to meet the ideal needs, the actuaI transition path wouldfall below the ideal transition path.
The model assumes a 10-year period, from 2001/02 to 2010/11 over which backlogs would be eliminated, assuming a given level of funding per year. Its data inputs, per province, includeactual capital expenditure, efficient capital expenditure, actual capital stock, efficient capital stock for each service and rate of depreciation.
Giventhatinfrastructure is an importantpart of the health, education and rural infrastructure variables of the backlog component, infrastructure needsare part of the relevant conditional grants, and also the equitable share grant as well. Accordingly, the potential practical contributions of the FFC proposed capital grants model should be considered as part of a comprehensive assessment of the equitable share formula's structure and data and its relationship to infrastructure needs funded outside the equitable share formula.
The WC-proposed capital grant model presents some useful ways to analyse infrastructure needs, but national government believes that, in its current form, it would not be practical for allocating infrastructure grants for the reasons listed below.
The model does not take into account the contributions towards capital expenditure from the province's own and equitable share revenue.
The model appears to penalise provinces that made past policychoices to maintain and improve their capital assets, and appears to favour provinces that deferred capital spending.
The proposed model is dependent on data not available atthistime.
Formula data used to calculate dlocations must be independent and safe from manipUlation. me proposed model appears to present opportunities for provinces to present data that Supports increased levels of funding for them.
The scope and detail of the FFC's recommendations on local government are largely supported by nationaI government. Progress in local government transformation requires that financial issues receive specific attention in the forthcoming MTEF cycle, and this contribution is substantive and timely. Some proposals are covered in more detail than others. The FFC has provided two further submissions in July 2001 entitled "Division of municipal powers and functions between district and local municipalities", and "Remunerationof municipal councillors".
recommendations require further work to refine proposals into practical recommendations that can be implemented in the medium to long term. A number of outstanding policy issues, such as the division of non-metropolitan municipal powers and functions between district and local councils, require resolution before these final recommendations can be made. The Department of Provincial and Local Government(DPLG)is currently leading a process to finalise these issues.
An investigation of the implications of these principles for the equitable share formula, funding of districts, funding infrastructure and local government borrowing.
The significance attached to the equitable share mechanism within the fiscal framework for local government is supported, and is already beingimplemented by Government. TheFFC's recommendations regarding infrastructure funding for municipalities, local government borrowing andnon-metropolitanpowersand functions are also supported. The framework should be expanded to spell out the extent and type of local government tax and tariff authority, as well as the role and type of intergovernmental transfers.
The national government does not, however, accept the FFC's suggestion that it provide a once-off conditional grant for debt restructuring and cash flow improvement. The moral hazard implicit in such an approach has been extensively considered and explicitly rejected by government. There is no particular evidence that debt repaymentsare a more significant problem for municipalities than, for example, personnel costs. Itis thus not evident why intervention is required in this instance.
The FFC recommends significant. alterations to the equitable share formula in the long term to improve its accuracy in targeting municipalities with limited tax capacity. The FFCalso recognises the difficulties in making rapid changes, and thus proposes a phased approach to the introduction of reforms. In the medium term, for the beginning of the 2004/05MTEF, it proposes that the local government formula consist of a fiscal capacity measure and an estimated cost of basic municipal services (net of cost-recovery) component. Currently, the basket of services for purposes of the equitable share includes water andsanitation, electricity and refuse removal.
The national government intends, in the interim, to make specific minor adjustments to the current formula, to address problems identified with regardto the funding of the new municipalities.
The national government does not intend making any significant changes to the "S"component of the equitable share grant. As the equitable share is an unconditional transfer, it is unclear what benefit would be derived from introducing further sets of services into the equitable share formula. However, the principle that such funds be included within this transfer mechanism, as opposed to the developmentof a conditional grant, is strongly supported.
The FFC proposalsuseanumber of criteriatodeterminewhethera service is "basic". These include the intergovernmental assignmentof services in the Constitution, that a service must be a basic right and essential for life, part of development and a policy priority. The FFC also stresses the importance of local considerationsandthat some communities mightnot achieve service access in the short term.
The FFC continuestopursueacosted-normsapproach to the vertical division for local government. Although Government has reservations with a costed-norm approachfor the reasons outlined for the 2000 FFC proposals on provincial allocations, it concurs with the FFC regarding the analytical value of more detailed and accurate information on the costing of basic municipal services. This exercise will, however, prove to be extremely difficult at thisstage, given the poor budgeting and classification system. It supports that the FFC undertake a detailed and independent study on current service costs between localities and the underlying costdriversandtheir movement over time.
Government recognises its primary responsibilityfor redistribution, and by implication support for the free basic services commitment. This support is provided for in the equitable share, to avoid moral hazard implicit in a specific conditional grant for this purpose.
However, service delivery subsidies do not necessarily involve cross-subsidies, but to the extent this is what the FFC intends, it must also consider the efficiency costs and potential economic distortions implicit in this approach. This framework and the risks associated with a particular approach need more consideration than receivedto date. The discussion of lifeline tariffs does not recognise the primarily supportive (rather than regulatory) role of national government, but does recognise the importance of a national re-distributive strategy. The central question here is the extent to which local revenue sources can contribute to a subsidisation strategy. Related, the FFC's promotion of a single, supply-side, subsidy mechanismis not appropriate for all localities.
The FFC strongly supports the principle of a single, integrated conditional grant for capital, and its distribution on a three-year basis. It notes that the current fragmentation does not promote an integrated development approach. The FFC also supports a co-ordinated framework for capacity building and welcomes the introductionof the Municipal Systems Improvement Programme.
Government supports this proposal, and has started to implement this framework in the 2000/01 financial year. Giventhat this approach is being phased in over a few years, government also supports the FFC's recommendation to promote better co-ordination betweenvariousnational departments to harmonise the relevant infrastructure grants. Whilst broadly supporting the FFC's recommendationswithregard to anallocation formula and grant-matching, Government recommends. further work before implementingtheseproposals. Governmentnotesthe support from the FFCfor a co-ordinated frameworkfor capacity building.
Further work is requiredon appropriate municipal. revenue instruments, both inthe context of the RSC levies and the broader restructuringof local government. The finalisation of the powers and functions of the sphere and each category of municipality will inform the division of fiscal powers. Though the national government supports, in principle, the relaxation of any spending controls on revenue generated from the RSC levies, this proposal can only be implemented once municipal budgets are more transparent. The municipal budget reforms will require that all expenditure is properly (and consistently) classified and will minimise the risks associated with the removal of these restrictions (for example an uncontrolled expansion of consumption expenditure). Both of the FFC's proposals therefore require more investigation and discussion within this context.
The FFCsupports the national government's intention to promote a local government borrowing market. It proposesarules-basedapproach, andrecommendsregulating the extent to which a municipality may pledge its equitable share revenue to access debt.
The devolution of functions fromnational or provincial government to local government is a complex process, involving not just the shifting of funds (asfunds follow function), but also the shifting of personnel, assets and liabilities. As noted in the 2001Intergovernmental Fiscal Review, the financial impact of shifting staff from provincial to local government can be an extremely costly exercise, which if not managed properly, will squeeze out funds currently available for the delivery of services. Apart from district healthcare, other functions that may be devolved over the medium term include housing and rural water schemes.
A second issue relates to the sequencing of such devolution of functions. This must be informed by a process that prioritises such shifts, as swamping local government with additional functions in an uncoordinated way will risk destabilising that sphere. The timing for such shifts of function must take into account the current capacity of local gov8&nents to perform on their current functions. Further, this approach of decentralisingneed 'notbe', symmetrical, and couldselectively decentralise to categories of municipalities that demonstrate that they are in a position to accept additional functions.
It is in this context that the FFC proposals on district health care must be assessed. This function is currently with provinces and the provincial equikble share formula includes a significant health component. For this reason, the transfer of functions should be duly identified and earmarked in the Division of Revenue Act onthe basis that "funds follow function".
The pace and extent of such decentralisation has also not been finalised, the definition of health service provision has not been clarified and the costs thereof have not been quantified. The FFC proposal that funding for health services be excluded from the local government equitable share for the time is supported.
There are a number of recommendations that the national government is in agreement with and implemented in the medium to long term. A number of outstanding policy issues, such as the division of non-metropolitanmunicipalpowers and functions, require resolution before final recommendations can be made. The timing for implementing many of the reforms must take into account that the new municipalities will require some time to integrate and stabilise their delivery capacity.
Table E-1 presents the medium term macroeconomicframework for the 2002 Budget, as tabled in the MTBPS. The macroeconomic frameworksets out the growth assumptions and policytargets on which thefiscal framework is based.
Before resources canbe divided, provision must be made for national commitments such as debt service costs and a contingency reserve. Debt servicing obligations of R48billion, R50,6billion and R53,l billion are projectedfor the three MTEF years, and the contingency reserveamounts to R2 billion, R4 billion and R8 billion. Once these allocations are deducted, the total to be shared between the three spheres amounts to R232,6 billion, R250,3billion and R266,2billion over the three MTEF years. This pool of revenue is available for sharing between national, provincial and local spheres. TableE-2 sets out the impact' of these decisions on the division of revenue.
Total expenditure allocation National allocation 4,o to the local governmentshare.
The division of resources between the three spheres is determined primarily by the initial baseline allocations in the 2001 Budget (reflecting current priorities), together with the additional priorities identified for the additional resources in the framework. Hence, changes are generally restricted to the margin.
Poverty alleviation programmes, including social.
Providing adequate learning support materialsfor schools.
These priorities determine how the additional allocations are to be divided between the spheres of government. These funds flow towards the sphere responsible for the prioritised functions. The impact of these policy decisions onthe division of revenue is reflected in Table E-2.
The revised budget framework provides for additional spending of R5,3billion in 2002/03and R7,3 billion in 2003/04 compared with the estimates projected for these years in the 2001 Budget.
Most of the additional resources were allocated to the provinces, in recognition of the challenges they face in deliveringsocial services, building andmaintainingeconomic infrastructure, employmentcreation, promotingruraldevelopment and copingwith HIV/AIDS. Local government, which must manage the amalgamation of various local authorities and provide for free basic services, getsalarger slice of additional revenue than its baseline proportion. The increases in the allocations tolocalgovernment are significant, relative to the overall level of resources transferred tothat sphere.
The. national share decreases from40,9 percent in 2001/02 to 402 in 2002/03and further declines to 39,6 percentin2004/05. The share dedicated to local government rises from 3,3 percent in 2001/02to 4,O percentin2003/04. The provincial share also increases, from 553 percent in 2001/02 to 56,4 percent in 2003/04.
Schedule 1 of the Bill is the ZegaZ division of revenue between the three spheres, and is based on fiscal framework Table E-3. The table below indicates how Schedule 1 allocationscan be reconciled with the fiscal framework Table E-2 above.
The national allocation in Schedule 1 (for 2001/02) is the actual amount allocated to the national government for appropriation or as a direct charge (but excluding the provincial equitable share). It includes conditional grants for provincial and local spheres, and (the top-sliced) allocation for state debt costs, which is a directchargeon the National RevenueFund. It also includes the contingency reserve, which is to be allocated in the 2002 Adjustments Budget(orfor the two outer years, to be reviewed in 2003 MTBPS).
The provincial and local government allocations in Schedule 1 reflecttheir equitable share allocations only, and therefore excludes all conditional grants and grants-in-kind.
National share (excl.
0 The promotion of stability and predictability.
This section gives effect to section 10(5)(a) of the Intergovernmental Fiscal Relations Act. It sets out how the ten factors are taken into accountin determining the division of revenue for the 2002 WEF. Before considering the division of revenue, it is important to note the allocation of functions between the three spheres of government.
Functions are assigned to the three spheres of government in schedules 4 and 5of the Constitution. A system Of concurrent or joint responsibilities applies between nationalandprovincial governments for functions like school education, health, welfare, housing, agriculture and urban and rural development. This, in practice, means that national government determines policy and regulates compliance, while provincial governmentsare responsible for implementation. Exclusive functions for provinces includeprovincial roads and traffic, ambulance services, planning responsibilities, abattoirs, liquor licences and so on.
Municipalfunctionsincludeuser fee servic.es like electricity and gas reticulation, water and sanitation services (potable water supplysystems, domestic waste-water and sewage disposal), and public funded services like stormwater management, refuse removal, municipal public transport, fire-fighting services, municipal streets and street lighting. Unlike provinces, municipalities can potentially raise revenue to fully fund the provision of electricity and water, which covers about two-thirds of their budgets. Only about one-thirdof a municipal budget covers tax-fundedservices that do not raise much revenue. Provinces, on the other hand, provide services that do not raise much revenue, and raise revenue for only Spercent of their budgets.
This leaves nationalgovernmentlargely responsible for policy andregulatory functions over schooleducation, health, welfare, housingand agriculture, resulting in small budgets for these departments. Only education has a large budget, but this is for transfers to institutions of higher education.
The ten criteria below are premised on the above division of functions between the three spheres, and their fiscal capacity.
The 2001 FFCreport notes that national interest is a broad concept, in which national government has an interest, although some of these fall under the competence of subnational governments. It notes that national interest could cover functions such as macroeconomic management, defence, internal security, foreign affairs, social security and tertiary education.
A stable macroeconomic environment, strong economic growth, reduced poverty, inequality and vulnerability, low unemployment, reduced crime and an efficient public service are necessary for higher standards of living for all South Africans. Since programmes to meet these goals cut across all three spheres of government, they are appropriately co-ordinated by national government.
Broad-based programmes in the national interest introduced by Government since 1994 include the prioritisation of the social sectors (education, hedth and social welfare), nutrition, housing, the provision of free basic municipal services, municipal andprovincialinfrastructure, rural development, and the "working for water" campaign.
HIV/AIDS cut across departmental programmes and sectors.
Government has also shifted significant resources into the protection services cluster, with priority to the integrated justice system. Government also recognises that South Africa has a growing role inmaintainingregionalpeace and security, and that there is a needto modernise defence capability.
The resources shared among the threespheres of government include proceeds from borrowing by nationalgovernment. The bulk of this borrowing is in the form of savings of South African citizens, with the remainder in foreign savings. In recognition of Government's obligation to repay those citizens and to protect the capacity to borrow at the lowest rates, debt service costs are met before resources are shared. Lower interest rates and retiring debt from privatisation proceeds has resulted in a reduction in state debt costs as a percentage of GDP. These savings release funds for expenditure on government priorities.
The Constitution assignsexclusive and concurrent powers to each government 'sphere. The nationalgovernment is responsible for functions that cross provincial boundaries, including protectionservices, economic services and foreignaffairs. Key priorities are strengthening the integrated justice sector, national roads, railways andother infrastructure development and rehabilitation, restructuring public enterprises and programmes to alleviate poverty, inequality and vulnerabilityandenhance job creation. The national sphere is also responsible for tax administration, financialinformation systems and regulatoryfunctions. National government is responsible for policy development, regulation and monitoring in functions shared with provincial and local government.
The prioritisation of basic services is reflected in the increasing allocations to provincial and local government. This is inlinewith the national objectiveto alleviate poverty and reduce vulnerability. Many budget changes in recent years specifically introduced programmes like the child support grant, free basic municipal services, infrastructure needs, and building capacity to cope with the impact of HIV/AIDS.
Sub-national governments have significant autonomy in allocating resources to meet basic needs and to respond to provincial and local priorities. The division of revenue provides for increases to the equitable share to provinces and local government. This will enablethemto enhance basic serviceslikeschooleducation, primaryhealth, childsupportand other welfare grants and to provide a minimum levelof free water and electricity.
Fiscal capacity refers to the ability of a govement to raise revenue to cover expenditures. The Constitution assigns the primary sources of government revenue to national government. Local governments finance the bulk of their expenditure from property rates, regional service turnover andpayrolllevies, userchargesandfees.: Nationalgovernmentreceives more revenue than required to meet its obligations while the local sphere is only marginally dependent on national revenue, although there are marked disparitiesbetween large and smallmunicipalities. The provincial sphere, however, is dependent on transfers as its expenditure responsibilities exceed its revenue-raisingcapacity. To compensate for this, nationally raised revenue is shared, with provinces receiving the largestshare.
Optionsforincreasingprovincial fiscal capacity throughownrevenue sources continue to be explored. Section 228 of the Constitution requires an Act of Parliament to regulate provincial tax powers. Parliament is currently considering the Provincial Tax Regulation Process Bill to give effect to this constitutional obligation.
All three spheres are strengthening financial management capacity to improve fiscal efficiency. The implementation of the Public Finance Management Act (PFMA), and programmes funded from the Supplementary Grant for Financial Management promote expenditure efficiency. The FinancialManagementGrant assists munici:palities to modernise budgeting, managementand financial management. The' Municipal Finance Management Bill is also expected to take effect next year.
Economic disparities equitable share formulae are redistributive towards poorer provinces and municipalities.
The formulae and criteria used by nationaldepartmentsto distribute someof the conditional grants among provinces and municipaIities also favour the poor. For example, allocation of the Housing subsidy focuses on the urban poor, whilst the Education Quality Enhancement grant distributes resources to provinces with a higher proportion of under-resourced schools.
While the Constitution confers autonomy on provincial governments to determine priorities and allocatebudgets, nationalgovernment retains responsibility for policydevelopmentand for monitoring implementation within concurrent func.tions. Although equitable share allocations and other transfers allow provinces and local government discretion, national policies create mandates. For example, criteria for social security grants are determined nationally, while costs are borne by provinces. Similar examples are in education, health, traffic management and road maintenance.
Most conditionalgrants also fund nationalpriorities to be implemented by provincial or local government. These include grantsfor housing and integrated nutrition.
Predictability and stability revenues, rather than actual revenue. Allocations are not adjusted downwards unless exceptional circumstances lead to a downward revision of the macroeconomic framework or under-collection of revenue. All allocationsare for three years, although only one year is voted for. Further, the Bill beginning of the financial year, provinces and local governments are assured of the amounts they will receive and when funds will be transferred. Greater certainty of revenues improves the quality of budget planning and expenditure projections in all spheres.
Need for flexibility in responding to emergencies government also needs flexibility to respond to changing circumstances, unexpected emergencies and evolving priorities. The contingency reserve provides a cushion against such uncertainties.
Part of the two outer year contingency reserve grants are set aside for allocation during the next two budget years to meet new priorities identified in future. The contingency reserve for 2002/03 is to be fully allocated in the middle of the financial year, during the adjustments budget, when funds are allocated for unforseeable and unavoidable'' expenditure.
The Constitution entitles provinces to a share of nationally raised revenue. National transfers to provinces comprise more than96 percent of provincial revenues, of which 88,7 percent is through the equitable share (see TableE-4). The remaining 11,3 percent flows through conditional grants. Provinces raise less than4 percent of their revenues from own sources.
The provincial equitable share allocation funds the bulk of public services rendered by provinces.
R133 billion in 2004/05. The equitable share is divided betweenprovinces (referred to as the horizontal division) using the provincial equitable share formula. This section explains the formula.
The structure of the equitable share formula has been retained for the 2002 Budget. The formula, however, has been adjusted to reflect the increased spending on social services in provinces and new data. Firstly, the weighting of the social services components reflect expenditure on these services over a three year period. Based on expenditure data reported in the Intergovernmental Fiscal Review 2001, which indicates that welfare as a share of provincial expenditure in 2001/02 has risen to 19 percent (and reaches a high or 25 percent in Northern Cape), the weight for the welfare component hasbeenincreased by one percentage point. A balancingreductionin the . weight of the economic component is also effected. Secondly, the formula has been updated for latest enrolment data in education. The data used in the education updateis the average of the past three years (1998,1999and 2000) obtained from Department of Education.
An education share (41 per cent) basedon the size of the school-age population (ages6-17) and the average number of learners enrolled in ordinary public schools for the past three.
An institutional component(5 per cent) divided equally among the provinces.
Table E-5 shows the current structure and distribution of the shares by component, and the target shares to be reached by 2003/04. The elements of the formula are neither indicative budgets nor guidelines as to howmuchshould be spent on thosefunctions. Rather, the components are weighted broadlyin line with expenditure patterns to provide an indicationof relative need.
State Free 63 63 7.
Northern 154 13,3 13,7 12,l 3,O 11,l . 22,9 13,6 Province North West 8.
The education component targets primary and secondary schooling, which accounts for roughly 90percent of provincial education spending. Both the population of school goingageand enrolment numbers are used to reflect the demand for education services. The school-age cohort, ages 6-17, is double weighted, reflecting Government's desire to reduce out-of-age enrolment. The enrolment figures have beenupdated for the 2002 Budget, taking into account the average enrolment of the last threeacademic years (1998, 1999 and 2000) provided by the national Department of Education.
Total 12 184 10 930 100.
medical share weighting 7..
Free State 467 2 166 6.
The welfare component captures provinces' responsibilityfor providing socialsecurity grants. The constituent partsreflect the targetpopulations of social securitypayments, weightedby the distribution of expenditure foreachtype of grant. For example, the bulk of social security payments are old-age pensions. Means testingof grants is reflected throughan income adjustment basedon the provincial share of the populationin the lowesttwoquintiles of the income distribution. This information was drawn from the 1995 Income and Expenditure Survey, which has not been updated. Data from the Department of Welfare on actual expenditure by grant type indicate that the current. weightings are still appropriate. Nevertheless, these weights do not make explicit provision for the child support grant, although the vertical division of revenue takes this into account.
75,O 25,O 100,o Eastern 19,l 'I7,4 18,O 24.
The economic activity component is a proxy for provincial tax revenue, directing a proportion of nationally collected revenue back to its source. It also reflects costs associated with economic activity, such as maintenance of provincial roads. The best indicator for economic activity in a province is the Gross Geographic Product. In 1999, the distribution of employee remuneration roughly 60 percent of provincial GGP and the GGP figures had not been updated since 1994.
2001, Government decided not to adjust this component of the formula, pending publication of new GGP data. The latest remuneration data reflect unstable trends.
GGP data raises concerns about the accuracy of data in the economic activity component.
West North 5,7 Western Cape 14,4.
In 1999,the basic component was split into a basic share distributed by population and a backlog component.
Total 100,o 100,o100.
The institutional component recognises that some costs associated with running a governmentand providing services are not directly related to the size of a province's population. It is therefore evenly distributed between provinces, as was the case last year. It constitutes5 percent of the total equitable share, of which each province gets 11,lpercent (asshown in tableE-5).
The formula determines the equitable share for each province. In 1999/2000, two years after the formula was introduced, data for the 1996 Census was published. The data reflected demographic profiles that were different from the preliminary census results used in the formula. Given the need to ensure stability in provincial budgets, it was agreed that revisions to the formula should be phasedinover five years, from 1999/2000 to 2003/04. The target date of 2003104 hasbeen retained, so that the formula is fully implementedat the start of the 2003 MTEF cycle. Table E-1 1 shows the phasing.
Free State 6,8 63 61,7 2,4 2.
Schedules 3 and 4 of the Division of Revenue Bill lists all the conditional grants to provinces. Conditional grants are a small but significant portion of. provincial revenue: These grants were introduced in 1998/99 to support national priorities, particularly in the social se&ces sector.
Address backlogs and regional disparities in social infrastructure.
Except for the housing subsidy and HIV/AIDS grants, no significant changes are made on the globalallocations for conditional grants in the 2002 MTEF. However, significant changes are introduced in the policy frameworkunderlying some of the grants, particularly in health and housing. Certainpolicyequity have restructuring and considerations necessitated and rationalisation of health grants in the coming Budget.
The provincial grant framework for conditional grants addresses problems that emerged with the implementation of conditional grants.
Giventhecomplex system ofintergovernmentalrelations, a set of principles to guidethe budgeting process across all three spheres of government has been developed. These principles not onlypromotetransparency, butalsoensure accountabiliti, better auditingof actual spending, better planning and implementation of conditional grants.
Accountability arrangements should ensure that national departments administering conc grants properly exercise their (fiduciary) responsibilities.
Table E-12 and E-13 provides a summary of conditional grants by sector for 2002/03,and the allocationbetweenprovinces. Of the total conditionalgrantsallocationin 2002, the largest allocation is made tothehealth sector (R6,3 billion), followed by the National Treasury (R4,l billion) and the Department of Housing (R3,8 billion). The Education and Welfare Departments administer relatively small but important grants for the improvement of financial management in these sectors. Fourprovinces, Gauteng, KwaZulu-Natal, WesternCapeand Free State, benefit most from tertiary services and training grants. Significantly, they provide specialised services to allcitizens. Otherhealthgrants flow mainly to poorer provinces. What follows below is a summary of all the conditional grants listed in the Schedule 3 id 4 of the Bill.
Appendix to this memorandum contains more detailed information on every provincial conditional grant.
2004/05. They constitute about 42,6 percent of the total conditional grants to provinces. Apart mainly fund tertiary services and training. The health sector's new framework for the tertiary services and training grants provides for a major reconfigurationof the three tertiary services and training grants, with the view of making them more equitable. The new framework provides for the rationalisation of the three grants into two: national tertiary services grant (NTS grant) and a health professional and development grant(HPT.D grant).
The NTS grant amounts to R3,7 billion in 2002/03, increasing to R4,2 billion in 2004/05. The NTS grant will fund tertiary units in 27 hospitals compared to the current central hospitals grant which only funded ten central hospitals. This requires redistribution of funds from Western Cape and Gauteng to otherprovinces. WesternCape and Gauteng are expected tofundanyresulting shortfalls from their equitable share or ownrevenue. In order to givetheseprovincestimeto adjust to lower levels of funding from the grant, the shift between provinces will be phased in over five years, subject toan annual review to acceleratethis process. The basis for the grant allocations isthe actual cost of selected tertiary services identified and is costed in the recent two-year research project. Since the cost methodology underlying the new grant includes certain training costs, part of the health professionals training and research grant has been incorporated into the NTS Grant.
The HPTD grant consists of several components. The largest is distributed to provinces according to a formula based on the number of current medical students. This component will be subject to further analysis and research over the coming year. A new componentof the grant, amounting to R227 millionover five years, will beintroducedin 2002/03. Thiswill provide for a phased increase in the number of medical specialists and registrars in under-served provinces to address inequities highlighted in the in the 2001 IGFR. The aim is that 25 percent of post-graduate training capacity should be developed in provinces that presently do not have such capacity. The allocation for the HPTD grant isR1,3 billion in2002/03.
The INP is targeted at poor provinces with high populations of school children. Eastern Cape, Northern Province and KwaZulu-Natalreceiveabout 63,5percent of the allocation. This grant increases toR617 million in2004/05 after being kept constant at R582 million. The Department of Health is also finalising a review of this grant that will inform any changes in its administration and the level of funding for the 2003 MTEF. Discussions are also underway to consolidate other health grants like the hospital management and health component of the provincial infrastructure grant into the current Health conditional grants under the National Treasury vote.
The Department of Education manages grants for financial management and quality enhancement inschools as well as for early childhood development(ECD). Thefinancialmanagementand quality enhancement grant was introducedin 1999/2000 and was to be phased out in2002/03. But the Department of Education proposed that the grant be retained to consolidate the gains achieved over the last three years in improving outcomes in education. The grant plays a pivotal role in the implementation of TXsaao. No changes are proposed to the baseline allocations of this grant.
The ECD grant was introduced in2001/02, Ad is phased into the equitable share in 2003/04. The rollout of the programme, to be phased in overtenyears, willbefundedprincipally from provincial equitable shares.
The national Department of Education implements two projects through funding from the national special poverty relieffund. The projects are for school building (ThubaMakoteproject)and traininganddevelopment of adult learners(Ikheweloproject). These are considered indirect transfers as their outputs will benefit provinces, even though the national department implements them. Thuba Makote project is an initiative by the Department of Education to develop and pilot cost effective approaches to the design, construction and management of school facilities which can also serve as centres for community development. The allocation for this project amounts to R34 million in 2002/03, increasing toR64 million in2003/04. The Ikhwelo projectaims to provide access to literacy andskills development to adult learners. It develops trainers who will train adult learners in agriculturaland SE skillsinadditionto literacy. The allocation for Ikhwelo increases fromR25 million in 2001/02 to R50 million in 2003/04.
The provincial infrastructuregrant grows from R800 millionin 2001/02 to R1 550 millionin 2002/03, R2 314 million in 2003/04 and R2 853millionin2004/05. This brings the total infrastructurefunds available through this grantto R6,7 billionoverthisperiod. To facilitate effective use of the grant to deal with backlogs, the provincial division has been effected using he average of the percentage equitable shares and the backlog component. This enables government todirect funds towards provinces with large backlogs, withoutneglecting provinces that have inheritedhigherlevels of infrastructure. Provinces are expected tousethese funds mainly for rehabilitation and construction of roads, schools, and health facilities and to address the specific infrastructureneeds for rural development. Provincialtreasuriesadminister this grant. The allocationsareto be made to the line departments responsible for the implementation of the infrastructure projects. Provinces are also expected to build capacity in treasuries to oversee the implementation of infrastructure plansandcapitalprojects as inadequatecapacityandpoor planning have been major reasons for under-spending of capital grants.
The flood disaster reconstruction grant is used to assist with the reconstruction and rehabilitation of infrastructure damaged by floods in 1999/2000 in affected provinces (Mpumaianga, KwaZulu-Natal, Northern Province and Eastern Cape). The 2002 Budget frameworkalso sets aside funds for flood reconstruction amountingto R400 million in2002/03and R200millionin 2003/04,for spending in provinces.
The Departmentof Housing administers two grants. The Housing Subsidy Fund providessubsidies for low incomehousing, and thehuman settlement redevelopment grant funds pilot projects in urban areas.
The Department of Housing hastakenanumber of policy decisions which impact on the framework for the housing subsidy grant. These include a shift in financing policy to urban areas, recognising the magnitude of housing backlogs; a focus on improving the quality of housing units being delivered;an increase in the maximum housing subsidy level from R16 000 to R25000;and implementation of medium density housing.
In order to enable the departmentto implement the new policies whilst still reducing the amount of backlogs in housing, the grant increases by R300 million, R579 million and R574 million above baseline over the next 3-year period. This will raise real growth in housing expenditureto about 6 per cent a year.
The Department of Housing has reviewed the formuIa for allocating funds between provinces in ordertoalign it with the new policy direction for prioritisation of urban. and medium density housing.
Population based on the 1996 Census (20percent).
In order to reduce the impact of the formula on the losing provinces, it was phasedin for the first two years by applying it only to the additional allocations to the 2001 baseline. The old formula wasretained for the baseline allocations. For 2004/05, theformulawasapplied to the total allocation for the grant.
Most of the social development grants have been phased out. The Financial Management Grant will be phased out this year andR11 million is set aside for provinces in 2002/03. The HIV/AIDS grant is the most important onein the department as it provides for increased pressureson home-based care.
Government started implementing an integrated strategy for HIV/AIDS through the social service departments (education, health and welfare) in the 2001 Budget. The strategy focuses on care and support for children and youth affectedandinfectedby HIV/AIDS. Provinces were allocated R110million 2001/02,31 per cent of which is allocated to health departments for HIV testing and counselling and for home based care while58percent is allocated to education for implementation of lifeskills programmes in schools. Mindful of the need to step up HIV/AIDS programmes, government is setting aside increased amounts to earmarked allocations for a special programme over the MTEF amounting toR320 million in, 2002/03, R422 million in 2003/04and R546 million in 2004/05.
The education sector is responsible for the roll out of lifeskills programme in schools, and the Department of Social Development is responsible for the development of home-based care. The HIV/AIDS grant allocation to Educationincreases from R63,5million in 2001/02to R142 million in 2002/02,and Social Development share increases fromR12,5million toR46,5million.
Consultations are taking place over implementing the key reforms to consolidate and rationalise conditional grants in time for the2002Budget.
Implementationof the decision that smaller grants like for hospital management, andpart of the rehabilitation grant, are to be incorporated into the national tertiary services grant.
The rationalisation of all infrastructure grants into one big grant, or into three specific grants (education, health, roads) the infrastructure and including provincial grant hospital rehabilitation grant.
Possible incorporation of supplementary grant into the provincial equitable share.
Revenue for the localgovernment sphere is derived from taxes anduser charges raised by municipalities. Grantsfromnationalgovernment, including the equitable share and conditional grants, comprised about 7percent of the R58billion spent by local government in the 1999/00 financial year and 73percent in2000i01.
There has been a significant increase in allocations to, local-government for the 2002/03MTEF. This includes major increases to the equitable share and the addition of a conditional grant to assist municipalities with once-off transition costs arising from demarcation. In total, national transfers to local government will increase from R6,9 billion in 2001/02to R10,6 billion in 2004/05,an averageannualincrease of 15 percent. Table E-14belowreflectsnational transfers to local government by major category.
Equitable share allocations are made to primary municipalities, withoutconditionsattached. Allocations are made in terms of a policy framework described in The Introduction of an Equitable Share of Nationally Raised Revenuefor Local Government (Department of Finance, 1998),and administered by the Department of Provincial and Local Government.
Grants-in-kind are made when municipalities perform certain services on behalf of national or provincial government, or are subsidised by a national or provincial department that provides a service for which a municipality is responsible. An example of the former are certain health and emergency services; an exampleof the latter is the Water Services Operating Subsidy.
Nationalgovernment is continuously refining the system of intergovernmental transfers to municipalities in order to improve efficiency, equity, transparency and predictability.
0 Requiremunicipalities to show allnationaland provincial transfers on their budgets and periodically report on outputs achieved by conditional grant programmes.
As with provincial transfers, conditional grants for local government are being rationalised and consolidated. Whilst there has been significant progressin 2000101, the bigger challenge in future years will be to identify and consolidate grants-in-kind to local government. Grants-in-kind take the form of beneficial support in municipal services or infrastructure delivered by a national or provincialdepartmentsdirectly to municipalities, often as aresult of municipalcapacity constraints. Thesegrants, however, inadvertently lead to perverse outcomes, withhigher-than-affordable levels of services provided and the municipality often refusing to take ownership or transfer of the assets created due to operational and maintenance concerns. These generally are historicalfunctions that were provided by national andprovincialgovernmentand include, amongst others, sector functions such as water and public works. Work is underway to identify and map out a path to address someof these challenges. More details should be available closer to BudgetDay 2002. A major impediment, however, is the pace at which the newly demarcated municipalities will fully amalgamate, and uncertainty whether they will take due responsibility for services in their areas of jurisdiction.
Given that the municipal financial year commences in July, and due to the need to update data, the division of revenue and grant allocation by municipality is less urgent. The aim is to finalise the horizontalallocations for municipalities by Budget Day, after consultations between national departments and organised local government. The completion date for this process is set for 31 January 2002, and details will be announced by Budget Day, February 2002.
The equitable share for local government is meant to be an unconditional operating grant, with its formula for division betweenmunicipalitiesbased on the principles of equity, transparency, predictability, andaccountability. Itwas first introduced in the 1998/99financialyear and it replaced the previous intergovernmental grants transferred through provinces, and whose division between municipalities differed between provinces and lacked transparency.
Three operating grants currently in place are also expected to be incorporated into the equitable share.
The Water Operating grant, funded through the augmentation of the Water Services Account on the DWAF vote, funds the operation of retail water schemes owned and run by DWAF. These schemes are intended for transfer to municipalities, although little progress has been made on this to date.
The schemes may also require refurbishment before transfer. Little funding is provided for this to occur. The funding for refurbishments generally declined on the basis that funding is already available in the rural water capital programme.
The Department is currently preparing for the transfer of these schemes to municipalities, in line with the constitutional allocation of functions. Once funding for these schemes has been incorporated, it will significantly enhancethe ability of municipalities to address the challenges of providing free basic servicesto poor households.
The Local Government Transition Grant, aimed atsupporting municipalities through the transition process by partially assisting with once-off costs directly related to the amalgamation, is planned to be absorbed into the equitable share in the 2003/04fiscal year.
The R293 grant has already being incorporated into the equitable share in 2000/01, though it is not divided in terms of the formula. This grant covers towns under the old homeland administrations, and involved the transfer of staff and assets from provinces to municipalities. In 2000/01 the R293 allocation for municipal functions (R447million)wasincorporated into the local government equitable share. Based on the number of people actually transferred to municipalities or retained by provinces, the local government equitableshare increased byR358million whileRlO5 million remained with provinces. Based on previous agreements with local governments, municipalities are guaranteedtheircurrent R293 grantallocationsuntil 2003/04. Thisallocationwill be incorporated into the equitable share from the2004/05 financial year.
Provided to low- income households.
The components of the local government equitable share formula and the underlying data in the formula are reviewed in the remainder of this section. A review and update of the formula was made possible by the finalisation of demarcation, regular updates to poverty data by Statistics SA and the FFC recommendations. Improvements to the formula are described in this section.
Derived household income(derived, that is, from all recorded personal incomes of household members plus the households additional income and remittances received) reported in four income classes: less than R 800 per month, R 801 -R 1 100 per month, R 1 101 -R 1500 per month and more than R 1 500 per month.
Population of old municipalities falling within each new municipality.
It assumes thatthere are economies of scale in the overhead operating costs in relation to population, so that as the population rises, the I grant per capita falls.
It declines as the average income of the municipality increases, so that for a given population size, poor municipalities receive'ahigher I grant than rich ones.
where I is the institutional grant.
(I, was set at R61 750 in the 2000/01financial year).
P is the population in the municipality.
y defines the economies of scale (which has been set at 0,25),andy is the average income per capita in the municipality.
0.05b -180)Pxrepresentsnormative rates income and assumes that individuals will pay 5 percent of their income towards property taxes once the poverty threshold of R180 per month (equivalent to R800 per month for households) has been taken into account.A normative rates approach was taken so that municipalities couId not manipulate the I grant by imposing low rates.
Given that a period of new institution-building commenced in 2001/02and will continue for some time, the "I"grantportion of the equitable share was increasedinitially by 30 percent in the 2001/02 Budget and will be increasing by a further 42 percent in2002/03.
The above formula was adjusted from2001/02 since a change in the R800 poverty threshold was adjusted to RllOO (see below). This resultedinachange in the "I" Grant formula from 0.05(y -180)P to 0.05Cy -250)P.
The S grant is designed to meet the operating costs of providing basic services to low-income households. Forthisreason, theformula requires an estimate of thenumber of people in households below the poverty level for each local authority.
a is a phase-in parameter between zero and one based on the municipality's classification as metropolitan, urban, or rural.
p is a budget-adjustment parameter, set to adjust the size of grants to the available budget.
H is number of households in poverty.
The value of a was set differently for metropolitan/urban municipalities and rural municipalities. In 1998/99 the rnetro/urban a was set at 0,6 for urban areas and0,l for rural areas, the justification being that the proportion of the poor population actually in receipt of basic services would differ between urban and rural areas. The values for a were set to increase each year until they reached l, O. The metrohrban a was set at 0,7 in 1999/2000 and the rural a was set at 0,25. To increase stability during the transition to newly demarcated municipalities, the a's were not changed in the 2000/01 allocations. The regular phase-inof the a values resumed for the 2001/02 allocations and accordingly set to 0,8 for the metrohrban a and 0.4 for the rural a.
0.9 (urban) 0.55 (rural), for 2003/04, 1.0 (urban) 0.7 (rural)and by 2004/05 both alphas will have been merged.
municip&ies. This distinctik-kpt a feature of the final local governmentdispensation. Therefore reconsideration of 01 (coveramer) in the S grant formula is necessary. Although Statistics' SA nolongerclassifies municipalitieshts-utbe orrural, enumeratorareaswithin municipalities are classified in this way. In future, the formula will use census data to determine the population in urban and rural areas within each municipality. It will use different values for cx for each, so that average value for a varies across municipalities. The more urban the municipality, the higher would be the average value for a.
It should be stressed that these cost estimates are indicative. A study is underway to update the costs of this indicative basket of services.
Up to the 2000/01 financial year, the derived household income, supplied by Statistics SA, was used to determine the number of poor households. In a study for Statistics SA in 2000, an alternative was developed to the derived household income method. This new method imputes an income to each household, using regression results of income on a range of variables from the 1995 Income and Expenditure Survey (IES). The relevant variables in the 1996 Census are then used to predict income for each household.
The initial formula proposed by National Treasuryon the inception of the equitable share included a TI(tax capacity) component for intra-metropolitan tax equalisation that was not implemented.
This was because the regional service levy income at the metro level reduced the need for spillover transfers. It has becomenecessary since demarcation to include this component, in order to replace the inadequate fiscal capacity measuring in the IT' grant.
Varying definitions of property tax bases in different parts of the country.
The Property Rates Bill will introduce a more uniform system of assessment, but will probably only be enacted in mid-2002. Current data submitted to National Treasury do not follow uniform reporting formats, and data generated through budget reforms is only available for a few pilot municipalities. Measures are being implemented to address this situation. The FFC is currently working on proposals for fiscal capacity measures, assessing the availability ofdata for each proposed measure and modelling the distribution effects of various options.
To prevent potentially serious disruptions in services of those municipalities that faced substantial declines in transfers as a result of the implementation of the equitable share system, municipalities are guaranteed to receive at least70 percent of the allocation of the previous year. Municipalities received either the "I" plus "S" grant or the guaranteed amount, whichever is the greater. R293 grant allocations are additionalto the guaranteed amount for 2001/02 to 2003104 and no further.
For new municipalities made upof several complete old local municipalities, the guaranteed amount for 2001/02 was set at 70% of the sum of the 2000/01 allocations to all the component old municipalities. A decision will be made based on current research on whether to continue with the guarantee.
0 For newly demarcated municipalities that are composed of parts of existing municipalities, the guaranteed amounts were determined by splitting the 2000/01 allocations between more than one newly demarcated jurisdiction on the basis of population numbers.
The equitable share allocationis generally distributed directly to Category A and B municipalities.
Category B municipalities that are institutionally weak and have limited treasury functions, in which case the relevant CategoryC municipalities may be obliged to provide basic services on their behalf.
Schedule 5 of the Division of Revenue Billpresentstheconditional grants to municipalities.
Incorporate national priorities in municipal budgets.
Promote national norms and standards.
Effect transition by supporting capacity-building and structural adjustments.
Address backlogs and regional disparities in municipal infrastructure.
Although there are several administration and functional problems around conditional grants, no significant changes are made on the global allocations for conditiond grants in the 2002 MTEF. However, significantchanges are introduced in the policy frameworkunderlying some of the grants, particularly in infrastructure and capacity-building. What follows below is a summary of all the conditional grants listed in the Schedule 5 of the Bill. Inaddition, the Appendix to this memorandum containsmore detailed information on every local government conditional grant.
Foster linkages between integrateddevelopmentplanning, process Develop project management skills in municipalities.
The Municipal Systems Improvement Programme was created in the 2001 Budget to serve as a conduit / medium to move towards consolidationof these capacity-building initiatives.
Restructuring support to large and smaller municipalities is effected through the Restructuring Grant and Local Government Support Grant respectively. The Restructuring Grant provides an opportunity for large municipalities toaccess funding to implement medium-term fiscal and institutional restructuring exercises, on the basis of their own restructuring plans. It is a demand-driven grant that encourages municipalities to become financially self-sustaining in the medium- to longer-term. The Local Government Support Grantassists smaller municipalitiesin financial crisis through both management support and emergency funding. The grant is increasingly focused on assisting these municipalities to restructure their mediurn-tem fiscal positions and thusavert future crises...
Both grant programmes are projected to decrease in the medium-tern, due to limited take-up of funding to date and the implementation of strategic capacity-building programmes.
Studies of the efficacy of existing municipal infrastructure grant disbursement mechanisms have identified the need torationalise the number of grants to municipalities and to improve the mechanisms for the disbursement of these transfers. These proposals come in response to problems of inequity ingrantdistributions, as well as flaws in arrangements forfinancialaccountability identified by NationalTreasuryandtheAuditor-General. Rationalisinganddecentralising disbursementarrangementswill offer clear benefitswithregardto the sustainability of infrastructure investments, the transparencyof allocations, and accountability for outcomes.
Grant rationalisation and disbursement reform correlate with recommendationson fiscal transfers. Moreover, such changes are opportune in the current stage of the local government transition, as they provide municipalities with a time of rapid change.
TheConsolidatedMunicipalInfrastructureProgramme (CMIP) hasbeentransformed from a project-based disbursement mechanism to a formula-based mechanism in the 2001/02financial year. This approach willserve as aframework for one overall capital infrastructure grant mechanismgoverned byan interdepartmentalteam. Consolidation of transfers and greater transparency in the allocation process will allow challenges related to co-ordination between the infrastructure and housing programmes to be addressed.
The rationalisation of the capital transfers to municipalities through the incorporation of other capital grants into CMIP is expected to be complete by 2004/05.' These grants include the CommunityWaterSupplyand Sanitation Programme, the Community BasedPublic Works Programme, the Urban Transport Fund andthe Local Economic Development Fund.A framework for the phased consolidation of these programmes will be published shortly. The framework will also address the respective roles and relationships between infrastructure grants, municipal own revenue (such as that derived fromRSC levies) and municipal borrowing.
Consultations over the implementation of the reforms to conditional grants are taking place at present, withtheintention to complete these intime for the 2002 Budget.
The incorporation of grants-in-kind, such as the Water ServicesOperatingSubsidy, into the equitable share for local government.
The end result of this process. will be a more simple system of three or four large grants that responds directly to government's key policy objectives. Consolidation will improve coordination between the objectives, provide an easier framework for administration and the measurement of performance, and ensure that the distribution of grant betweenmunicipalities is transparent, predictable, policy-sensitive and fair.
The National Government intends to publish three-year allocations to municipalities for all grants by Budget Day. This will, however, require progresson the division of functions between category Band C municipalitiesand on progress on the framework for the infrastructure and capacity- building grants.
This appendix providesa brief description of the framework for each grant to provincial governments.
Total 5 977 779 6 275 6 674 711 46 No.
1 April 2002. Provision of designated national tertiary services. Provision of services atactiiity levels asagreed between the Province and the national DOH. Adoption of a restructuring plan for gaining provinces by31 January 2002. Agreementsto be completedby 28 February 2002.
The need to support the provision of tertiary services in provinces will continue into the foreseeable future..
Equal monthly installments-normally on the 1Om day of the month.
The grant funds existing services and ongoingactivities so the capacity to spend is in place. The preparednessofthe national Department of Healthhas a designated unitto monitor thegrant. There is a constant need transferring department to improve information on actual service delivery and costs to facilitate monitoring and planning.
Initiate development of long term plan for tertiary services.
North West 34 200 34 189 34107 34111 Western Cape 1 011 436 I. . . I a30 510 1049252 1072 703 Total 3 453 080 . ' ' 3 606 842 3 892 849 4 151542 48 No.
Payment schedule Capacity and preparednessof the students training.
Enable shiftingof teaching activities from central hospitals to regional and district facilities.
Number and composition of health sciences students by province and institotion.
e Location of practical training placements by discipline and institutionby level.
Health, on the training of all medical personnel by institution, including any subsidies and other associated costs.
fieen days after the tabling Provinces to create and budget for additional posts related to registrars and specialistsasagreed with national DOH and the deans of medical faculty in universities.
e Timely submission of monitoring information asagreed with National Departmentof Health (DOH). This should include annual reports on additional numbers of registrars and specialists in gaining provinces.
with national human resource development policy.
Equal monthly instalments-normally on the 1Om working day.
Western Cape 308776 . ..
Number of hospital facilities upgraded and revitilised.
Strategic plan of provincial health department to be tabled 15 days after provincial budget must contain detailed information on hospital capital and maintenance projects, as well as the priorities identified in Strategic Position Statements.
Strategic plan to include full provincial strategic health services plan.
Compliance with Integrated national planning framework and reporting requirements.
Allocations in outer years will be dependent on progressive increases in maintenance budgets.
The results of theCSlR 1995 hospital audit provided a basis for determining a backlog index, which is used as the basis for equitable division of funds between provinces.
The capacityof the province to spend the funds also plays a role. Major capital construction or large projects identified as national priorities willbealsofunded from this grant.
To ensure that provincial health departments transform and modernise the hospital sector in line with nationally agreed goals.
All funds were transferred to provinces, which reported under-spending of about R77 million Under spending of the grant has occurred over the years mainly due to inflexibility of the present grant structure and poor provincial cash flow projections.
Cash-flows of currently committed projects indicate the grant allocation indicates that all fundswill be spent, however, a small under-spending is expected.
This capital programmeis expectedto take at least 10 years to implement.
The department is supported by European Union (through resident consultants) and engages the services of the private sector to monitor progress in the implementationof the projects, and to provide necessary support to provinces.
Project implementation (business) plans and any other requirements finalised by 31 January 2002.
To contribute toward the funding of new construction for Pretoria Academic H0sp.M in Gauteng,.
quaternary services to benefit all provinces. Status reportsare received regularly and the construction site is visited every2-3 months for progress assessment.
When the commissioning stage has started the frequency of reports andsite visits will increase to once a month. Conditional grants have been allocated for in the Eastern Cape in the past three years.
To improve the nutritional status of South Africans; specifically to enhance active learning capacity and improve school attendanceof primary school learners from poor households. Increase in the coverage of primary schools that qualify for the feeding programme. Increase in the coverage of planned school feeding days from85 percent to100percent Reduction in underweight, stunting and wasting among children under 5 years. Regular arowth maintaining and promotion of children under 2 vears old.
Feeding in all poor, primary schoolsis the priority of this grant feeding days, cost per meal.
Greater role of school boards in monitoring program.
All provinces to report on actual spending on a monthly basis.
0 Although funds have been flowing as scheduled, under-spending has occurred at provincial level. It amounted R48 million in 2000/01.
Options will be considered for this grant following comprehensive review of administrative problems and effectiveness of the grant.
Table proposals on the grant framework based on the recommendations Of thereviewby 30 June 2002.
Implementationof home based care as a management option between 15-49 years within three years, with specific targets for the youth and rural communities.
Develop200 home based care teams over the next three years.
A decrease in the number of children bornto HIV positive mothers.
e Interventionsto addressunder-spendingto be implemented. Appropriate usage of additional funds for HIVIAIDS allocated via the equitable share for improved Sexually transmitted disease, TB control and other health care interventions. Clinics involved in administering PMTCT should be offering antenatal care (ANC) services. ThePMTCTprogrammeshould be administeredby trained people.
Allocation criteria Based on the national survey conducted in1999 on thestatus and availability of voluntary counselling and testing in all provinces which also informed the decision to prioritise Eastern Cape, KZN, Northern Province and North West provinces.
Systemforquarterlyreporting on progress is in place. Provincial liaison and technical support visits by membersof the national Departmentof Health.
All funds were transferred to provinces, which reported under-spending of about30 percent.
capacity building at the provinces.
kansferring department provincial and national level.
Improved learner participation in and the effective teaching of mathematics, science and technology, also targeting disadvantaged female learners to enter gateway subjects and critical professions.
incorporated in national education prioriiies for improvement in management and outputs of the education system.
DeveloDment of an effective system to guide the process of the transformation of inStitutiOnS in the preparedness of the transferring department developed the own systemof coordinating with the prOVinCeS.
Further work by national department programme, particularly the poor communities.
90,OOOLearners able to continue their learning in the Foundation Phase.
Amunthg Officer of the national Department of Education by 31~january 2002. These plans must be pariof Provincial strategic plans tobe tabled 15 daw after the Budaet. The outcomes as outlined h the approved business plans must be ached implementation of the pilot ECD programme in Primary Schools and selected community based sites in the provinces.
The Department of Educationincollaboration with the responsible provincial officials will conduct these reviews. The reviews willbe targeted at projects in which expenditure levels are lower or significantly higher than the projected figuresin the business plans followingan analysis of monthlycash flow statements on the projects. This exercise in the is intended to deal with difficulties implementationof projects by providing the necessary support in good time.
I This is a substantive review exercise intended forall national and provincial projects underthis programme. It will focuson the financial and programmatic issues on all projects with the view to assessing the impact and identifying key systemic problems that need to be confronted in the education svstem.
finalise details on this matter.
National and provincial coordinators contracted to support implementation of the project.
from equitable share.
The overall co-ordination of the programme is the responsibility of the Chief Directorate: Curriculum and AssessmentDevelopmentandLearnerAchievement in the DepartmentofEducation. TheBudget ReviewandAdvisoryCommittee of theDepartmentofEducationchairedbytheDeputyDirector-General: Planning and Monitoring, is overseeing the management of the grant.
15 days after the Budget. The outcomes as outlined in the approved business plans must be achieved Education component of the equitable share formula is used to allocateamongst provinces.
in turn willtrain school teachers.
relevant learning support material.
It is envisaged that, &en the natureof the epidemic, the needfor such a grant will be necessary as long as the-epidemic-of HlVlAlDS.
Total 63 500 142 000 I17400 62 No.
For 2002/03and 200304 the backlog in infrastructure in provinces wastakenintoaccountin the division of the funding to provinces.
D It is also required to compile and submii comprehensive quarterly reports to the Department of Education that mustbe in line with the reporting requirements set by National Treasury for the special allocations for poverty alleviation, infrastructure and job summit projects.
, ., . National lkhwelo Projects-Poverty Relief.
Training for adult learners to enhande their social and economic capacity.
480 Governing bodies and center managers capacitated to govern and manage.
The National lkhwelo Project is funded from the Povertv Relief. Infrastructure Investment and Jobs SummitProjects Fund and must thus adhere to the requirementsof job creation in the development, building, equipping and utilisation of the facility.
Projections for 2001/02: It is expected thatR14,8 millionwill be utilised by31 March 2001.
Projected life The allocation of this grant is still envisaged to continue until2003/04.
Payment Schedule Not applicable (Indirect transfers to provinces) -Accounting responsibility lies with the accounting officer of the transferring national department Capacity and preparedness The overall co-ordination of the programme is the responsibility of the Chief Directorate: Curriculum of the transferring andAssessmentDevelopmentandLearnerAchievement in the DepartmentofEducation. The department Budget Review and Advisory Committee of the Department of Education, under the chairmanship of the Deputy Director-General: Planning and Monitoring, is overseeing the management of the grant.
The Department of Education will provide programmes in the eight learning areas to complete a department qualification.
The Department will also provide managers in these public adult learning centres.
Progress made in implementation of key provisions of PFMA i.
Revenue Act rewrts e Improvement in financial management and information systems in hospital pilot projects.
228(2)(b) and 230 of the Constitution.
Intergovernmental Fiscal Reviews. '0 be reviewed after four years.
his grant includes an allocation for the hospital management pilot programme managed by the Jepartment of Health. Negotiations are under way with the Health department, which may result in a; hifi of this component to health grants. Nith provincial finances having stabilised on a sustained basis, and taking into account progress made rvith implementation ofPFM, consideration is given to incorporate the main portion of this grant into the, quitable share with effect from 2002103 financial year.
Provinces are required to submit detailed quarterly reports, which capture the full details of the proiects including the allocation for the year, the expenditure for the periodin question and on outputs achieved.
2002/03 Provincial spending (business) plans to be completed by 31 January 2002.
Payment schedule submitted to provincial treasuries by 28February2002.
Budget by30June 2002. The National Treasuryis investigating whether the education and health components of this grant can be consolidated with current conditional grants administered by the relevant national departments.
Housing allocations must be in terms of housing framework as agreed.
The additional R300 million in 2003/04and R579 million in 2003/04,and the total allocation of R4 346 million in 2004/05are allocated to provinces through a new formula which introduces urban bias.
The needs of each province as measured by the housing backlog.
30 percent; and from 1996Census and is weighted20 percent. The provision of housingto the poor is a national priority. The conditional grant enables the national lovernmentto provide for the implementation of housing delivery in provincial budgets. The national Department of Housing has installed a transversal computerised subsidy management; ystem (HSS)in all provincial housing departments for the administration of the subsidy scheme and to illow the national departmentto monitor progress and expenditure continuously. !
21 7 633 houses per annum, benefiting2 676 886 people.
Currently funds that remained unspent at provinces in 2000/01 and in the Housing Fund collectively amounted toR519 million or15% of funds available for spending.
R80million earmarked for the implementation of the Presidential Job Summit projects for new Rental Housing subsidies delayed as result of extended discussions with National Treasury on the funding model and institutional arrangements for channeling of the funds for the project.
95% is expectedto be spent bythe provinces at the end of the year.
20years. donthly instalments 'he national Department does have the capacity to manage and administer the transfer of housing unds to Provincial Governments andto monitor their performance in this regard continuously.
Further work by the 2002/03 national department in the strategic planof the department as part of the 2002 Budget.
The department to ensure that all provincial housing departments deal with the audit queries raised in the 2002 annual reports of provincial housing depariments.
The department to submit certification of completion of plans to the National Treasury by 19 March 2002.
Submission of payment schedule to the National Treasury by 31 January 2002.
To fund projects that aim to improve the quality of the environment by addressing problems in urban communities.
To form part of the contract between the provincial government and the national Department of Housing on specific projects. Based on the project proposals submitted by province. As a pilot programme, the Department of Housing needsbetoinvolved in approving, monitoring and evaluating the programme in general as well as specific project outputs with a view to the formulation of a more comprehensive permanent programme.
The Directorate: Special Programmes Support monitors projects on a monthly basis through financial and implementation progress reports, as well as site visits in order to ensure compliance and correct reporting on Key Performance Indicators.
of R39million budgeted, R35 million was spent. The outputs, identifies in terms of key Derformance areas, have been achieved.
It is expected that70% to 80% of the funds will be spent by the end of the financial year, although all funds will have been committed to projects through approved business plans.
Iecessary capacity and expertise exists to undertake this task?
Purpose To improve the financial management, administration and functioning of social security system.
Reason not Incorporated Funding was initiated in order to fund the national department priority and strategy for improving the in equitable share information system, financial management and delivery of social security grants.
Structured site visits twice a year byateam cokiting of both national and provincial officials.
Projected life Phases out in 2002/03.
A number of nitiatives being undertaken by the department.
Detailed payment schedule to be submittedto the National Treasury by 31 January 2002.
Total 10 236' 10 800 74 No.
Social Development-HIWAIDS Grant Transferring Department Department of Social Development (vote17) Purpose The Department of Social Development is responsible for the developmentof home-based care (HBC) programmes in the community, involving the replication of models which have already been piloted, and community outreach.
An increase in the number of orphans receiving appropriate care.
Intensified identification of children infected and affected by HIVIAIDS.
Provision of essential material assistance to identified children and families.
Strengthening the capacities of communities, families and volunteers through caring and support.
with outputs for provinceline the framework for this grant Legal contract signed between provincial departments of welfare and implementing agencies.
Provinces in which studies have shown they are of highest HIV/Aids prevalence, which were also identifd as priori -Eastern Cape, KZN. Northern Province and North West provinces the national departments.
Jrojected life For the duration of the allocation.
Relief Social Development (vote17) To increase the self-reliance and improve social cohesion of specific demographic groups such as women, youth, children disabled and aged who are particularly vulnerable to the conditions associated with poverty.
100HIWAIDS structures will be established by the end of the2003/04financial year.
Integration of the disabled in all poverty relief progrmmes by the end of the2003/04financial year.
About 30 percent of the total budget was also allocated to the 13poverty nodal points, identified by the Integrated Sustainable Rural Development Strategy (ISRDS).
Monthly /quarterly reporting to the provincial wetfare departments by implementing agencies, and consolidated reports submitted of Social Development.
to the National Department Provincial visitsto evaluate progress in the implementation of the projects. Structured sited visits twice a yearby a team consisting of both national and provincial officials.
Past performance All available funds for 2000/01were transferred to the IDT -deparbnent implementation agency. Total transfers since the programme was initiated in 1998/99 amountsto R363million. The project period covered by the grant is the current MTEF period.
of the transferring national department.
preparednessof the appointedto head the newly established National Project Office.
Department Purpose To address the degradation problemsof natural resources and improve the socioeconomic status of rural communities.
Allocation was under-spentby R6 million.
Evaluationof completed projects is underway, and the report tobe submitted to National Treasury in June2002.
Capacity and All administrative, monitoring and reporting capacityis in place.
Detailed payment scheduleto be submitted to the National Treasury by31 January 2002.
Table 24 Agriculture -Poverty Relief and Infrastructure Development 2001102 2002/03 2003/04 2004/05 R thousands Budget MediumTerm Estimates Eastern Cape 4 691 6 000 Free State 500 1 400 Gauteng KwaZulu-Natal 4 133 4000 Mpumalanga 742 2 000 Northern Cape 500 1 300 Northern Province 6 430 5000 North West 4 605 3000 Western Cape 800 1 300 Total 22 401 24 000 78 No.
Purpose To fund Poverty Relief projects in the areas of Cultural Industries development, Cultural Tourism and Heritage Developmen&. Measurable outputs through job creation-and training are met.
Monitoring mechanisms lies with the Accounting Officer of the transferring national department. Capacity and A sub-directorate with dedicated staff is responsible for theprogramme and has the support of the line preparednessof function directorate responsible for cultural development and heritage development.
Detailed information on each grant to local governmentis included in this Appendix. Government's intention to restructure and rationalize grants to local government is being actively pursued -in the forthcoming financial year. In this light, the structure of the new, consolidated grants is provided with a description of each of the existing grant windows which will be phased into the n, ew grant programmes, as well as details of these transitional arrangements.
Conditions of the.
Capacity and preparedness of the transferring department.
of the amalgamation challenges faced Contractors have been appointed to assist the Department during the transition period.
of October 2001 Allocations by municipalities still to be finalised andsubmitted to National Treasury by 31 January 2002.
Forestry thus provide funding for the operation and maintenance of water schemes that are owned and/or operated by the department or by other agencies on behalf of the department.
As water services schemes, with appropriate staff and budgets, to receiving municipalities. This grantbewillconverted into a conditional grant up to 2004105 financial year to it will bc faciliite the transfer process, where after incorporated into the local government equitable share from the 2005/06 financial Year.
transiers may be made to water service providers such as water boards.
Ongoing support to local government to complete their WSDP's as input to their operating plans, budgets andIDP's Successful transferof 10%of the schemes to municipalities and or water boardsin2002103 Develop and implement, by1 July 2002, an appropriate rewardlincentivesystem for those municipalities who take early transfer of schemes, in co-operation with DPLG, SALGA and National Treasury.
inthis regard. The budget provided for the operation and maintenance of the schemes will initially be treated as 2 grant in kind until such time as transfer has been finalised.
the year willbetransferred with the remaining 3 year operating budget.
the yearwillbe transferred with the remaining 2 year operating budget.
2004/05 -Where transfer agreements are in place by 30 June 2004, schemes transferred during the year will be transferred with the remaining operating budget.
Targeted at all deparlmentally owned schemes. The initial emphasis will beto concentrate on those schemes where thelocalauthority is both willing and able to take transfer. Where schemes are operated andlor owned byCBO's, NGO's and Water Boards, localgovernment willbe expected to enter into water service provision agreements. Allocations will be publishedinthe gazetteby 1 March 2002. Funds willbe spent by the department until service provision agreementis in place. Allocations publishedinthe gazette are only indicative figures. The Monitoring& Evaluation svstem for Transfers. which was developed as part of the National InformationSY&m for Water &rvice will be used. The allocationis shown on the Water Affairs and Forestry vote. Once water services agreement are in place, the transfer will be shown as a conditional grant on municipal budgets, in recognition of the functional responsibilityof local government with regardtothe provision of water services. The allocation willbe made to the authority taking transfer, which will mainly be to theWSA but could also be to a water service provider. From 2005/6 the operating conditional grantbe administeredwill by DPLG as part of the local government equitable share. Limited progressinterms of actual transfers completed to date.
The basic Drogramme is asfollows: 0 2002j03io 2004105 -Implement the transfer Programme and actual budgeta transfers where all preconditions have been met. DWAF to support local government for water services operations. DWAF to other to continue service provision andlor hand over service providers wherelocalauthorities are unwilling or unable to take over service responsibilities.
to be handed over and managed by providers contracted byDWE but funded and supervised by other appropriate authorities. The grant will facilitate the transfer of water services schemes to municipalities, following which they will be incorporated into the equitable share. Implement the agreed policy and process for transfer.
Allocations by municipalities still to be finalised and submitted to National Treasury by 31 January 2002.
The phased consolidation of municipal infrastructure transfers into the Municipal Infrastructure Grant (MIG) will commence in the 2002/03financial year. This consolidation programme is anticipated to finish by 2004/05.
Purpose To provide a framework for the consolidation of a number of infrastructure programmes into a single fund, throughtheestablishment of existing grantsprogrammes as windows within this grant.
Budget on which transfer The grant mustbe shown asa conditional grant on municipal budgets.
Reason not incomorated This is a specific capital transfer focussed on the national the Urban Renewal Strategy (URS) as well asthe Housing Programme. Phasing arrangements Grant willincorporate municipal infrastructure transfers for water services, public works, transport and sports and recreation over a period into the new grant programme. Capacity and The Department will make allocations to municipalities in consultation with the Departments of Water preparednessof Affairs and Forestrv. PublicWorks, Transport, Sports and Recreation, Housing and Land Affairs, and transferring department with theconsent b;l theNationalTre&uw.
be responsible for sectoral monitoring of municipal performance througi the Mun- Infrastructure Task Team(MITT). Further work by national National Treasury to produce framework to Cabinet for approval.
Four windows will continue to exist within the Municipal Infrastructure Grant, until such time as all funds are phased into thenew grant mechanism. These windows are listed below.
To support planning and implementation of job creation and poverty alleviation projects.
Poverty Alleviation reporting requirements.
Funds may onlybe committed to new projects once a formal agreement has been reached between the Department of Provincial and Local Government and the municipality regarding the ownershipof the asset and ongoing financial responsibiliiies for operating and maintaining the project.
The crkrii for the division of municipal allocations. is: Alignment with Social Plan Fund studies and/or the Integrated Sustainable Rural Development Strateov and/or the Urban Renewal Strateav. Whett& the project business plan meetsGecriteria of the LED Fund.
Projects are allocated annual budgets.
A further 1-2 instalments depending on the individual cash flow projections of each project. The last instalrnent will be paid during the second half of the year.
The grantwill be shown asa conditional grant on municipal budgets.
200projectshavebeenfundedtodate D 52 Complete; 50 Advanced; 68 in progress; 30 planning and unblocking of poverty through the Poverty Alleviation Fund. The departmenthas an established grant and project management framework.
Mlocations by municipalities still to be finalised and submitted to National Treasury by 31 January2002.
To-provide internal bulk, connector and internal infrastructure and community services and facilities for low income households.
Categories of projects funded 150water, 60sanitation, 50 roads projects per annum.
30%of each category.
Amaximumof 3,5 % oranagreedamount on eachallocationmay be utilised forprogramme management services by provinces Must be allocated in accordance with the Division of Revenue Act number of households without acckss to basic water services.
The grant must be shown as a conditional granton municipal budgets.
inception of programme have been serviced.
Will be consolidated into co-ordinated municipal infrastructure grant framework on completion of the policy framework.
UDon orovincial recommendation, the Department may submit to National Treasury an application for wflhdkwal and/or reallocation- of fundsfromonemunicipality to another,.
No of Local Labourers employed -No Target gben for the number as this differs from project type to project type and also on project size.
No of dwbM people employed-1.
No and type of assets created-No target as this depends on the budget for each project and the total allocation sites around the project.
upon the 1996census and 1997Household survey data. At least 30% of projectsare to be situated within the government's Priority Areas.
IDP's, which are then prioritised and submittedto the Provincial Coordination Committee for approval to enter the planning phase.
3 First payment made once implementing agent agreement signedbetweenCBPWP and municipality.
I of monthly inspections and reporting provided by Inunicipalities.fThe grant mustbe reflected on the receiving municipality's budget.
a In 1998/99No of projects-336; Asset value5 R267million; People employedP 29 360.
aI In 1999/00No of projects= 291: Asset value PR320 million: Peopleembyed-18 027.
RDP projects, with no staff or operating budgets, to receiving municipalities..
measurable outputs include:.
Projects are managed and monitored internally by DWAF, some through contract driven Build Operate, Train and Transfer arrangements, unless the municipality has a demonstrable capacity to do so itself. This will be done in amordance of the above conditions and to allow DWAF role as Regulator.
DWAPsongoing role in oversight of capital spending programmes tobe agreed by the respective ministries.
his is a specifii capital transferfocused on the nationalpolicy priority of ensuring all South Africans have access to safe water sources and acceptable sanitation systems.
by regionaltaskteams to drive the varies significan . Assessment will be canledout to rank all recipientsasto their preparedness toaccept transfer. The m'! to those local governments ready, willing and ablewill be given priority.
r Building for Sport and RecreationProgramme Transferring Sport & Recreation SA Note 18 department Purpose Promotion of sport and recreation within disadvantaged Communities by development of new and upgrading of existing sports faciliies and empowerment of the communities to manage the facilities in co-operation with the local municipality.
Employment targek to be met.
Municipalities are required to place theBSRP allocation on their budget.
Municipalities are required to operate and maintain the facilities.
The allocations are made within provinces in accordance with a Poverty Targeting Formula based upon the I 1996 census and 1997 Household survey data. Allocations between District and Local municipalities are made on the basisof the intended regional is more appropriate scope of the facility and thus which authority to develop and maintain the facilities. At least 30% of projects are to be situated within the government's PriorityAreas. The allocations areto provide a balance between rural and urbanlperi urban disadvantaged Communities. Municipalities identify their proposed projectsin terms of their IDP's, which are thenprioritisdby the Provincial departmentsof sport and recreation in line with provincial development priorities. As gazetted.
A Management Monitoring Information System has been introduced monitoring is carried out by the provinces, on thebasis of monthly inspections-.
The grant must be reflected on the receiving municipality's budget. The first payment willbe made once the hplementing agent agreement has been signed between that municipalities and communities are empowered to promote sport; and that employment targets are met.
To promote the planning of intermodal land transport infrastructure and omrations. the facilitation of integrated land use and-land transport planning, the development of guidelines in this regard and to initiate demonstration projectsin line with the Urban Transport Act, 1977.
The transfer mustbe shown as a conditional grant on municipal budgets.
Integrated Land Use And Land Transport Pians includes DPLG and Departmentof Land Affairs to ensure that the issues of the integrated land use is addressed in a holistic manner.
MODALINK ' e The funding is on for the current financial year.
Intermodal Facility. See measurable inputs for timeframes National priorities are determined annually basedon the National Department Business Plan.
The NDOT hasthe capacity to manage and monitor the business plans and contracts for the identified projects. However the successful implementation of these projects depends and is influenced by the Capacity of the receiving authority.
Measurable outputs The number of connections madein relation to the capital invested.
Meet the requirements, e.g. in terms of documentation.
Have the financial, technical andstaff capabilities to distribute electricity and to expand the network process Allocation by The application timeframe will be communicated to of all licensed distributors. The date for final compilation province and the 2002/3 National Electrification Programme is 15 January 2002 for formal approval by 31 January 2002. municipality No late applications will be considered. The project cycle will be 1 April 2002 to 31 March 2003 and this will be managed strictly. Only projects with existing houses (or where house connections can be guaranteed before 31 March 2003) will qualify.
Past performance (Statics given are per calendar year.
Projected llfe The National Electrification Programme is ongoing and planned on a 3-year roiling basis in line with the MTEF. It aims atproviding uiversal access to-basicelectricityservi&s. Itsprojectedlife is 10years subject to current backlog and historic funding levels.
Reason not This is a specific capital transfer in support of the National Electrification Programme.
August R 12002 million million R 32.
AffairsForestry deplrtmenc Purpose To honour existing subsidy commitmentsin terms of Government Notice (ON) No.1341of 30June 1989(as amended) and ON NO. 247 of 6February 1987 (as amended) to municipalities who have installed water services works and obtained approval for subsidies in terms of section 162 of the WaterAct (Act No 54 of 1956)..
Budget on which The grantwill be shown as a conditional granton municipal budgets.
Government provides a number of fiscal support measures for to enhance municipal management and service delivery capacity. The thrust of these transfers is to implement reforms. in municjpal development planning, budgeting andperformance monitoring systems. An additional set of transfers assists municipalities to implement medium-term institutional and financial restructuring programmes that reduce fiscal stress, expand service delivery and improve the quality of services provided.
A framework to prepare for the consolidation of these grants was gazetted on 31 May 2001. In the course of the financial year, a number of additional funding channels have been identified, and these funds have been incorporated into the Municipal Systems Improvement Programme. Further steps in this process of consolidation are currently under development andwill be published shortly.
Transferring department Provincial and Local Government performance management, and related local public sector management reforms, which must be within that municipality's budgetary framework.
Comprehensive annual performance reports by a//the pilot municipalities by end of March 2002.
Contracts on the establishment of thePIMS-Centres mustbe signed between the Department of Provincial and Local Government, District Municipality and Donors.
PIMS-Centres must provide support to District and local municipaliiies within the areaof jurisdiction of that District Council.
The portionof the grant must be utilised for spatial planning andIDPrelated activities..
Municipal must set key performance indicators and measurable targets as part of their IDP process. Allocation Criteria established demand established. District Municipality.
The Departmentwill be implementing a PMS pilot programme with 27 municipalities that are strong, have capacity and areof economic importance to test the implementation of PMS through the implementation of Interim IDPs. Only 25 municipalities will be assisted financially.
For the next two financial years 40 selected municipalities will be assisted financially to set up their Perfomance Management Systems. 4llocatlon by provinceand The grantwill be reflected in provinces, district and local municipalities' budgets. The first transfer nunlclpallty will be made up-front and subsequent ones in two instalments.
Quarterly progress reports on PIMS-Centres will be received from the Provincial P1MSS forums.(ThePIMSSforum ismadeofrepresentativesfromDistrictandLocal municipalities, members of theNationalPIMSSTaskTeamandPIMS-Centre professionals).
All the pilot municipalities will be expectedto submit quarterly progress report.
Land Affairs as per LDO/spatial planning grant commitments.
Budget on which transfer is The budget will be transferred directlyto, district and local municipalities.
Projected life 3years.
vv equitable share municipal capacity.
cokcts, secured donor funding for setting upcostsand District Councils contribute operational has been beefed up.
Purpose To support Integrated SustainableRural Development Strategy (ISRDS)nodalmunicipalitiesto establish institutional systems and nodal delivery teams for planning, project Initiationand implementation of the IRDP.
Pmj& initiated for implementation in the nodes in line with IIDPs.
The grant must be usedfor project initiationto promote integrated rural deve-m 88 part of the integrated development planning in the 2002/200~1 for the nodes has been approved by DPSA ar I R32.
the signing of grant municipality agreements. Monitoring system A management team will be appointedby the Treasury to assist with the technical evaluation of applications and regular reports required projected life Five years, depending grant programmein2003/04.
Further work by national budgeting, management, monitoring in municipalities and implementationof the Municipal Finance Management Act.
Improvements in internal and external reporting on budgets and financial information.
A Council commitmentto employ an appropriately skilled chief financial officer.
Submission of a checklist identifying critical financial management areasto be addressed.
Submission of a plan to address shortcomings andto implement reforms.
B, and C municipalities able to commit to implementing the financial reforms.
Department to produce framework for capacity building by 31'January 2002.
by 31 96 No.
Purpose To assist medium and small municipalities experiencing severe financial problems to restructure their financial positions and organisations over the medium term. Measurable Outputs Althoughoutputs will varybetweenmunicipalities.
Submiision of business plans, by provinces to the national transferring officer, stipulating the processes to be undertaken by the province in order to address the financial restructuring needs of municipalities.
Provinces must gazette allocations before transfarring funds to municipalities.
Adequate measures are put in place to ensure compliance with the conditionsofthe funds at municipal level.
Allocation Criteria Allocations are made to Provinces acwrding to assessed needinorder to assist them inme&m-their Constitutional obligation to support the municipalities, and monthly expenditure reportsasrequiredby the Divisionof RevenueAct. Budget on which Transfer is 1 Anyfundsspent by provinces for the benefit of local government will be reflected as resource Shown bansfers in the books of the municipality. Financial assistance. being a direct income in the budget of the municipality to the Auditor-General and own affairs, to exercise theirpowers andto performtheir functions. Capacity and Contractors have been appointed the2001102 and to assistthe Department and provinces during Preparedno% of I:2002/03 municipal financial years, with an option to extend their assistance by a further12 months Transferring Department thereafter.
To provide for- the equitabledivisionof revenue raised nationallyamong the national, provincial and local spheres of government for the2002/2003 financial year; reporting requirements for such allocations; to provide forthe withholding and the delaying of payments; liability for costs incurred in litigation in violation ofthe principles of co-operative governance and intergovernmental relations; and to provide for matters connected therewith.
"Constitution"means the Constitution of the Republic of South Africa, 1996 (Act No.108 of i996); "Director-General"means the Director-Generalof the National Treasury; "financialyear" means, in respect of the nationalandprovincialspheres of government, the financial year commencing on 1 April 2002 and ending on 31 March 2003 and, in respect of the local sphereof government, the financial year commencing on1July 2002 and ending30June 2003; "head official of the provincial treasury" means the head of theprovincial department responsible for financial matters in the province; "Intergovernmental Fiscal Relations Act" means the IntergovernmentalFiscal Relations Act, 1997 (ActNo. 97 of 1997). "municipality" meansamunicipalityestablished in terms of the Municipal Structures Act; "municipalaccounting offlcer"means themunicipalmanager of a municipality; "Municlpal Structure8 Act" means the Local Government: Municipal Structures Act, 1998 (Act No.
"prescribe"means prescribeby regulation in terms of section 34 of this Actor the Division of Revenue of Act, 2001 (Act No.
"Public Finance Management Act"means the Public Finance ManagementAct, 1999 (Act No.
"SALGA" means the national organisation recognised in terms of section 2(l)(a) of the Organised Local Government. Act,1997 (Act No.
3 or 5 allocation for the purpose of transferring it to a municipality in the relevant province.
ensure that proper financial management is applied; and ensure that legal proceedings between organs of state of the three spheres of government are avoided.
in the Adjustments Budget.
A recommended division of anticipated revenue for the next financial year and the2004/2005 financial year, and which is subject to the provisions of the annual Division of Revenue Act in respect of those financial years, is set out in Column B of Schedule 1.
Equitable division of provincial share among provinces of the financial year is set out in Columnof ScheduleA 2 and such share may be adjusted through the provision of further allocations in the Adjustments Budget.
Eachprovince'sequitablesharecontemplated in subsection (1) must betransferred to the province in weekly installments in accordance withapayment schedule determinedby the National Treasury after consultation with the head officials of the provincial treasuries.
with a payment schedule referredto in subsection (2) in respect of that province.
Theadvancescontemplated insubsection (3)must be set-off against transfers to the province which would otherwise become due in terms of that payment schedule.
be published by the Minister in the Gazette.
200412005 financial year.
1,the national government bears the shortfall.
If actual revenue raised nationally in respect of the financial year is in excess of the anticipated revenue set out in Schedule 1, the excess accrues to the national government and forms part of its equitable share.
Despite subsection(2),the national government may, by means of an Adjustments Budget, and additional to the equitable share allocation and the allocations contemplated in Part 111, make additional allocations to provinces and local government from its equitable shareof the nationally divided revenue.
Theadditionalallocations to provincesandlocalgovernment contemplated in subsection (3) may be a direct charge against the National Revenue Fund.
Schedule6 contains allocations-in-kindto provinces or municipalities for designated special programmes.
B of the Schedules referred toin subsection(1).
division of the allocation for the next financial year set out in Schedule 3 or 4 or 5 be transferred to a province or municipality as a direct charge against the National Revenue Fund.
Thetransfer of anallocationnotlistedin the Schedulescontemplated in Part111 of this Act may only be made with the permission of the Minister and must be published in the Gazette.
the allocation is approved by Parliament in an Adjustments Budget; or the allocation is for the purposeof defraying expenditureof an exceptional nature contemplated in section 16 of the Public Finance Management Act.
submit to the National Treasury an assessmentof the likelihood for the provinceor municipality which receives, or benefits from it, to spendit or benefit fromit in the financial year.
the steps taken by the provinceto improve the collection of its revenue; and the province's compliance with this Act, national legislation contemplated in sections 230 of the Constitution, and with resolutions of the Budget Council established in terms of the Intergovernmental Fiscal Relations Act.
submits to the National Treasury a prescribed planon estimated spending for the next financial year, the2004/2005and 2005/2006financial year; and indicates to what extent it will match the allocations contemplated in paragraphs (a) and (b).
2004/2005financial year, unless the National Treasury grants exemption from compliance with this requirement; and be in accordance with a distribution formula approved by the National Treasury.
TheNationalTreasurymay, for the purposes offacilitatingthe consolidation of municipalinfrastructure programmes, reallocatefundsbetween programmes and votes of national departments if such funds are uncommitted or unlikely to be spent in the current financial year.
of municipalities to perform functions assigned to them may only be made in terms of a framework determinedby the national accounting officer for local government in consultation with the Director-General.
A transferring national officer who has not complied with subsection must, unless the National Treasury has, for exceptional reasons directed otherwise, transfer such funds unconditionally to provinces and municipalities: Provided that the Minister may determine that such funds be allocated on the basis of the equitable division formula.
such other issues as the National Treasury may determine.
A provincial accounting officer intending to make an allocation, other than an allocation listedin any Schedule to this Act, to a municipality from the provincial Revenue Fund, in the financial year must, by the prescribed date, provide the Provincial Treasury with the prescribed information and the Provincial Treasury must publish such information in the Provincial Gazette.
40(4)(c) of the Public Finance Management Act, within 15 days after the endof each month, submit a report to the relevant Provincial Treasury, the relevant provincial executive authority and the transferring national officer; and a municipality, within 10 days after the end each month, submit a repod to the relevant transferring nationalor provincial officer.
any problems of compliance, by transferring provincial officers and receiving officers, with the provisionsof this Act, and the steps taken to deal with such problems.
the provincial infrastructure allocation, be made at the end of each month.
contain, such other information as the National Treasury may determine.
taken to deal with the causes payment delay.
The Minister may, by notice in theGazette, approve that an allocation or a portion of it withheld in terms of subsection(l),be utilised to meet a municipality's outstanding statutory financial commitments.
The utilisation of anallocationsetout in the Schedulesor the provincial infrastructure allocation for purposes other than those set out in the Schedules concerned, constitutes a breach of section 216(1) of of the measures established in terms the Constitution.
Despite subsections(2)and (3),the National Treasurymayauthorise of an allocation set out in Part 111 Schedules, which remains afterthe fulfillment of its purpose, and compliance with the conditions to whichit is subject.
which, due to non-compliance by the transferring national officer with the provisions of this Act, cannot flow toa province or municipality, be-allocated unconditionally to provinces or municipalities.
Despiteanything to the contrarycontained in any law, thetransferof an allocationto a province in error is regarded as not legally due to the province for the purpose of its Revenue Fund.
TheDirector-Generalmaydirectthat the'recovery contemplated in subsection (1) be effected by set-off against future transfers to the province, which would otherwise become duein accordance witha payment schedule or any other transfer.
Despite anything to the contrary contained in any law, the transfer of an allocation toa municipality in error is regarded as not legally due to that municipality and must be recovered without delay by the responsible transferring national officer.
The national accounting officer responsible for local government may direct that the recovery contemplated in subsection (4) -be-effected by set-off against transfers to the municipality concerned, which would othennrise become due inaccordance with any payment schedule.
accordance with any directions by the national accounting officer responsible for local government.
Funds tofollow transfer of functions or obligations another or from one sphere of government to another must take place with the prior written approval of the National Treasury and the national accounting officer responsible for provincial and local government and, unless the Minister has directed otherwise, includes the transfer of funds availableto the transferring organof state orsphere of government for performing such functions or obligations.
Despite anythingto the contrary contained in thisAct or any other law, the National-Treasury may, for the purpose of facilitating the transfer of funds contemplated in subsection(l),stop the transfer of funds to the transferring organ of state or sphere of government.
The National Treasury may, in the interestof improved debt and cash-flow management:or on the groundsof substantial non-compliance with any condition to which an allocation is subject, amend any payment schedule of an allocation listed in Schedule 3, 4 or 5, and direct that no transfer of funds be effected through the payment schedule amended in accordance with subsection(1) or that the payment schedulebe amended as directed by it.
the accounting officer is taking steps to comply with the provisionsof this Act of the financial year.
may only be granted ifthe accounting officer can provide reasons why information was not included in respectof an allocation listedin a Schedule; and any condition to which it may be subject, must be published in the Gazette.
(I),the expenditure incurred by that organ in approaching the court is regarded as fruitless and wasteful.
anything which must or may be prescribed in terms of this Act; and any matter which is necessary to prescribefor the effective implementationof the provisions and objectsof this Act.
National share includes conditional grants to provincial and local spheres.
Smallroundingdifferencesmay mist betweenthenumbersin these Schedules and the Explanatory Memorandum. Itshould be noted that these numbers are provisional and may change marginally when the final Budget is tabled on 20 February 2002.
Section 10 of the Intergovernmental Fiscal Relations Act, 1997 (Act No 97 of 1997) ("the Act") requires that, as part of the process of the enactment of the Act of Parliament referred to in paragraph 1, each year'when the annual budget is introduced, the Minister of Finance ("the Minister") must introduce in the National Assembly, a Division of Revenue Bill ("the Bill") for the financial year to which thist budget relates.
GAZETTE, 2001 3.
3.3Anyassumptionsor fcrmulaeused in arrivingattherespective shares of the three sphleres of government and the division of the provincial share between the nine provinces.
The Bill is introduced in compliance with the requirements of the Constitution and the Act as set out in paragraphs 1and 2 above.
The Bill builds onthe provisionsofthe Division ofRevenueAct:' 2001 (Act No 1 of 2001) ("the Division of Revenue Act") and deals with a number of matters consequential upon policy changes, set out inter alia in the 2001 IntergovernmentalFiscalReview.
7.3 The Bill assumes that all grants to local governmentaredivided between municipalities by Budget Day.
The Bill must be dealt with in accordance with the procedure set out in section 76(1)of the Constitution as it provides for legislation required in Chapter 13 of the Constitution, and affects the financial interests of the provincialsphere as contemplatedin section 76(4)(b) of the Constitution.