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ANNUAL SUBMISSION:
DIVISION OF REVENUE 2003/04________________________
SELECT COMMITTEE ON FINANCE
NATIONAL COUNCIL OF PROVINCES
20 May 2002
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Background:Financial & Fiscal Commission• Legislative Mandate
– Advise Government on the division of revenue among national, provincial, and local spheres
– Make recommendations on provincial and municipal fiscal matters
• Nature of proposals– Next financial year– MTEF Cycle
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Framework for FFC Proposals
• FFC guided by criteria in Section 214(2)(a-j) of Constitution:– National debt & other obligations– Needs and interests of national government– Provinces & municipalities:
• Provision of basic services and other functions • Fiscal capacity & efficiency• Developmental and other needs
– Economic disparities among provinces– Need for stable and predictable allocations– Need for flexibility in responding to emergencies
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Government response:Proposals for 2002/03• Over-arching proposal: equitable
shares should take account of CMBS– Government: agrees more precise
information on CMBS needed, but cannot be implemented owing to data constraints
• Provincial tax proposals– Government: agrees with Commission’s
overall approach, except PIT surcharge
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Government response:Proposals for 2002/03 Cont’d• Provincial capital grants
– Government: agrees on need for infrastructure conditional grant
• FFC model requires extension; should be part of a review of the provincial equitable share formula
• Local government– Government: recommendations timely &
substantive• Agreement in some cases, further study on other
proposals
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Local government proposals 1
• Municipal borrowing & finance markets– Combination of market discipline &
rules-based approach– Differentiated approach to
municipalities– Policy measures to assist
municipalities to build credit-worthiness
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Local government proposals 2• Division of powers & functions of district and
local municipalities– General principle: Local municipalities
responsible for service delivery, unless no capacity
– Health services: district municipalities – Water & sanitation services: local municipalities
• Remuneration of councillors– From local government revenue (own revenue &
equitable share)– Link legislative requirements to Institutional
Grant of equitable share formula
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Local government proposals 3• Restructuring of electricity distribution
– Compensation to municipalities for losses related to transfer
– Municipal levy on electricity available to all municipalities
– National tariff support for low-income consumers
– RED boundaries co-terminus with municipal boundaries
– Retain advantages of consolidated billing systems of municipalities
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Provincial proposals 1
• Early Childhood Development– Conditional grant funding should
continue until incorporated into equitable share
– Formula for ECD funding:• Should not discriminate between public,
community-based, and independent schools• Poverty-weighted• Phase-in parameter until programme fully
implemented
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Provincial proposals 2• HIV/AIDS
– 2002/03 Budget: R400m through provincial equitable share to address HIV/AIDS
– FFC position: Conditional grants most appropriate mechanism for targeting spending on HIV/AIDS
• Should not be included in equitable share formula if inadequate data
• Equitable share is unconditional – cannot track funding
• National priorities best dealt with through conditional grants
• Public health needs and priorities change continuously
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Cross-cutting Equitable Share Proposals 1
• Disaster management funding– Further development of central
funding mechanisms– Programme for nationally identified
prevention / mitigation projects– Funding of emergency response
activities from contingency reserve once municipal and provincial thresholds exceeded
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Cross-cutting Equitable Share Proposals 2
• Contingency reserve– Reserve for emergency purposes
(macroeconomic stability & disasters)– “New spending priorities” categorised
as policy reserve– Provinces & contingency reserves
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Cross-cutting Equitable Share Proposals 3
• Social security– FFC guidelines to assist stakeholders
in reviewing Comprehensive Social Security Report• Range of services• Financial & administrative factors
– Location of old age pensions: national– Establishment of national social
security agency
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Cross-cutting Equitable Share Proposals 4
• Review of current equitable share formulae, which includes:– Provincial capital grants scheme– Audit of intergovernmental fiscal
relations– Restructuring of formulae to achieve
balance between CMBS and Section 214(2)(a-j)