Reading the Division of Revenue Act and Division

of Revenue Amendment Bill

Presenter: Ms Wendy Fanoe | Chief Director: Intergovernmental Policy and Planning, National Treasury

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Outline

• Outline of the intergovernmental fiscal system

• Why a division or revenue bill?

• How is it different from other “budget”

legislation/documentation?

• The process that culminates in the Bill

• The Bill‟s contents

• Does Bill get amended and why?

• Where do you find amounts allocated per

province/municipality for a specific grant?

• How can the Bill be used?

Allocation of resources and functions to spheres

National Share

National government: • Delivers policing, foreign affairs,

defence, higher education • Makes policy • Sets priorities through legislation, norms

and standards or political statements

Provincial

Share

Provinces: • Deliver school education, health,

social welfare • Generally fund national priorities

Local Share Municipalities: • Deliver water, sanitation, refuse removal • Have more autonomy on what their

resources are spent on

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NG’s main revenues are: income tax, VAT, customs duties

Provinces’ main revenues are: vehicle licenses, hospital charges and gambling taxes

LG’s main revenues are: Property rates and surcharges on service fees

The disparity between the spheres of governments’ responsibilities and fiscal

capacities gives rise to significant ‘fiscal imbalances’

Redressing the ‘fiscal imbalances’

• S214(1) of the Constitution reads as follows:

Vertical division

Horizontal division

Conditional grants

An Act of Parliament must provide for –

(a) the equitable division of revenue

raised nationally among the national,

provincial and local spheres of govt

(b) the determination of each provinces‟

equitable share of the provincial

share of that revenue

(c) any other allocation to provinces, LG

or municipalities from NG‟s share,

and any conditions on which those

allocations may be made

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TOP SLICE

State debt and other

national obligations

Conditional

allocations to

provinces and

municipalities made

from NG’s share

Provincial equitable

share determined

i.t.o. formula

Local government

equitable share

determined i.t.o.

formula

Factors guiding the division of nationally collected revenue

• Factors listed in S214(2) of the Constitution (to be taken into account in the division of revenue):

(a) the national interest

(b) any provision that must be made in respect of the national debt and other national obligations

(c) the needs and interests of the national government determined by objective criteria

(d) the need to ensure that the provinces and municipalities are able to provide basic services and perform the functions allocated to them

(e) the fiscal capacity and efficiency of the provinces and municipalities

(f) developmental and other needs of provinces, local government and municipalities

(g) economic disparities within and among provinces

(h) obligations of the provinces and municipalities in terms of national legislation

(i) the desirability of stable and predictable allocations of revenue shares

(j) the need for flexibility in responding to emergencies other temporary needs, and other factors based on similar objective criteria

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Division of nationally raised revenue, 2007/08 – 2013/14

2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14

R million

Outcome Revised

estimate

Medium-term estimates

Division of available funds

National departments 242,580 289,236 345,366 359,120 380,154 408,439 439,049

Provinces 207,504 246,836 293,164 323,080 357,929 380,450 404,251

Equitable share 171,054 201,796 236,891 265,139 288,493 305,725 323,604

Conditional grants 36,451 45,040 52,073 57,941 69,436 74,724 80,647

Gautrain loan – – 4,200 – – – –

Local government 38,482 45,487 51,537 61,152 70,171 77,029 82,317

Equitable share1 20,676 25,560 23,845 30,559 34,108 37,573 39,960

General fuel levy sharing

with metropolitan

– – 6,800 7,542 8,573 9,040 9,613

Conditional grants 17,806 19,928 20,892 23,051 27,490 30,416 32,743

Total 488,566 581,560 690,068 743,353 808,254 865,919 925,617

Percentage shares

National departments 49.7% 49.7% 50.0% 48.3% 47.0% 47.2% 47.4%

Provinces 42.5% 42.4% 42.5% 43.5% 44.3% 43.9% 43.7%

Local government 7.9% 7.8% 7.5% 8.2% 8.7% 8.9% 8.9%

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The legal basis of the DOR Bill (2)

• How does DoR and DoR Amendment Bills/Acts

relate to other “budget” legislation/documentation? – DoR and DoR Amendment Bills/Acts are in terms of section 214 of

Constitution (“section 76” legislation)

– Appropriation and Amendment Appropriation Bills/Acts are in terms

of section 213 of Constitution (“section 77” legislation)

• money may be withdrawn from the National Revenue Fund only

through an appropriation by an Act of Parliament

– Legislation is a Money Bill (“section 77” legislation) when it

• appropriates money and/or imposes, abolishes or reduces national

taxes, levies, duties or surcharges

• authorises direct charges against the National Revenue Fund,

except a Bill envisaged in section 214 authorising direct charges

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The legal basis of the DOR Bill (3)

• Money Bills Amendment Procedure and Related

Matters Act (MBAPRMA) impact on DOR Bill – When budget is tabled, a report must also be tabled that responds

to the recommendations made by the Parliamentary Committees

on Appropriations regarding the proposed division of revenue and

conditional grant allocations to provinces and local governments

as contained in MTBPS

– The report must explain how the DoR Bill and the national budget

give effect to, or the reasons for not taking into account, the

recommendations contained in the Committee reports

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The process

• The DOR Bill is an outcome of extensive consultations – Budget Council and Budget Forum

– National Departments

– Extended Cabinet with provincial Premiers and chairperson of SALGA

• The current Act serves as the point of departure – Sets out baseline DOR: both ES and CGs

– Contains clauses governing or regulating transfers and amendments are informed by:

• Are there clauses that have become redundant?

• Are there new developments that necessitate special and new provisions?

• Are there gaps that have been identified in implementing the Act?

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The Bill’s contents

• The contains: – A vertical division of revenue

– Schedules setting allocations • Global amounts per sphere

• Shares/allocations per province and municipality

– Clauses • Generally applicable to all transfers

• Applicable to specific transfers

– Frameworks for each grant

– Annexure W1 which is a detailed explanation of all decisions taken and a response to the FFC recommendations

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More on the schedules/allocations

• Schedule 1: Division of Revenue between the 3 spheres

• Schedule 2: Provincial equitable shares among the 9 provinces

• Schedule 3: LG equitable shares among 283 municipalities

• Schedule 4: Other transfers to provinces and municipalities supplementing programmes funded from „own resources‟

• Schedule 5: Specific purpose allocations to provinces

• Schedule 6: Specific purpose allocations to municipalities

• Schedule 7: Allocations in-kind to municipalities

• Schedule 8: Incentives for special programmes

• Schedule 9: Immediate disaster response

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Does the DoR Act get amended?

• In terms of section 12(4) of the MBAPRMA the Minister of Finance must table a Division of Revenue Amendment Bill with the revised fiscal framework if such revisions impact on the division of revenue act of the relevant year – Any amendments to fiscal framework that impact on the Division

of Revenue Act will require a Division of Revenue Amendment Bill/Act

– Any amendments to fiscal framework contained in schedules to Division of Revenue Act, i.e. which forms part of the gazette required within 14 days after enactment of Division of Revenue Act, could be dealt with through a Gazette by Minister of Finance

• A gazette on adjustments, including new allocations per province/municipality, is issued around December

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Possible uses of the Bill

• Around budget tabling – Is the division equitable?

– Is it aligned to the priorities?

– How much is due to each municipality of province?

• Key tool for administration and accountability – During the course of the FY

– Compliance • Duties and responsibilities of various parties

– After the end of the FY • Ex post audit

Planning, Budgeting and Reporting

Cycle

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Provincial Reporting

• Provinces report revenue and expenditure monthly to NT and at the

end of each quarter they report expenditure and revenue up to the

end of the quarter - required by PFMA (“Section 32 reports”)

– This is the in-year-monitoring system

• NT publishes quarterly reports within 30 days after end of quarter

– Available at http://www.treasury.gov.za/comm_media/press/2011/default.aspx

– Summary press release/report

• Detailed analysis of social services (health, education and social

development)

– Personnel and Capital in health

• Analyses of capital and personnel (all sectors)

• Comparisons with expenditure for same period during the previous year

– And detailed report per province

• Expenditure by vote

• Conditional grants transferred (this can be used to track withholding of conditional

grants), expenditure on conditional grants

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• Information on municipal budgets

– Division of Revenue Act

http://www.treasury.gov.za/legislation/acts/2010/Default.aspx

– Individual municipalities‟ budgets – in new formats

– Consolidated budget information – published by National Treasury

http://mfma.treasury.gov.za/Media_Releases/mbi/Pages/default.aspx

• Information on in-year spending

– Monthly budget statements – should be published by Provincial Treasuries

– Section 71 reports – published quarterly by National Treasury

http://mfma.treasury.gov.za/Media_Releases/s71/Pages/default.aspx

• Information on end-year spending

– Municipalities‟ annual financial statements and annual reports

http://mfma.treasury.gov.za/Documents/Forms/AllItems.aspx

– Consolidated expenditure information – published by National Treasury

http://www.treasury.gov.za/publications/igfr/2008/lg/default.aspx

• Information on the flow of funds http://mfma.treasury.gov.za/Media_Releases/Municipal%20Payment%20Schedule/Pages/1

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Sources of information on municipal budgets