INTERGOVERNMENTAL FISCAL REVIEW 2003 dplg INPUT TO SELECT COMMITTEE ON FINANCE May 14, 2003

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INTERGOVERNMENTAL FISCAL REVIEW 2003

dplg INPUT TO SELECT COMMITTEE ON FINANCE

May 14, 2003

CHALLENGES IDENTIFIED BY dplg AT THE PUBLIC HEARINGS ON THE

DIVISION OF REVENUE BILL• Planning and budgeting:

Intergovernmental Relations Targeted Support to Municipalities Budget Certainty, Predictability and

alignment of IDPs• Disbursements, Expenditure and Reporting:

Strengthening monitoring of conditional grants

CHALLENGES IDENTIFIED BY dplg AT THE PUBLIC HEARINGS ON THE

DIVISION OF REVENUE BILL

• Management Information Systems: Clear definition of role of different spheres

with regard to reporting and information systems

• Developing Treasury Capabilities of Municipalities: Targeted at weaker municipalities

POLICY BACKGROUND

• Building a developmental state: Unitary state with clear national development

objectives Strong state with capacity to address

developmental challengesThree spheres work in an integrated,

cooperative and complementary mannerAbility to adapt to address new/emerging

challenges

CHAPTER 2:TRENDS IN PROVINCIAL

BUDGETS• Provinces have responsibility for:

Social Services (health, education, welfare)

HousingProvincial RoadsAgriculture SupportEnvironment and tourism

PROVINCIAL REVENUE

• Provinces generate very little own revenue• Major source of revenue is national transfers• Major source of own revenue is road traffic fees• Other own revenue sources:

Patient feesGambling feesHorseracing feesCasinosInterest

PROVINCIAL EXPENDITURE

• Real Growth of 7,1% in 2003/04 and real average annual growth of 5,5% over 2003/04 MTEF in social services expenditure

• Share of social development increasing while share of education and health decreasing

• Steady decline in personnel expenditure from 59,1% in 1999/00 to 51,6% in 2002/03 and projected to drop to 46,4% by 2005/06

• Overall, improvement in provincial spending

KEY CHALLENGES IDENTIFIED IN REVIEW

Ensuring that:• Growing budgets are spent efficiently and

effectively

• Quality services are delivered

ADDITIONAL CHALLENGES IDENTIFIED BY dplg

• Planning: Integrated planning and alignment between

provincial and national departments Alignment of integrated planning to budgeting

• Implementation: Enhancement of investment in socio-economic

infrastructure

• Monitoring and Evaluation:Need for national departments to monitor non-

financial performance of provincesNeed for provinces to monitor performance of

municipalities, especially with regard to roll out of free basic services

PCC RESOLUTIONS ON STATE OF PROVINCIAL FINANCES

• Premiers to take corrective measures necessary to improve spending capacity and prevent fiscal dumping

• Investigation of challenges with regard to low capital expenditure spending and encouraging of private sector participation

PCC RESOLUTIONS ON STATE OF PROVINCIAL FINANCES

• Introduction of necessary interventions to build capacity, develop skills and improve integrated planning to improve capital expenditure

• National Treasury to provide reasons for and an analysis of rapid take-up in social disability grant

KEY dplg INITIATIVES

• Policy Framework on Intergovernmental Relations and Intergovernmental Relations Bill:

Platform for inter-sphere planning and budgetingFocus on intergovernmental structures and

intergovernmental dispute resolution• Policy Framework for Assignment of Powers and

Functions to Local Government: Provides guidelines about what assignments are, when

they should be made and how they should be managed

• Review of Schedules 4 and 5 of the Constitution:

Concrete proposals on best allocation of powers and functions across the three spheres of government

• Roll out of National Planning Framework: Ensure identification of strategic priorities that

should inform financial and medium-term expenditure frameworks

CHAPTER 3:LOCAL GOVERNMENT BUDGET

TRENDS• Local government has responsibility for:

WaterSanitationElectriciyRefuse removalRoads Stormwater drainangeMunicipal healthFirefighting services

MUNICIPAL PROFILE

• 284 municipalities as of December 5, 2000, (reduced from over 1,200 in 1993 and 843 in 1996): 6 Category A (metropolitan) 231 Category B (local) 47 Category C (district)

MUNICIPAL BUDGETS

• Total for 2002/03: R74,5 billion (15,7% more than 2001/02)Capital budgets: R13,1 billionOperating budgets: R61,4 billion

• Share of different categories:Category A: 64%Category B: 33%Category C : 4%

MUNICIPAL REVENUE

• Own revenue:User charges for water and electricity (Category A, B

and C)Property Rates (Category A and B)Regional Services Council (RSC) levies (Category A

and C)Other user charges

• Grants from National and Provincial government

MUNICIPAL EXPENDITURE• Operating expenditure:

Personnel costs continue to form largest share: R19,8 billion (1% increase from 31% in 1999/00 to 32% in 2002/03)

• Capital expenditure:82% for general infrastructure (largest proportion for

housing, water reservoirs and reticulation, roads, bridges, pavements, and electricity distribution)

Actual expenditure is less than budgeted (due to 1-year budgeting, poor cash-flow and implementation plans, and lack of secure funding)

• Finalising establishment and consolidation • Expanding capacity to provide services, particularly free

basic services• Impact of restructuring of electricity distribution industry• Modernising delivery, budgeting and financial

management systems• Improving debt management• Improving revenue collection

• Policy: Clear fiscal framework for local

government and implications for different categories of municipalities

Sufficiency of revenues to meet expenditure needs

Measures needed to ensure financial viability of municipalities with weak economic and tax base

• Planning: Linking integrated development planning

to budgeting

• Monitoring and evaluation: Municipal performance in reducing

backlogs in service delivery Ensuring that grants are being spent for

intended purposes

• Policy: Division of powers and functions between

Category B and C municipalities finalized and published in January 3, 2003

Property Rates Bill before Parliament Policy Framework on Division of Fiscal Powers

and Functions between Category B and C municipalities

Policy Framework on Reform of RSC Levy

• Implementation:Establishment of Municipal Revenue

Enhancement Fund Consolidation of Capacity Building GrantsConsolidation of Municipal Infrastructure

Grants• Monitoring and Evaluation:

Project Viability monitoring of municipal finances

CHAPTER 10: PERSONNEL

• Provinces ahead of local government in restructuring personnel regimes

• Due to the fact that municipalities have recently undergone final phase of demarcation in December 2000 (after interim phases in 1993 and 1996)

• Nevertheless, both spheres focusing on improving skills profile, dealing with surplus staff, attracting professional and managerial expertise, and improving work performance

• Improvement in performance management

• Development of performance-based remuneration and reward systems

• Adoption of more flexible personnel frameworks

• High level of staff turnover in municipalities• Unfilled posts at managerial level in

municipalities• Transfer of DWAF staff to municipalities

with transfer of water schemes• Coordination between SALGA, sector

SETA and dplg wrt training and capacity

• Establishment and Piloting of Performance Management System

• Analysis of Creation of Single Public Service

• Development of Guidelines on Remuneration of Municipal Managers

KEY INTERVENTIONS WITH REGARD TO PCC RESOLUTIONS

• Intergovernmental Relations:dplg to finalise drafting and implementation of

legislation on IGR• Integration in Planning, Budgeting,

Implementation and Monitoring:Provinces to finalise review of Provincial Growth and

Development Strategies (PGDS)dplg to develop generic and sector guidelines to

inform and strengthen IGR and support municipal IDPs

• Targeted Support Programme for Provinces:Supporting Premier’s office to coordinate IGRs

within provinces and national government Aligning provincial and local IDPs and service

delivery

• Intergovernmental Fiscal Relations:Review local government equitable share formulaConsolidate conditional grant system into MIG

Municipal Viability and Debt Management:• National Revenue Enhancement

Programme Indigent policy, credit control and billing systems

• Capacity Building and Leadership Development: Establishment of PIMSS centres Establishment of LOGOLA

• Infrastructure Investment and LED:Consolidation of infrastructure grants into MIG

• Free Basic Services: Focus on municipalities that do not have basic

infrastructure in placeEnsure that each Premier’s office establishes an

Intergovernmental Task team on FBS

CONCLUSION

Intergovernmental Fiscal Review 2003:

• Substantial progress

• Challenges Remain

• Interventions

THANK YOU

INTERGOVERNMENTAL FISCAL REVIEW 2003 dplg INPUT TO SELECT COMMITTEE ON FINANCE May 14, 2003

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