DIVISION OF REVENUE (DOR) BILL 2009/10

1. Presentation to the Select Committee on FinanceNational Council of ProvincesbyMs Lindiwe Msengana-NdlelaDirector-General: Provincial & Local Government DIVISION OF REVENUE (DOR) BILL 2009/10 Cape Town, 25 February 2009

2. dplg 25 February 2009 2 Outline of the Presentation Slide no: • Introduction – Purpose of Grants 3 • Progress on Conditional Grants 4 2.1Allocations in current term (2004/05 - 2009/10) 5 2.2Future estimates (2010/11 - 2011/12) 8 2.3 Future estimates – Provincial Dynamics 9 • Nature of the Problem 11 • Engagements on DoR Bill in 2008/09 12 • Proposed Engagements in 2009/10 15 • Principles underlying current & future engagements 16 • Conclusion 17

3. dplg 25 February 2009 3 1. Introduction - Purpose of the Grants • Local Government Equitable Share (unconditional) The grant is intended to supplement municipal own-revenue to achieve universal access to free basic services to poor households and to improve governance and administrative systems • Municipal Infrastructure Grant (conditional) The grant is intended to provide capital finance for basic municipal infrastructure for poor households, micro-enterprises and social institutions; provide for new, rehabilitation and upgrading of municipal infrastructure; and eradicate bucket sanitation system mainly in urban townships • Municipal Systems Improvement Grant (MSIG) (Conditional) The grant is intended to assist municipalities in building in-house capacity to perform their functions and stabilise institutional and governance systems

4. dplg 25 February 2009 4 2. Progress on Conditional Grants Some of the highlights in the 2007/8 financial year include: • Through MIG: • The cumulative households benefited by end June 2007: water (610 293), sanitation (399 662), storm water (99 542), solid waste (238 552) • A cumulative total of 2934 SMME’s utilised in the implementation of MIG projects • Through MSIG: • Support provided to a total of 96 municipalities on financial management aspects, including the compilation of Annual Financial Statements • A total of 68 out of the 124 municipalities that implemented Municipal Property Rates Act projects had successfully completed all the processes involved in the MPRA implementation process

5. dplg 25 February 2009 5 2.1 Progress on Conditional Grants Allocations in the current 2004/05 – 2009/10

6. dplg 25 February 2009 6 2.1 Progress on Conditional Grants Allocations in the current term (2004/05 – 2009/10): • LGES has been increasing from R7,6 bn (2004/05) to R23,8 bn (2009/10), representing a 68% increase • MIG has been increasing from R4,4 bn (2004/05) to R11 bn (2009/10), representing a 60% increase • MSIG has been increasing from R182m (2004/05) to R200m (2009/10), representing a 9% increase – a matter of concern • Total transfers from R12,1 bn (2004/05) to R35 bn (2009/10), representing a 66% increase

7. dplg 25 February 2009 7 2.2 Progress on Conditional Grants: Future Estimates

8. dplg 25 February 2009 8 2.3 Progress on Conditional Grants: Future Estimates Note: • The gap in growth of allocations between Municipal Systems Improvement Grant (MSIG) (dplg) and Financial Management Grant (FMG) (NT) – both the two recurrent grants face the similar challenges.

9. dplg 25 February 2009 9 2.3 Provincial Dynamics: MIG Allocations Provincial allocations are informed by, amongst other things, the extent of backlogs and poverty-weighted data.

10. dplg 25 February 2009 10 2.3 Provincial Dynamics: MSIG Allocations Provincial allocations are informed by municipal capacity and past expenditure performance.

11. dplg 25 February 2009 11 3. Nature of the Problem (whilst noting some progress) Capacity, resources and local leadership accountability • Uneven capacity: spatial rural-urban areas, nature of development, decision-making, skills, planning, project management, cash flow management, performance and contract management • Limited resources – large scale/ bulk infrastructure • Uneven levels of local political and municipal leadership Symptoms • Poor operations & maintenance of infrastructure: under-spending, poor regulations enforcement, low quality of service delivery, health hazards • Other matters have been raised in the Policy Review process on the system of provincial and local government – to be dealt with by the incoming administration post 2009 Elections Note: We would like to thank the Select Committee, which has invited us over the past years, for extensive oversight sessions in various provinces, municipalities and in Parliament – to address the nature of the problem outlined above.

12. dplg 25 February 2009 12 4. Engagements on DoR Bill in 2008/09 • Consultative engagements between the dplg and National Treasury on the Division of Revenue Bill started in June 2008. • Comprehensive comments were formally submitted to the National Treasury by end of August 2008. • Further engagements during December 2008 and January 2009.

13. dplg 25 February 2009 13 4. Engagements on DoR Bill in 2008/09 … outstanding matters • Some of the inputs from dplg have been incorporated in the current version, except for the following: • Infrastructure grant for cities – the new clause in the bill suggests that transfers go through dplg vote but monitoring and reporting only to National Treasury. This is contrary to the mandate of Vote 29 and duties of the national transferring officer (in this case dplg) – sec 9(1) and (2); • The need to increase funds for municipal systems improvements; • Enabling mechanisms for dplg to report to Parliament on performance of municipalities with regard to conditional grants. For example, the current framework does not enable the dplg to reallocate funds to municipalities who have the capacity to spend; and • Addressing MIG performance audit findings, as indicated below:

14. dplg 25 February 2009 14 4. Engagements on DoR Bill in 2008/09 … outstanding matters Issues raised by Auditor-General in the performance audit of MIG • The crafting of DoRA in relation to municipal infrastructure is restricting dplg’s role in the management of the grant. • The following issues were raised by the AG and has also informed our input to the 2009 Bill: • The dplg has limited powers to address under-performance by municipalities; • Funds from conditional grants should be deposited into a separate bank account by each municipality to ensure proper monitoring; and • Based on the above proposal, VAT reimbursements from SARS and interest received w.r.t MIG funds should be ploughed back to MIG projects by each municipality.

15. dplg 25 February 2009 15 5. Proposed Engagements on DoR Bill in 2009/10 • Greater effort to be directed at poor and low capacity municipalities (not only cities) • Utilisation of Schedule 7 of DoRA in the management of MIG - In view of the need for SA to meet its development targets and the Millennium Development Goals - Informed by infrastructure programmes identified in the municipal Integrated Development Plan (IDP), Provincial Growth & Development Strategies (PGDS), the National Development Perspective and the Comprehensive Infrastructure Planning (CIP).

16. dplg 25 February 2009 16 6. Principles underlying current & future engagements, in all spheres • Principle of developmental local government • Intergovernmental relations • Improving performance management and the role of dplg • Local leadership (Also refer to Annexure A)

17. dplg 25 February 2009 17 7. Conclusion • The Select Committee on Finance to: • Note the progress made in the current term (2004/5 – 2009/10) and in the context of the Fifteen year Review of Government (1994 – 2009); • Note the underlying problem that is being addressed in local governance, w.r.t. the relevant grants managed by the dplg; • Discuss the engagements held with National Treasury and matters that remain to be addressed (slides 12 – 15) • Note the principles underlying current and future engagement in all spheres. THANK YOU

18. dplg 25 February 2009 18 Annexure A What did we indicate to the Select Committee on Finance in the past years? A selection of slides …

19. Presentation to the Select Committee on Finance By the Director-General of the Department of Provincial & Local Government (dplg), Ms Lindiwe Msengana-Ndlela Tuesday, 8th March 2005 Cape Town

20. Key Challenges & Future Action (08/03/2005) • Late submission of the MSIG Business Plans. • Poor spending by district municipalities. • Roll-overs at the end of the financial year. • Non-compliance with the DORA by some municipalities, especially reporting requirements.

21. Key Challenges & Future Action … (08/03/2005) • Lack or little consultative processes with local municipalities by districts in the compilation of business plans and in the implementation of projects. In response to these challenges, a Programme of Support to municipalities has been developed and is being implemented within the context of Project Consolidate.

22. MIG - Roles and Responsibilities (08/03/2005) • Department of Provincial and Local Government (dplg): Administers the MIG and convenes Municipal Infrastructure Task Team meetings. • Other key Departments: • Department of Water Affairs and Forestry (DWAF) • Department of Public Works (DPW) • Department of Minerals and Energy (DME) • Department of Transport (DoT) • Department of Housing (DoH) • Sport and Recreation South Africa (SRSA). • Sector Departments and their provincial counter parts retain the policy making and regulatory functions and retain the constitutional role to support municipalities. They also need to provide oversight and monitor sector outcomes.

23. MIG - Provincial and Municipal Roles and Responsibilities (08/03/2005) • Provincial Departments responsible for Local Government: • Ensure that municipal IDPs are vertically integrated with thePGDS & ensure that IDPs give priority to the basic needs ofcommunities • Promote the development of local government capacity • Monitor the financial status of municipalities. • Municipalities are to: • Structure and manage municipal administration, budgeting and planning processes • Participate in national and provincial programmes • Manage MIG funding for specific projects.

24. Presentation to the Select Committee on FinanceBy the Director-General of the Department of Provincial and Local Government (the dplg),Ms Lindiwe Msengana-NdlelaWednesday, 8 March 2006Cape Town

25. Refining DoRA (08/03/2006) • Resource allocation must support policy and strategic imperatives • The process of refining DoRA is necessary and will be enhanced by an Intergovernmental Fiscal Relations system which provides for: • Improved monitoring and evaluation of performance; • Greater certainty provided to municipalities; • Alignment with objectives of the Intergovernmental Relations Framework Act and Local Government Legislation; and • An integrated approach to service delivery and development of all three spheres.