FINANCIAL AND FISCAL COMMISSION

FINANCIAL AND FISCAL COMMISSION 2005/2006 ANNUAL REPORT

Constitutional Mandate Section 220 - An independent and impartial advisory institution within the South African intergovernmental fiscal relations system • Section 214 – The recommendations of the FFC must be considered in the formulation of legislation providing for the equitable division of revenue between the three (3) tiers of government • Section 218 – National legislation relating to provincial and municipal guarantees may only be enacted after recommendations from the FFC have been considered • Sections 228, 229 and 230 – Legislation relating to provincial taxes, municipal fiscal powers and functions, as well as provincial and municipal loans may only be enacted after recommendations from the FFC have been considered

Legislative Mandate • Section 9 of the Municipal Systems Act – The assessment of the FFC must be obtained when a function or power is assigned by national or provincial government to local government • Section 3 of the Financial and Fiscal Commission Amendment Act of 2003 – The FFC must provide advice regarding the assignment of a function or power between any of the spheres of government • Section 4 of the Local Government: Municipal Finance Management Act – The FFC must comment in writing on any draft legislation directly or indirectly amending this Act

Performance I

Performance II

Government Response to FFC Annual Submission • Health Conditional Grants Agreement that NTSG be retained as a conditional grant. Government stresses that there is a need to the grant in order to take account of the Modernisation of Tertiary Services proposals from the health sector. The FFC will continue to review the grant and part of the review that has been done did take into account the MTS proposals • Health Professions and Development Grant There is agreement that this grant needs to be retained as a conditional grant. Government has indicated that it is currently investigating options of improving the efficiency of the grant.

Government Response to FFC Annual Submission • Financing of Welfare Services Government agrees with the recommendations of the FFC. Government has indicated that it is doing some work on at defining the basket of welfare services that would be inline with the recommendation of the FFC

Government Response to FFC Annual Submission • Assignment of Powers and Functions All the recommendations made in this regard by the FFC have been accepted by Government. Government has noted that: • the Assignment Guidelines (previously the Policy Framework for the assignment of powers and functions to local government) read with the relevant legislation should assist all spheres of government to find the right mix of options for the devolution of powers and functions to the local sphere • There is a need to extend the framework to all spheres of government and to ensure that assignments and agreements by parties take the funding implications into account

Government Response to FFC Annual Submission • Institutional and Funding Framework for Housing • In general Government agrees with FFC recommendations in this regard. • Government however emphasises that the administrative costs associated with housing subsidies are partially accounted for through the provision that municipalities can retain up to 7.5% of the Integrated Housing and Human Settlement Grant for administrative costs. The rest of the costs should be borne by the municipality.

Government Response to FFC Annual Submission • Institutional and Funding Framework for Housing (Cont …) • While the Commission agrees with this principle, this should not be assumed to apply at all times given the fact that it is unlikely that poor municipalities with no revenue raising capacity would be accredited. • There is a need therefore to clearly specify that those municipalities with sufficient revenue raising capacity should share in financing the administration costs for housing subsidies

Government Response to FFC Annual Submission • Alignment of New Housing Subsidies to the MIG and Local Government Equitable Share Formula Government has indicated that: • This may be extremely difficult given the time lags that exist between the granting of subsidies and the actual construction of a house. • The fact that the MIG also targets infrastructure in existing settlements over and above new housing complicates the formula

Government Response to FFC Annual Submission • Alignment of New Housing Subsidies to the MIG and Local Government Equitable Share Formula (Cont …) • The FFC agrees with Government given the need to ensure transparency and simplicity of formula • FFC also agrees with Government that the growth in housing subsidy approvals should be accompanied by changes in the same direction for the equitable share and the MIG in order to ensure that poorer municipalities are also able to provide and maintain basic services infrastructure

Government Response to FFC Annual Submission • Transport Funding • Government agrees with FFC recommendations and highlights the need for improving the efficiency of inter-modal transport planning. • The FFC agrees with Government’s observation that the Gautrain Rapid Rail Link provides lessons in the difficulties the transport sector experiences in coordinating planning across modes under the current funding and institutional arrangements

Government Response to FFC Annual Submission • Funding of Environmental Health • Government agrees with the FFC recommendation that environmental health care services be included in the basic component of the local equitable share formula. The recommendation has been implemented in the 2006 Budget. • Government is however of the view that there is no need to develop an environmental health care package as its elements are adequately listed in the National Health Act.

Government Response to FFC Annual Submission • Funding of Environmental Health (Cont …) • The FFC is of the view that mere listing of elements is inadequate. The Act provides a general framework. The development of a package is necessary to ensure implementation. This would make the estimation of costs easier

Government Response to FFC Annual Submission • Proposed Developmental Component of the Local Government Equitable Share Formula • Government agrees with the FFC recommendation and indicates further that it will await proposals from the FFC with respect to how the local government equitable share formula could fully take account of the expenditure needs of government. The final proposals are expected to be tabled in the Annual Submission of 2008 which will be made in 2007.

Management • Strategic Planning Various strategic planning sessions were held with a view to improving effective and efficient delivery on the mandates of the FFC. This process included the establishment of two (2) additional Research Programmes (IGFR Performance and Macroeconomics and Public Finance) as well the expansion of and rationalisation of reporting lines for support functions within the institution. • Expenditure • A significant portion of the allocation for the 2005/6 financial year was expended on personnel and research costs and the FFC had to ensure that all its statutory obligations were met within the constraints of its MTEF allocation

Management • Expenditure (Cont …) • Various cost saving measures were employed to ensure that the priorities stated in the budget were met and, while MTEF allocations were approved for the financial year 2006/7, various demands arising from the ongoing strategic planning processes require additional funding in the current and future MTEF periods most of which will be earmarked for institutional and capacity building • Risk • Staff turnover and gender equity have been critical areas for the FFC and the institution is committed to investing time, money and energy in the development of its human resource capacity and the creation of an equitable gender balance.

Management • Risk (Cont …) • The FFC has developed a Job Level and Remuneration Range Framework to assist with the attraction, recruitment and retention of core management and research skills. • Finances • The FFC has been given an unqualified report by the Auditor-General • There were no matters of emphasis for the financial year under review

Conclusion • Enhancements and improvements in the area of knowledge management, information systems, a research agenda that includes long-term studies, and research capacity would greatly benefit if not prepare the FFC to meet the varied and complex demands from stakeholders for recommendations and advice on financial and fiscal policy matters

FINANCIAL AND FISCAL COMMISSION