2016 Division of Revenue Amendment Bill Select and Standing Committees on Apportions
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1 2016 Division of Revenue Amendment Bill Select and Standing Committees on Apportions National Treasury 10 November 2016
2 Overview The 2016 Division of Revenue Act (DoRA) was considered and approved by Legislatures at the beginning of this year and was signed by the President on 18 May 2016 (it is Act 3 of 2016). The DoRA makes equitable share and conditional grant allocations to provinces and municipalities and sets out the rules for those grants The Division of Revenue Amendment Bill makes amendments to the DoRA Section 12(4) of Money Bills Amendment Procedure and Related Matters Act requires that the Minister of Finance table a DoRAB with the revised fiscal framework if the adjustments budget effects changes to the DoRA The changes allowed in an adjustment budget are relatively small. They include changes to provide for: Unforeseeable and unavoidable expenditure Emergencies Utilisation of unspent funds Roll-over of unspent funds This presentation sets out all of the changes to provincial and municipal allocations in the 2016 DoRAB 2
3 How changes are shown in the schedules The main purpose of the DoRAB is to amend column A of the DoRA which shows the allocation for the current year The new Column A created by the DoRAB shows the original allocation, the adjustment and the new allocation so as to maximise transparency in the adjustment process Column A is amended for: Schedule 1 Schedule 4, Part A Schedule 5 Part A Schedule 6, Parts A & B Schedule 1 from 2016 DoRA Spheres of Government Column A 2016/17 Schedule 1 from 2016 DoRAB Column B Forward Estimates 2017/ /19 R'000 R'000 R'000 National 1, Provincial Local TOTAL Spheres of Government 2016/17 Main Allocation Column A Adjustment 2016/17 Adjusted Allocation R'000 R'000 R'000 National 1, ( ) Provincial Local TOTAL ( )
4 Provincial Allocations 4
5 Adjustments to provincial conditional grants (1 of 2) Roll-over of provincial roads maintenance grant funds R275.7 million will be rolled-over from allocations made in 2015/16 on the provincial roads maintenance grant for KwaZulu-Natal These funds were not transferred in 2015/16 because the province did not meet the reporting requirements for the grant. The province did however spend its own funds on road maintenance and has subsequently met the reporting requirements. Addition to the national health insurance grant R9 million will be added to the direct national health insurance grant to fund the strengthening of health information systems in KwaZulu-Natal and Western Cape This is an important part of piloting the diagnostic related groups as part of NHI Addition to the comprehensive agriculture support programme R212 million will be added to a new indirect component of the comprehensive agriculture support programme to enable the national Department of Agriculture Forestry and Fisheries to provide relief to farmers affected by the ongoing drought 5
6 Adjustments to provincial conditional grants (2 of 2) Addition to the education infrastructure grant R177.1 million has been allocated to the education infrastructure grant for the rehabilitation of damaged school infrastructure Additions to the national school nutrition programme grant R53.6 million has been added in order to cover the shortfall in the national school nutrition programme grant, caused by high food price inflation Conversion of allocation from the school infrastructure backlogs grant to the education infrastructure grant R142.5 million of the indirect school infrastructure backlogs grant, will be converted to the direct education infrastructure grant allocation for the Western Cape. The province will implement the same projects planned under the indirect grant Reallocations within the mass participation and sport development grant The allocations per province in the mass participation and sport development grant will be corrected to make provision for club development pilot projects (in KZN and LP) and the national training centre (in FS) 6
7 Local Government Allocations 7
8 Adjustments to local government conditional grants frameworks and allocations Changes to local government allocations only impact 3 indirect grants Roll-over of local government Municipal Demarcation Transition Grant R27.9 million will be rolled-over for the municipal demarcation transition grant for funds converted to an indirect grant allocation at the end of the 2015/16 national financial year Additional allocation to support drought relief A total of R50.6 million will be added to the indirect water services infrastructure grant to fund the provision of emergency water supplies to drought affected communities Additional allocation for bucket eradication R72 million will be added to the bucket eradication programme grant to allow the Department of Water and Sanitation to complete bucket eradication projects that the department had already identified and committed to implementing 8
9 Annexures to the Bill 9
10 Annexures to the Bill Together with the tabling of the Division of Revenue Amendment Bill, National Treasury also submits to Parliament proposed changes to gazetted conditional grant frameworks and allocations. Section 16(2) of the Division of Revenue Act, 2016, requires National Treasury to consult Parliament on any proposed changes to a conditional grant framework for the purposes of correcting an error or omission. Parliament is asked to consider and approve corrections to the following conditional grant frameworks: Comprehensive Agriculture Support Programme National Health Insurance Grant Municipal Infrastructure Grant Annexures to the Bill also include the changes to detailed allocations for indirect grants. These will be gazetted by the Minister of Finance once the Division of Revenue Amendment Bill is enacted 10
11 Adjustments to provincial government conditional grants frameworks Comprehensive agriculture support programme framework The framework is amended by the deletion of the phrase: The comprehensive agriculture support programme will be top-sliced by R60 million over the 2016 MTEF (R10 million 2016/17, R20 million 2017/18 and R30 million 2018/19) in order for the Department of Agriculture, Forestry and Fisheries to provide an oversight and monitoring function for the grant This top-slicing has already taken place (the funds are no longer part of the grant, they are on the department s vote) Furthermore the grant framework will be adjusted to include rules for the indirect component for the R212 million drought relief allocation. DAFF will be required to prepare a business plan on how the funds will be spent and to consult the National Disaster Management Centre and each provincial department responsible for agriculture before these funds can be spent. National health insurance grant framework This framework is amended to provide conditions for the diagnosis related groups (DRG) project additions to this grant. 11
12 Adjustments to provincial government gazetted allocations Reprioritisation within the national health insurance indirect grant components Within the national health insurance indirect grant, R10 million has been reprioritised from the Human Papillomavirus (HPV) vaccination grant component towards the health professionals contracting component as the HPV vaccination grant component is currently underspending while the latter component faces expenditure pressures. Changes to reflect this shift are captured in the allocation annexure of the national health insurance indirect grant. 12
13 Adjustments to local government conditional grant framework Municipal infrastructure grant This framework is corrected by adding a clause allowing Sport and Recreation South Africa to grant exemptions to the requirement that ring-fenced sport project funds may only be implemented through nationally approved transversal contracts. In the annexures to the Bill there are also changes to the descriptions of projects that were gazetted for ring-fenced sport infrastructure projects identified by Sport and Recreation South Africa (the same municipalities still benefit, but the details of the projects funded in each municipality are refined). 13
14 Responses to DoR Issues Raised in Parliamentary Hearings on the MTBPS
15 Response to issues raised on the DoRAB The following issue on the DoRAB was raised in the parliamentary hearings on the MTBPS Roll-overs National Treasury welcomes the FFC s observation that the total amount of roll-overs is substantially lower in 2016/17 than last year. The FFC however raised some concerns about the roll-over of R275.7m on the Provincial Roads Maintenance Grant These funds were not transferred in 2015/16 as the province did not comply with the reporting requirements of the grant. However the funds were spent on road maintenance and the province has subsequently met all of the reporting requirements, hence a roll-over was approved to reimburse the province fro funds spent 15
16 Responding to issues raised on the MTBPS (1) National Treasury would like to take this opportunity to respond to also issues raised on the Division of Revenue for the 2017 MTEF during the MTBPS hearings Highlights of the Division of Revenue (DoR) over the 2017 MTEF: DoR between the 3 spheres is broadly stable over the MTEF Strong growth in local and provincial allocations in the outer years reflect the priority placed on frontline services, as well as the rising cost of these services NT, working with provincial treasuries, national departments, StatsSA and the FFC has begun an in-depth review of the provincial equitable share formula Given budgetary constraints, all municipalities need to focus on more efficient spending and value for money to improve basic service delivery Government will work with financially sound municipalities to expand their investment programmes on the strength of their own balance sheets 16
17 Responding to issues raised on the MTBPS (2) Consolidation of the fiscal framework National Treasury notes that all submissions on the DoR acknowledge the constrained fiscal environment and need to make some reductions to transfers The additions to the provincial and local government equitable shares in the outer years of the MTEF were also noted by SALGA, the FFC and PBO Determining reductions to grants The FFC proposed that reductions should be based on an analysis of the historic performance of each grant. MPs also raised concerns about capacity to spend Past performance is taken into account when determining reductions, but should not be the only factor considered. Underperforming grants should be expected to improve their performance in future and should not automatically be cut. Other factors such as commitments funded from the grant, the size of the grant and future growth in the grant baseline must also be taken into account. In the 2017 MTEF grant reductions have been structured to minimize the impact on service delivery by trying to ensure that current expenditure levels can be maintained as far as possible Several well-funded programmes are in place to assist provinces and municipalities to improve their capacity. Departments and municipalities must also take accountability for their own performance 17
18 Responding to issues raised on the MTBPS (3) Reforms to conditional grants National Treasury notes that both SALGA and the FFC expressed support for the proposed changes to conditional grants that are outlined in the MTBPS Conversion between direct and indirect grants The FFC suggests that there is a need to streamline the process of converting indirect allocations to direct allocations Section 21of the DoRA allows for the in-year conversion of allocations, however it is preferable for funds to be allocated as either direct or indirect prior to the start of the financial year, to allow time for planning and spending School quintiles The National School Nutrition Programme (NSNP) has shifted to using national quintiles, however DBE may give exemptions to allow a province to still fund meals in schools that were previously eligible in terms of provincial quintiles Scholars from poor families can apply for a fee exemption at any school (irrespective of its quintile). DBE is also reviewing the school funding model 18
19 Responding to issues raised on the MTBPS (3) Metro INEP (municipal) allocations and the USDG National Treasury notes that both SALGA and the FFC have supported the proposal for INEP (municipal) allocations for metros into the USDG, with the FFC indicating that this would, curb the current uneven and disintegrated manner in which electrification projects are funded in cities Concerns on treatment of the USDG SALGA also raised concerns that the schedule 4 (supplementary) USDG is being managed as though it is a schedule 5 (specific purpose) grant National Treasury views it as very important that this grant is supplementary, in order to both leverage more municipal own revenues and to allow for the development of more integrated cities. We will continue to engage with the transferring officer to ensure that this distinction is respected Accreditation for the housing function The FFC s recommendation that government must expedite the process of municipal accreditation should be directed to the Department of Human Settlements 19
20 Responding to issues raised on the MTBPS (4) Intergovernmental debt SALGA raised a longstanding concern about monies owed to municipalities by government departments, but also noted that DPW has committed to resolving this issue Departments (national and provincial) are making significant progress in this regard and amounts owing to municipalities are now declining not increasing. It is concerning that debts owed by municipalities to water boards and Eskom are increasing Financial health of municipalities SALGA also noted that the Auditor-General has said that the financial health of 92% of municipalities is concerning or requires intervention National Treasury shares this concern and supports municipalities with resources and capacity support: Transfers to local government have grown from 3% of the DoR in 2000 to 9% now, and grows faster than allocations to the other spheres over the 2017 MTEF Over R2.4 billion is allocated for municipal capacity support in 2016/17 through capacity grants, the Municipal Finance Improvement Programme, Municipal Infrastructure Support Agent (in addition to support from donors and SETAs) 20
21 Municipal Money and Financial Management Reforms
22 Municipal Money Website SALGA welcomed the Minister of Finance s announcement of the launch of the Municipal Money website. MPs asked several questions about the accessibility and accuracy of the data on the site SALGA also raised concerns about the readiness of municipalities for the introduction of mscoa in July
23 Background of Municipal Money In the 2016 Budget Speech the Minister of Finance said: This year brings our fourth fully democratic local government elections. In recognition of this, the National Treasury will launch a data portal to provide all stakeholders with comparable, verified information on municipal financial and non-financial performance. I hope this will further stimulate citizen involvement in local governance. went live on 26 October 2016 Government budgets are a blueprint for how public resources are going to be spent and budget information should be transparent and accessible for people to understand how public funds will be used Broad Observations National Treasury is a founding member of the Open Government Partnership which strives for transparency and informed public participation in government processes 23
24 Content of Municipal Money Data accuracy Data is up to date and is based on the submissions of municipalities to the Local Government Database and Reporting System (Local Government Database and Reporting System). It is based on the quarterly Section 71 publications and the latest audit outcomes Municipal Money will be updated every quarter with the latest available finance data Accessibility Information is available 24/7 on internet and mobile devices It is educational and explains finances in citizen-speak It has links to the guidance on how to interpret the data It encourages and guides citizens on how they can get involved in the Budget and Planning cycle of the municipality It accommodates feedback mail for queries or general comments and collects statistics on the use of the open portal 24
25 Future refinements to Municipal Money National Treasury is committed to working with stakeholders to continuously improve the website 6125 people have already used the website Enhancements have already been requested: Better comparative measures on tariffs and household bills Tracking of capital projects of municipalities Ward based data The Project Steering Committee will meet at the end of this month to discuss new focus areas based on feedback from citizens 25
26 Long-term objectives of LG budget reform agenda Quality local government information informing national policy debates Information comparable across all municipalities to aid resource allocation decisions Ensuring a credible budgeting process is a key ingredient to improving financial management Facilitate the alignment of the budget to national priorities with the aim of improving service delivery outcomes Over time, one should be able to draw a direct correlation between a credible budgeting and the audit outcomes Prevention of municipal financial difficulties before they occur by through the application of budget and Section 71 analysis - an early warning system Must form the basis of recovery plan where difficulties/challenges are experienced Strengthening the link between policy formulation, planning, budgeting, implementation, reporting and monitoring i.e. accountability and service delivery 26
27 mscoa in the broader FM landscape Statistical reporting framework (GFS/SNA) BRF SCOA Constitution SCOA Segments mscoa Fund Item Function Region MFMA AFS Standard Classification Project Financial reporting framework (accruals basis of accounting or GRAP) mscoa represents the detailed, or posting-level, accounts which financial practitioners would use to capture transactions in the financial systems. The mscoa data structure is then used to compile both budgets and financial statements. Budgets and actual financial transactions are captured in the municipality s financial system, across all of the segments of SCOA; facilitating a direct comparison of budget versus actual spending. 27
28 What Segments are Required in mscoa and where do they come from? Municipal Standard Classification: MSC is a non regulated segment and will probably still represent the MFMA vote. Project: DCOG This segment is to ensure that all projects in the IDP is aligned to budgets. Function: Here we align with the IMF, GFS, Constitution and Municipal Structures act to Departments and Votes Costing: Management Accountants / Tariff modelling. The PSD acknowledge a gradual approach I.E Administrative functions to Commercial services will suffice. Item: ASB / OAG This is the Accountants segment and is informed by GRAP, IFRS and accounting standards. All financial reporting and reconciliations happen in this segment. Region: Communities need to feel and see delivery, Only through planning and physical delivery can this be communicated effectively. Fund: Budget Office National and Provincial Government are on Modified cash and Local government Item are on Accrual Here we align to Payments and receipts and in essence achieve cash flow here. 28
29 Support to municipalities to go live on mscoa by 1 July 2017 The mscoa support and change management team has been working with all municipalities through advisors per province since 2013 Extensive training has been done throughout RSA to de-mystify mscoa and to give municipalities a roadmap to the implementation of the new classification framework Readiness assessments have been done for each municipality through the provincial treasuries and special attention has been given to municipalities that were lagging behind Throughout this process contact was maintained with all system vendors and their software development progress has been monitored and evaluated to see if they conform to the principles of mscoa Accredited training material was developed and the second batch of Trainers will be trained and accredited in December 2016 Through circulars and practical workshops certain milestones have been set to ensure that all municipalities are on board BEFORE 1 July
30 THANK YOU 30
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