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ANNUAL SUBMISSION: DIVISION OF REVENUE 2003/04 ________________________

ANNUAL SUBMISSION: DIVISION OF REVENUE 2003/04 ________________________ SELECT COMMITTEE ON FINANCE NATIONAL COUNCIL OF PROVINCES 20 May 2002. Background: Financial & Fiscal Commission. Legislative Mandate

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ANNUAL SUBMISSION: DIVISION OF REVENUE 2003/04 ________________________

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  1. ANNUAL SUBMISSION: DIVISION OF REVENUE 2003/04 ________________________ SELECT COMMITTEE ON FINANCE NATIONAL COUNCIL OF PROVINCES 20 May 2002

  2. Background:Financial & Fiscal Commission • Legislative Mandate • Advise Government on the division of revenue among national, provincial, and local spheres • Make recommendations on provincial and municipal fiscal matters • Nature of proposals • Next financial year • MTEF Cycle

  3. Framework for FFC Proposals • FFC guided by criteria in Section 214(2)(a-j) of Constitution: • National debt & other obligations • Needs and interests of national government • Provinces & municipalities: • Provision of basic services and other functions • Fiscal capacity & efficiency • Developmental and other needs • Economic disparities among provinces • Need for stable and predictable allocations • Need for flexibility in responding to emergencies

  4. Government response:Proposals for 2002/03 • Over-arching proposal: equitable shares should take account of CMBS • Government: agrees more precise information on CMBS needed, but cannot be implemented owing to data constraints • Provincial tax proposals • Government: agrees with Commission’s overall approach, except PIT surcharge

  5. Government response:Proposals for 2002/03 Cont’d • Provincial capital grants • Government: agrees on need for infrastructure conditional grant • FFC model requires extension; should be part of a review of the provincial equitable share formula • Local government • Government: recommendations timely & substantive • Agreement in some cases, further study on other proposals

  6. Local government proposals 1 • Municipal borrowing & finance markets • Combination of market discipline & rules-based approach • Differentiated approach to municipalities • Policy measures to assist municipalities to build credit-worthiness

  7. Local government proposals 2 • Division of powers & functions of district and local municipalities • General principle: Local municipalities responsible for service delivery, unless no capacity • Health services: district municipalities • Water & sanitation services: local municipalities • Remuneration of councillors • From local government revenue (own revenue & equitable share) • Link legislative requirements to Institutional Grant of equitable share formula

  8. Local government proposals 3 • Restructuring of electricity distribution • Compensation to municipalities for losses related to transfer • Municipal levy on electricity available to all municipalities • National tariff support for low-income consumers • RED boundaries co-terminus with municipal boundaries • Retain advantages of consolidated billing systems of municipalities

  9. Provincial proposals 1 • Early Childhood Development • Conditional grant funding should continue until incorporated into equitable share • Formula for ECD funding: • Should not discriminate between public, community-based, and independent schools • Poverty-weighted • Phase-in parameter until programme fully implemented

  10. Provincial proposals 2 • HIV/AIDS • 2002/03 Budget: R400m through provincial equitable share to address HIV/AIDS • FFC position: Conditional grants most appropriate mechanism for targeting spending on HIV/AIDS • Should not be included in equitable share formula if inadequate data • Equitable share is unconditional – cannot track funding • National priorities best dealt with through conditional grants • Public health needs and priorities change continuously

  11. Cross-cutting Equitable Share Proposals 1 • Disaster management funding • Further development of central funding mechanisms • Programme for nationally identified prevention / mitigation projects • Funding of emergency response activities from contingency reserve once municipal and provincial thresholds exceeded

  12. Cross-cutting Equitable Share Proposals 2 • Contingency reserve • Reserve for emergency purposes (macroeconomic stability & disasters) • “New spending priorities” categorised as policy reserve • Provinces & contingency reserves

  13. Cross-cutting Equitable Share Proposals 3 • Social security • FFC guidelines to assist stakeholders in reviewing Comprehensive Social Security Report • Range of services • Financial & administrative factors • Location of old age pensions: national • Establishment of national social security agency

  14. Cross-cutting Equitable Share Proposals 4 • Review of current equitable share formulae, which includes: • Provincial capital grants scheme • Audit of intergovernmental fiscal relations • Restructuring of formulae to achieve balance between CMBS and Section 214(2)(a-j)

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