Division of Revenue Bill; Intergorvenmental Budgeting: briefing

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Finance Standing Committee

27 February 2000
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Meeting report

FINANCE PORTFOLIO COMMITTEE
28 February 2000
DIVISION OF REVENUE BILL

Documents handed out
Presentation by the Department of Finance
Presentation by the Financial & Fiscal Commission
Presentation on Intergovernmental Budgeting System
Division of Revenue Bill [B8-2000]
Amendments to the Division of Revenue Bill (Appendix 1)

MINUTES
Minister of Finance, Trevor Manual, Director General of Finance & acting-Director General of State Expenditure, Maria Ramos, and the Deputy Minister of Finance, Mandisi Mphalwa, provided input regarding the budget. Here follows an outline of their presentation:

2000 Budget highlights

 

· Economic growth projected to be 3,6 % in 2000/01

 

· Introduction of inflation targeting

 

· Biggest income tax cut ever

 

· Lower interest costs on state debt

 

· An additional R8 billion extra for spending

 

· Budget extended to social security funds

 

· More stable and improving provincial finances

 

· Emphasis on infrastructure spending

 

· Increased spending to:

- fight crime

- improve court system

- modernise defence force

- improve hospitals and schools

- combat HIVIAIDS

- facilitate local government elections

Economic policy & outlook

· Growth averaging 3,4% predicted over next 3 years

 

· Fixed capital formation rises from 6% in 2000/01 to 6,5% in 2002/03

 

· Consumer price inflation of 5,5% for 2000 falling to 4,7% in 2002/03

 

· Main budget deficit of 2,6% in 2000/01, declining to 2,2% in 2002/03

 

· Inflation target price index is CPIX -

- current headline inflation excl. mortgage interest costs

 

· Target range is 3 to 6% of CPIX

 

· Exchange controls relaxed to reduce limits on cash transfers by institutions

 

· Limit for individuals increased to R750 000

Key macroeconomic indicators

 

2000/01

2001/0

2002/03

GDP (R billion)

885,2

958,2

1 036,

Real GDP growth (%)

3,6

3,2

3,3

Headline CPI (%)

5,5

5,2

4,7

CPIX (%)

6,6

5,3

4,5

 

Fiscal policy aims

 

· Moderate level of government consumption spending relative to GDP

 

· Enhance capital formation by public sector

 

· Reduce level of government dissaving

 

· Stabilise level of debt & reduce debt service costs

 

· Lower the tax burden on the economy

 

· Reprioritise government spending to support growth

Fiscal framework

(R billion)

2000/01

2001/02

2002/03

Revenue

210,4

227,4

243,6

Expenditure

233,5

251,5

266,7

Main budget deficit

23,1

24,1

23,1

% ofGDP

2,6

2,5

2,2

Debt Management

· Outstanding debt projected to decline from 47,4% of GDP in 1999/00 to 42,0% by 2002/03

 

· Lower interest on debt:

 

- Lower deficit in 1999/00

- Proceeds from privatisation

- Lower interest rates

 

· Financing strategy for 2000/01 includes foreign borrowings of US $1 billion

 

Asset Management

 

· Proceeds from restructuring of state assets just over R8,5 billion

 

· Conversion of SASRIA brought in R6,2 billion

 

· Restructuring focusing on Eskom, Denel, Telkom and Transnet

 

· Equity partners in SAA, Telkom and ACSA increasing investment in sectors

 

· Empowerment shares worth almost Ribillion distributed

Composition of tax revenue

Diagram not included.

 

Income and profit taxes

 

· R9,9 billion income tax cuts

 

- Up to R35 000 rate of 18%

- Above R200 000 rate of 42%

 

· Increased interest income exemption

- R3 000 for individuals under age 65

- R4 000 for individuals age 65 and over

 

· Graduated company tax rate for qualifying SMEs

- 15% on first R100 000 of taxable income

 

· Tax allowances for permanent structures

 

- Oil and gas pipelines:10% of the asset's cost a year

 

- Electricity and telephone lines = 5% a year

 

- Railway lines = 5% a year

 

· Capital gains tax - from 1 April 2001

-Exclusions include: primary residence, personal effects, certain small business assets.

-Rollover treatment for certain transactions

-Inclusion rate 25% (individuals); 50% (companies)

 

· Phased move to residence-based income tax

-Foreign dividends taxable immediately

Taxation of NPOs

· More generous tax regime for NPOs

- Review the range of tax exempt entities

- Broaden scope for tax deductible contributions to include:

-Pre-primary and primary schools

-Organisations providing HIV/AIDS care

-Children's homes

-Caring for the aged

- Tax deductible contributions by individuals = greater of 5% of taxable income, or R1 000

 

Indirect taxes

 

· Excise tax changes

· Tobacco - maintain 50% total tax incidence

· Alcohol - increase 5,5%

· Fuel -increase 5c/l on petrol and 3c/l on diesel

· Soft drinks - decrease 4c/l

 

· New departure tax on international air travel

 

· R100 a passenger from 1 August 2000

 

· Diesel fuel rebate: coastal shipping / fishing

 

· 89,4c/l at a cost of R66 million

 

Medium Term Expenditure Framework

 

· 3-year rolling budgets facilitate budgetary reprioritisation

 

· Focus is on strengthening the links between policy choices, government spending and service delivery

 

· Social security funds included in the 2000 Budget

 

Spending

 

· Total main budget spending is R233,5 billion:

 

- National government = R76 billion

 

- Provinces = R106 billion

- Local government = R2,8 billion

- Interest on state debt = R46,5 billion

- Contingency reserve = R2 billion

Spending includes:

 

· Social services = R109 billion

-Education, Health, Welfare,

 

· Protection services = R33 billion

-Justice, Police, Correctional Intelligence

 

· Economic services = R21 billion

-water, Agriculture, Fishing & Forestry, Transport & Communications

 

Provincial and local government

 

· Intergovernmental system developing well

 

· Budget Council and Forum provides political oversight

 

· IGFR Act provides framework for vertical division, equitable shares and conditional grants

 

· System takes into account fiscal imbalances

 

· PFMA will modernise financial management

 

Division of Revenue

R billion

2000/01

2001/02

2002/03

National

76,1

83,1

87,4

Provincial

106,0

111,8

117,1

Equitable share

94,4

100,2

105,2

Conditional grants

11,6

11,6

12,0

Local

2,8

3,0

3,2

Equitable share

1,9

1,9

2,1

Conditional grants

1,0

1,0

1,1

Total

184,2

197,9

207,6

 

 

Conditional grants

 

· Out of national equitable share

 

· To fund:

- National priority programmes

- Compliance with national norms and standards

- Cross-border spill-overs

 

· Housing now a conditional grant

 

· R11,6 billion in grants to provinces

 

· R963 million in grants for local govt.

 

· New infrastructure grant of R300 million

 

Local government

 

· More self-reliant than provinces

 

· Focus is on improving financial management, budgeting and revenue collection

 

· Grants are focused on municipal infrastructure and rural development

 

· Local govt. equitable share:

- R1,867 billion in 2000/01

 

· Local govt. conditional grants:

- R963 million

 

Discussion
Mr Andrew raised the issue of measurable targets being set for service delivery in the various sectors. For example would the SAPS be concentrating on trying to bring down the murder rate or some other appropriate target. There was no such indication instead there was merely a general indication that service delivery would improve. He stated that this had to be measured in some way.

By way of example, Mr Manuel said that in the United States a study had shown that a large number of crimes were committed by people whilst under the influence of "crack". As the number of drug busts significantly increased, so the number of crimes decreased. He said that an easy way to indicate that crime was on the decease would be to have the statistics of arrests decline. This would not necessarily indicate that crime was in fact on the decline! To say that we want X amount of arrests should not necessarily be the prime priority. Instead one should, like the American example, try and root the problem out at its inception or at the original cause. This was the challenge.

Ben Turok (ANC) said that the RDP fund would now be treated in a new way in that donor funding would not go through the national revenue fund any longer. He wanted to know why this was the case, how such funding would flow and how it would be accounted for.

Mr Manuel said that previously donor money would be paid first into the National Revenue Fund which would account for the money and which would pay the money into the RDP fund. The position now was that the RDP Fund alone would have to account to their donors and the money would be paid directly into to the RDP fund. It was usually the case that donors would draw up agreements in terms of which the money could not be used for any purpose other than for what it was intended. If such money was paid over to a department, then the department's accounting would thus serve a dual purpose. It would ensure accountability but also it would ensure that the donor may be credited for tax purpose in their own country.

Ben Turok asked whether there was an emphasis on growth and production incentives, whilst at the same time the social fabric of society was protected. He wanted to know whether in the public sector one could say that a reduction on expenditure on employment, would necessarily lead to more expenditure on services. How did one ensure that this did happen?

Mr Manuel said that broadly speaking, on the production side in the manufacturing industries there were obvious problems in that for every one person in a recognised, registered regulated firm there was at least one worker outside this in a highly unregulated environment. The growth in terms of personal services being offered has emerged and is a trend in other countries as well. Whilst small SMMEs clearly had tax incentives, which individuals posing as SMMEs would no doubt try to exploit, other incentives for creation of employment were needed in this difficult situation.

Looking at the public sector and service delivery, it was clear that 1.15 million public servants in a population of 42 million people was clearly not on the high side compared with other countries in the world. However effective service delivery presented a major challenge. In terms of education there were simply insufficient resources to remove the inequalities in infrastructure. Despite the enormous strides in information technology with the Internet for example, education would remain labour intensive for a long time. In the welfare sector there were also enormous challenges given the fact that over 90% of the welfare budget went to pensions and other grants.

Mr Koornhof asked whether the new Capital Gains tax (CGT) would apply to foreigners as well.

The Minister said that it was important to read the CGT together with the shift in the taxation system from a source based system to a residence based one. He said that the existence of various double taxation agreements with other countries and the ability to exchange tax credits was important to ensure that there was no double taxation. A foreigner from a tax jurisdiction which had CGT would be affected by South Africa's CGT as well. Thus South Africa would provide a credit to such a person. Nevertheless this question should be addressed to the SARS who would be able to explain this situation.

Mr L Luyt (FA) expressed concerned about the farmers in relation to disaster relief.

Mr Manuel felt that the contribution of many farmers to the GDP was over-rated in many instances and he felt that farmers always complained about every aspect of the weather, when it rained, when the wind blew, when it didn't rain….

A committee member asked how the widespread restructuring of local government would be paid for, given the comparatively limited budget for local government.

Mr Manuel said that of the 6.5 billion rand set aside, 2.8 billion was split amongst local authorities according to a formula, which primarily took into account general levels of poverty. Only a handful of the local authorities were exhausting these funds. Indirect transfers and other grants aimed specifically at improving the functioning of the local authority administration were also available. However most of the local authorities relied heavily on levies such as property rates, surcharges on bulk infrastructure and other levies for most of its income. There was thus a large dependency by these local authorities on these levies and surcharges for their own survival. He pointed out that it was however just not possible for a country the size of South Africa to have as many as 843 local authorities. This was a real problem in the first place and created a major challenge.

He said that part of the work which was being done in local authorities was to prepare medium term expenditure frameworks to bring them on a similar footing to national and provincial Governments.

Secondly, there was the need for a local authority version of the Public Financial Management Act so that one had a single set of norms which applied across the board and people could know exactly what was happening in local authorities. Work on drafting this is already quite advance. There also had to be systems of accounting that worked for all spheres of government. The resources had to be built to ensure that these worked. He said that he did not know what the optimum number of local authorities would be to make the system work, but at 843 it was impossible. The capacity could not be built across so wide a spectrum.

Regarding the outstanding debts owed to local authorities by communities, he said that "if you don't eat your vegetables, you can't enjoy your pudding". The debts outstanding to local authorities were in the region of 15 billion rand. The local authorities should be able to collect this and should be encouraged to do so. If they bailed out then they could forget about having sound administration. These were tough issues that the treasury had to collaborate very closely on.

Financial And Fiscal Commission: Comments on Division of Revenue 2000
Here follows their briefing:
The Financial and Fiscal Commission (FFC) has previously advised the Budget Council, the Ministry, and the Portfolio Committee that it did not intend making any substantive recommendations related to the 2000/2001 Division of Revenue.

The FFC has taken the view, consistent with its original position regarding substantive adjustments to the existing formula, that such adjustments not be considered on a year to year basis , but that reasonable intervals be determined so as to ensure that there is stability in the intergovernmental fiscal system (Budget Review 2000, page 6, Annexure E). The instrument for this stability is the three-year Medium Term Expenditure Framework. In keeping with the three-year budgetary cycle, the FFC has embarked on its "Project 2001" initiative, which will see the tabling of substantive recommendations for formula revisions for 2001/2002. These recommendations will be tabled in April of this year, the outermost year of the first MTEF period.

Nonetheless, with regard to the Budget under review, a few comments may assist the Committee in its deliberations.

Specific Issues
Budget Process
The Department of Finance and provincial treasuries have brought about significant improvements in the management of the budget process. However, the complexities of conditional grants result in some grant funds being retained at national government level while the circumstances and conditions of these funds are considered in the intergovernmental fora. The result has been that some grants are only issued to recipients much later in the financial year, increasing the likelihood of roll-overs in provincial budgets. Of course this is a less than ideal state of affairs and should be addressed with the application of adequate allocation protocols to conditional grants.

For its part, the Commission has highlighted this as one of the key areas for future inquiry. This is further occasioned by its realisation of an increase in the utilisation of conditional grants especially by national departments. With respect to this phenomenon, the Commission has however always cautioned against the temptation to use conditional grants excessively since they would tend to inevitably involve the use of discretion by national government. This could invariably lead to undue interference with provincial and local autonomy, and where their application is less than optimal, can create uncertainty for the subnational governments concerned.

The Division of Revenue Bill
In all, the Division of Revenue process has been one of remarkable consistency between 1998/1999 and 2000/2001. The percentage shares to the three spheres of government in terms of the vertical division have remained largely unchanged since 1998/1999 (at 48%, 51% and 1% to national, provincial and local government respectively in terms of the budgeted amounts). Budgeted equitable share allocations to provinces have exceeded inflation, and according to the data supplied in the Budget Review, promise to do so for the next two years.

Education
The increase in the allocation to education (in particular to primary and secondary education), together with the built-in tax incentives on donations to pre-primary and primary schools announced by the national Minister, are commendable. Growing allocations to education in our country are in line with observations made by the FFC in its original "Framework Document" with respect to the importance of investment in human capital through, among other things, early childhood education.

It remains, however, a question of what incentives are being put in place to encourage provinces to spend more efficiently on education. It is a fact that the education system has performed poorly in the past year and that the quality of education is questionable. The increase in the allocation to education might therefore not necessarily translate into improved delivery or improved outcomes. Provinces might be tempted simply to reproduce past expenditure patterns.

In this respect, the FFC is of the view that the allocation for education in the context of a formula-driven approach needs to incorporate nationally defined norms and standards. However these norms and standards should be measurable, whether qualitatively or quantitatively, in order to ensure that allocations are effectively utilised.

Health
The FFC commends the introduction of an HIV/ AIDS grant of R75 million for the 2000/01 year by which to sustain an intersectoral and multi-level attack on the pandemic. The establishment of a separate fund for HIV/ AIDS should not encroach on existing education, health and welfare budgets. The distinction is an important one. The FFC would strongly advise against the creation of earmarked funds for specific diseases, as earmarked funds risk crowding out other areas of service over time or during periods of financial resource constraints.

There are no changes to the health formula of the previous financial year, other than a one percentage point increase in the total amount allocated to the health component of the equitable share (at the expense of the basic share component). Formulaic continuity ensures stability and predictability in the allocation system and assists provincial budgeting and planning. The allocation by the current horizontal division method is also the simplest route to dividing the equitable share for health. However, it is not clear whether an allocation for health (or any other sector for that matter) that is ultimately circumscribed by previous budgets bears any relation to what should actually be spent to supply a predetermined set of services at the primary and secondary levels. Moreover, the horizontal division of revenue by the simple method of distinguishing between a province's medical and non-medical aid member population risks obscuring many of the specifics (in terms of policy requirements and provincial demographics) in health.

As before, certain provinces stand to benefit most from the health conditional grants. Invariably these are those provinces that, by the FFC's calculations, are negatively effected by population-based equitable share formulae. For this reason, amongst others, the conditional grants are a useful counterweight to the equitable share allocations, and the FFC will reserve further comment until many of the current investigations into the effects of conditional grants deliver their verdicts and proposals for reform.

Welfare
Unequal access to social grants and general welfare services remains a problem, and the national Minister of Welfare has recently acknowledged that the welfare system has failed the poor in South Africa. With respect to the 2000/2001 budget, therefore, a number of issues deserve mentioning.

While welcoming the prospect of an adjustment in the weightings of the grant types, those grants not presently incorporated in the formula should also be given consideration. The current crises in budgeting for social security grants, and the attendant difficulties of provinces to remain within budgets, may be the result of the unreliable grant recipient estimate currently used to budget for social security. The current estimates of provincial eligible populations are the result of incremental increases since the transfer system became operable, and a fresh count of both the recipient populations and costs of supplying the grants is clearly required.

As with education and health, so in welfare there is an urgent requirement for the introduction of service delivery indicators to measure the performance of the welfare system in meeting the needs of the poor.

Capital Backlogs
The Minister of Finance stated in his budget speech that infrastructure development to meet the needs of the country provides an enormous potential for growth and development. It is indeed commendable that private sector participation in this undertaking will be fostered through various incentives, such as the introduction of depreciation allowances for new investments in oil pipelines, electricity and telephone transmission lines, and railways, and the establishment of a special unit to support national and provincial departments to develop these public-private partnerships.

In addition, the FFC is pleased to note the introduction of a conditional infrastructure grant to provinces in 2000/01 of R300 million to supplement provincial infrastructure commitments. It is not clear, however, what infrastructure development is prescribed in this grant. It will be important to know whether the grant will be used for the elimination of infrastructure backlogs that currently exist (particularly in social service infrastructure).

An unresolved matter at subnational government level is the issue of backlogs. The FFC has historically tended to shy away from this due largely to the complexity of the matter and the dearth of reliable data. In this regard some attention should be given to the "backlog" element in the provincial revenue sharing formula. This element fails to address adequately the issue of infrastructure backlogs at a provincial level, and the FFC believes that alternative approaches to addressing infrastructure backlogs must be investigated.

Local Government
The FFC is concerned that relative to national and provincial concerns, inadequate attention is paid to local government budgetary issues. This might be explained in terms of the minimal amount of national revenue allocated to local government. However spending in the local sphere comprises a significant proportion of total public sector expenditure. The FFC believes that national government should be signaling the growing importance of the local sphere in the delivery of public services.

A number of additional concerns should be highlighted. Although the Budget Review states that some 7% of local government revenue comes from other spheres of government and that local government is therefore primarily self-financing, it is arguable whether local government is sustainably self-sufficient or significantly underfunded. It is most likely the case that local government's own revenues finance only a portion of its constitutionally assigned functions. Data collected by the Department of Provincial and Local Government (and the Project Viability report) testifies to the financial plight of many local authorities.

The issue of local government transformation costs remains unresolved. The restructuring challenges facing local government in the next two years may well rival the transitional problems and costs encountered by provinces and national government after 1994. The demarcation process will result in the amalgamation or division of administrations, property tax bases, and assets. In addition, considerable costs will be associated with the implementation of the Municipal Structures Act and Municipal Systems Bill. The two items in the budget determined to cater to these issues, the restructuring grant (R3OOm) and financial management capacity building grant (R5Om), may not be adequate. There are indications that the actual costs of the process far exceed these amounts.

Thus, an urgent focus on the adequacy of the current and future budgets to address local government needs more equitably is called for.

A further matter that requires attention is the transfer of some social service delivery responsibilities from provincial to local government, especially in light of the recent demarcation process. The delivery of primary health care is one key area in this respect. The FFC believes that a quantification of the extent of this reallocation of responsibility should be given priority, and consideration be given to providing the requisite resources to local government to ensure that it can meet any new obligations in this regard.

Conclusion
The FFC has worked from mid-1999 to early 2000 on a review of the intergovernmental fiscal arrangements as they currently exist. The recommendations of the FFC that result from this review will be tabled formally in April which should generate new areas of inquiry, further research and new data requirements.

Discussion
In response to a question by Mr Leeuw, Murphy Morobe, chairperson of the FFC replied that the formula influenced provincial budgets to a significant extent. The formula has various elements which are used as indicators. However, there are other variables which are taken into account so the formula is not the ''be all and the end all'' of the matter. He continued that the formula is an important budgeting instrument as it provides for a greater degree of reliability, allowing provinces to plan ahead of time.

Ms Marshoff (ANC) asked if the provinces adhere to the formula, and to what extent the formula allows money to be redirected (for example, money which was intended for housing, is used for education).

Mr Morobe said that the Constitution requires the government and the FFC to ensure that provinces receive a share of the national revenue in order for the provinces to deliver their services. The formula is a mechanism used to determine the provinces share of the national revenue. The formula does not dictate how the provinces should spend the money. If there are not sufficient funds, then the conditional grants will set in.

Professor Turok asked for a comment on the fact that housing has been changed to a conditional grant.

Mr Morobe replied that housing is not a component of the formula (only health, education, and welfare) and that the FFC did not address housing specifically. Further, central government must have the power to make conditional grants. A conditional grant does not undermine the province's fiscal autonomy. The FFC will be required to look at whether such conditional grants are equitable in respect of the different provinces. The quantum on housing, or the conditional grant is a government choice, and the FFC is only asked to see if it is ''equitably done on a horizontal level''.

Mr Lekgoro (ANC) asked for the FFC's opinion on the stability of local government in light of the fact that the Minister had earlier indicated that local government was stable, and yet the FFC indicated that local government is underfunded.

Mr Morobe said that their document was not saying that more money had to be given to local government. They simply meant that the issue of the underfunding of local government came from the transformation costs which came with demarcation. Further, local government's own revenue will be drastically affected by demarcation. These things would raise serious problems in terms of the funding of local government, and they were simply raising a cautionary note.

Mr Andrew (DP) commented on the issue of cross-border movement. He said that there was a phenomenon where students from one province flooded another province to attend schools there (perhaps because those schools had a good reputation). He asked if the financial allocation to the provinces took this into account.

Mr Morobe replied that the idea of cross-border movement did not occur only in relation to education but also for other reasons such as to receive the benefits of a superior local government infrastructure. They said that they had not addressed this problem specifically.

Dr Rabie (NNP) commented that the amount of money set aside for dealing with HIV/AIDS (and commended by the FFC in their presentation) was not nearly sufficient to deal with the problem.

Mr Morobe said that the amount set aside was not for the treatment of the virus, but rather for an awareness campaign. Also, the FFC is wary of earmarking funds for the treatment of specific diseases as they risk crowding out other areas of service over time.

Intergovernmental Budgeting System
Mr Momoniat, Chief Director of Intergovernmental Fiscal Relations, presented (see Power Point presentation). The intergovernmental budgeting system is based on Section 214 of the Constitution and the Intergovernmental Fiscal Revenue Act. A Budget Council and a Budget Forum (which has local government representatives in it) must be set up. The Act requires both these bodies to consult with the FFC.

The system of the equitable share formula looks at various elements, including fiscal imbalances and tax incapacity. The formula has not changed over the last three years but there are some technical updates. These changes do not make a big difference and are supported by the Budget Council. Mr Momoniat said that he would not go into this issue now, as it was ''old hat''.

A component of the formula includes conditional grants. Conditional grants come out of the equity share and fund national priority programmes. This year, housing is a category for a conditional grant. Since local governments have their own sources of revenue, they are less reliant on grants from the national government. There have also been roll-overs in some national and provincial departments. This is from poor planning and assigning too much money for particular programs.

Mr Momoniat said Annexure E in the Budget Review was not put into the Bill because the Department felt that that would make the Bill too complicated. The Division of Revenue Bill is not a money bill, and it must be dealt with in accordance with the Section 76(1) procedure in the Constitution.

Sanctions have been introduced into the Bill for misconduct. These sanctions will start applying from the first of April 2000. The Bill makes provision for transferring officers and receiving officers. The transferring officers have a monitoring and a reporting responsibility, while receiving officers must submit monthly financial reports. These are not complete financial statements, but they should provide sufficient proof for the national transferring officer.

Division of Revenue Bill
Mr Momoniat went through the clauses in the Bill as well as the proposed amendments (see Appendix 1 for amendments) with the committee:

Definitions - Mr Momoniat said that the only material changes were ''receiving officer'', ''transferring national officer'' and ''transferring provincial officer''.
In clauses 2, 3, 4, and, 5, small technical changes had been made which did not affect the meaning of the clauses.
A change had been made to clause 6, which says that funds which are not expended in respect of an allocation, may be retained by the province or municipality. This is now made subject to the Constitution, or, any conditions attached to a grant.
Clauses 7, 8, and 9, are all new additions to the Bill.
Clause 7 deals with conditional grants - In terms of section 7(1) the accounting officer must submit a full plan by the first of April, or on another day that is agreed to. The clause then goes into detail on monitoring mechanisms. It also provides that the funds must be put into the provincial revenue fund.
Clause 8 deals with agency payments - In this regard, a bank account cannot be opened outside of the Revenue Fund. Transparency is an important factor.
Clause 9 deals with grants for capital projects -The Council and the Department of Finance need to develop a simple agreement between themselves so that there are no disputes when the infrastructure is being put in.
Clause 10 details the payment schedule for the supplementary allocation to provinces.
Clause 11 sets out the process and conditions for withholding payments of transfers.
Clause 12 is also a new clause. It says that if clauses 7, 8, and 9 are not complied with, then the grounds in respect of the grants, can be converted.
Clause 13 is a new clause. It deals with the amendment of a payment schedule for grants, and provides that the payment schedule may be amended in the interests of improved debt and cash flow management.
Clause 14 deals with the mechanisms which can be used to recover funds which were transferred in error.
Clause 16 deals with the way in which transfers which are not contained in Schedules 3A, 3B, or, 3C have to be gazetted.
Clause 17 deals with the transfer of allocations or a part thereof to the province or district council if a municipality is unable to manage its allocation effectively.
Clause 18 - requires that a national department wishing to obtain a grant, must submit the relevant information to the Director-General before 31 August 2000.
Clause 19 deals with transfers to provinces, local government, and, municipalities in respect of their anticipated equitable shares (in the first six months of the 2001/02 financial year before the enactment of the Division of Revenue Bill for the 2001/02 budget.
Clause 20 requires that the division of revenue transfers must be done in terms of this Act.
Clause 21 provides that non-compliance with this Act or with the conditions of any grant may constitute financial misconduct.
Clause 22 provides that division of revenue transfers which should have been made in terms of the Division of Revenue Act, 1999, but were not so made, are deemed to have been made in terms of that Act.
Clause 23 deals with the regulations that the Minister can make.

Voting on Division of Revenue Bill
The Chairperson indicated that they would like to pass the Bill that day, as they had other pressing issues to deal with during the week, and the Bill would be debated in greater detail by the NCOP. The committee agreed to all the amendments proposed by the Department and the Bill was passed.

Appendix 1:
AMENDMENTS TO THE DIVISION OF REVENUE BILL [B8-2000]

Page 3 line 32:
(a) in respect of a Schedule 3A grant or a Schedule 3B grant not transferred to a municipality, but to be utilised for the benefit of a municipality by a province, in terms of a provincial appropriation Act, or a Schedule 3C grant the accounting officer of a provincial department which receives a grant set out in any such Schedule; or

(b) in respect of a Schedule 3B grant transferred to a municipality directly or through a province or [as] a Schedule 3C grant, the accounting officer of a municipality which receives a grant contained in any such Schedule.

Page 5 line 8:
(c) any associated costs, including any future costs, arising directly or indirectly from the grant but not covered by it;

Page 5 line 26:
schedule determined by the Director-General after consultation with the head officials of provincial treasuries in respect of a deposit to a provincial Revenue Fund, a Schedule 3A or 3B grant into -

Page 5 line 32:
schedule determined by the transferring national officer after consultation with the Director-General [national accounting officer responsible for local government], a Schedule 3B grant into the relevant municipal banking account.

Page 5 line 43:
(8)(a) the receiving officer in a municipality of a Schedule 3B or 3C grant must submit to a transferring provincial or national officer, as the case may be a report in the prescribed form not later than five working days after the end of every month or such date [set out in a Schedule to this Act or otherwise] prescribed in respect of such grant.

Page 5 line 47:
(8)(b)[(9)(a)] The receiving officer in a province in respect of a Schedule 3A or 3C grant or the transferring provincial officer, as the case may be, must, by the tenth working day after each month or such date [set out in any Schedule to this Act or otherwise] prescribed in respect of such grant, submit a report to the head official of a provincial treasury and to the transferring national officer [a consolidated report in the prescribed form incorporating in applicable circumstances, the report contemplated in subsection (8),

[ _which must include -]

Page 5 line 53:
(9)[(b)] The reports contemplated in subsection (8) [paragraph (a)] must include -

Page 5 line 54:
Replace [(i)] with (a)

Page 5 line 57:
Replace [(ii)] with (b)

Page 5 line 60:
(c)[(iii)] [an outline of] the projected roll-over into the next financial year;

Page 5 line 61:
(d)[(iv)] [a report ] information on how the province or municipality receiving a grant complied with its conditions;

Page 6 line 1:
(e)[(v)] such other information as may be requested by the Director-General [for Schedule 3B grants transferred through a province, a consolidated report in the prescribed form incorporating in formation contemplated in subsection (8)].

Page 6 line 5:
must ensure that like [a consolidated] report contemplated in subsection (9) is submitted in the prescribed form to the Director-General by the fifteenth working day after the end of each [that] quarter or such date agreed upon with the Director-General [, but not later than the twentieth working day].

Page 6 line 16:
agent departments concerning that agency payment, and must, if he or she is a national accounting officer, submit a schedule outlining such agreements [, if he or she is a national accounting officer,] to the Director-General, or must if he or she is a provincial accounting officer, submit such a schedule to the head official of the provincial treasury concerned [, as the case may be].

Page 6 line 31:
each province or municipality receiving such grant during that quarter.

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(4) Funds transferred to the provincial Revenue Fund or a municipal banking account for capital projects may not be used as collateral, pledge or any other form of security or for any other purpose other than the purpose set out in the transfer agreement.

Page 7 line3:
any payment to a municipality in terms of section 5 or set out in Schedule 3B or 3C or a portion of such payment, be withheld if a municipality is involved in serious or persistent material breach of the expenditure control measures envisaged in section 216(1) of the Constitution.

Page 7 line 9:
(a) an allocation or any portion of it referred to in Schedule 3A or 3B but which is not transferred to a municipality or referred to in Schedule 3C;

Page 7 line27:
non-compliance by the transferring national officer with the provisions of sections 7 [(1)], 8 [(1)]and 9 [(1)], cannot flow to provinces or municipalities, form part of the equitable share of revenue to be allocated to provinces or municipalities.

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Reporting in respect of a provincial transfer of grants not set out in a schedule[s] to this Act

Page 7 line33:
this Act to a municipality must, prior to such transfer, report to the relevant head official of a provincial treasury, who must, on a quarterly basis [within 10 working days after receiving that report,] submit to the Director-General such report which must set out -

Page 7 line 51
3A, 3B and [,] 3C or published in the Gazette in terms of this Act and such amendment may include moving funds between the Schedules or re-allocating R293 town grant funds.

Page 9 line 13:
(2) Amounts transferred in terms of subsection (1) are [must be] deemed to be instalments of the equitable share allocations of the provincial and local spheres of government for the next financial year and the next municipal financial year, respectively.

Page 9 line 16:
(3) The national accounting officer of a department intending to have allocated in the next financial year, a grant contemplated in section 214(1)(c) of the Constitution [in Schedules 3A, 3B and 3C allocated in terms of the Act of Parliament contemplated in section 214(1) of the Constitution], must submit to the Director-General, not later than 31 August 2000, information on that grant.

Page 14: Housing (Vote 15)
Replace in the column marked ''Provincial Allocations" in respect of Mpumalanga the amount of [173 460] with the amount of 173 461.

Page 1 7: Provincial and Local Government (Vote 22)
Delete [Capital grant] in the column marked ''Additional Conditions" and insert (capital grant) below the word ''Programme" in the column marked ''Name of Grant"

Replace in the column marked ''Allocation Province" in respect of KwaZulu-Natal the amount of [186 283] with the amount of 186 282.

Page 19: Public Works (Vote 26)
Delete [Capital grant] in the column marked "Additional Conditions" and insert (capital grant) below the word "programme" in the column marked "Name of Grant"

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