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SOCIAL SERVICES SELECT COMMITTEEFINANCE SELECT COMMITTEE 17 February 2006 DIVISION OF REVENUE BILL BY NATIONAL TREASURY AND SALGA: BRIEFING Chairperson: Mr T Ralane (ANC Free State) Documents handed out: Treasury Presentation on the Division of Revenue Bill [B3 - 2006] SALGA Comments of the Division of Revenue Bill [B3 - 2006] SUMMARY National Treasury briefed the Committee on some of the changes to the Division of Revenue Act. The Division of Revenue Bill was substantially the same as the Division of Revenue Act (DORA) but its readability had been improved by rearranging some of the clauses and making a number of technical amendments. The Bill had 50 clauses, with the most important schedule being schedule 1. Important clauses were contained in Annexure E which provided information about what each conditional grant was meant to achieve. The South African Local Government Association (SALGA) commented on various sections of the Bill and highlighted the need to retain the Section 26 provisions of DORA as this emphasised the responsibilities of Departments and supported and improved the performance of provinces or municipalities. Treasury responded that a decision had been made not to include the current section 26 in the new Bill as some of the issues in it were contained in and governed by other Acts and Regulations. MINUTES The Chairperson began by saying that there were no major changes in the Bill from the one that they were about to repeal. Treasury was here merely to highlight some of the more substantial changes to enable the Members of the Committee to report to their provinces and then return with questions. He therefore deferred any serious questions from the Members until a later meeting. Treasury Presentation Mr L Fuzile (Chief Director: Intergovernmental Relations) said that the Bill was substantially the same as the Division of Revenue Act (DORA) but its readability had been improved by rearranging some of the clauses and making a number of technical amendments. The purpose of the Bill was to provide for the equitable division of nationally raised revenue vertically between spheres, and horizontally among provinces and municipalities. It sought to promote better coordination between policy, planning, budget preparation and execution, while ensuring transparency and accountability. The Bill had 50 clauses, with the most important schedule being schedule 1. Important clauses were contained in Annexure E which provided information on what each conditional grant was meant to achieve. It also explained what data was taken into account when the allocations for the grants were made. For municipalities, allocations were made according to the new boundaries. The equitable share for provinces had three parts. There was a portion determined on the basis of a formula, but since Regional Service Council (RSC) levies were going to be abolished from the 1st of June, the distribution of the levies among the municipalities that were entitled to them was not in line with equitable share formula. Thus, Treasury decided to look at what the municipalities’ history of collections of the levies was, with the purpose of it this to apportion the R7 billion among the municipalities. The other component related to councillor remuneration. A number of factors were considered in determining these salaries and in the future, even more factors would be considered to make the system as fair as possible. National government was going to contribute a portion of money towards the Gautrain Rapid Link. The current budgetary amount was R7.1 billion and it was listed as a conditional grant. This was to ensure that the transfer between the national Department of Transport and the provincial Department could happen in such a way that the province could deal with all eventualities as they arose. There were major changes to the Municipal Infrastructure Grant. The Bill stated that if a municipality has a council and an executive council, all the decisions should be taken at that level, and not at the Departmental level. These frameworks were going to be Gazetted and would thereafter become law. The Bill specifies that no public entity may receive funds except via the municipality responsible for that service or function, unless the National Treasury approved otherwise in respect of municipalities it deemed to have low capacity. However, the funds received by Eskom from the Department of Minerals and Energy, for the implementation of the National Electrification Programme, were excluded. Discussion The Chairperson wanted to know why there were fluctuations in the allocations that some of the municipalities received from year to year. Mr Fuzile replied that there were fluctuations because a new formula was introduced the previous year that included, for example, a revenue raising component. SALGA Presentation Ms S Molakwane (Councillor) said that the spending of provincial infrastructure allocations required planning processes for such expenditure to recognise the relevant fiscal constraints and economic conditions in affected municipalities. Ensuring that Section 14 was implemented timeously when housing projects were planned would give greater consideration to those constraints. SALGA welcomed the Section 16 provisions as they addressed some of the problems associated with the infrastructure grant which was currently affected by unnecessary conditions attached to the transfer of funds by transferring officers. They hoped that this section would encourage sector departments, provincial governments and relevant public entities to fully participate in the planning phase of municipalities’ projects which get captured by the integrated development plans and the budgets. Section 24(1)(b) required the National Treasury to approve the monitoring of expenditure and non-financial performance information. SALGA believed that Treasury would encourage the transferring national officer to focus on output and, where targets were not met, to put measures in place. The current practice was that the monitoring systems used were employed during the implementation phase to detect the shortcomings of approved projects, but they should be used during the planning phase. In their previous engagement with the Treasury, it was indicated that the conditions for the implementation of programs should be covered in different frameworks and sector department legislations. However, SALGA still maintained that it would be useful to retain the Section 26 provisions of DORA as this emphasised the responsibilities of Departments and supported and improved the performance of provinces or municipalities. Although section 49(2) contained the terms of section 9(2) - (8) of DORA, the duties or obligations stipulated in the section were not emphasised. It would be useful if the 2006 Act prescribed the necessary actions that could follow if certain duties were not met. SALGA hoped that Treasury took into account the fact that RSC levies were a major source of revenue for municipalities when it decided on the transfer allocations to municipalities. Treasury did point out that there were over and underestimations in the RSC levy income by certain municipalities, and this led to difficulties in putting together the allocations reflected in the Bill. In this regard, SALGA would like to be assured that where these false estimations were made, Treasury adjusted their current budgets and the future estimation thereof. Discussion Mr E Sogoni wanted Treasury’s reaction to this presentation by SALGA especially regarding section 26. Mr Fuzile said that they had developed a good working relationship with SALGA and discussed many issues with them. Treasury decided that they were not going to include the current section 26 in the new Bill as some of the issues in it were contained in and governed by other Acts and Regulations. Treasury did not want repetition. The meeting was adjourned.
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