1 Portfolio Committee Orientation Workshop Andrew Donaldson National Treasury July 2009 Portfolio Committee Orientation Workshop Andrew Donaldson National

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Portfolio Committee Portfolio Committee

Orientation WorkshopOrientation Workshop

Andrew DonaldsonAndrew DonaldsonNational TreasuryNational Treasury

July 2009July 2009

The Budget Process The Budget Process and Financial and Financial OversightOversight

Water and Environmental Water and Environmental AffairsAffairs

National TreasuryNational Treasury 22

Budgeting & resource economicsBudgeting & resource economics

Resource management is about much more than government spending:– Regulation of ownership, use and disposal– Pricing of access and use or resources– Regulation and charges for pollution or environmental damage– Long term infrastructure development and rehabilitation and

inter-generational equity– Balancing of local, regional, national, international needs– Diverse economic, social and sectoral requirements

Budget reflects revenue and spending by government entities – – This is just part of the overall “resource accounting” for the

environment or the water sector


Planning, budgeting, reporting…Planning, budgeting, reporting…

Water and environmental planning begins with science – – Understanding long-term linkages between human activity and

resource sustainability The science underlies engineering plans and designs –

– Which frequently involve technological options or alternative investment paths…

– There is a high degree of ‘path dependence’ in the choices we make

Resource economics is about understanding those choices– Analysing the long term ‘costs’ and ‘benefits’ of alternative

investments– Setting tariffs and managing infrastructure finance sustainably

So our reporting on water & environmental finances needs to be strongly focused on the long term…


Strategic plans and MTEF budgetsStrategic plans and MTEF budgets

3-year Budget

(MTEF)

20+ year Infrastructure Investment Programme

(Growth and Development Strategy)

5-year Strategic Plan

(MTSF)

Set out in policy papers, departmental plans, municipal development plans, details of energy, water, transport, industrial projects…

Including project and programme plans and budgets, aligned with spatial development plans


In-year budget processesIn-year budget processes

Expenditure Outcomes (May)

Rollovers (June)

MTEC (July – September)

Adjusted Estimates (September – October)

…further virements and shifts subject to PMFA limits


Chain of accountabilityChain of accountability

Voters

Parliament or Legislature

Executive

Departments and public entitiesHeaded by Accounting Officers

General elections

Responsibilities and accountability largely

governed by PFMA

Mandate and powers limited by law and given effect through delegations and performance contracts

Auditor-General


Finance legislation and oversightFinance legislation and oversight

The Public Finance Management Act 1999 (PFMA) – Provides an accountability framework which seeks to ensure that

all stakeholders utilise government resources to maximise service delivery through the effective and efficient use of the limited resources

– set out reporting requirements of departments and other state entities

The Municipal Finance Management Act 2003 (MFMA)– sets out framework for financing and financial management by

local authorities Appropriation Act sets out what funding will be used by whom

for what specific intended purposes Division of Revenue Act specifies transfers to provinces &

municipalities, and– set out the reporting requirements of national departments

(transferring departments), provinces (transferring and receiving departments) and municipalities (receiving departments)

– sets tabling dates for reports


Primary fiscal flows to water Primary fiscal flows to water sectorsector

Water related transfers through

DWA

National:•Water Trading Entity

Local government:•Water services operating subsidy•Regional infrastructure grant•Schools and clinicsWater related

transfers through CGTA

NT role in transfers

Local government:•Local government equitable share•Municipal infrastructure grant

National: Appropriation Bill

LG: Division of Revenue Bill


Primary flows to Environmental Primary flows to Environmental AffairsAffairs

NT role in transfers

Environment related

transfers

National:•SANSParks•Marine Living resource fund•South African Weather Service•SANational Biodiversity Institute

Local government:•National Parks•Biodiversity areas

National: Appropriation Bill

LG: Division of Revenue Bill


Sources of water fundingSources of water funding

Recurrent spending– User charges:

National: Water Trading Entity Revenue (sale of bulk raw water);

Municipal: local water tariffs Water Boards, irrigation projects (sale of bulk treated water)

– Parliamentary appropriation - national (Appropriation Act);– Parliamentary appropriation – to provinces and

municipalities (Division of Revenue Act);– Provincial and municipal funding out of own revenue

Capital project funding– Earmarked appropriations (eg social infrastructure; MIG)– Market loans: Water boards/TCTA/Water resource utility;– DBSA loan funding, negotiated bank lending, PPPs– Return on past investments: Water trading entity & water

boards

Donor funding


Sources of funding of environmental Sources of funding of environmental investment and servicesinvestment and services

Taxes are both about raising funding and imposing costs on environmental externalities – Eg fuel tax, electricity levy, waste discharge levy, plastic bag charge– Earmarking is sometimes appropriate, sometimes not

Regulatory standards have effect of passing costs onto industry or users– Generally aimed at making polluter pay– Eg Mining rehabilitation reserve funding requirements– ‘Cap and trade’ regulations

Parliamentary appropriations – Research, infrastructure investment, rehabilitation

User charges and fees – Tourism related (SANParks)– Resource use related (mining royalties; Fishing levies)

EPWP funding: environmental services and investment can have added benefit of job creation – Working for Water, Land Care, Forest Management

International funding– Donor support– Clean Development Mechanism credits


Water and related funding sourcesWater and related funding sources

R millMedium Term Estimate

MTEF Total

MTEF Growth

2009/10 2010/11 2011/12

DWAF 7 894 8 293 9 463 25 650 14%

Donor Funding 164 482 52 699 -52%

WTE Revenue 1 784 1 992 2 277 6 054 17%

TCTA 2 868 3 034 3 266 9 168 10%

Water Boards 8 625 9 225 9 889 27 739 6%

TOTAL 21 336 23 027 24 947 69 310 9%


Main sources of funding: Main sources of funding: Environmental AffairsEnvironmental Affairs

R millionMedium Term Estimate

MTEF Total

MTEF Growth

2009/10 2010/11 2011/12

Department 2 303 2 709 2 918 7 930 40%

Donor Funding 25 28 13 66 -49%

SANParks 793 869 956 2 618 26%

MLRF 140 147 150 436 9%

TOTAL 3 260 3 753 4 037 11 051 34%


Funding of municipalities Funding of municipalities

Total budget requirements of a municipality is linked to its service delivery and developmental responsibilities funded through a combination of– user charges (tariffs) + surcharges + property tax + transfers

Metros raise revenue from– Property rates, user-charges such as electricity, water, refuse

removal Category B can raise all of the above Category C mostly reliant on transfers Borrowing is allowed

– Regulated and no bail out/guarantees from national Ability of municipalities to raise revenues from own

sources influenced by income levels, affordability criteria and consumption patterns– Municipalities with a large proportion of poor households will

struggle to raise own revenues as poor households should receive basic services for free (mostly reliant on transfers from fiscus)

– Municipalities with a large economic base would be able to cross-subsidise between services and consumer groups (largely self financed)


Municipal Finances:

ExpenditureExpenditure– Service delivery and

developmental responsibilities

– Cost of governance, admin, planning and regulation

MINUS

RevenuesRevenues– Own revenues– Transfers

equals

Borrowing = financing requirement

Water and sanitation Electricity (Category B) Roads and stormwater Municipal solid waste/refuse removal Municipal public services (environmental

health, community services, security services, public safety, parks and recreation)

Agency services (libraries)

Property tax (Categories A and B) User charges for water, sanitation,

electricity (authorised municipalities) Surcharges on municipal services

(authorised municipalities) Other (donations, etc.)

LGES, Infrastructure Grants, Capacity Building Grants, Grants-in-kind, Transfers from provinces

Schedule 4 (B) of Constitution

Section 229 of the Constitution

Section 214 of the Constitution


Examples of the heterogeneity of Examples of the heterogeneity of Municipal Revenue Sources Municipal Revenue Sources

eThekwini Revenue

User charges44%

Grants21%

Other7%

P Rates28%

Albert Luthuli Revenue

User charges10%

P Rates15%

Grants69%

Other6%

eThekwini Operating Budget 2008/09 = R17.5 Billion

Albert Luthuli Operating Budget

2008/09 = R130 million


Transfers to Local GovernmentTransfers to Local GovernmentNational transfers to local government, 2005/06 – 2011/12

2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12

R million

Revised estimate

Equitable share 9 643 13 358 15 304 19 516 23 847 29 268 31 890

of which

RSC/JSB replacement grant - district municipalities – 2 300 2 673 3 002 3 307 3 493 3 672

Water and sanitation operating subsidy: direct transfer 165 386 622 986 979 570 380Equitable share and related 9 808 13 743 15 925 20 502 24 825 29 838 32 270

General fuel levy sharing with metropolitan municipalities – 4 700 5 372 6 043 6 800 7 542 8 531 Infrastructure transfers 7 070 8 390 16 612 19 694 19 647 21 895 26 098

Capacity building and other current transfers 1 558 1 103 1 418 716 1 344 1 341 1 717

Total 18 435 27 937 39 327 46 955 52 616 60 616 68 617

Growth rates

Equitable share and related 40.1% 15.9% 28.7% 21.1% 20.2% 8.2%

General fuel levy sharing with metropolitan municipalities

14.3% 12.5% 12.5% 10.9% 13.1%

Infrastructure transfers 18.7% 98.0% 18.6% -0.2% 11.4% 19.2%

Capacity building and other current transfers

-29.2% 28.6% -49.5% 87.7% -0.3% 28.1%


Water & environmental functions are key Water & environmental functions are key elements in national funding of elements in national funding of

municipalitiesmunicipalities

Equitable share formula:

BS + D + I - R ± C

Basic Services

THE BASIC SERVICES COMPONENT

• Is the largest component in formula (92%)

• Enable municipalities to provide basic services and free basic services to poor households (provides for bulk, operational costs and maintenance)

• Recognises water reticulation, sanitation, refuse removal, electricity reticulation and environmental health

• Water & sanitation makes up 44% of this component

• Complements the MIG

Development

(not activated)

Institutional

CapacityRevenue Raising

Capacity Correction

Correction and

stabilisation factor


MIG FormulaMIG Formula (incl water & sanitation) (incl water & sanitation)

Compo-nent Sub-component Parameter

% of total MIG

B

Water and sanitation

Number of households with less than adequate water supply Number of HHs with less than adequate sanitation services 54%

Roads Number of HHs living in informal dwellings 17.25%

“other” Number of HHs with less than adequate refuse removal 3.75%

P Number of HHs earning less than a prescribed minimum 15%

E Number of HHs earning less than a prescribed minimum 5%

N Number of HHs living in areas identified as nodes 5%

MIG (F) = B + P + E + N + M B = Basic residential infrastructure P = Public municipal facilities E = Other institutions and micro-enterprises N = Nodal municipalities - urban and rural M = Performance related adjustments (not activated)

(similar to equitable share, information is based on Census/Community Survey)

The B component makes up 75% of

formula


Further informationFurther information

Budgets and plans: Budget Review, Estimates of National Expenditure, Municipal budgets, Local Government Budgets and Expenditure Review– Departmental strategic plans

In-year monitoring of expenditure:– Section 32 (PFMA) reports (Monthly)– Section 71 (MFMA) reports – local government– Section 10 (DORA) reports – local government conditional grants

Reporting on programmes and projects – requires key non-financial indicators; needs to recognise diverse funding and financial sources

www.treasury.gov.za

Documents

1 Portfolio Committee Orientation Workshop Andrew Donaldson National Treasury July 2009 Portfolio Committee Orientation Workshop Andrew Donaldson National