DPW Inputs into the Select Committee on Finance

Public Hearings on FFC Recommendations 2010/2011

6 August 2009

Overview• The department has noted the comments from FFC with

regard to the EPWP Incentive scheme.– For phase two the grant is aligned to the EPWP guidelines

as recommended by FFC.– It is also aligned to MIG

• The department is currently entering into protocol agreements with Provinces and Municipalities regarding EPWP targets and reporting.

• We are also in the process strengthening the process of achieving the 500 000 job opportunities.

• We have entered into partnership agreement with the IDT

• We are also collaborating with the Presidency in respect of community works programme.

1.0 EPWP incentive background• EPWP incentive was introduced as part of Phase 2 to

further enhance the creation of EPWP Full Time Equivalent work opportunities by Public Bodies ( 1 Full Time Equivalent = 230 Person days ). This was after the realization that NDPW had limited authority in Phase 1 to make Public Bodies meet their targets.

• R4.1 billion has been allocated to DPW over the MTEF ( 9/10 to 11/12) to pay out the incentive to public bodies and this is expected to grow to at least R 5 billion in the 13/14 financial year.

• The fiscal incentive will be applicable to infrastructure sector and non-state in the 09/10 financial year and will be rolled out to the social and environmental sectors from the 10/11 financial year.

EPWP Fiscal incentive allocation over 09/10 MTEF

2009/10R’000

2010/11R’000

2011/12R’000

TOTALR’000

Provinces 151,419 400,000 800,000 1,352,419

Municipalities 201,748 554,000 1,108,000 1,863,748

Non-State Sector 80,500 359,621 308,740 748,861

Provision for Capacity to NDPW

22,033 33,149 56,000 111,182

Administration provision for intermediary

9,500 21,030 18,360 48,890

TOTAL 465,200 1,367,800 2,291,100 4,124,100

2.0 EPWP Fiscal incentive principles• The EPWP incentive is based on paying all public bodies that

create work above a minimum threshold for the EPWP target group an incentive of R50 person day of work created. ( Rural Municipalities have no minimum threshold).

• Eligible public bodies that want to participate in the incentive will enter into an agreement with DPW

• While indicative performance targets and incentive amounts are set for each eligible public body, they will only be able to claim the incentive upon proving that work has been created

• Basis for measuring EPWP performance– Number of FTE’s per million Rand of infrastructure budget, taking

into account the different portfolios of infrastructure and the rate at which each can contribute to employment creation

– Each public body ( apart from rural municipalities) must meet a minimum eligibility threshold before they can start accessing the incentive

– The incentive is not paid out for work created below the eligibility threshold, but is paid for all work created above this threshold

2.0 EPWP Fiscal Incentive cont’d• Eligibility: In order for provinces and municipalities

to become eligible for the incentive they must:• Report to DPW on the EPWP ( 07/08 report used to calculate

incentive amounts for the 09/10 financial year).• Meet minimum employment creation targets based on their

available budgets

• Agreements: Eligible public bodies will enter into agreements with DPW which will specify:• Targets to be met by the public body• Amounts that can be claimed by the public body for reported EPWP

work created• Reporting and verification and audit requirements through the

EPWP Management Information System• EPWP workers may not be paid less than R50 per day

• Appropriation of funds• Eligible public bodies should incorporate the incentive allocation

into their budgeting and planning process but take into account that payment by DPW will occur quarterly, after employment has been created

3.0 Fiscal incentive for Provinces• The average Full Time Equivalent for the different

infrastructure portfolios ( e.g. Roads, Public Works, Education, Health)

was considered in calculating the incentive amounts. • Full incentive amount = ( FTE Target – FTE minimum

threshold) X 230 X 50.• DORA amount = 75% X Full incentive amount. • 3 Provinces Gauteng, Limpopo and Northern Cape did not

meet the FTE minimum threshold and were allocated a nominal incentive amount of R 500,000.

• Total Incentive allocation to Provinces is R 151 Million. • Disbursement of the incentive for Provincial Departments

is from the National Department of Public Works to the Provincial Treasury from where it is disbursed to the eligible Provincial Department.

EPWP Phase 2

2007/08 EPWP

PERFOR-MANCE

PAYMENT THRES-

HOLD

FTE PERFORMANCE

TARGETS

TOTAL FULL YEAR

AMOUNTS

DORA ALLOCATION

      2009/10

   

Indicative allocation (if

100% of target is achieved)

-25% for Q4 for prov

 Infrastructure Only for 09-10 FTE’s   FTE’s (Entire Province)

-50% for Q4 for munis

FISCAL INCENTIVE TO PROVINCES 29,076 31,434 48,794 199,643 151,419

KwaZulu-Natal 11,716 6,791 16,551 112,240 84,180

Western Cape 919 2,003 2,003 0 500

Gauteng 348 2,594 2,594 0 500

Eastern Cape 7,660 5,836 9,314 39,989 29,992

Mpumalanga 1,407 2,760 3,345 6,730 5,047

Free State 3,967 2,407 5,075 30,678 23,008

Limpopo 1,335 5,208 5,245 417 500

North West 1,388 2,731 3,565 9,589 7,192

Northern Cape 336 1,103 1,103 0 500

Disbursement Flow: Provincial Departments

4.0 Fiscal incentive to Municipalities

• In order to cater for rural Municipalities in line with

comments from the Select Committee on Finance, the

following considerations have been considered:

- The FTE target for Metros per million rand of expenditure

is 6,

different from 3 considered for other Municipalities.

- The FTE minimum threshold for Rural Municipalities = 0.

- Full incentive = ( FTE Target – FTE minimum threshold) X

230 X 50.

• DORA amount = 50% x Full incentive amount.

4.0 Fiscal incentive to Municipalities cont’d• 68 Municipalities including 6 metros are eligible

for the incentive in the 09/10 financial year. 10 ISRDP nodes will be covered.

• Total incentive allocation to Municipalities is R 201.7 Million, of which R 147.2 Million will go to rural Municipalities and R 54.5 Million to Metros.

• According to reports, at least 96 municipalities will be eligible for the incentive in the 10/11 financial year.

Disbursement Flow: Municipalities

5.0 Progress made on the EPWP Incentive grant

• 8 out of the 16 eligible Provincial departments have signed their incentive agreements as of 1st of August 2009.

• 32 out of the 68 eligible Municipalities have signed their incentive agreements as of 1st of August 2009.

• Only 2 eligible Provincial Departments, KwaZulu-Natal Transport and Eastern Cape Transport submitted 1st quarter reports for the 09/10 financial year in time. KwaZulu-Natal Transport exceeded their quarterly eligible threshold and will be paid R19,308,839 as their EPWP incentive grant considering the 1st quarter 09/10 report.

• The EPWP incentive manual has been finalised and communicated to Public bodies.

• First payment of municipalities is scheduled for 30th October 2009. This is due to the difference in the financial years.

6.0 Way Forward

• Follow up to be made on outstanding incentive agreements to be signed.

• Public bodies to be continuously briefed on the EPWP incentive grant.

• Continued support to be provided to Public bodies to report so that they can access the incentive.

Reason for Devolution

• To facilitate the transfer of property rates expenditure responsibility to provinces;

• and to enable provincial accounting officers to be fully accountable for their expenditure and payment of provincial property rates

WHAT WAS DEVOLVED?

• Devolution of property rates to the provinces • Payment, administration and management of

provincial property rates which DPW was responsible for

• the budget devolved in a form of Conditional

Grant • Each province was then expected to pay the

property rates for the properties on lists provided.

Why Grants and not equitable shares

• To ensure that the grant is earmarked for payment of property rates pertaining to provincially-owned properties

• To ensure that the provinces are not adversely affected during the division of funds based on the number of properties in that specific province

• To ensure an effective transition of the function from national to provincial government

Allocation criteria

• Funds were allocated per province based on the determination/calculations submitted by the National Department of Public Works

• The determinations/calculations plans assessed against:

– Property lists extracted from the national department's assets register

– Calculations based on the 2006/07 financial year's expenditure

Responsibilities of the National Department

• The national Department of Public Works will oversee the transfer of the function, provide support and training as needed to the Provincial Departments of Public Works

• Monitor performance of Provinces

• Support the Department of Rural Development and Land Reform in vesting of relevant properties in the Provinces' name

• Transfer payments to Provincial Departments of Public Works

• Monitor and evaluate the transfer of function into the relevant Provinces

• Submit quarterly performance reports to National Treasury

• Submit the allocation criteria, 2010 MTEF allocations and the final conditional grant framework that relate to this grant to National Treasury by 7 December 2009 or as requested by National Treasury

Responsibilities of the Provincial Department of Public Works

• As part of the report required in terms of sec 71 of the MFMA and sec 40(4)(c) of the PFMA report to the relevant– Report to the relevant Provincial Treasury, the National

Treasury and National Public Works spending and financial performance of the grant

– Submit quarterly reports within 30 days after the end of the third quarter, non-financial performance reports to NDPW and National Treasury

– The receiving officer must, within two months after the end of the financial year, and where relevant the municipal financial year, evaluate its performance in respect of the grant and submit such evaluation to the transferring national officer.

PROVINCIAL ALLOCATION FOR 2008/9

PROVINCE ALLOCATION EXPENDITURE % UNDER/OVER

WC 147 127 147 093 100% 34 000

NW 58 995 58 326 98% 669

MPUL 36 000 36 000 100% 0

LIMP 12 294 6 853 55.7%

5 441

NC 24 094 24 047 99.8%

47

EC 119 638 60 332 50.4%

59 306

KZN 210 846 209 728 99.5%

1 118

GP 155 265 84 118 54% 71 147

FS 125 066 70 199 56.1%

54 867

TOTAL: 889 324 696 696 78.3%

191 163

MTEF Allocation per Province

Provinces 2009/10 2010/11 2011/12

Eastern Cape 134 061 147 467 156 315

Free State 140 144 154 158 163 048

Gauteng 173 983 191 381 202 864

KwaZulu-Natal 236 264 259 891 275 485

Limpopo 13 776 15 154 16 063

Mpumalanga 40 340 44 374 47 036

Northern Cape 26 998 29 698 31 480

North West 66 107 72 718 77081

Western Cape 164 865 181 351 192 232

Payment schedule

2008/09

22 Aug 2009 22 Sept 200923 Oct 200923 Feb 2009

2009/10

23 June 200923 July 2009; 22 September

2009 22 October 2009)

As part of the lessons learnt, the payment schedule was revised for 2009/10 to enable Provinces to pay the rates and to avoid the interest charges.

PROVINCIAL PAYMENTS TO DATE

2009/10 PROVINCE

ALLOCATION

AMOUNT PAID TO DATE

EC R134 061 000

R 67 028 000

FS R140 143 000

R 70 072 000

GP R173 983 000

R 86 992 000

KZN R236 265 000

R 118 132 000

LIMP R13 766 000 R 6 888 000

MPL R40 340 000 R 20 170 000

NC R26 999 000 R 13 500 000

NW R66 107 000 R 33 054 000

WC R164 864 000

R 82 433 000

TOTAL: R996 538 000

R 498 269 000

CHALLENGES : MUNICIPALITIES• Delays in municipalities to generate invoices/ property rates schedules

• Municipalities with inefficient billing system (payment schedules)

• No valuation rolls

• Delay in issuing invoices on properties affected by Municipal Demarcation of boundaries

• Inaccurate verification and reconciliation of invoices from other municipalities (discrepancies of invoices presented to DPW by municipalities)

• The impact of the new Property Rates Act (causes shortfall on budget allocation)

• Municipalities billing DPW for properties which are not registered either in National or Provincial competency

• Capacity within the National & Provincial Public Works

WAY FORWARD

• Declare over allocations

• Improve Reporting to National DPW in line with DORA

• Establish credible Asset Register

• Participate in Provincial/ Municipal Debt Management Forum

• Jointly with NDPW draft a motivation for increase of the grants

• Motivate for the grant to become a rein fenced equitable share.