Presentation to the Select Committee on DIVISION OF REVENUE BILL

Presentation to the Select Committee on DIVISION OF

REVENUE BILL

03 March 2009

Presented by:

Cathy Motsisi

Chief Financial Officer

Contents

• Background on EPWP• Conditional Grants EPWP • Conditional Grants – Devolution of

Property Rates

Background to EPWP 2• The first phase of the Expanded Public Works

Programme achieved its 1 million work opportunities targets a year ahead of schedule

• The second phase of the EPWP to scale up further to contribute significantly to halving unemployment by 2014

• Cabinet approved the high level proposals for EPWP 2 in June 08 and the Business Plan at the Lekgotla in January 2009

• R 4.2 billion was allocated over the MTEF to scale up the EPWP

• Agreement at the PCC for DPW to set targets for provinces and municipalities and for them to report to DPW

• EPWP 2 implementation to start on 1 April 2009

As part of the contribution to the income of the poor, the target for 1-million work opportunities through the Expanded Public Works Programme was attained in 2008, a year earlier than envisaged in the 2004 electoral mandate. This has created the possibility massively to expand this programme and improve its quality. SONA, 6 February, President Kgalema Motlanthe

I propose that participating departments, provinces and municipalities should be challenged to exceed their targets for creating EPWP jobs over the period ahead, and so the contingency reserve this year has been increased to allow for additional funding of employment projects in the 2009 Adjustments Appropriation, if sufficient progress is made.Budget Speech, 11 February, Trevor Manual MP

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To create 2 million Full Time Equivalent (FTE) jobs for poor and unemployed people in

South Africa so as to contribute to halving unemployment by 2014, through the

delivery of public and community services. (Scale up from 210 000 FTEs in Y1 to 610 000 FTEs in Y5;

Equivalent of 4, 5 million work 100-day work opportunities in 5 years )

EPWP to enable government to act as an employer of last resort as part of the

Anti-Poverty Strategy

Goal of EPWP Phase 2

Critical Success Factors for EPWP 2

• Make creation of paid work the primary objective of the programme (Employer of last resort)

• Locate clear political and administrative accountability for EPWP work creation targets across all spheres of government

• Align EPWP outputs with the core mandates and programmes of implementing public bodies

• Provide fiscal incentives to accelerate scaling up of EPWP outputs across all spheres of government

• Mobilise non-state capacity to deliver additional EPWP work opportunities

Key Components of EPWP 2 (… 1)

1. Targets and accountability across Government– Each public body to have annual employment creation

targets– Political and Administrative heads to commit and held

accountable for achieving these targets

2. EPWP Fiscal incentivea) Incentive for public bodies to create EPWP

employment through providing R50 for every person-day of work created

b) Phased in over the next two years to all sectors, provinces and municipalities

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Key Components of EPWP 2 (… 2)

3. Non-State sector– Mobilise the capacity outside the state (NGOs, CBOs,

Non-profits) to create work for EPWP targets group– Work will focus on a wide range of activities as

identified by local communities or the NGO’s and CBO’s

– Funding provided on the basis of the wage incentive

4. Technical Support to spheres, sectors and implementing bodies

– Implementing bodies requiring capacity can access support through the EPWP Unit and other support programmes like the Technical Assistance Unit from National Treasury

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1. Targets and Accountability across all spheres of Government

Overall Phase 2 targets will be distributed across all spheres of government and the five year period so that: Each public body has a clear target for each financial year It is clear which programmes/ activities of the public body are

expected to contribute to the target The targets are adjusted annually over the MTEF in line with

budgets available and performance of each public body Targets are calculated by applying an employment factor in

FTE/ R million to grants received by public bodies

Respective political and administrative heads to be held accountable for achieving respective targets

EPWP Unit to manage the setting, monitoring and feedback process for performance in relation to all targets

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Phase 2 targets in Full Time Equivalents broken down per

sphere of government

  Local Provincial National Non-State Totals

2009-2010  60 548   117 554  22 698  8 696  209 496

2010-2011 72 658  136 630  28 999  20 870  259 156

2011-2012 94 939  181 667  40 991  41 739  359 337

2012-2013 122 549  243 527  56 272  76 522  498 870

2013-2014  152 581  320 692  76 570  130 435  680 278

Totals 503 275 1 000 070 225 531 278 261 2 007 137

Phase 2 targets in 100-day work opportunities broken down per sphere

of government

  Local Provincial National Non-State Totals

2009-2010 150 000  247 325  100 068  20 000  517 393

2010-2011 156 000  281 720  104 248  48 000  589 968

2011-2012 200 000  370 420  133 660  96 000  800 080

2012-2013 275 000  501 283  183 588  176 000  1 135 871

2013-2014 375 000  659 286  249 994  300 000  1 584 279

Totals 1 156 000 2 060 034 771 557 640 000 4 627 591

Infrastructure Environmental Social

  W.O. FTE's W.O. FTE's W.O. FTE's

2009-2010               25,912               

10,129            7,890                   

1,539            

16,878          13,239 

2010-2011               29,540               

12,155            8,205                   

1,970            

20,254          14,752 

2011-2012               38,005               

15,883          10,520                   

2,791            

27,849          19,670 

2012-2013               49,406               

20,502          14,464                   

3,838            

39,453          27,046 

2013-2014               62,190               

25,526          19,724                   

5,234            

53,799          36,880 

5-Year Targets for KZN Province per Sector

Phase 2 targets in Full Time Equivalents broken down per

Provincial GovtE Cape Free

State Gau-teng

KZN Lim Mpum N Cape North West

W Cape Totals

2009-10 12,732 8,349 21,091 24,908 13,070 8,880 5,384 22,867 13,177 117,554

2010-11 15,102 9,726 24,224 28,878 15,364 10,357 6,342 25,301 15,083 136,630

2011-12 20,059 12,951 32,472 38,344 20,434 13,793 8,455 32,863 20,087 181,667

2012-13 26,572 17,371 44,978 51,386 27,239 18,490 11,288 44,046 27,195 243,527

2013-14 34,401 22,893 58,802 67,640 35,587 24,350 14,779 57,989 36,312 320,692

Totals 108,866 71,290 181,567 211,155 111,694 75,870 46,247 183,066 111,853 1,000,070

Phase 2 targets in 100-day work opportunities broken down per

Provincial Govt E Cape Free

State Gau-teng

KZN Lim Mpum N Cape North West

W Cape Totals

2009-10 32,078 18,115 36,618 50,680 30,649 19,505 13,031 31,763 23,807 247,325

2010-11 36,034 20,544 43,398 57,999 34,578 22,094 14,629 36,592 27,462 281,720

2011-12 46,798 26,979 56,023 76,373 45,142 28,993 19,085 48,226 35,560 370,420

2012-13 62,506 36,533 90,097 103,323 60,691 39,234 25,705 64,912 50,171 501,283

2013-14 81,326 48,124 118,581 135,713 79,439 51,660 33,744 84,939 66,769 659,286

Totals 258,741 150,296 344,717 424,089 250,499 161,487 106,193 266,432 204,770 2,060,034

Phase 2 targets in Full Time Equivalents for Local Municipalities by

province Province

2009-2010

2010-2011 2011-2012

2012-2013 2013-2014

Eastern Cape 9,779 11,735 15,334 19,793 24,644 Free State 3,993 4,792 6,261 8,082 10,063 Gauteng 11,028 13,233 17,291 22,320 27,789 KwaZulu-Natal 13,081 15,697 20,511 26,476 32,964 Limpopo 8,046 9,655 12,616 16,285 20,276 Mpumalanga 4,182 5,018 6,557 8,464 10,538 North West 5,240 6,288 8,216 10,606 13,205 Northern Cape 1,259 1,511 1,975 2,549 3,173 Western Cape 3,946 4,735 6,187 7,986 9,944 Total 60,554 72,665 94,949 122,562 152,596

Phase 2 targets in 100-day work opportunities for Local Municipalities

by province Province

2009-2010

2010-2011 2011-2012 2012-2013 2013-2014

Eastern Cape 28,559 32,557 41,886 54,452 68,541 Free State 11,661 13,294 17,103 22,234 27,987 Gauteng 32,204 36,712 47,232 61,402 77,289 KwaZulu-Natal 38,201 43,549 56,027 72,836 91,681 Limpopo 23,497 26,787 34,462 44,801 56,393 Mpumalanga 12,212 13,922 17,911 23,285 29,309 North West 15,303 17,445 22,444 29,177 36,727 Northern Cape 3,678 4,192 5,394 7,012 8,826 Western Cape 11,523 13,137 16,901 21,971 27,656 Total 176,837 201,595 259,361 337,170 424,410

5-Year Targets for selection of Local Municipalities [Infrastructure only]

WO FTEs WO FTEs WO FTEs WO FTEs WO FTEs

Amatole 7,917 2,711 9,026 3,253 11,612 4,251 15,096 5,487 19,001 6,832

Jhb 10,444 3,576 11,907 4,292 15,319 5,608 19,914 7,239 25,067 9,013

Ekur-huleni

9,880 3,383 11,263 4,060 14,491 5,305 18,838 6,848 23,712 8,526

Tshwane

5,992 2,052 6,831 2,462 8,789 3,217 11,425 4,153 14,381 5,171

eThek-wini

11,972 4,099 13,648 4,919 17,558 6,428 22,826 8,297 28,732 10,330

EPWP Incentive Bonus Allocation

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

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

Total cost to intermediary

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

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

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

EPWP Phase 22007/08 EPWP PERFORMANCE

ELIGIBILITY THRESHOLD

FTE PERFORMANCE TARGETS

TOTAL FULL YEAR AMOUNTS

DORA ALLOCATION

2009/10

  FTE/ R million Payment for FTE perf targets -

threshold

-25% for Q4 for prov

  For All parties -50% for Q4 for munis

FISCAL INCENTIVE TO MUNICIPALITIES 43,792 31,849 66,091 393,779 201,748

Eastern Cape 8,476 2,587 9,692 81,716 41,273

Nelson Mandela 508 464 610 1,673 837

Amatole District Municipality 1,203 679 1,444 8,795 4,398

Tsolwana 235 21 259 2,726 1,363

Intsika Yethu 60 56 72 186 500

Emalahleni 107 42 128 998 500

Sakhisizwe 96 29 115 986 500

Chris Hani District Municipality 1,152 601 1,382 8,982 4,491

Ukhahlamba District Municipality 562 305 674 4,251 2,126

Alfred Nzo District Municipality 4,553 389 5,008 53,117 26,559

2- EPWP Fiscal Incentive• 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 per day for every day of work created

• R4.1 billion has been allocated to DPW over the MTEF to pay out the incentive to public bodies and this is expected to grow to at least R 5 billion per annum by 2014

• 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 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- EPWP Fiscal Incentive• Eligibility: In order for provinces and municipalities

to become eligible for the incentive they must:• Report to DPW on the EPWP• Meet minimum employment creation targets based on their

available budgets • Meet equity targets for number of youth, women and disabled EPWP

workers

• 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

2- Fiscal Incentive: Allocations to Municipalities• 45 Municipalities have been included for indicative

allocations based on their 2007-08 performance

• At least an additional 15 municipalities are

expected to become eligible in 2009-10

• Total projected incentive allocations to the

municipalities is R201 million

• FTE target for municipalities for 2009-10 is 66 000

FTE’s

• Most eligible municipalities are already reporting

on the EPWP Management Information System

3- Non-State Sector• Phase 2 of the EPWP will also see the introduction of the “Non-State”

sector of the EPWP• In this sector, the wage incentive will also be provided to Non-State

bodies like NGO’s, CBO’s and other non-profit organisations whose activities also create work for the EPWP target group

• R80 million of the wage incentive has been allocated to the non state sector for 2009-10

• The sector is projected to grow rapidly as many existing non-state programmes have the potential to grow rapidly through the injection of the wage incentive

• The Non-State Sector will be managed by DPW with oversight from other key departments, but will be implemented with the assistance of an intermediary

• Two sets of programmes will be implemented:– Area based: These will include programmes within a specific area that

will generally involve a large range of activities as identified in consultation with the community and local government

– Activity based: These will include programmes by non-state actors that have specific focus areas such as health care, child care, community safety etc

4- Technical Support• The EPWP unit, in cooperation with the Sector lead departments

and the provincial coordinating departments will increase capacity to provide technical support to those public bodies that require it

• Public bodies who are not able to meet targets or meet all specified requirements should request technical support

• Areas in which technical support will be provided are:

– Developing plans to meet targets

– Identifying suitable projects and programmes

– Design of projects and programmes

– Implementation support

– Reporting

• In addition to the EPWP Unit, the Technical Assistance Unit in National Treasury will also be able to support public bodies

• Support programmes for the Environmental and Social Sector are being reviewed and strengthened

Institutional Arrangements

• The EPWP organizational structure is currently under review for future growth of the programme

• There is significant work in progress with regard to the building of capacity and enhancement of the M&E, Financial Management, Internal Audit components to enable proper management of the incentive allocation

• The budget structure of the department will also be reviewed to ensure that the programme is clearly identifiable and visible as a flagship programme of the department.

• EPWP Systems will also be improved to provide credible institutional memory and proper audit trail.

5- Way forward• Targets have been set for all public bodies and the EPWP Unit

will, together with the provincial coordinating departments, be briefing all public bodies about their targets and

• The EPWP unit is currently finalising the operational and audit procedures for the EPWP fiscal incentive

• EPWP Phase 2 will start on 1 April for National Departments and Provinces and 1 July for Municipalities

• A country-wide briefing programme is scheduled to take place in the next two months and cover, amongst others, the following bodies:

– Provincial Executive Committees

– Mayoral Committees

– Officials involved in implementing EPWP projects

– Officials involved in coordinating and managing the EPWP in provinces and

municipalities

Conclusions• Employment creation remains the key priority of

government and the EPWP remains the most important vehicle for government to directly create employment for the poor

• Strong political leadership on the EPWP has proven to be critical in Phase 1 of the programme and will be equally important in Phase 2

• The introduction of a framework to increase accountability on EPWP performance and a fiscal incentive to reward performance and increase budgets for those that are performing, is expected to provide a huge boost to increasing the scale of the EPWP over the next five years

Devolution of Property Rates Funds Grant

Background• The devolution of property rate funds was introduced

in the current financial year, 2008/09 to ensure that Provinces take over the responsibility of paying property rates and Municipal charges on properties that were administered by National Government on their behalf.

• This devolution was done after a consultative process with provinces through workshops and provincial visits to determine the state of readiness of the provincial departments.

• The main strategic goal of the devolution was to enable Provincial Accounting Officers to be fully responsible and accountable for the management of all aspects of property portfolio deemed Provincial.

Allocation for the Devolution of Property Rates

2008/09

2009/10 2010/2011

2011/2012

TOTAL

Provincial Treasuries

889,325

996,538 1,096,192

1,161,964 3,254,694

Allocation Criteria

The properties were extracted from the national public works asset register

Calculations were based on the 2006/07 financial year’s expenditure

Achievements• A total budget of R889 million was allocated in a form of

which R667 million was transferred in September and the balance of R222 million in February 2009.

• List of properties were verified and the degree of accuracy ranged from 95-99% depending on the Province.

• Training was provided to all the provincial department and 8 out of the 9 provinces are paying on IE Works.

• Quarterly performance reports were also submitted by provincial departments to DPW The process has now been fully implemented and the transfers are taking place according to set timeframes.

• The payment schedule for next year has also been amended to enable the release of transfers to take place from June to around October to enable Municipalities to receive their payments on time.

Challenges & Solutions

• Obtaining funding from NT to clear arrears rates for the five provinces; Western Cape, KZN, Mpumalanga, Eastern Cape and Limpopo.

• Reconciliation and validation of the claimed arrears

• Capacity to conduct the validation exercise

• To this end, the department is working closely with NT to achieve the above and settle the outstanding balances.

• There is also a parallel process of reviewing the readiness of Provinces for taking over the grants as earmarked funds in their baseline.

I thank you