Intergovernmental Fiscal Review 2003
Summary of Input on Chapters 2, 3 and 10
Presented by
Ms. Jackie Manche
Deputy Director-General: Institutional Reform and Support
Department of Provincial and Local Government (dplg)
to
The Select Committee on Finance
Good Hope Chambers, Cape Town, 14 May 2003

1. INTRODUCTION

The policy background for dealing with the review of the IGFR is that of building a developmental state. We have a unitary state with three distinctive, interdependent and interrelated spheres of government, all enjoined around clear developmental objectives. In order to achieve this, the three spheres of government must work in an integrated, cooperative and complementary manner. They must have the requisite capacity to address new and emerging challenges.

CHAPTER 2: TRENDS IN PROVINCIAL BUDGETS

Provinces generate very little revenue. Their major source of revenue is national transfers. Overall, there has been an improvement in how provinces are spending their money. They are focussing on pro-poor programmes. They have budgeted for a growth in social services expenditure over the 2003/04 Medium Term Expenditure Framework (MTEF). They have shown a steady decline in personnel expenditure.

Key challenges identified by National Treasury include ensuring that:

Growing budgets are spent efficiently and effectively; and
Quality services are delivered.

Additional challenges identified by dplg include:

Integrated planning and alignment between provincial and national departments;
Alignment of integrated planning to budgeting;
Enhancement of investment in socio-economic infrastructure
Need for national departments to monitor non-financial performance of provinces;
Need for provinces to monitor performance of municipalities, especially with regard to roll out of free basic services.

Key dplg initiatives with regard to provinces include:

Policy Framework on Intergovernmental Relations and the Intergovernmental Relations Bill;
Policy Framework for Assignment of Powers and Functions to Local Government;
Review of Schedules 4 and 5 of the Constitution; and
Roll out of the National Planning Framework.


3. CHAPTER 3: LOCAL GOVERNMENT BUDGET TRENDS

The majority of local government revenue comes from user charges for water and electricity, property rates and Regional Services Council levies. However, the shares of Category A, B and C municipalities vary widely. Municipalities also receive conditional and unconditional grants from national and provincial government.

Personnel costs continue to form the largest share of municipal operating expenditure – around 32% in 2002/03. However, this has remained pretty constant over the years – it was 31% in 1999/00.

Key challenges identified by National Treasury include:

Finalising establishment and consolidation;
Expanding capacity to provide services, particularly free basic services;
Impact of restructuring of the electricity distribution industry;
Modernising delivery, budgeting and financial management systems;
Improving debt management; and
Improving revenue collection.

Additional challenges identified by dplg include:

Understanding of whether revenues generated by municipalities are sufficient to meet their expenditure needs;
Need for a clear fiscal framework for local government and implications for different categories of municipalities;
Need for measures to deal with financial viability of municipalities with a weak economic and tax base;
Linking integrated development planning to budgeting to planning;
Identification of municipal performance in reducing backlogs in service delivery; and
Ensuring that grants are being used for their intended purposes.

Key dplg initiatives to deal with some of these challenges include:

Finalising and gazetting division of powers and functions between Category B and C municipalities on January 3, 2003;
Processing of Property Rates Bill through Parliament
Draft Policy Framework on Division of Fiscal Powers and Functions;
Draft Policy Framework on Reform of RSC levy;
Establishment of Municipal Revenue Enhancement Fund;
National Capacity Building Framework and Consolidation of Capacity Building Grants;
Consolidation of Municipal Infrastructure Grants; and
Quarterly Monitoring of Municipal Finances through Project Viability.

NOTES ON CHAPTER 10: PERSONNEL

Provinces are ahead of local government in restructuring personnel regimes. The reason municipalities are behind in this regard is that they have recently undergone the final phase of demarcation in December 2000 (following two interim demarcations in 1993 and 1996). Nevertheless, both spheres are focusing on improving skills profiles, dealing with surplus staff, attracting professional and managerial expertise and improving work performance.
Key challenges identified by National Treasury include the need for:

Improvement in performance management;
Development of performance-based remuneration and reward systems; and
Adoption of more flexible personnel frameworks.

Additional challenges identified by dplg include:

High level of staff turnover in municipalities;
Vacant posts at managerial level in municipalities;
Transfer of DWAF owned staff with water schemes to municipalities; and
Need for improved coordination between SALGA, sector SETA and dplg with respect to training and capacity building.

To deal with some of these challenges, dplg has put in place the following initiatives with regard to performance management at a municipal level:

Establishment and Piloting of Performance Management System (PMS);
Analysis of Creation of Single Public Service; and
Development of Guidelines on Remuneration of Municipal Managers.

KEY AREAS OF STRATEGIC FOCUS AND INTERVENTION

The President’s Coordinating Council (PCC) on Local Government Transformation has identified the following as some of the key areas of strategic focus and intervention over the next three years:

Intergovernmental Relations
Integration in Planning, Budgeting, Implementation and Monitoring;
Targeted Support Programme for Provinces;
Intergovernmental Fiscal Relations;
Municipal Viability and Debt Management;
Capacity Building and Leadership Development;
Infrastructure Investment and Local Economic Development; and
Free Basic Services.


CONCLUSION

The IGFR Review 2003 points to areas that are still a challenge to our new democracy and would require intervention. dplg has noted these and has already set in motion initiatives that would seek to improve our system of intergovernmental relations, and in particular fiscal relations.