FFC
COMMENTS ON THE
DIVISION
OF REVENUE BILL 2007
1.
Introduction
The Financial and Fiscal Commission’s (hereafter referred to
as the Commission) response and commentary on government’s Annual Division of
Revenue Bill is submitted in terms of Section 214 (1) of the Constitution and
Section 35 of the Intergovernmental Fiscal Relations (IGFR) Act (1998). The
IGFR Act requires that the Minister of Finance consult the Commission prior to
the introduction of the Bill.
Over the course of the 2006/07 fiscal year, the Commission
held several consultations with the Minister of Finance and officials of the National
Treasury with respect to the Commission’s recommendations and Government’s
policy objectives and priorities for the 2007/08 Division of Revenue Bill.
In preparing its commentary on, and its response to the
Division of Revenue Bill, the Commission assesses and analyses the equitable
allocation of revenue amongst the three spheres and, horizontally within each
sphere of Government. The assessment and analysis takes into account key
principles of intergovernmental fiscal relations in
Firstly, the Commission is required to comment on whether
nationally collected revenue as reflected in the Division of Revenue Bill is equitably
allocated among and within all spheres of government. In making its comments
the Commission is legally mandated to take account of all constitutional and
legal requirements.
Secondly, the Commission considers Government’s obligation
to provide constitutionally mandated basic services (as reflected in the Bill
of Rights) taking into account considerations listed in Section 214(2) a-j of
the Constitution.
Thirdly, the Commission’s comment is based on government’s
stated policy objectives, policy targets and norms and standards. In addition
all legal institutional and administrative policy instruments and other
strategic considerations contained in the Medium Term Expenditure Framework
Plans are evaluated and assessed for their effectiveness, efficiency and
compliance with legislated IGFR principles.
The Commission’s submission on the 2007/08 Division of
Revenue Bill comments on government’s response to the Commission’s Annual
Submission as published in Annexure E of the Budget Review and attached to the
2007/08 Division of Revenue Bill. Secondly, the submission comments on the
proposed conditional grants in the context of the Commission’s recommendations.
Thirdly, the submission offers commentary on the macroeconomic implications of
the Division of Revenue Bill proposals. Finally, the submission provides an
analysis of the relationship between national and provincial priorities and the
allocations that are proposed.
General comments on the
2007 Division of Revenue Bill
The Commission is in agreement with
the general spirit in which the 2007/08 Division of Revenue Bill has been
drafted. There are, however, two key issues that relate to the Commission’s
past recommendations that need to be raised in the context of this year’s Bill.
Firstly, the Commission has always
advocated for the efficient use of fiscal resources allocated in a fiscal year
and proposed in 2004 that where departments are failing to spend on certain
conditional grants, funds be re-allocated to those departments or provinces
that are actually spending without necessarily prejudicing the province or
department from where the funds were re-allocated. It has come to the
Commission’s attention that the practical application of this principle has the
potential to result in unintended consequences. There have been cases where
funds that had been re-allocated from one province to another have not
necessarily reverted to their origin as spending picked up in the former. This
has the potential to result in an unintended dislocation of planning and
spending processes at the provincial level. The Commission is of the view that
a review of the application of this principle should be undertaken in order to
ensure that the credibility of the budget process is not eroded. The role of
the Treasuries and the Budget Council in this respect needs to be strengthened.
A second issue that the Commission
would like to raise relates to the clause which deals with the accreditation
process for municipalities. The Commission is of the view that the clause be retained
as its recommendations for the 2006 Division of Revenue clearly indicated the
need to streamline the housing delivery process and the importance of
accrediting capacitated municipalities. While the Commission understands some
of the frustrations that come with slow progress in this respect, it still
believes that this principle is an important part of the Bill and that the
accounting officer for housing needs to move speedily towards the
implementation of this principles.
2.
FFC
Comments on the response by Government to its Recommendations for 2007
General observations
The Commission welcomes the response
to the recommendations and proposals that it submitted on the 2007/08 Division
of Revenue. The Commission acknowledges that government has accepted most of
its proposals and is implementing some of the recommendations. The Commission notes
that where recommendations are not implemented, government has indicated why
such recommendations have not been accepted, and further where there are
in-principle agreements government has indicated the areas that need further
investigation. The Commission will continue to investigate the issues raised by
government and refine the recommendations.
This comment focuses mainly on the differences
and disagreements that government has with some of the Commission’s recommendations.
Specific Comments
General: Conditional grants
The bulk of the commission’s
submission in the last year was concentrated on the various conditional grants that
are in the system. An overriding principle embedded in the recommendations was
that conditional grants should only be used to deal with spill-over benefits
and to address the funding of new national priorities that require
institutionalization in the provincial/ local government budget processes.
Furthermore the Commission recommended clearly defined national norms and
standards in areas of concurrent responsibilities and the need to monitor
service delivery to ensure compliance with the minimum requirements for the
conditional grants. The Commission notes that these recommendations and
proposals have been accepted and in reviewing the conditional grant schedules,
the Commission notes the changes introduced in some of the grant frameworks to
ensure that grant recipients are able to spend and also that the transferring
departments are able to monitor and check progress with programs.
Hospital Revitalisation Grant (HRG)
and the Provincial Infrastructure Grant (PIG)
The Commission recommended a merging
of the HRG and the PIG. While there is no principal disagreement between the
Government and the FFC on this matter, the two grants continue as separate
grants. Government is of the view that there is a need to streamline all
infrastructure transfers to the provinces. In this regard, government will
explore the issues around the two grants and report in the 2008 Budget. The
Commission will follow closely government’s work on the matter while continuing
with its current work on the financing of infrastructure backlogs.
The Land Care (LC) and Comprehensive
Agricultural Support Program (CASP) grants
The Commission recommended that the
two grants be merged as they have a common objective and that the merging would
also ease the administrative burden in the form of reporting. Government does
not accept this recommendation because its view is that the two grants have
distinct objectives and should therefore remain separate. CASP targets
extension of agricultural services to land reform beneficiaries while LC grant is
focused on the promotion of sustainable natural resource use and
management.
The Commission recommended that some
of the conditions attached to the grant be reviewed and relaxed. Government
indicates that a baseline study around this grant is currently underway and the
Commission’s recommendations will be addressed as part of the study. The
Commission will await the results at the conclusion of the study and make
further inputs if there is a need. It must be noted that the Commission has
been doing further work on this grant in response to a request from the Select
Committee on Finance on the feasibility for extending the grant to secondary
school learners. The Commission is in the process of finalizing the report and
will be submitting it soon.
HIV and AIDS Life Skills
Education Program Grant
The Commission recommended the
continuation of this grant but with the allocation mechanism linked to the
actual enrolment rate in provinces rather than the current approach. Government
is of the view that a long-term approach is required when deciding on the
allocation mechanism for the grant. In this regard the program should be
integrated into the education system and provinces should assume full
responsibility for its implementation. This observation is consistent with the
Commission’s general recommendation for the eventual incorporation into the
equitable share of some of the grant programs that are considered national
priorities. Of importance in this respect is the prescription of a timeframe
over which provinces would be expected to integrate the program into their
overall education system so that life skills become part of the curriculum.
The Municipal Infrastructure Grant (MIG)
The Commission recommended that the
formula should be reviewed not to fund but to take into account the operational
and maintenance needs of infrastructure rollout. Government is of the view that
municipalities should fund maintenance and operations from their own budgets in
line with Section 17 (2) of the MFMA. Further, government observes that
municipalities have a substantial revenue base and should therefore accordingly
fund the operation and maintenance of municipal infrastructure from their own
resources. While the FFC subscribes to the view that municipalities should
comply with the legislation, the reality is that some municipalities just do
not have sufficient resources to dedicate to the operation and maintenance
needs of their infrastructure. It is important that certain measures are put in
place to assist the poorer municipalities that do not have sufficient revenue
raising capacity (and are unlikely to have it in the foreseeable future) and
rely on the equitable share as a revenue source. It is the view of the
Commission that it would be self-defeating to continue pumping resources for
the roll-out of basic municipal infrastructure without ensuring that all
municipalities have sufficient resources for operations and maintenance.
Health Professions Training
and Development Grant (HPTDG)
As part of the recommendations, the
Commission proposed that the HPTDG be converted to a schedule 5 grant.
Government, while supporting the Commission’s recommendation also highlights
some of the challenges that will have to be addressed in dealing with this
matter. The Commission appreciates the challenges that have been identified and
notes that there is currently on-going work for the development of policy and
targets for the grant.
National Housing Allocation
formula
In this regard the Commission
proposed that the formula should take into account the variations in regional
costs for constructing subsidized housing and ensuring uniform standards across
provinces. Government does not support this recommendation and argues that it
would be difficult to capture such variations with reasonable accuracy since
such variations are not only between provinces but are also within provinces.
Government is of the opinion that introducing additional factors would further complicate
the formula.
While
the Commission notes government’s concern regarding additional complexity being
introduced to the housing formula, its view is that such variations are quite
important and particularly so when one considers coastal against in-land
provinces. The recommendation stems from the significant impact that variations
in regional costs have on the quality, completion and lifespan of government
subsidised houses. Key factors that affect cost variations include soil type,
topography, and climate (whether houses are developed along the coast or inland).
Land cost is also a significant factor that varies significantly across
regions. The resulting implication is that the cost of meeting the same quality
and standards as set by the National Department of Housing can differ greatly
depending on the location of the housing project.
The
Commission will thus continue research into this aspect and make further
recommendations to government on how to best account for regional variations in
the formula.
3.
Comments
on the 2007/08 Conditional Grants Framework
General observations
The number of conditional grants to provinces for 2007/08
has remained the same by comparison to those for 2006/07. The Commission
welcomes the fact that there has been no expansion to the number of conditional
grants as it has in the past cautioned against the proliferation of such
grants. A new grant for Community Library Services has been introduced, while
the Land Redistribution: Alexandra Urban Renewal Project has been phased out as
indicated by the 2006/07 framework. The introduction of the new grant responds
to provincial concerns that funding towards libraries had been neglected with
municipalities carrying the responsibility even though the function is a
provincial competency.
The current conditional grant framework is an improvement on
the grants of the last financial year. In particular the intentions of each
conditional grant have been made clearer. The framework now includes items such
as outcomes and their indicators which are measurable and will therefore assist
with monitoring; the required inputs that will make implementation of each
conditional grant successful. Clearly, extensive pre-planning went into the
design of the conditional grants framework with a special focus on the possible
weaknesses and problem areas that were identified by the Financial and Fiscal
Commission in its 2006/07 submission.
Specific Observations
|
Conditional Grant |
Changes to the Grant Framework |
Comments |
|
Agricultural Grants
|
Two extra conditions have been added to this grant. The
first condition is the requirement for integrated planning, implementation
and monitoring of CASP projects by the Departments of Agriculture and Land
Affairs. The second condition stipulates the percentages to be allocated to
the different programs covered by CASP. It allocates, for example, 70% of the
grant to land reform. This may be viewed as a form of ring-fencing that seeks
to ensure that funding goes to appropriate designated beneficiaries. |
Addition of new conditions may be concerning in light of
the call by the Commission for loosening of stringent conditions that may
result in an increased administrative burden for provinces. However, the FFC
is of the view that the ring fencing applied in the grant is indeed
appropriate and will improve the chances of the grant doing what it is
intended to do in the first place, that is,: acquire land. Administrative
inconvenience considerations are surely secondary here and must be addressed
separately. |
|
Conditional Grant |
Changes to the Grant Framework |
Comments |
|
Housing Subsidy |
Two conditions no longer appear. The first condition
relates to the need for provinces to submit annual performance plans that are
aligned to the new comprehensive plan for approval by the national department
by March of the year in which the funds are to be spent. The second condition
required provincial departments and local authorities to submit comprehensive
reports on individual projects on the 15th of every month. A new
formula for distributing this grant to provinces will be phased-in next year. |
The exclusion of some conditions is in line with the
recommendation made by the Commission for a relaxation of the more stringent
conditions. In the new formula, the factor of homelessness which used to form
part of the old formula has been excluded due to lack of official data.
However, research conducted by the Commission indicates that information on
homelessness can be collected through housing surveys and that housing needs
in other countries is actually estimated through, amongst other factors,
homelessness. It is therefore essential that a process is started between the
National Department of Housing and Statistics South Africa that will ensure
that data on homelessness is collected and eventually included in the new
housing formula. |
|
Conditional Grant |
Changes to the Grant Framework |
Comments |
|
Gautrain Rapid Rail Link |
Adjustments to compensate for foreign exchange
fluctuations are catered for by way of forward buying of necessary project
resources. A new condition to indicate the extent of the provincial financial
obligation to the Concessionaire over the Development period has also been
added. The following three conditions were also added to the 2007/08 grant
framework: ·
The project account will be held at the South African Reserve
Bank ·
The South African Reserve Bank has to be made aware, by National
Department of Transport, of the annual transfer schedule and milestone
payments for the project and The role of Gauteng Management
Agency was defined. |
The FFC did not make any recommendations with regards to
this grant. |
|
Conditional Grant |
Changes to the Grant Framework |
Comments |
|
Hospital Revitalization |
The conditions of this grant remain mainly the same.
However, the new framework requires client satisfaction surveys to be conducted
after completion of each project funded through the grant |
The Commission is of the view that the introduction of
client satisfaction surveys is a good development as it will assist with
monitoring and improving the quality of infrastructure and civil work done by
contractors. |
|
Health Professions Training and Development |
The objective of the grant as stated in the 2007/08
framework is to expand specialist and teaching infrastructure in all
provinces as opposed to target provinces, i.e. Mpumalanga, Limpopo,
North-West and Northern Cape, as stipulated in the 2006/07 framework. A new
item inputs, defined as “number of students and funds allocated to each
province”, has been added to the 2007/08 framework. Since some higher
institutions span more than one province, it is not clear from the framework
how the above item “inputs” will be treated in such cases. The frequency of
reporting on the number of registrars increased from bi-annually in 2006/07
to quarterly as of 2007/08 signaling a tighter monitoring regime for the
grant. |
In their submission to the Select Committee on Finance,
the National Department of Health suggested that the impact that the mergers
of institutions of higher learning will have on the training of health
professionals and the provision of health services should be thoroughly
assessed. The Commission notes that in the 2006/07 framework, a specific
allocation was made to previously disadvantaged provinces to develop
specialist and teaching capacity and this specific allocation is not made in
the 2007/08 framework. |
|
Conditional Grant |
Changes to the Grant Framework |
Comments |
|
National Tertiary Services |
There were no particular changes made to the grant. |
As in most other grants, more measurable output items have
been added. |
|
Forensic Pathology Service |
Following the partial transfer of the Forensic Pathology
Service to the Health Department, the purpose of the grant has changed to
reflect the fact that the transitional period is complete. |
In the 2007/08 framework, quantifiable performance
indicators have also been incorporated into the grant thus enhancing the
monitoring function. National Department of Health took over all
responsibilities for the grant from the contractor at the end of 2006. |
|
Comprehensive HIV and Aids |
A significant change to the grant is the fact that
submission of risk management plans with the business plans has been added as
a condition. |
The Commission made such a recommendation for application
to all conditional grants. This will assist in anticipating potential risks
and plan forward on how to guard against such risks. |
|
Conditional Grant |
Changes to the Grant Framework |
Comments |
|
Provincial Infrastructure Grant |
A new condition that deals with additional funding for
scaling up of the Extended Public Works Programme in roads has been
added. Another new condition that
deals with reallocation or withholding of funds in cases where there is
non-compliance. The new framework also made adjustments for revised
provincial boundaries in the allocation criteria. The 2007/08 framework also
introduces the following new role players:
The Provincial Extended Public Works Programme Coordinating
Forum which will be an advisory body responsible for monitoring and
evaluating progress on Provincial Extended Public Works Programme projects. |
Although the introduction of additional role players will
assist with monitoring, it still does not address concerns raised by the
Select Committee on Finance about the manner in which provinces allocate
funds from the grant between various sectors. However, additional funding
provided, if properly allocated, will put the much needed attention on access
roads as intended. |
|
Conditional Grant |
Changes to the Grant Framework |
Comments |
|
|
The conditions and the processes that relate to the
development and approval of business plans have been addressed in line with
recommendations made by the Commission in its 2006/07 submission. |
The project purpose has been clearly elaborated and it is
indicated that the grant will be in existence for at least another ten years.
Although the allocation criteria were not changed, phased-in changes will be
made from 2008/09 onwards. |
|
HIV and Aids Life Skills |
There were no significant changes made to the grant
framework. |
As in other grants, more measurable output items have been
added. The Commission is of the view that the implementation of the grant
should not be in isolation to other Life Skills programmes already taking
place in school. |
|
Conditional Grant |
Changes to the Grant Framework |
Comments |
|
|
No significant changes were made to the grant except for a
clarification with respect to a condition relating to the transfer of funds
from the grant. Funds from the grant will now have to be transferred to
colleges by the respective provincial education departments within seven days
of being transferred from the National Department of Education to provincial
treasuries. The 2006/07 framework was not clear on how the funds were
supposed to flow and had no specification in terms of the period within which
colleges have to receive those funds. In the 2006/07 framework, allocations
to colleges were made in terms of their contribution to the provincial growth
plans and this has now been changed, in the 2007/08 framework, to take
account of each college’s contribution to national skills priorities instead. |
Monitoring, by Provincial Education Departments, of how
colleges actually use the funds should be improved. |
4.
The
Macroeconomic and Public Finance Implications of the 2007/08 Division of
Revenue Bill
The
2007/08 Division of Revenue Bill gives greater attention to macroeconomic
issues with its emphasis on ‘economic growth and people-centred development
through strategic economic investment, progressive realisation of basic social
rights, and by improving public sector governance and service delivery’. The
core areas of intervention are in accelerated infrastructure delivery, skills
development, industrial development and employment creation, justice and crime
prevention, sustainable livelihoods and social safety nets. These measures
could affect the economy in ways that affect the ability of provinces and
municipalities to provide basic services and perform the functions allocated to
them, and provide for their developmental and other needs and is in line with
section 214(2)(a to j) of the Constitution.
The
2007/08 Division of Revenue Bill is premised on important economic assumptions
that underpin the macroeconomic projections used to determine the overall
resource envelope underlying the Bill. The baseline refers to a set of
forecasted values for the important fiscal variables under a set of these
macroeconomic forecasts obtained from elsewhere, and under the assumption of
things staying normal (constant policy and normal weather for example).
However, as is well known, in reality, the assumptions underlying the baseline
are certain to be violated, and so actual market outcomes will deviate from the
projections presented thereby resulting in budget overruns for example. This is
why the issue of verification becomes important. Overall, the procedures followed
in formulating the macroeconomic projections are sensible, transparent and
broadly in line with international practice. To further
refine an already credible and transparent system, in the future it would appear
reasonable to have these economic assumptions verified by an independent
competent public authority. While there are processes in place where the opinions
of experts such as economists and economic researchers are regularly solicited
and utilised, for example, in parliamentary hearings, there is need to
institutionalize this process. This would help to raise even further the transparency and credibility
of the forecasts moving forward and aligning the system even closer to
perceived ‘best practice”.
The 2007/08
Division of Revenue Bill is based on an estimated general government surplus in
2007, significantly better than the deficit incurred in the previous period.
This outturn is due to higher than expected tax receipts. It raises an
important macroeconomic question of relevance for intergovernmental fiscal
relations. What is the best way to deal with such surpluses? In the past
government has used the funds to retire debt when debt problems were a priority.
It has also used this for broadly focused tax reductions rather than narrowly
focused tax reductions in other instances. A strategy that constantly evaluates
alternative uses of surpluses according to their effects on economic growth is
a strategy that will produce a stronger economy and result in less waste than a
strategy based on the pressure of lobby groups unsubstantiated bias toward
either spending, tax reduction, or debt retirement options.
The
Revenue – Gross Domestic Product (GDP) ratio underlying the 2007/08 Division of
Revenue Bill is expected to be higher than it has been in recent years at 28.2
percent of GDP. The rise is mainly due to improvements in revenue collection. The
estimates indicate that the Budget will yield a surplus in 2007/8 of R9bn (0.5
percent of GDP), before recording a small deficit of R4bn in 2008/9 (-0.2
percent of GDP). The estimated deficit
for 2009/10 is R10bn or 0.4 percent of estimated GDP – for all practical
purposes a balanced Budget for the next three years. A pertinent question is
whether the tax burden is too high and therefore inimical to economic growth?
If we use the often quoted figure of 25 percent as the optimal one, then a revenue/GDP
ratio of 28.2 percent is therefore too high. However, there appears a need to
come up with a more updated guideline on what policymakers deem to be the
‘desirable’ tax burden. Government should therefore specify whether it still
considers the 25 percent ratio the appropriate policy desired revenue burden or
revise it appropriately. This choice should preferably be informed by up to
date needs and capacity of the economy as well as informed by an international
benchmarking experience.
From a
public finance perspective, risks associated with the 2007/08 Division of
Revenue Bill budgetary projections are broadly balanced. The forecast of
receipts are fairly plausible and paint a health fiscal picture. As regards
expenditures, projected growth of over 10 percent seems too high when compared
to annual GDP growth of around 5 percent. However, there is a sufficient safety
margin against breaching the 3 percent of GDP deficit threshold with normal
macroeconomic fluctuations required for sustainability.
The
macroeconomic implications of the expenditures proposed in the 2007/08 Division
of Revenue Bill are certainly expansionary. However, these expenditures are reasonable
and remain consistent with government’s ideal of prudence and non-inflationary
growth. Higher public-spending allocations are reflected by more being allocated
to hospitals, schools, safety and security, and skills development each year
over the MTEF period. This release of public funds will filter through to local
service provision where for example schools may be able to improve the quality
of provision and address the shortfall in the number of teachers. However, despite
this increase, public spending remains below the spending levels required. Thus
there is still a need to spend more and spend efficiently.
It must be acknowledged that since the turn of the
century, expanded social grant system and improved labour market prospects have
had a major impact on poverty reduction. While the high share of social
assistance in real terms may suggest that social assistance may be nearing the
boundary of its ability to alleviate poverty, there is a need to continue with
such expenditures given the time it takes for job creation to be an alternative
to social grants in poverty reduction. Although the social spending proposed in the 2007/08
Division of Revenue Bill is consistent with identified priorities, it seems
likely that inequality will continue to grow. If unemployment levels and
structure were to remain largely unchanged, this will not only have added
equity implications but will also have efficiency implications arising from
unused resources. While the budget was in part about redistribution,
paradoxically we may see a widening of the gap between the have and the
have-nots. Urgent measures that address
this, such as increased social assistance seem warranted.
The 2007/08
Division of Revenue Bill lists the Gautrain Rapid Rail Link Grant as a Schedule
5 allocation. Largely because the costs of the project exceed the amounts
provided for under the Grant, this raises issues in general on how mega
projects such as the one under consideration should be funded. In general,
there are two ways that this can take. The province can use the Borrowing
Powers Act, or legislation that allows National Government to borrow on its
behalf. In the latter case, the burden of servicing the debt shifts from the
province to national government and national government has to take into account
all the clauses listed under section 214 (2) a-j of the Constitution. In
particular this will include the risk of increasing the national debt burden
especially if such borrowing is seen as precedent setting by other provinces
and municipalities.
The 2007/08
Division of Revenue Bill also lays out the framework for government funding of
2010 FIFA World Cup. While government funding of the event extends well beyond the
construction and refurbishment of stadiums, the Bill is most explicit with
respect to this funding only when it comes to stadium construction and
development in the Stadium Development Grant of the Division of Revenue Bill.
The rest of the World Cup expenditures are lumped together with other routine
day to day expenditures of the respective departments. It is the view of the
Commission that any financing of mega or “special” projects/events should not
crowd out constitutionally mandated basic services because this is the highest
level risk factor for the Commission in dealing with such projects.
A related contentious issue that has implications for the
division of revenue but that is not explicitly raised in the 2007/08 Division
of Revenue Bill is the financing of legacy
effects associated with the Soccer World Cup. At the moment, Government
contribution towards these efforts may be lumped together with some other
broader expenditure such as urban regeneration etc and as a result may not be
visible. It seems reasonable that any extra plans for harnessing such legacy
effects and regeneration should either be privately funded or host cities
should pick up the largest chunk of the tab as they are the ones that would
benefit the most from such legacy effects.
5. Priorities and
performance highlighted by the 2007 Division of Revenue Bill
The overarching national growth strategies, A.S.G.I.S.A. and
J.I.P.S.A. imply a budgetary emphasis on skills development and infrastructure.
This implies higher than average growth rates for spending on capital and
training within each provincial department. A further implication is that
departments that deliver infrastructure services should be prioritized. For
provincial governments, this implies specific emphasis on transport, housing
and agriculture. Whilst most funding for the construction of stadiums and
upgrading of public transport services is allocated to municipalities; there
are implications for provincial budgets in respect of roads infrastructure and
bus transport facilities. The extent to which these have been prioritized will
be reviewed below.
The Commission analyzes budgetary allocations and spending
performance by inputting financial data from Annual Financial Statements and
Budget Statements into its Budget Analysis model to derive real growth rates.
These are then compared against stated or implied national priorities. Table
5.1 below illustrates:
Table 5.1: Comparison of 3-Year Real Growth Rates
of Past Spending by and Future Budgets of Provincial Governments
|
By Economic Classification |
Spending FY 2003 to FY 2006 |
Budgets FY 2006 to FY 2009 |
% of Provincial Government Total |
|
TOTAL – Provincial Departments |
4.94% |
4.13% |
100.00% |
|
Personnel |
3.27% |
2.29% |
57.2% |
|
Training |
n/k |
7.35% |
0.8% |
|
Capital |
8.21% |
5.46% |
8.6% |
|
By Function |
Spending FY 2003 to FY 2006 |
Budgets FY 2006 to FY 2009 |
% of Provincial Government Total |
|
Education |
3.71% |
2.81% |
42.9% |
|
Health |
2.70% |
4.01% |
28.4% |
|
Housing |
0.96% |
9.34% |
4.2% |
|
Transport |
11.19% |
2.14% |
7.4% |
|
- Roads Infrastructure |
8.81% |
2.82% |
2.8% |
|
- Public Transport |
4.86% |
-0.76% |
0.8% |
|
Agriculture |
9.07% |
4.31% |
2.5% |
|
Premiers’ Offices |
6.95% |
0.86% |
1.0% |
|
Provincial Legislature |
13.66% |
0.79% |
0.5% |
The results indicate that provincial governments do, in
general, prioritize both training and capital spending, although the specific
measurement of training has only recently been introduced into budget formats.
Real growth projections of 7.4% and 5.5% respectively are higher than the
average 4.1% real growth of provincial budgets.
An emphasis on prioritizing provincial infrastructure
services is apparent but it is not consistent. For example, transport was
clearly prioritized over the past 3 years (at 11.2% p.a.) but has since been
de-prioritized over the 2007 medium-term budget (2.1% p.a.). These trends apply
to both the roads infrastructure and public transport components of the
departmental budget; with projected growth rates of 2.82% and -0.76%
respectively. Thus within the confines of provincial budgets, World Cup
spending does not appear to have been prioritized.
On the other hand, housing which exhibited negligible
spending growth over the past 3 years appears to have been prioritized in the
2007 medium-term budgets (at 9.3% p.a.); although this is from a low base.
Agriculture grew higher than the benchmark over the past 3 years and is
projected to continue doing so over the next 3 years, albeit at a significantly
lower rate than before.
This points to a common trend in the financing of capital
and infrastructure, as well as relatively small departments (within provinces)
and programs (within departments; namely a 3 to 4 year cycle of policy prioritization,
over-budgeting, under-spending and budget cutbacks. This makes for volatile
funding patterns, which disable effective planning and implementation.
The primary departments of provincial governance, namely the
Premiers’ Offices and Provincial Legislatures grew strongly (at 7% and 13.7%
p.a. respectively) over the past 3 years. However, future budget growth is
projected to be muted or negligible.
The financing of the core provincial functions of education
and health is much more stable with real growth rates that fluctuate by no more
than a margin of 1.5% over the period of analysis. These functions are, not
coincidentally, personnel intensive. Budgeting for and spending of funds for
personnel purposes is generally more carefully planned and monitored than
capital, transfers or other operational spends.
Further detail decomposing provincial departmental budgets according to the ASGISA priorities of capital and training; the programmatic priorities identified by national departments and their conditional grants will be presented to the Select Committee of Finance Hearings on the Division of Revenue Bill in early March.