Fiscal Federalism in South Africa

Publius: The Journal of Federalism

Volumn 30, Issue 3, 2000, Pages 47-70

  Wehner, Joachim ^a  

^a Institute for Democracy   (South Africa)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 0346909250     PISSN: 00485950     EISSN: None     Source Type: Journal    
DOI: 10.1093/oxfordjournals.pubjof.a030095     Document Type: Article

References (92)

1. Allister Sparks, Tomorrow is Another Country: The Inside Story of South Africa's Negotiated Revolution (Sandton: Struik Book Distributors, 1994).
2. Act 108 of 1996 is referred to as "the Constitution," or the "new" or "final Constitution." The "interim Constitution" (Act 200 of 1993) governed the country for a transition period of three years.
3. Trudi Hartzenberg, "Clarity needed for function committees," Budget Watch 1:5 (1995): p. 4.
4. Department of Finance, Budget Review, 1998, p. 4.12.
5. Thabo Mbeki, "Keynote Address" (paper presented at the Conference on Intergovernmental Relations and Provincial Government, "Fostering Mutual Co-operation," Gallagher Estate, Midrand, 29 March 1999). Ngoako Ramatlhodi, "Fresh look at levels of government needed," Business Day, 11 May 1998 (Internet version).
6. Thabo Mbeki, "Keynote Address" (paper presented at the Conference on Intergovernmental Relations and Provincial Government, "Fostering Mutual Co-operation," Gallagher Estate, Midrand, 29 March 1999). Ngoako Ramatlhodi, "Fresh look at levels of government needed," Business Day, 11 May 1998 (Internet version).
7. Refer to John Stuart, "Efficiency in the South African Public Sector: Fundamental Issues and Lessons," (Cape Town: Budget Project, University of Cape Town, 1997, discussion paper 17). Efficiency in a production process is broadly defined as the achievement of the optimal output, given the inputs to the process. The meanings of this concept in the intergovernmental context are illustrated in the following section.
8. Brian Dollery, "An Initial Evaluation of Revenue-Sharing Arrangements in the New South African Fiscal Federalism," Publius: The Journal of Federalism 28 (Spring 1998): 129-153; Iraj Abedian, Tania Ajam and Laura Walker, Promises, Plans, Priorities: South Africa's Emerging Fiscal Structures (Cape Town: Idasa Buget Information Service, 1997); J. v. d. S. Heyns, "Equity and Redistribution in South Africa. Some Fiscal Federalism Perspectives," South African Journal of Economics 63 (June 1995): 150-172; Charles E. McLure Jr., Intergovernmental Fiscal Relations in South Africa: The Assignment of Expenditure Functions and Revenue Sources and the Design of Intergovernmental Grants and Transfers (World Bank discussion document, 20 June 1994).
9. Brian Dollery, "An Initial Evaluation of Revenue-Sharing Arrangements in the New South African Fiscal Federalism," Publius: The Journal of Federalism 28 (Spring 1998): 129-153; Iraj Abedian, Tania Ajam and Laura Walker, Promises, Plans, Priorities: South Africa's Emerging Fiscal Structures (Cape Town: Idasa Buget Information Service, 1997); J. v. d. S. Heyns, "Equity and Redistribution in South Africa. Some Fiscal Federalism Perspectives," South African Journal of Economics 63 (June 1995): 150-172; Charles E. McLure Jr., Intergovernmental Fiscal Relations in South Africa: The Assignment of Expenditure Functions and Revenue Sources and the Design of Intergovernmental Grants and Transfers (World Bank discussion document, 20 June 1994).
10. Brian Dollery, "An Initial Evaluation of Revenue-Sharing Arrangements in the New South African Fiscal Federalism," Publius: The Journal of Federalism 28 (Spring 1998): 129-153; Iraj Abedian, Tania Ajam and Laura Walker, Promises, Plans, Priorities: South Africa's Emerging Fiscal Structures (Cape Town: Idasa Buget Information Service, 1997); J. v. d. S. Heyns, "Equity and Redistribution in South Africa. Some Fiscal Federalism Perspectives," South African Journal of Economics 63 (June 1995): 150-172; Charles E. McLure Jr., Intergovernmental Fiscal Relations in South Africa: The Assignment of Expenditure Functions and Revenue Sources and the Design of Intergovernmental Grants and Transfers (World Bank discussion document, 20 June 1994).
11. Brian Dollery, "An Initial Evaluation of Revenue-Sharing Arrangements in the New South African Fiscal Federalism," Publius: The Journal of Federalism 28 (Spring 1998): 129-153; Iraj Abedian, Tania Ajam and Laura Walker, Promises, Plans, Priorities: South Africa's Emerging Fiscal Structures (Cape Town: Idasa Buget Information Service, 1997); J. v. d. S. Heyns, "Equity and Redistribution in South Africa. Some Fiscal Federalism Perspectives," South African Journal of Economics 63 (June 1995): 150-172; Charles E. McLure Jr., Intergovernmental Fiscal Relations in South Africa: The Assignment of Expenditure Functions and Revenue Sources and the Design of Intergovernmental Grants and Transfers (World Bank discussion document, 20 June 1994).
12. Wallace E. Oates, Fiscal Federalism (Aldershot: Gregg Revivals, 1993), pp. 31-63.
13. Ehtisham Ahmad, Daniel Hewitt, and Edgardo Ruggiero, "Assigning Expenditure Responsibilities," fiscal federalism in Theory and Practice, ed. Teresa Ter-Minassian (Washington, DC: International Monetary Fund, 1997), pp. 25-48.
14. Anwar Shah, "The Reform of Intergovernmental Fiscal Relations in Developing and Emerging Market Economies," Policy and Research Series 23 (Washington, DC: World Bank, 1994): Table 2.
15. Ahmad et al., "Expenditure Responsibilities," pp. 25-26. Also refer to Wallace E. Oates, "Federalism and Government Finance," Modern Public Finance, eds. John M. Quigley and Eugene Smolensk (Cambridge, MA: Harvard University Press, 1994), pp. 143-147.
16. Ahmad et al., "Expenditure Responsibilities," pp. 25-26. Also refer to Wallace E. Oates, "Federalism and Government Finance," Modern Public Finance, eds. John M. Quigley and Eugene Smolensk (Cambridge, MA: Harvard University Press, 1994), pp. 143-147.
17. John Norregaard, "Tax Assignment," Fiscal Federalism in Theory and Practice, ed. Teresa Ter-Minassian (Washington, DC: International Monetary Fund, 1997), pp. 49-72; Paul Bernard Spahn, "Local Taxation: Principles and Scope," Macroeconomic Management and Fiscal Decentralization, ed. J. Roy (Washington, DC: World Bank, EDI Seminar Series); Kenneth Wiltshire, "Federal State/Provincial Financial Relations," Federalism in Canada and Australia: Historical Perspectives 1920-88, eds. Bruce W. Hodgins et al. (Peterborough, Canada: Frost Centre for Canadian Heritage and Development Studies, 1989), pp. 181-199.
18. John Norregaard, "Tax Assignment," Fiscal Federalism in Theory and Practice, ed. Teresa Ter-Minassian (Washington, DC: International Monetary Fund, 1997), pp. 49-72; Paul Bernard Spahn, "Local Taxation: Principles and Scope," Macroeconomic Management and Fiscal Decentralization, ed. J. Roy (Washington, DC: World Bank, EDI Seminar Series); Kenneth Wiltshire, "Federal State/Provincial Financial Relations," Federalism in Canada and Australia: Historical Perspectives 1920-88, eds. Bruce W. Hodgins et al. (Peterborough, Canada: Frost Centre for Canadian Heritage and Development Studies, 1989), pp. 181-199.
19. John Norregaard, "Tax Assignment," Fiscal Federalism in Theory and Practice, ed. Teresa Ter-Minassian (Washington, DC: International Monetary Fund, 1997), pp. 49-72; Paul Bernard Spahn, "Local Taxation: Principles and Scope," Macroeconomic Management and Fiscal Decentralization, ed. J. Roy (Washington, DC: World Bank, EDI Seminar Series); Kenneth Wiltshire, "Federal State/Provincial Financial Relations," Federalism in Canada and Australia: Historical Perspectives 1920-88, eds. Bruce W. Hodgins et al. (Peterborough, Canada: Frost Centre for Canadian Heritage and Development Studies, 1989), pp. 181-199.
20. Shah, "Reform of Intergovernmental Fiscal Relations," Table 6.
21. Progressive taxation is associated with an income tax system that levies a proportionately higher tax rate on those with higher incomes.
22. Ehtisham Ahmad and Jon Craig, "Intergovernmental Transfers," Fiscal Federalism in Theory and Practice, ed. Ter-Minassian, pp. 73-107; Oates, Fiscal Federalism, pp. 65-118.
23. Ehtisham Ahmad and Jon Craig, "Intergovernmental Transfers," Fiscal Federalism in Theory and Practice, ed. Ter-Minassian, pp. 73-107; Oates, Fiscal Federalism, pp. 65-118.
24. Refer to, for example, Helen F. Ladd and John Yinger, "The Case for Equalizing Aid," National Tax Journal 47 (March 1994): 211-224.
25. Vernon Bogdanor, Devolution in the United Kingdom (Oxford: Oxford University Press, 1999), pp. 235-254.
26. A recent bargaining outcome, the "Framework to Improve the Social Union for Canadians," signed on 4 February 1999 by all governments except Quebec, promises some funding predictability in return for a provincial commitment to nationwide priorities.
27. Anwar Shah, "Perspectives on the Design of Intergovernmental Fiscal Relations in Developing Transition Economies," Intergovernmental Fiscal Relations and Macroeconomic Management in Large Countries, eds. S. P. Gupta , Peter Knight, and Yin Kann Wen (New Delhi: Allied Publishers, 1994), pp. 33-34.
28. Capital goods are goods that are used in the production of other goods or services, for instance machinery, vehicles, and buildings etc.
29. Oates, Fiscal Federalism, p. 153.
30. Teresa Ter-Minassian and Jon Craig, "Control of Sub-National Government Borrowing." Fiscal Federalism in Theory and Practice, ed. Ter-Minassian, pp. 156-172.
31. Ibid., 169-171.
32. Charles Simkins, "Reconciling Equity and Diversity: Provincial Budgets in Perspective," Budget Watch 3:2 (1997): 1.
33. See Albert van Zyl, "Eastern Cape lessons. Can provinces stick to budgets?," Budget Watch 4:1 (1998): 3. For the previous fiscal year, when the welfare budget was still administered by the national department, the provincial department had submitted an estimate of R 3.2 billion based on the number of beneficiaries (630,000) at that stage. However, the department had received only R 2.2 billion, less than in the preceding year. The 1996-1997 under-funding resulted in overspending by the national welfare department and not by the provincial government. The increase of 1.7 percent in provincial spending on welfare in the 1997-1998 provincial budget, an adjustment made by the province after welfare became its responsibility, was not sufficient to cover the gap between resource allocation and actual expenditure need.
34. The "ghosts" are typically deceased pensioners whose relatives continue to draw their welfare benefits. At one stage, the national Department of Welfare estimated that about 20 percent of the three million welfare beneficiaries were "associated with irregularities." See Business Day Reporter, "Welfare department cleans up benefit payment system," Business Day, 10 February 1998 (Internet version).
35. Amanda Fitschen, "What's good for provincial welfare?" Mail & Guardian, 5 March 1999 (Internet version).
36. Farouk Chothia, "Moosa admits provincial govts need reform," Business Day, 9 February 1999 (Internet version).
37. The FFC will be discussed in more detail in the section on intergovernmental transfers and grants.
38. Financial and Fiscal Commission, "Should social security grants be the jurisdiction of the national or provincial government?" (Financial and Fiscal Commission, 9 December 1998, draft report), p. 15.
39. Conrad Barberton, "PSC's vision of social security short-sighted," Budget Watch 4:2 (1998): 4.
40. This practice is also dealt with in the discussion of the vertical division of revenue.
41. Ministry for the Public Service and Administration, The Provincial Review Report, 1997, p. 14.
42. Joachim Wehner, "Parliament helps to redraft financial management framework," Budget Watch 5 (June 1999): 11.
43. Laura Walker and Albert van Zyl, "Juggling central control and provincial fiscal autonomy in South Africa," Development Southern Africa 16 (Winter 1999): 239-258: Thabo Rapoo, "A System in Dispute: Provincial Government in Practice," Policy: Issues and Actors 8 (September 1995): 9-11.
44. Laura Walker and Albert van Zyl, "Juggling central control and provincial fiscal autonomy in South Africa," Development Southern Africa 16 (Winter 1999): 239-258: Thabo Rapoo, "A System in Dispute: Provincial Government in Practice," Policy: Issues and Actors 8 (September 1995): 9-11.
45. Joachim Wehner, "What is the Future of South Africa's Provinces?" (Cape Town: Applied Fiscal Research Centre, University of Cape Town 1998, discussion paper 29); David Welsh, "The Provincial Boundary Demarcation Process," Birth of a Constitution, ed. Bertus de Villiers (Kenwyn: Juta, 1994), pp. 223-229.
46. Joachim Wehner, "What is the Future of South Africa's Provinces?" (Cape Town: Applied Fiscal Research Centre, University of Cape Town 1998, discussion paper 29); David Welsh, "The Provincial Boundary Demarcation Process," Birth of a Constitution, ed. Bertus de Villiers (Kenwyn: Juta, 1994), pp. 223-229.
47. Ramatlhodi, "Fresh look at levels of government needed."
48. Section 2 of the Special Investigating Units and Special Tribunals Act of 1996 allows the president to refer matters to the unit on grounds of any alleged serious maladministration, corruption, or loss of public money in state institutions.
49. However, the data also reflect the duration for which the Heath Unit has been functioning in the various provinces and the existence of internal anti-corruption units in some provinces, amongst others.
50. Guy Rich and Gerhard Visagie, Heath Special Investigating Unit, interview by author, 29 March 1999.
51. Tom Lodge, South African Politics Since 1994 (Cape Town: David Philip Publishers, 1999), p. 59.
52. Department of Finance, Budget Review, 1999, p. 94.
53. Similarly, the Constitution (section 139) allows a provincial executive to intervene in local government affairs in equivalent circumstances. This enabled the Eastern Cape provincial government, for instance, to take over the municipality of Butterworth in March 1998 by dispatching administrators to take charge of local authority functions. See Kevin O'Grady, "Province stops Butterworth's meltdown," Business Day, 16 April 1998 (Internet version).
54. For example, article 356 of the Constitution of India (1950) outlines provisions in case of failure of the "constitutional machinery" in the states, and intervention is a common but controversial feature. See Joachim Wehner, "Asymmetrical Devolution," Development Southern Africa 17 (June 2000): 254.
55. Department of Finance, Budget Review, 1999, Table 6.15.
56. Department of Finance, Budget Review, 1999, p. 93.
57. Pule Molebeledi, "Miller appoints revenue collecting team," Business Day, 19 March 1999 (Internet version).
58. Pearl Sebolao, "Gauteng govt's hotel bed levy unsettles tourism sector," Business Day, 26 February 1999 (Internet version).
59. Kevin O'Grady, "Provinces are starting to make headway on debt," Business Day, 25 February 1999 (Internet version).
60. The official name is the "Commission of Inquiry into certain Aspects of the Tax Structure of South Africa."
61. Financial and Fiscal Commission, Recommendations & Comments - The Allocation of Financial Resources to National, Provincial and Local Governments for the 1998/99 Fiscal Year, Submitted in Terms of Section 9 of the Intergovernmental Fiscal Relations Act, 1997, 9 January 1998, p. 25-36.
62. The creation of tax room requires the national government to reduce its share of a tax in order to make it available to subnational jurisdictions in the form of own revenues. It is an attempt to prevent an increase in the overall tax burden while allowing subnational governments to increase own revenues.
63. Job Mokgoro, "Interprovincial Fiscal Equalization: The Role of the Financial and Fiscal Commission," Birth of a Constitution, ed. de Villiers, pp. 281-293.
64. Christina Murray, "NCOP offers provinces role in Budget process," Budget Watch 4:2 (1998): 1.
65. Warren Krafchik and Joachim Wehner, "Confusion over NCOP's role in process," Budget Watch 4:2 (1998): 3; Warren Krafchik and Joachim Wehner, "The Role of Parliament in the Budgetary Process," South African Journal of Economics 66:4 (1998): 512-541.
66. Warren Krafchik and Joachim Wehner, "Confusion over NCOP's role in process," Budget Watch 4:2 (1998): 3; Warren Krafchik and Joachim Wehner, "The Role of Parliament in the Budgetary Process," South African Journal of Economics 66:4 (1998): 512-541.
67. Tania Ajam, "NCOP challenged to make bigger impact on Budget," Budget Watch 4:2 (1998): 2.
68. Members of Executive Council (MECs) are the provincial equivalent of ministers at the national level. All MECs m a province constitute the provincial cabinet.
69. This memorandum is included in annexure E of the "Budget Renew," which is tabled together with the national budget each year.
70. Financial and Fiscal Commission, The Financial and Fiscal Commission's Recommendations for the Allocation of Financial Resources to the National and Provincial Governments for the 1997/98 Financial Year, 1996.
71. Ibid., 2.
72. Financial and Fiscal Commission, Local Government in a System of Intergovernmental Fiscal Relations in South Africa: A Discussion Document, 1997.
73. For an overview of the FFC's initial recommendations, refer to Dollery, Revenue-Sharing Arrangements.
74. Department of Finance, Budget Review, 1999, p. 258.
75. South African Local Government Association (Finance Working Group), Workshop on the equitable share of nationally raised revenue for local government (summary document, 17 August 1998).
76. Financial and Fiscal Commission, Recommendations for 1997/98, Table 20C.
77. Department of Finance, Budget Review, 1999, p. 101.
78. Laura Walker, Spend & Deliver: Review of the Budget 1998/99-2001/02 (Cape Town: Idasa Budget Information Service, 1999), p. 7.
79. Colin Donian and Colleen Rip-Botha, "Census results impact on policy and budgeting," Budget Watch 3:3 (1997): 5.
80. Department of Finance, Budget Review, 1999, pp. 262-268.
81. Two personnel-related deductions from the provincial equitable shares, as calculated by the formula, were made in 1999-2000. The estimated distribution of improvements in conditions of service was removed from the equitable share, to be allocated as a conditional grant once wage negotiations have been concluded. Second, the employers' contribution to the Government Employees Pension Fund was reduced from 17 percent to 15 percent. The adjustment was distributed to reflect lower expenditure commitments.
82. Ibid., 103-106.
83. Department of Finance, Budget Review, 1999, Table 4.7.
84. Author's interviews with staff of the FFC during April 1999.
85. Department of Finance, The Introduction of an Equitable Share of Nationally Revenue for Local Government, 1998, p. 2.
86. See, for example, Joachim Wehner, "Finance proposals must be made accessible," Local Government Chronicle (SA), 21 November 1997, p. 9.
87. The Constitution thus contains a drafting error, as the latter provision implies that borrowing for bridging purposes could extend across two fiscal years.
88. Colin Donian, Financial and Fiscal Commission, interview by author, 8 April 1999.
89. Greta Steyn, "Manuel slays SA's provincial beasts," Business Day, 15 February 1999 (Internet version).
90. Alta Fölscher, "Provincial borrowing framework under review," Budget Watch 5 (1999): 2. For example, after signing the 1996 wage agreement at the national level, the Eastern Cape government failed to put the relevant personnel onto the new salary system, which would have ensured various promotions, affecting about 60 percent of public servants in the province. See Renée Grawitzky, "Eastern Cape govt workers plan march over salaries," Business Day, 11 May 1999 (Internet version).
91. Alta Fölscher, "Provincial borrowing framework under review," Budget Watch 5 (1999): 2. For example, after signing the 1996 wage agreement at the national level, the Eastern Cape government failed to put the relevant personnel onto the new salary system, which would have ensured various promotions, affecting about 60 percent of public servants in the province. See Renée Grawitzky, "Eastern Cape govt workers plan march over salaries," Business Day, 11 May 1999 (Internet version).
92. Dustin Chick, "Mpumalanga govt overrules parks board," Business Day, 25 September 1998 (Internet version).