Select Committee on Finance Intergovernmental Fiscal Review 2001 Select Committee on Finance NCOP 10 October 2001

Purpose and evolution Review of intergovernmental trends to support budget and policy processes 1999 IGFR focused largely on provincial fiscal trends 2000 IGFR made first attempt to cover local government but data weak or non-existent 2001 IGFR extends coverage to include housing and roads sets out trends in non-financial indicators

Objective Allows for comparisons and benchmarks Assists provincial legislatures in considering 2000/01 annual reports Informs policy-making process Is Govt a learning organisation? Promotes co-operative governance over budgeting Aligning policy, budget, planning processes Tool for NCOP to strengthen oversight How is Constitution responding to delivery?

Chapter 1: Introduction Intergovernmental system components Fiscal system Lessons learned Key pointers

Chapters 2-7: Provincial 2. Trends in provincial budgets 3. Education 4. Health 5. Social development 6. Housing, roads, and transport 7. Cross-sectoral issues

Chapters 8-11: Local government 8. Transformation challenges 9. Overview of municipal budgets 10. Transfers to local government 11. Capital investment

Annexures A-F A. Provincial Fiscal Framework B. Provincial tables C. Division of Revenue D. Local government tables E. Demographic information F. Other provincial functions (e.g. agriculture, tourism)

Summary of chapters

Introduction (1) Chapter 1 Overview of intergovernmental system 3 distinct, but interdependent spheres national role largely policy formulation & setting of norms and standards 54% for protection sector, 8% for higher education provinces & local government mainly responsible for implementation System premised on cooperative governance

Introduction (2) Chapter 1 Intergovernmental fiscal system revenue-sharing model national raises disproportionately large revenue relative to spending on national functions opposite true for provinces (own revenue 4%) local government has more fiscal capacity, but some municipalities have limited revenue bases Pointers for better functioning of system

Division of national revenue Total allocated R188,9 billion in 2000/01 National R 74,4 bn (39,4%) Provincial R 108,7 bn (57,6%) Local R 5,7 bn ( 3,0%) (more details see Table1.1 p.4) New emphasis on non-financial information to assist decision makers

Provincial trends (ch 2) Marked turnaround since 1998/99 from deficit of R5,6bn to surplus of R0,6bn Improved financial management provide firm foundation for accelerated service delivery Provincial revenue kept pace with inflation National transfers grow strongly 7,8% a year from 1997/98 to 2000/01 7,6% nominal or 2,2% in real terms over MTEF

Provincial trends (ch 2) National transfers (cntd) stronger growth in equitable share 7,7% pa over MTEF conditional grants grow 1 percentage point slower Provincial own revenue 4% of total provincial revenue, but still important Road traffic fees constituted 38,6% Hospital patient fees improving, share reaching 10% WC and GT account for over 40% of provincial revenue

Provincial trends (ch 2) Provincial expenditure did not keep pace with inflation up to 2000/01 substantial funds allocated to debt repayment future looks good spending rises from R110bn in 2000/01 to R139 bn in 2003/04 translating to an average annual growth rate of 2,6% above inflation Social services share stabilises around 81% Non-social services expenditure recovers share rises from 16,3% in 1999/00 to 19,3% in 2003/04

Provincial trends

Education (ch 3) 39 % of provincial spending varies from 36,4% (N Cape) to 44,2% (N P) 2,1% real spending growth 2000/01 to 2003/04, following 2,4% decline to 2000/01 55,5 % of provincial staff Share of personnel spending declining Enrolment declining, after rising somewhat Improved educator-learner and learner-classroom ratios, and pass rates 25 000 new classrooms built

Health (ch 4) 24% of provincial spending, 28,2 % of provincial staff Varies between 15,9% (Mpum) to 32,7% (Gtg) 1,7% real spending growth 2000/01 to 2003/04 Shift to primary health care Improved access but equity issues remain per capita spending varies widely hospital bed availability distribution of professional staff Urgent attention to training Challenge to improve hospital management HIV/AIDS will increase demand for services

Social development (ch 5) 19% of provincial spending Varies from 14,6% (Gtg) to 25,1% (NC) 3% real spending growth 2000/01 to 2003/04 3,9 million beneficiaries 1,9 million old-age, 1,1 million child support 65 000 new child support beneficiaries monthly Rapid growth in foster care, special care Reassessment of the social safety net Inequities in per poor person spending between provinces

Housing (ch 6) R16 bn transfers in housing subsidy since 1994 Contributing to over 1,1 million houses Providing shelter to over 4,9m people 1% real spending growth 2000/01 to 2003/04 Despite teething problems in early years, evidence of improvement abounds Sharp decline in rollovers from 71% in 1995/96 to 15% in 2000/01 Increase in share of population in formal dwellings with clean water and electricity Affordability of municipal services by households Transfer of current stock of houses

Roads (ch 6 cont.) 223 000 km are provincial roads Roads spending accounts for 3% of budget Low spending in past led to deterioration and increase in rehabilitation, construction, maintenance backlogs Better prospects for the future 9% real spending growth 2001/02 to 2003/04 Concerted effort to improve planning Emphasis on provincial-national-local coordination Improvements in motor license fee collections

Personnel (ch 7) About 740 000 employees 8,5% decline in personnel 1997/98 to 2001/02 Annual 0,2% personnel spending increase through 2003/04 Non-social sector personnel: From 5,9% (Gtg) to 23,9% (NP) Provinces with former homelands Attracting & retaining skilled professionals in public sector and in poor provinces Skilled personnel critical to success in all areas

Provincial infrastructure (ch 7 cont) Infrastructure key to service delivery and economic growth Trends reflect decline and recovery 1997/98 2000/01 2003/04 Spending 8,1 bn 7,6 bn 14,1 bn Provincial share 64% 46% 52% Major backlogs in schools hospitals/clinics roads R3,7bn grant to assist in this regard

Local Government Transformation Challenges Reduction from 843 to 284 municipalities re-alignment and re-assignment of powers and functions (between spheres, within sphere) integrating over 200 000 staff without raising costs implementation of reforms ranging from systems, laws, planning and financial restructuring of service delivery and expansion of infrastructure to service all citizens introduction and implementation of new legislative environment (Structures Act, Systems Act, MFMB, Prop Rates)

Restructuring/Amalgamation (ch 8) Restructuring through REDs and amalgamation Shifting of functions between District and Local municipalities Funds follow function changes, but bigger effect is shifting of personnel that this involves Different conditions of service Pension fund contributions (Table 8.3 on page 126) What salary level for similar jobs? Impact on tariffs and incidence of taxes Tshwane case study on page 136 (Ch 8)

Local Govt Budgets (ch 9) Backward looking, so no demarcation info except for a few sample municipalities Poor classification and Data limitations 2000/01 Budgets grow by 15,7 % to R 61,8 bn rapid growth in personnel expenditure flatter trajectory on capital and infrastructure spending in order of R 13,7 bn Average own source revenue Metros 97 % Secondary munis > R 300 m 92 % Smaller munis < R 300m 65 %

Local Govt Budgets (ch 9) Income source Property rates 21 % Utilities (electr, water) 32 % Intergov transfers 8 % RSC levies 7 % Expenditure Salaries 31 % Bulk (electr, water) 30 % Capital charges 13 % Repairs and Maint 8 %

Metro budgets Sector / Functional spending Electricity 30 % Water & Sanitation 19 % Administration 8,8 % Public safety 7,5 % Roads and Stormwater 6,3 % Refuse 5,1 % Pilots to develop and improve the reporting system to enable better management information

Local Govt Transfers (ch 10) National Transfers Subsidy to poor households for basic services Expansion and rehabilitation of infrastructure Skills training and development to assist in implementation Proportion of allocation Equitable share 57 % Infrastructure 35 % Capacity 8 %

Local Govt Transfers Average ES per household Smaller category B munis from 2001/02 to 2003/04 - R 510 to R 611 Metros category A munis from 2001/02 to 2003/04 - R 151 to R 194 Capital on infrastructure From 2001/02 to 2003/04 grow from R2,7 bn to R2,9 bn

Local Govt Transfers Capital / Infrastructure ability to expand services to all citizens faster (basic services) improve standards and level of services provide economic and other infrastructure unlock and stimulate country’s growth potential upgrade and update infrastructure (township/R293 areas)

Local Govt Capital (ch 11) Grants, Borrowing or PPP Public Private Partnerships Examples Table 11.1 Municipal borrowing leveraging of grants and revenue short term loans - expensive longer term loans - cheaper municipal bonds Stagnant borrowing at R20 bn Only INCA provides new lending in private sector, DBSA in public sector

IGFR Parliamentary Debate Tabling in NCOP on 9 Oct 2001 Presentation to Select Committee on Finance in NCOP on Wed 10 Oct at 13:30 Sectoral hearings Education and Welfare Friday 12 Oct (9am) Roads and Infrastructure Monday 15 Oct (9am) Health Tuesday 16 October (8:30am) Housing Wednesday 17 October (9am) Local Govt on Thursday, 18 Oct (9am) NCOP debate (23 and 24 Oct) IGFR on treasury website www.treasury.gov.za Also available from National Treasury

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