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

2. 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

3. 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?

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

5. 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

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

7. 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)

8. Summary of chapters

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. Provincial trends

16. 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
new classrooms built

17. 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

18. 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
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

19. 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

20. 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

21. 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

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

23. 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 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)

24. 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)

25. 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 %
Secondary munis > R 300 m 92 %
Smaller munis < R 300m 65 %

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

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

28. 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 %

29. Local Govt Transfers Average ES per household
Smaller category B munis from 2001/02 to 2003/ R 510 to R 611
Metros category A munis from /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

30. 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)

31. 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

32. 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
Also available from National Treasury

33. SIYABONGA!
RE A LEBOHA!
THANK YOU!
BAIE DANKIE!