Transcript Financial and Fiscal Commission

SUBMISSION ON THE 2003 / 04 DIVISION OF
PresentationREVENUE
to Portfolio
& Select
BILL
Committees on Finance and the
Joint Budget Committee
3 March 2003
Presentation to Portfolio Committee
3 March 2002
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FFC & the
Division of Revenue process
• Legal framework: Section 214 of Constitution, Section
9 of Intergovernmental Fiscal Relations Act
• Process:
– FFC annual recommendations to Parliament ten
months before tabling of Division of Revenue Bill
(April)
– Response from Minister of Finance in Annexure E,
Budget Review (February)
– FFC submission on Division of Revenue Bill
(February)
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Contents of FFC Submission
• Section 1: Assessment of government’s response in
Annexure E
• Section 2: Overview of government spending &
financing trends & projections
• Section 3: Measurement of progress in delivery of
Constitutionally Mandated Basic Services
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S1 - FFC’S COMMENTS ON ANNEXURE E:
Provincial Issues
• Provincial Tax Regulation Process Act: FFC
recommendations favorably received, FFC proposals
on process issues to be taken into account
• Early Childhood Development: Government agrees
with need to maintain conditional grant mechanism
before incorporation into the Provincial Equitable
Share
• HIV/AIDS: Government highlights difficulty of funding
HIV/AIDs through conditional grant mechanism only
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S1 - FFC’S COMMENTS ON ANNEXURE E:
Local Government
• Division of powers (district & local gov’t): Health &
electricity proposals implemented, asymmetrical
approach to water & sanitation
• Electricity restructuring: Government supports
proposal for compensation to municipalities, and for
primary role of national grants for free electricity
• Municipal borrowing: Government supports FFC
proposal to combine market discipline with rulesbased approach; and for need for deliberate policy
measures
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S1 - FFC’S COMMENTS ON ANNEXURE E:
Local Government cont’d
• Municipal Finance Management Bill: New bill
stipulates lines of accountability between spheres
• Remuneration of councillors: Government supports
proposal that remuneration be channelled through
equitable share
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S1 - FFC’S COMMENTS ON ANNEXURE E:
Cross-cutting Issues
• Comprehensive Social Security Review: Government agrees that
social security needs should be dealt with nationally
• Review of intergovernmental fiscal system: FFC principles noted,
FFC to participate in review process
• Contingency reserve: Government does not see need for
separate “policy” and “contingency” reserves
• Disaster management: Government agrees7 that national
government assists, no final response on FFC proposal for
maximum “threshold” for provinces & municipalities
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S2 – OVERVIEW OF GOVERNMENT SPENDING &
FINANCING TRENDS & PROJECTIONS
Data and Methodology
• Comparison of trends from past 5 years (1997 / 98 to 2001 /
02) with projections for this year (2002 / 03) and the 2003
MTEF.
• Indicators used include (i) real growth rate, (ii) proportion of
government spending and (iii) proportion of GDP.
• Data sources – National Treasury (Budget Reviews, IFR); SARB
(for past GDP & inflation data)
• Data is continuously revised, especially projections. This analysis
should be updated following release of 2003 Budget Review,
Provincial Budgets and IFR 2003.
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S2 – OVERVIEW OF GOVERNMENT SPENDING &
FINANCING TRENDS & PROJECTIONS
Analysis of the National Budget
• Over the past 5 years, GDP Inflation has averaged 7% p.a. and
GDP growth 2.75% p.a.
• Inflation (and, to lesser extent GDP) projections strongly
influenced by the volatile exchange rate
• Nationally budgeted expenditure grew in real terms at 1.32%
p.a. (over past 5 years). Growth of nationally raised revenue
exceeded that of expenditure allowing the national deficit to fall
to 1.4% this year.
• The opposite trends are projected for the 2003 MTEF. Real
growth of expenditure projected to be over 3.5% p.a. However,
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projected deficit kept below 2.5% of GDP.
S2 – OVERVIEW OF GOVERNMENT SPENDING &
FINANCING TRENDS & PROJECTIONS
Analysis of the National Budget cont.
• Between 1997 / 98 and 2002 / 03, debt servicing costs have
been declining in real terms (together with the deficit).
• This enabled a real increase of 2.05% p.a. in the funds available
for division between the 3 spheres of government. This rate of
increase is higher than the projected population growth rate of
1.96% p.a., enabling real per capita increases in spending.
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S2 – OVERVIEW OF GOVERNMENT SPENDING &
FINANCING TRENDS & PROJECTIONS
Analysis of the National Budget cont.
• Of the funds available for division, an average 58% was
distributed to provincial governments and 3% to municipalities
over the past 5 years.
• Transfers to municipalities are projected to continue rising
rapidly, thereby enabling consolidation of the new local
government system.
• The provincial share is projected to increase relative to the
national sphere, enabling real increases in spending on welfare
and health.
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S2 – OVERVIEW OF GOVERNMENT SPENDING &
FINANCING TRENDS & PROJECTIONS
Analysis of Provincial Budgets
• Over 85% of provincial government spending has been funded
through the unconditional Equitable Share. This preference over
conditional grant funding is projected to continue over the 2002
MTEF cycle.
• Whilst there is declining reliance on conditional grants as a
funding mechanism, significant growth is projected for
infrastructure, child nutrition and the HIV-AIDS grants.
• Provincially collected revenue is projected to continue declining
as a share of provincial budgets (from 3.9% over the past 5
years to 2.6% over the 2002 MTEF cycle.) Provinces appear to
be disinclined to take up the opportunities presented by the
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Provincial Tax Regulation Process Bill.
S2 – OVERVIEW OF GOVERNMENT SPENDING &
FINANCING TRENDS & PROJECTIONS
Analysis of Provincial Budgets cont.
• Provincial spending has been declining in real terms over the
past 5 years. Budget deficits have switched into surpluses over
the past 5 years.
• Real increases of less than 1% p.a. have been recorded for the
welfare and health functions though. This reflects increased
take-up of the child support grant and the impact of the HIVAIDS epidemic on health services.
• Real increases in provincial spending on all basic services
(including education and housing) are projected for the 2002
MTEF.
• Accumulated budget surpluses are to expected to be used to
deficit finance these real increases in provincial spending.
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S2 – OVERVIEW OF GOVERNMENT SPENDING &
FINANCING TRENDS & PROJECTIONS
Analysis of Municipal Budgets
• Municipal budgets are difficult to analyze in the absence of
financial data presented in standardized reporting formats.
• Available data suggests that Metropolitan authorities raise most
of their own revenue whilst many rural municipalities are heavily
reliant on inter-governmental transfers.
• Over the past 3 years, municipal deficits have been rising and
are projected to rise sharply over the next 2 years.
• Significant real increases in both unconditional Equitable Share
and conditional grant allocations are anticipated this year and
over the 2003 MTEF.
• This will accommodate spending pressures in infrastructure, free
basic water and electricity and institutional restructuring.
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S3 – PROGRESSIVE REALIZATION OF CONSTITUTIONALLY
MANDATED BASIC SERVICES ASSIGNED TO PROVINCES
Data and Methodology
• In accordance with the Bill of Rights, the FFC defines
Constitutionally Mandated Basic Services (CMBS) assigned to
provinces as (a) school education, ABET, FET; (b) primary &
secondary health care; © social security and (d) housing.
• Progressive realization can be measured in terms of financial
inputs and, given available data, service delivery outputs.
Ultimately, it should be measured in terms of policy outcomes
(e.g. numeracy, infant mortality rates etc.)
• Average real growth rates (per beneficiary or per capita) over
the past 5 years (1997 / 98 to 2001 / 02) have been calculated
to enable this analysis.
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S3 – PROGRESSIVE REALIZATION OF CONSTITUTIONALLY
MANDATED BASIC SERVICES ASSIGNED TO PROVINCES
All C.M.B.S.
• Progressive realization occurs within a context of resource
availability.
• Compared to a real decline of 1.19% in provincial government
spending, provincial governments have nevertheless enabled a
spending to increase slightly by 0.15% p.a. on all assigned
CMBS.
• However, given a projected 1.96% increase in population over
the same period, this translates into a real decline of 1.35% p.a.
in per-capita spending.
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S3 – PROGRESSIVE REALIZATION OF CONSTITUTIONALLY
MANDATED BASIC SERVICES ASSIGNED TO PROVINCES
All C.M.B.S. cont.
• Education: a combination of resource shifts towards basic
education (within the education function) and declining learner
enrolment translates into a real increase of 1.94% p.a. in
spending per learner. These trends are particularly apparent in
the Eastern Cape.
• Health: Whilst there have been significant resource shifts
within Health departments towards primary and secondary
health care (clinics and hospitals), real increases have not been
sufficient to enable real per capita growth (except KZN)
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S3 – PROGRESSIVE REALIZATION OF CONSTITUTIONALLY
MANDATED BASIC SERVICES ASSIGNED TO PROVINCES
All C.M.B.S. cont.
• Welfare: Average annual take-up rates of social security grants
(9.85% p.a.) have exceeded the real rate of growth of social
security spending (-0.34%). This translates into a decline in real
spending per beneficiary of 9.28% p.a.)
• However, this simply indicates that proportionately more social
security recipients are taking up the Child Support Grant, which
is less than a third of the value of other grants such as old age
and disability pensions.
• Housing: Expenditure on housing has declined by an average
7.32% p.a. over the past 5 years. On average, 202 508 houses
were delivered annually with 3% of provincial spending.
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S3 – PROGRESSIVE REALIZATION OF CONSTITUTIONALLY
MANDATED BASIC SERVICES ASSIGNED TO PROVINCES
All C.M.B.S. cont.
• Compared to a real decline of 1.19% p.a. in provincial
government spending:
Component of CMBS
Real Annual Growth
Rate of Spending
1997-2001
Real Annual Growth
Rate of Spending
per Beneficiary
1997-2001
Basic Education
0.87%
1.94%
Primary & Secondary
Health Care
0.61%
-1.33%
(per capita)
Social Security
-0.34%
-9.28% p.a.
Housing
-7.32%
3.33% p.a.
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