The Finance and Fiscal Commission believes it is time the provinces raise their own revenue. Murphy Morobe spoke to Aspasia Karras about the commission’s proposals
PROVINCES must start playing a much stronger role in developing their own fiscus if they are to survive as executive entities. That is the message the Financial and Fiscal Commission (FFC) is trying to hammer home with increasing urgency in its reports to Parliament’s standing committee on finance.
Last week, the commission added more flesh to its proposals that provinces raise their own revenue. In the context of the administrative crises in two of the nine provinces, the Free State and the Eastern Cape, the commission may be fighting a much more complex case than just one for revenue expansion.
Murphy Morobe, chairman of the commission, argues: “The issues being raised are critical. We have to ask ourselves what form the state will and can take. As the political actors proceed with giving meaning to the provisions of the new Constitution, so will the form and content of the state unravel. We as the commission have to be aware of these developments in order to remain relevant.”
The commission, an innovation of the interim Constitution, was appointed by the president. It advises and recommends approaches and solutions to the fiscal and financial requirements of the national, provincial and local governments through the relevant legislative authorities.
The commission, says Morobe, has deliberately taken a low profile during the past two years in order closely to monitor and evaluate the terrain and the role it should play. In this time it has developed its “currency” – its consistent quality of work and legitimacy.
There are precedents in other countries such as Australia and India, but their role, says Morobe, can vary from being “indispensable to the system to being about as useful as a toy telephone”.
The commission’s principal task is to work out a way to split the pool of money between the provinces in a given year. First, the money is divided vertically, between ministeries and national functions; then allocated to the provinces in a horizontal split. The Constitution does not explicitly state that the FFC cannot play a role in the vertical split, but it has tended to tread carefully, as the issue is a political minefield, and is now driven by a new institution – the Budget Council.
“Should we want to get more involved in the vertical split, we would have to play the role in such a way that we did not usurp the powers of the executive. After all, they have the first call in terms of determining the national interest. We cannot, however, be impassive to decisions made at that level; co-operative government impacts at all levels,” says Morobe.
Trying to balance the needs of provinces against the constitutional requirements for equity in the context of a decentralised unitary state is indeed difficult, he says.
The new proposals are an attempt to address the problems of nine dependent provinces – significant imbalances in revenue-raising capacities and expenditure responsibilities, as well as growing deficits.
It is, however, the commission’s role to point out that its proposals encompass the fiscal relationship envisaged by the Constitution. Only a systematic approach to these issues will prevent complete chaos.
In fact, it is talking about that most critical of concepts of co-operative governance, which Edward Ritchken from Ashoka, a non-governmental organisation dedicated to supporting innovation in social development, explains as: “The process through which power and authority are exercised between and within the state and civil society around the allocation of resources. How antagonistic forces with material interests in the state and civil society forge alliances and enter into conflicts so as to access more resources to reinforce their power.”
The commission has concluded that a decentralised system can improve the allocation of resources, provided that sub- national governments are accountable to their electorates. Thus each province is given specific allocations determined at national level for education and health care, and is allowed to determine how it will spend the rest of its portion. The FFC has allowed for a five-year phasing-in process.
But Morobe elaborates: “This is not just about numbers, it is not only an expenditure issue, but more importantly a revenue issue. If we continue to make significant transfers from the centre, in some years it will become difficult to justify the existence of provinces with an executive.”
An essential element of accountability is the responsibility of raising your own revenue. The issue is then not entirely about which way the cake will be split, but more importantly how provinces can be empowered to bake their own cakes. At present, the average province raises 4% of its expenditure.
The FFC, in its most recent presentation, has added some critical elements to the formula. The most controversial one is the proposal to allow provinces to raise their own revenues by imposing surcharges on personal income tax.
This does not mean that individual income tax rise, but rather that central government reduces its individual income tax rates by a few percentage points, in a phased process.
In other words, within the 25% capping on personal income tax, the provinces are given a few percentage points’ leeway to levy as they choose. This would then count as own revenue. Morobe argues that in this way richer provinces, which might otherwise feel done in by the redistributive elements of the formula, can compensate for the horizontal split.
While the provinces have not been formally accorded taxing powers, the commission argues for a proxy for own revenue (a transitionally assigned surcharge) to equal the tax room given to each province in the first year.
The second element is the tax-capacity equalisation grant which seeks to compensate provinces for their different tax capacities.
“The grant will partially compensate for the different tax capacities and disparities in the various provinces,” says Morobe.
Finally, the FFC has begun a major programme to develop similar recommendations for local government.
Morobe concludes: “First prize is a comprehensive government response to the proposals. But there has to be a strategy, which in the present period must also take into account the establishment of the National Council of Provinces and its role in the system.
“We are many interrelated wholes, everybody has to be alive to chapter three of the Constitution, on co-operative government and the cross-functional issues.”
The Finance and Fiscal Commission believes it is time the provinces raise their own revenue. Murphy Morobe spoke to Aspasia Karras about the commission’s proposals
PROVINCES must start playing a much stronger role in developing their own fiscus if they are to survive as executive entities. That is the message the Financial and Fiscal Commission (FFC) is trying to hammer home with increasing urgency in its reports to Parliament’s standing committee on finance.
Last week, the commission added more flesh to its proposals that provinces raise their own revenue. In the context of the administrative crises in two of the nine provinces, the Free State and the Eastern Cape, the commission may be fighting a much more complex case than just one for revenue expansion.
Murphy Morobe, chairman of the commission, argues: “The issues being raised are critical. We have to ask ourselves what form the state will and can take. As the political actors proceed with giving meaning to the provisions of the new Constitution, so will the form and content of the state unravel. We as the commission have to be aware of these developments in order to remain relevant.”
The commission, an innovation of the interim Constitution, was appointed by the president. It advises and recommends approaches and solutions to the fiscal and financial requirements of the national, provincial and local governments through the relevant legislative authorities.
The commission, says Morobe, has deliberately taken a low profile during the past two years in order closely to monitor and evaluate the terrain and the role it should play. In this time it has developed its “currency” – its consistent quality of work and legitimacy.
There are precedents in other countries such as Australia and India, but their role, says Morobe, can vary from being “indispensable to the system to being about as useful as a toy telephone”.
The commission’s principal task is to work out a way to split the pool of money between the provinces in a given year. First, the money is divided vertically, between ministeries and national functions; then allocated to the provinces in a horizontal split. The Constitution does not explicitly state that the FFC cannot play a role in the vertical split, but it has tended to tread carefully, as the issue is a political minefield, and is now driven by a new institution – the Budget Council.
“Should we want to get more involved in the vertical split, we would have to play the role in such a way that we did not usurp the powers of the executive. After all, they have the first call in terms of determining the national interest. We cannot, however, be impassive to decisions made at that level; co-operative government impacts at all levels,” says Morobe.
Trying to balance the needs of provinces against the constitutional requirements for equity in the context of a decentralised unitary state is indeed difficult, he says.
The new proposals are an attempt to address the problems of nine dependent provinces – significant imbalances in revenue-raising capacities and expenditure responsibilities, as well as growing deficits.
It is, however, the commission’s role to point out that its proposals encompass the fiscal relationship envisaged by the Constitution. Only a systematic approach to these issues will prevent complete chaos.
In fact, it is talking about that most critical of concepts of co-operative governance, which Edward Ritchken from Ashoka, a non-governmental organisation dedicated to supporting innovation in social development, explains as: “The process through which power and authority are exercised between and within the state and civil society around the allocation of resources. How antagonistic forces with material interests in the state and civil society forge alliances and enter into conflicts so as to access more resources to reinforce their power.”
The commission has concluded that a decentralised system can improve the allocation of resources, provided that sub- national governments are accountable to their electorates. Thus each province is given specific allocations determined at national level for education and health care, and is allowed to determine how it will spend the rest of its portion. The FFC has allowed for a five-year phasing-in process.
But Morobe elaborates: “This is not just about numbers, it is not only an expenditure issue, but more importantly a revenue issue. If we continue to make significant transfers from the centre, in some years it will become difficult to justify the existence of provinces with an executive.”
An essential element of accountability is the responsibility of raising your own revenue. The issue is then not entirely about which way the cake will be split, but more importantly how provinces can be empowered to bake their own cakes. At present, the average province raises 4% of its expenditure.
The FFC, in its most recent presentation, has added some critical elements to the formula. The most controversial one is the proposal to allow provinces to raise their own revenues by imposing surcharges on personal income tax.
This does not mean that individual income tax rise, but rather that central government reduces its individual income tax rates by a few percentage points, in a phased process.
In other words, within the 25% capping on personal income tax, the provinces are given a few percentage points’ leeway to levy as they choose. This would then count as own revenue. Morobe argues that in this way richer provinces, which might otherwise feel done in by the redistributive elements of the formula, can compensate for the horizontal split.
While the provinces have not been formally accorded taxing powers, the commission argues for a proxy for own revenue (a transitionally assigned surcharge) to equal the tax room given to each province in the first year.
The second element is the tax-capacity equalisation grant which seeks to compensate provinces for their different tax capacities.
“The grant will partially compensate for the different tax capacities and disparities in the various provinces,” says Morobe.
Finally, the FFC has begun a major programme to develop similar recommendations for local government.
Morobe concludes: “First prize is a comprehensive government response to the proposals. But there has to be a strategy, which in the present period must also take into account the establishment of the National Council of Provinces and its role in the system.
“We are many interrelated wholes, everybody has to be alive to chapter three of the Constitution, on co-operative government and the cross-functional issues.”