A SECOND LOOK
Joachim Wehner
In its latest submission, the Financial and Fiscal Commission (FFC) presents some valuable recommendations on local government finance. At the same time, however, the commission fails to present concrete figures on the recommended slicing of the fiscal cake. The lack of specificity and seemingly dwindling commitment by the commissioners are likely to undermine the practical effect of the recommendations.
The Constitution obliges the FFC to make recommendations to Parliament and provincial legislatures on the equitable sharing of national revenue between the national, provincial and local spheres of government. In its 2001 submission the FFC reiterates its view, outlined in last year’s “costed norms” recommendations, that constitutionally mandated basic services and other constitutional obligations should form the basis for revenue sharing.
Regrettably, its comments on the national equitable share remain underdeveloped. The section on provincial government finance highlights selected issues, in particular the pending introduction of provincial taxation powers.
The commission reaffirms its support for the implementation of the provincial surcharge on personal income tax. It suggests that provinces should be allowed to determine their own tax rates, within bands determined by the national treasury.
For the allocation of infrastructure grants, the FFC proposes a capital grants model for health, welfare and education, which will be developed to cover other provincial sectors. At present provinces are largely expected to address capital backlogs through a token backlogs component in the current formula, which was complemented last year with the conditional provincial infrastructure grant.
Both recommendations make important contributions in controversial areas. While the Provincial Tax Regulation Bill will be discussed in Parliament later this year, protracted concern over the adequacy of capital expenditures in the provinces would seem to require a structured solution over the long term, as proposed by the FFC.
The bulk of this year’s submission deals with local government finance. Following the redemarcation process, this sphere of government is now set to assume increasing importance. Until a more complex formula becomes operational in the long term, the commission proposes a financing mechanism that considers the provision of basic municipal services, tax capacity and an institutional grant to finance a basic administration.
Among others, the FFC attempts to identify the bundle of basic municipal services: water, sanitation, municipal health, firefighting, storm-water drainage, refuse removal, municipal roads, and electricity. A proper costing of service obligations in these areas would be necessary to implement the commission’s approach.
Recent national government policy pronouncements on the free provision of basic quantities of water and electricity, also known as lifeline tariffs, will have a significant impact on local government finance. The work of the commission in this regard is crucial, given that poor, rural municipalities will find it impossible to finance these basic free services through consumer cross-subsidies.
As the FFC points out, even where cross-subsidisation is possible, it is not desirable to exploit this avenue to the fullest, as redistribution objectives are best funded centrally. This is to avoid competition between municipalities that results in the rich moving away from municipalities that pursue redistribution policies.
The commission’s answer to this dilemma is clear: “If the directive to provide a free basic level of service comes from the national sphere, then it is the responsibility of this sphere to provide the requisite funding.”
The implication is that lifeline tariffs should be funded either through the (unconditional) equitable share for local government, or through a national conditional grant for this purpose. Otherwise, a laudable policy initiative might lead to unequal outcomes due to “unfunded mandates”, with only the relatively wealthy, urban municipalities able to provide free quantities of water and electricity to poor households on a sustainable basis.
Regrettably the FFC does not illustrate the effects of applying its recommendations for the distribution of revenue between the spheres of government. This is a marked deviation from its work in the initial years of the new fiscal dispensation.
It is thus unclear to what extent the 2001 document can be considered to contain recommendations on the sharing of national revenue in the most direct sense by delivering possible distributional outcomes.
Furthermore, in many parts, the recommendations read like a research agenda. It is true that some of the issues raised should be investigated in depth, such as the definitions of constitutionally mandated basic services. The role of the commission in the long term is likely to be more profound if it moves away from attempting policy intervention and establishes itself as a long-term think tank.
However, it seems as if the FFC has become overly cautious after having been sidelined by the treasury over the past years, and following criticism levied against some of its previous recommendations. The inherent danger in presenting less concrete comments is a concomitant decline in their relevance and guidance value to decisionmakers. The FFC has not yet struck the right balance between diplomacy, specificity and value added.
The presentation of the commission’s 2001 submission to the select committee on finance in the National Council of Provinces (NCOP) was also marred by the absence of commissioners, who left the task of lobbying for legislative support to their research staff. To be fair, FFC chairperson Murphy Morobe did attend the preceding presentation to the committee’s counterpart in the National Assembly.
Nonetheless, the NCOP represents provinces and allows for the participation of local government, which constitute two key parts of the FFC’s audience. And the select committee on finance will be taking the submission to the provinces later this year. Such neglect and apparent lack of commitment at leadership level does not bode well for the commission.
Joachim Wehner works for the Budget Information Service at the Institute for Democracy in South Africa
@No alternative to jailing kids
Barry Streek
The practice of jailing children is likely to continue because there are insufficient financial resources in the provinces to acquire alternative secure facilities to house children who flouted the law.
Two Institute for Democracy in South Africa (Idasa) researchers, Jolene Adams and Karin Lombard, have concluded their recent study, which points to a projected decrease in allocations to social welfare services over the medium term. Adams and Lombard’s work indicates that more than 70% of the 4 060 juveniles in prison on December 31 were in the awaiting-trial category.
These research findings fly in the face of the draft Child Justice Bill that seeks to keep children out of jails to prevent them from becoming hard-core criminals.
The aim of the draft Child Justice Bill is to ensure that juveniles are given every opportunity to be diverted out of the criminal justice system through a range of options and a system of preliminary inquiries in which detention should be regarded as a last resort.
In terms of the draft Bill, children awaiting trial may be held in prison only if there is no secure-care facility with a reasonable distance of the preliminary inquiry, or if there is no vacancy in the secure-care facility, or if the court is satisfied there is a substantial risk that the child will cause harm to other children in a place of safety or a secure-care facility.
The Idasa report released this week says there is varying capacity in secure-care facilities in the provinces, with facilities for 30 children each in the Northern Cape and the Northern Province compared to 220 in the Western Cape and between 350 and 470 in Gauteng.
Owing to insufficient capacity in secure-care facilities, youths awaiting trial are still being accommodated in places of safety but these institutions may also house children who are, for example, dependent on drugs or have been removed from their homes for their own safety.