Provinces need greater economic independence

This week’s Gauteng Budget threw into stark reality the province’s need for more of its own revenue sources, opposition members of the provincial legislature have complained.

Despite having the fourth largest economy in Africa and boasting 21% of South Africa’s population, the province generates only 5% of its revenue independently from central government allocations.

The provincial budget highlighted that Gauteng sources R56,4-billion from the national treasury and only R3-billion internally.

The province’s revenue streams include motor vehicle licences, gambling licences and hospital fees.

Jeffrey Mashele, a senior official in the sustainable resource management unit at the Gauteng treasury, told the Mail & Guardian that in 2009/2010, R668,7-million would come from gambling taxes, R1,6-billion from vehicle licences, R354,3-million from hospital fees and R254,2-million from interest.

Vehicle licensing fees are the largest contributor to the province’s own revenues, making up 53% of the total.

Freedom Front Plus MPL Jaco Mulder said provinces had to curtail their revenue reliance on national government in order to boost regional economies, before the way they are funded becomes unsustainable.

Mulder argued that even though the province was providing social assistance to growing numbers of people—currently 1,4-million—it is yet unable to increase its revenue by other means, as legislation has given too much power to central government.

“It’s unsustainable,” said Mulder. “Provinces need more room to generate income for themselves, increasing the strength of localised economies.”

DA’s Gauteng provincial spokesperson on finance, Hermène Koorts, says additional ways for provinces to earn funds need to be found. However she pointed out that the province performed poorly in terms of collecting its own revenues, with an average of 78% of all possible motor vehicle licensing fees collected.

Koorts warned that before additional taxes or fees were imposed on the province, better collections within the existing system need to be achieved. Nevertheless, freedom on how provinces spend and allocate their money has been reduced, she said.

But Mashele said it is unfair to accuse provinces of not collecting enough.

“Provinces have been assigned with limited revenue raising capability and more responsibility on the expenditure capability,” he said.

“This was deliberately designed in our current intergovernmental fiscal relations system and the constitution to ensure that there is redistribution of resources across provinces. Therefore, it is not right to say that provinces are not collecting enough revenue as this is a system design more than anything else.”

He also pointed out that the design of the intergovernmental fiscal relations systems that exists in South Africa is “a political determination” and that “it can only be altered at that level”.

According to the National Treasury, transfers make up 97% of provincial budgets while provincial own revenue makes up 3 per cent. Of the 97% of national transfers 83% is unconditional and 17 % is conditional.

National treasury spokesperson Lindani Mbunyuza echoed Mashele saying that “the intergovernmental fiscal system is designed such that the major revenue raising powers are rest with national government.”

“Currently, legislation and in this case the Constitution, does not allow for larger taxing powers to provinces,” she said.

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