Fiscal Decentralisation in South Africa: A Practitioner's Perspective

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Ismail Momoniat (2001). Fiscal Decentralisation in South Africa: A Practitioner's Perspective. National Treasury (South Africa).

Type	working paper
Scope	Post-1994 South African economy
Method	policy analysis
Period studied	1994–2001
Regions	South Africa, Gauteng, Johannesburg, Eastern Cape, KwaZulu-Natal
Themes	transition post apartheid, macro fiscal finance debt, business and state, inequality poverty unemployment, bantustans removals influx
Citation key	momoniat2001

Argument

Momoniat, a National Treasury official, argues that South Africa's post-1994 fiscal decentralisation arose from the political compromise of the 1993-94 transition rather than from fiscal reasoning. He holds that conventional economic arguments for or against decentralisation matter less than basic budgeting, financial management, capacity and information reforms. The case rests on a description of the revenue-sharing system and on the provincial (1995-98 overspending, then turnaround) and local (Johannesburg 1997 crisis) experiences. He concludes that better fiscal matching does not automatically bring fiscal responsibility, that vertical division should be a politically judged but baseline-anchored process, and that horizontal division should be formula-based.

Evidence and method

Practitioner's account drawing on National Treasury documents (Intergovernmental Fiscal Reviews 1999/2000, Budget Reviews 2000/2001, Division of Revenue Acts, Constitution, PFMA) and fiscal tables for 2000/01. Cites May (1998) on poverty and inequality. Offers no archival or survey work and little data on the apartheid period.

Findings

• Decentralisation to provinces was a political compromise of the transition, not a fiscal choice. (p. 3)

  Fiscal decentralisation to the provincial level was a political compromise between the main parties, part of the deal that allowed for a negotiated transition to democracy.

• The apartheid budget favoured whites, leaving black needs largely unmet. (p. 2)

  The budget of the Apartheid government focused spending on white residents, with very little expenditure directed towards education, health, housing and other basic needs of black residents.

• Provinces depend almost wholly on national transfers, while local government raises most of its own revenue. (p. 8)

  Local governments have significantly more revenue-raising powers than provincial governments, raising over 90% of their own revenue, whilst provinces raise only 4% of their own revenue.

• Provinces ran a large aggregate deficit in 1997, owing to national policies, salary agreements and weak budget control. (p. 12)

  Provinces ran an aggregate deficit of R5.5 billion in 1997, or about 5.8% of actual spending.

• Redress of racial disparities in education and health raised personnel costs without improving outputs. (p. 13)

  policy was less successful in education and health, where the effect was to increase the cost of inputs (personnel expenditure) rather than improve outputs like better quality education or health services.

• Simple budget controls and joint forums turned provincial finances around by 1998/99. (p. 13)

  they ran a R500 million surplus in 1998/99 compared to the R5.5 billion deficit a year earlier.

• Greater revenue powers did not produce greater fiscal responsibility (Johannesburg vs Gauteng). (p. 19)

  One has revenues to match expenditure, the other does not; yet it is Gauteng that was better managed before the budget crisis affected Johannesburg in 1997.

• The apartheid-era public service was trained for white areas, so capacity for black areas had to be built from nothing. (p. 21)

  The capacity to deal with poor and deprived (black) areas has had to be built up from almost nothing, making the challenge of immediate delivery a near-impossible task

• The central lesson is that decentralisation is riskier than centralisation without basic budget and financial management. (p. 23)

  A fiscally decentralised system is probably riskier than a centralised one if such budget and good governance mechanisms are not in place.

• Apartheid-era structure: homelands were fiscally dependent and urban blacks were treated as temporary residents. (p. 2)

  Although supposedly independent, “homelands” were fiscally dependent on the Apartheid government, and their "governments" operated in effect as appointees of the apartheid regime.