OVERVIEW… (1) Intergovernmental Fiscal Transfers, a critical element of the South African Government’ semi federal State arrangement South Africa’s Fiscal Transfers: formula Based rather than Discretion Based Such formula is supposed to be equitable amongst all the provinces Over 97 per cent of the provincial expenditure is financed from the transfers from the national government and almost 90 per cent of this is received by way of PES
The PES transfer is a formula driven grant program that distributes unconditional transfers to provinces. The formula is reviewed and updated with new data annually. Main Sources: Community Surveys, Household Surveys, Census Data (STATSSA) OVERVIEW… (2)
CONSTITUTIONAL CONTEXT OF PES… (1) Each sphere of government is entitled to an equitable share of revenue raised nationally to enable it to provide basic services and perform its functions Provincial and local governments, being distinct spheres of government, are fully responsible for these funds and are directly accountable for how they are spent. Provinces and local governments may also receive other allocations from the national share to which the national government may attach conditions (Conditional Grants)
The formula consists of six components that capture the relative demand for services between provinces and take into account specific provincial circumstances. The components of the formula are neither indicative budgets nor guidelines as to how much should be spent on those functions in each province or by provinces collectively. Rather, the education and health components are weighted broadly in line with historical expenditure patterns to provide an indication of relative need. CONSTITUTIONAL CONTEXT OF PES… (2)
Provincial executive councils have some discretion regarding the determination of departmental allocations for each function, taking into account the priorities that underpin the division of revenue. CONSTITUTIONAL CONTEXT OF PES… (3)
DEMOGRAPHIC INFORMATION & THE PES The formula is largely population driven The allocations it generates are sensitive to and capture shifts in population across provinces. Assumption: Shifts in population in turn lead to changes in the relative demand for public services across the provinces. When the revised population figures are included, the weighted equitable shares of provinces must be revised. (Alm & Vasquezz, 2009:5)
THE CURRENT REVIEWED FORMULA EDUCATION ( 48%) based on the size of the school-age population (ages 5-17) and the number of learners (Grade R to 12) enrolled in public ordinary schools HEATLH (26%) based on the proportion of the population with and without access to medical aid A basic share (16%) derived from each province’s share of the national population An institutional component (11.1%) divided equally between the provinces A poverty component (3%) reinforcing the redistributive bias of the formula An economic output component (1%) based on GDP by region (GDP- R) data.
NARRATIVE FS population amongst the slowest growing populations GP having the fastest growing population GP overtaking KZN with population size Principle: Money follows people
Impact of 2011 census CENSUS DATA AND THE EQUITABLE SHARE MODEL
PROVINCIAL IMPLICATIONS AS A RESULT OF CHANGING POPULATION SHARES Note: – Declining Share of FS – Declining Share of KZN – Declining share of EC – Increasing share of GP (Increase in Population) – Increasing Share of North West (increase in population)
CONCLUSION By relying on provinces’ demographic and economic profiles, the revenue sharing formula represents a sharp break from historical funding patterns. The result is a significant redistribution of resources to reflect an equitable provision for services provided by provinces, taking into account demographic trends. Accuracy therefore should define all statistical information
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