1. SUBMISSION TO PARLIAMENT on the DIVISION OF REVENUE BILL for 2002 / 20003 ---------------------------- FINANCIAL AND FISCAL COMMISSION For Select Committee 6 March 2002

2. 6. The Size of Provincial Conditional Grants Conditional Grants fund 12% of Provincial Government spending. Conditional Grants fund small proportions of provincial Education and Welfare spending, over 20% of Health spending and nearly all expenditure on Housing.

3. 7. Composition of Provincial Conditional Grants 43% of the total value of Provincial Conditional Grants attaches to the Health sector in 2000 / 01. 24% to the Housing Subsidy 18% to Supplementary Allocations All 3 HIV-AIDs grants constitute 0.9% of total value of P.C.G. in 2001 / 02 (up from 0.4%)

4. 8. Variations and Fluctuations in the Value of Conditional Grants Factors influencing changes in the value of individual grants include: a)Entry and exit of new grants b)Performance with respect to under-spending and rollovers.

5. 9. Under- and Over-spending on Provincial Conditional Grants Compliance with PFMA reporting requirements increased from 63% to 98% of the total value of P.C.G. between 1999 / 00 and 2001 / 02. Reported under-spending on P.C.G. increased from 5% to 16% during the same period. Rate of under-spending declines for Social Sector grants and EWS predicts slight over-spending for all Health and Welfare grants (except HIV-AIDs). Under-spending rates remain high for infrastructure grants (except Housing). Under-spending high for Transitional and Special Allocation grants – lack of confidence to make new spending commitments?

6. 10. Provincial Conditional Grant Flows & Timing Quarterly disbursements the norm. There may be disjuncture against monthly personnel requirements. Late (and infrequent?) disbursements contribute to under- spending over the short- to medium-term. Initial allocations for Poverty Relief and HIV-AIDs grants made outside the Budget Process. Quarterly reporting is the stated norm in the Conditional Grant Framework. However, full compliance with PFMA requirements is not obvious. Inadequate or incomplete reporting may result in lower than average growth of disbursements and allocations.

7. 11. Organizational Capacity Issues and Under-Spending The more well-established grants appear to exhibit more frequent and regular disbursements and reporting and hence, lower rates of under-spending. The growth rate of disbursements appears to exceed provincial capacity to spend especially during the start-up phase. This is important where new policy initiatives are being operationalized. Nearly 40% of total P.C.G. value is constituted by grants aimed at capacity building and institutional restructuring. However, these initiatives are fragmented.

8. 12. Output Performance Issues Most Provincial conditional grants indicate measurable outputs. A few indicate quantified output targets. Some grant descriptions exhibit a wide range of measurable objectives. This makes reporting onerous. Output measures expected of forthcoming Strategic Plans. The generation of such data is essential to enable planning for progressive realization towards equal access to basic services. Increasing rates of spending may hide inefficiencies. Declining rates of spending do not prevent efficiency gains. Measures of the “outcome” or impact of policy initiatives not provided.