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The Structure and Functioning of the FFC

The Financial and Fiscal Commission consists of twenty two Commissioners. The chairperson and deputy chairperson are also respectively the chief executive and deputy chief executive officers. These are the only two full-time members and their term of appointment is five years. The other twenty two members are appointed on a part-time basis for a period of two years.

All Commissioners are appointed by the President, either in consultation with Cabinet or as nominated by the Executive Councils of the nine provinces, who may each designate one member. The President may remove a Commissioner from office on account of misconduct, incapacity or incompetence.

Commissioners have to be South African citizens and are required to have expertise in one or more of the following fields:

  • economics
  • public finance
  • public administration
  • taxation
  • management
  • accountancy
  • local government finance

Every Commissioner is required to perform his or her duties fairly, impartially and independently, and may not hold office in any political party or organisation. By inference, the Financial and Fiscal Commission itself should be independent and impartial with regard to any sectional interest whatsoever. This is a principle which the Commission takes very seriously and regards it as a critical factor in the establishment of a credible and legitimate advisory institution.

The Commission may establish committees from among its members and also co-opt other persons to serve on them. Such co-opted persons are likely to be experts in specific fields who could contribute towards the informed advice of the Commission. A staff component which could include secondments may be established. The Commission’s budget is funded from the fiscus via appropriations from Parliament. The employment of such appropriations is subject to a strict and transparent audit. A decision by the Commission requires agreement by two-thirds of those present and a minimum of nine members is a quorum.

What the FFC does not do

The Commission is not an executive arm of government; either national, provincial or local. It is evident that an unelected technical institution cannot have executive authority. This may lead one to enquire whether there is any effective rationale for a publicly funded institution, which is intended to play a pivotal role in intergovernmental fiscal relations, if it has no ‘real authority’?

The Commission’s ‘power’ is vested in:

  • being a product of an all-inclusive negotiations process;
  • its prominence and specific responsibilities designated in the Constitution;
  • its neutrality with regard to any sectional interest, be it any public sector entity, labour, business or any other component of the private sector or civil society;
  • Commissioners not being office bearers of any political party or organisation;
  • the Commission’s constitutional requirement, and its commitment, to perform its responsibilities in a transparent and accountable manner;
  • its ‘expert’ technical nature; and
  • its ability to draw on the experience of similar institutions and systems of intergovernmental fiscal relations in other countries.

Being an advisory institution independent of government, the Commission does not supersede any existing government department or function. It is, by design, separate from general government. This implies that there is a degree of functional duplication between government (departments) and the Commission. In this context the Commission plays the role of a ‘mediator’ between and amongst governments. It could also be regarded as a ‘check and balance’ on the public sector’s collection, allocation and use of fiscal resources. The normal or traditional responsibilities of the national and provincial departments concerned with Financial and Fiscal matters do not cease, in part or as a whole , due to the establishment of the Financial and Fiscal Commission.

The future of the Financial and Fiscal Commission is assured, in some format, by the inclusion of Constitutional Principle XXVII which provides for a Financial and Fiscal Commission to be included in the final constitution.

Norms Applicable to a system of Intergovermental Fiscal Relations

  1. In democratic societies a government's role is to serve its citizens by providing the socio-economic environment and the public goods and services desired by them. The ways in which this can be achieved are countless: policy makers have the choice of a great number of instruments, and the combinations chosen give rise to different fiscal systems. It is therefore important to have acceptable norms with which to evaluate the instruments chosen in any particular case.
  2. This does not imply that, once chosen, such norms are easy to apply: instruments may be effective in terms of one norm yet inefficient in terms of another. The goals of public policies are often conflicting, which means that trade-offs of one against another are normally necessary.
  3. Therein lies the importance of clearly stated norms. As the combination of instruments and concomitant results inevitably becomes complicated, judging the suitability of a given set of instruments is difficult without weighing up each element separately.
  4. Furthermore, socio-economic policy decisions are always subject to resource and other constraints. As is the case with all constrained optimisation, the feasible options are determined by the nature of the constraints. Therefore the presence of additional constraints will usually lead to a different solution. This is particularly relevant when adapting an existing system as opposed to designing a new one: in the former case existing structures impose constraints that do not exist when one is given a tabula rasa and asked to design a system afresh. Consequently, the results will differ, even though each system may be optimal in its own right.
  5. Bearing these general points in mind, one can turn to the norms usually applied to systems of intergovernmental relations.
  1. Effective resource use
  2. Accountability
  3. Nation building and fiscal autonomy
  4. Transparency
  5. Certainty of revenue
  6. Equity
  7. Development
  8. Administration
  9. Macro economic management
  10. Loan financing
  11. Transition
  12. Resolving competing norms

Effective resource use

  1. Economic resources are scarce; therefore to acquire maximum benefit for a community they must be allocated in the best possible way. In the case of public goods and services that are used communally, direct purchases do not occur and members of the public are therefore not obliged to reveal their preferences for goods and services. This makes it difficult to judge whether a consumer of a public item is deriving benefits greater than the cost of producing the commodity. Yet, if this is not the case, the resources are being allocated incorrectly. The problem arises because no ready mechanism exists to identify what citizens want in the form of public items or goods. Consequently, such decisions must be taken on the basis of citizens' votes.
  2. Furthermore, those responsible for implementing these decisions should be subject to public scrutiny, i.e. the authorities should be accountable for implementing the majority view. It is equally important that citizens should provide checks and balances by participating in the process to ensure resources are put to best use. Finally, all tiers of government must be equipped with sufficient budgetary and financial expertise to ensure that decisions are taken and implemented effectively.
  3. A tacit assumption upon which the logic of the previous paragraphs rests, is that wealth is spread evenly, making comparison between personal requirements of citizens feasible. In practice this assumption does not hold and adjustments must therefore be made in the interests of equity. This concept is developed more fully below.

Accountability

  1. Accountability, as enshrined in the Interim Constitution, e.g. in sections 92 and 153, and in constitutional principle VI, is the obligation on a government to the constituency which has endowed it with specific responsibilities. Accountability requires that a government should explain and justify its decisions to the electorate and implies that, if the electorate is dissatisfied with its decisions, the government may be removed from office in a free election. Accountability also applies to the fiscal decisions of a government: those in authority are required to justify their expenditures and to explain why the revenue necessary to sustain expenditure is raised in the way it is.
  2. The advantage of having systems by which governments are accountable is that, when decisions are subject to public scrutiny, those in power are more likely to consider their consequences, act with restraint and use resources effectively in implementing the will of the people.
  3. The fiscal system should be designed to encourage accountability. Because people generally are only prepared to monitor government and to object to irregularities and inefficiencies if their own interests are affected, the system should ensure that this occurs by encouraging beneficiary participation. One way of achieving this is by linking expenditure and revenue and, subject to equity considerations, by raising the required revenue directly from the beneficiaries of the service provided. Another is to subject all public accounts to rigorous annual auditing.

Nation building and fiscal autonomy

  1. The Interim Constitution has heralded the advent of a new chapter in South African history, one in which a fragmented land and divided people are brought together to form one nation. The diversity of South Africans' backgrounds enriches this process of forging a nation out of different elements. The Interim Constitution's provision for government at national, provincial and local levels should be seen in the context of national unity.
  2. Constitutional principles XVI - XXV, reflecting the essence of the Interim Constitution, state that the level of government at which decisions should be taken should be determined by considering at which level this can be done most effectively, taking into account national unity, provincial autonomy and cultural diversity. It is a generally accepted principle that matters such as the maintenance of national security, economic policy and essential national standards should fall under the jurisdiction of the national government, whereas matters concerning provincial planning and development, the rendering of services and, in particular, the specific socio-economic and cultural needs of the inhabitants of a province, should be entrusted to the province. Schedule 6 of the Interim Constitution lists the areas falling within the concurrent legislative competence of the provinces. Section 175 includes a similar list for local governments.
  3. From this it is clear that both the Interim Constitution and the constitutional principles strive to maintain a balance between those functions, which are allocated to the national government, and those which are vested in the provincial and local governments. Some functions can be performed more effectively by a national than by a sub national government. Even where this may not necessarily be the case, by placing various functions at a national level a sense of nationhood and national cohesion is enhanced.
  4. Within this context provincial and local governments are granted a large degree of fiscal autonomy. Section 174(3) of the Interim Constitution states specifically that local government should be autonomous. Fiscal autonomy refers to the degree to which lower-tier governments can take their own decisions and determine their own priorities consistent with the expenditure, taxation and borrowing powers assigned to them. Furthermore, it refers to the freedom inherent in self-government. This does not only mean that lower-tier governments should be administratively responsible for the delivery of goods and services at the local level, but also that the decision-making powers, fiscal responsibilities and obligations to raise as much of the required revenue as possible should all be situated at the corresponding level.
  5. Fiscal autonomy fosters responsible government in so far as each level of government is answerable for its own decisions and it cannot shift the blame for incorrect decisions onto higher governmental tiers. An essential element of this is, however, a high degree of fiscal independence, otherwise the level of government providing funds will be in a position to influence decisions by manipulating the revenue flows to the lower governments. As pointed out in section 6 below, fiscal independence is best achieved by assigning revenue sources to each level of government, although this alone is seldom sufficient. Usually, these revenues need to be supplemented by the sharing of the revenue from other national taxes, or allowing lower-tier governments to add surcharges to national taxes.
  6. These revenue options reflect varying degrees of fiscal autonomy and have administrative consequences, which are discussed below. Nevertheless, the right to choose the rates applicable to surcharges and a legally enforceable right to a non-arbitrary share of the nationally collected revenue, are usually considered sufficient for a lower-tier government to be referred to as being fiscally autonomous.
  7. Fiscal autonomy at lower levels allows regional differentiation to be established, in theory giving citizens the opportunity of choosing a locality where the particular set of public goods provided by the local government in relation to its tax price (or tax level necessary to support the expenditures) is to their liking. Alternatively, because the ability of households to move to the areas of their choice may in reality be far less than that assumed in the theoretical models, fiscal autonomy enables lower-tier governments to choose different levels of public services, in accordance with the preferences of their residents. This process enables local communities to develop a measure of homogeneity in their demand for and supply of (semi-) public goods.
  8. Despite these potential positive aspects, high levels of fiscal autonomy may have certain disadvantages. The first is that disparities in terms of wealth and poverty between communities may be exacerbated. Allowing provinces to impose certain taxes or surcharges on individual income taxes may provide substantial fiscal autonomy to the richest provinces, but would leave the poorest ones with few fiscal resources. In addition, if the combined national tax burden cannot be increased, provincial surcharges would only be feasible if the national tax rate were reduced, which would imply a smaller pool collected nationally for sharing amongst the provinces. To counteract this potential for increasing disparities it is necessary for the national government to retain the powers of prescribing minimum standards, which the lower-tier governments are obliged to apply. This would be particularly necessary on sensitive social terrains, such as health and education. Of course, the imposition of minimum requirements must be accompanied by transfers from the national government or alternative revenue sources so as to enable poor provinces to meet those requirements. More is said about this below under the heading "equity" in section 7.

Transparency

  1. The method for calculating provincial revenue sharing should be transparent and understandable so as to promote credibility and stability. In order to achieve this, uniform information and regulatory systems should be developed and applied to all budgetary and financial accounts. The first step in this process is to create uniform definitions of the key concepts and establish common reporting procedures. These must include accounting standards in line with an internationally accepted public sector system of accounting. This will enable like to be compared to like and a consistent revenue-sharing formula to be developed and applied objectively.
  2. Of equal importance are regular monitoring and auditing to confirm that all expenditure has been authorised correctly. Unless this occurs, confidence in the system will not develop. The importance of this aspect can scarcely be overemphasised: in fact, accounting and auditing structures must be finalised before functions are transferred to lower-tier governments. The Interim Constitution in section 155(4)(b) also requires the FFC to take the "efficiency of utilisation of revenue" into account when making allocations. It will therefore be necessary to institute a system of performance auditing to fulfil this important requirement.

Certainty of revenue

  1. Provincial and local governments cannot be fiscally autonomous unless they are financially sustainable. This means that these levels of government must receive adequate revenue sources to finance the services they are expected to provide. In this respect, finance must follow functions. It is essential that this revenue be certain and not subject to arbitrary decisions even though, of course, the amounts depend on the economic circumstances and cannot be guaranteed in advance.
  2. However, the devolution of tax bases is not devoid of problems. Vertical disparities exist between levels of governments, whilst horizontal disparities exist among provinces and localities. These would make it less desirable to devolve taxes even where it is technically possible to do so, as this could limit the possibility to provide corrective transfers. Furthermore, spillovers of benefits from services to other jurisdictions occur, (e.g from primary education), which reduce the incentive of provincial and local governments to finance those services. Such services are therefore best financed nationally, even if this is done through transfers to lower-tier governments. Spillovers may also be negative. The spillover of lower-tier taxes, or tax exporting to neighbouring regions, may necessitate these taxes being restricted to the national level.
  3. Despite these limitations, it is possible to assign certain taxes to lower governmental tiers, depending upon the mobility and complexity of the tax base and the role of the specific tax in stabilisation or distribution policy. Using the consistency of revenue means and expenditure needs, and cost efficiency as criteria, the following set of guidelines may be offered.
    1. Highly progressive taxes for redistributional purposes, should be centralised, because of the incentives they would create for migration between provinces. Income taxes with strongly progressive rate structures should be reserved for the national government and provincial governments should be restricted to imposing flat-rate surcharges on the national income tax base, (i.e. not on the tax itself, which would increase progressivity.)
    2. Taxes suitable for macro-economic policy purposes should be national; lower-level taxes should be cyclically stable.
    3. Taxes on highly mobile tax bases should be avoided by local government, since these taxes could distort the locational pattern of economic activity. Taxes on completely immobile factors such as land and other fixed assets are best suited for the local level.
    4. The national government should in general exercise primary taxing authority over those tax bases that are distributed in a highly unequal fashion among provinces. Profit-based taxes on deposits of natural resources should be national, both to avoid geographical inequities and to prevent allocative distortions that could result from the local taxation of such resources.
    5. User charges and benefit taxes do not in principle create distorting incentives for movements between provinces, and are workable at the most decentralised level of government, but can be used at all levels of government. These taxes should promote efficient decisions by mobile consumers, and efficient functioning of lower level governments, since they adhere to the benefit principle. Their application in situations where personal incomes differ widely should, however, always be tempered with the norm of equity.

  4. Although a range of revenue sources is potentially available, it is important that the taxes levied by different jurisdictions should avoid distorting economic activity. Section 156(2) of the Interim Constitution states specifically that national economic policies, inter-provincial commerce, and the national mobility of goods, services, capital and labour should not be affected detrimentally by taxes raised by the provinces.
  5. In devolving taxes, the duplication of administrative effort must be avoided. This can be achieved by having the National Commission for SARS collecting provincial taxes on an agency basis, at least those using national tax bases.
  6. Even if lower-tier governments are given suitable powers to tax, the limited size of the tax bases will in most cases make it imperative that a portion of the revenue raised nationally be channelled to provincial and local governments. In order to achieve this an objective revenue sharing or financing formula should be devised as described below in Part C.
  7. The requirement of certainty has two sides. On the one hand, a province or local government must be able to rely on the predictability of its revenue flows in order to plan its activities, especially its multi-year infrastructural projects. On the other hand, the national government must obtain certainty regarding its liabilities towards provincial governments. The national government should not allow additional debt of lower-tier governments to be shifted onto it. If this were to happen, attitudes towards debt and risk taking could be affected adversely and moral hazard introduced.
  8. "Moral hazard" refers to incentives that encourage an insured person or institution to cause the events against which they are insured. In this case, the event would be defaulting on the debt, because the national government is seen as insurer and, therefore, the province is shielded from adverse effects. Once such attitudes take hold, they tend to increase accumulatively and ultimately they undermine the stability of both the currency and the financial system. The sustainability of the system could be placed in jeopardy as a result.

Equity

  1. The Interim Constitution stipulates (in section 155) that a province is entitled to an equitable share of revenue collected nationally, and that allocations should be determined with due regard to the national interest, the different fiscal capacities, fiscal performances, efficiency of utilisation of revenue, needs and economic disparities within and among provinces, as well as the developmental needs of the provinces. The purpose of these stipulations is to ensure fiscal fairness or equity in the provision of public services.
  2. Equity is characterised by the spirit of fairness, justice and impartiality. It further serves as a moral virtue, which qualifies, moderates and reforms the hardness of economic forces and acts as a yardstick for redressing an existing maldistribution of income or welfare in a country. Equity has many dimensions: it refers to income distribution, economic development, equal opportunities and many more. Through the ages philosophers and, more recently social scientists have devoted much thought to the concept of equity. On the fiscal terrain several dimensions are normally distinguished.
  3. Firstly, tax equity requires that the burden of maintaining public expenditure should be borne by the taxable entities of a country in proportion to their ability to pay. This concept distinguishes between vertical and horizontal equity. The former relates to the relationship between tax incidence and the differences in income levels, whereas the latter refers to the equal treatment of individuals in equal positions by the fiscal system.
  4. The same concepts are also met in reference to provincial governments, where intergovernmental fiscal fairness is an important element of general economic equity. The aim is to ensure fiscal fairness in the provision of public services to all households, in so far as each should have equal access to publicly provided services such as education, health care, sanitation, water, etc. Nevertheless, a second element of intergovernmental fairness requires that, beyond the equal provision of basic human services, households should receive equal or similar public services for equivalent contributions of tax or fiscal effort, i.e. a poor community making comparable fiscal effort should not be disadvantaged.
  5. The terms generally used to judge the relative positions of provincial governments in this respect are fiscal capacity, fiscal effort, fiscal need and fiscal performance. Fiscal capacity is a measure of the amount of revenue a provincial government would raise if a nationally uniform set of tax rates were applied to commonly defined tax bases, and gives an indication of the level of economic resources in any jurisdiction (i.e. fiscal resources that are potentially available). Alternatively, fiscal capacity can be viewed as the relationship between the potential ability of a jurisdiction to raise revenue from its own sources and the cost of its service responsibilities. Indicators of fiscal capacity are designed to reflect the relative relationships amongst jurisdictions. These relationships are generally expressed in per capita terms to facilitate comparisons amongst jurisdictions. High-income areas will be able to finance their own services more easily than lower-income areas and the magnitude of transfers should be inversely related to fiscal capacities.
  6. On the other hand, fiscal effort is a measure of the extent to which a government's taxable capacity is actually used. It measures actual tax revenue in relation to tax capacity. Fiscal effort is normally defined as the ratio of tax collections to tax capacity. The idea is that communities that try hard to raise taxes but still cannot finance an acceptable level of public services are worthy of receiving a grant. Furthermore, a province or local government applying a tax rate above the national average could be rewarded, while one following the opposite strategy should not rely upon assistance from the national level. This factor is often added to formulae to ensure efficient tax collection by provincial governments. Fiscal need refers to the outlay in a sub national jurisdiction necessary to secure a standard level of performance or service; and fiscal performance is the ratio of actual outlay, obtained by applying the jurisdiction's outlay rate to that required to meet the standard level at some common rate.
  7. A final factor to be taken into consideration is that of cost differences, which are determined by factors such as the province's demographic make-up, i.e. age distribution, population density, population growth, issues related to gender, etc. These factors serve to change the per capita cost of services within a province and must therefore be considered when defining the revenue-sharing formulae referred to in Part C below.
  8. In the interest of equity it may be necessary as mentioned in paragraph 4.8 to target specific services for which national standards have been specified, by giving conditional grants to lower-tier governments. In the case of education and health care, which have a direct impact on human capital development, this may be necessary for another reason. Provincial governments may spend less on these services than optimal from a national perspective. Because people are highly mobile, the local jurisdictions are in danger of not reaping the benefits of their expenditures.
  9. Grants can assume many guises. It may, for example, be desirable to introduce unconditional capacity equalization grants, and to reward governments with matching revenue for additional local tax effort, separately from the revenue-sharing formula.

Development

  1. Equity is closely related to a second set of issues which can collectively be termed development. Development refers to the multi-dimensional process that improves the quality of life for all. This may be reflected in, for example, improvements in the levels of nutrition, morbidity, housing, education, the use of electricity, the availability of water and refuse removal services, and many more. Economic growth is correlated to development. However, development entails much more than economic growth. Of late the narrow concept of "economic development" has been subsumed under that of "human development". Statistical indices such as human development indices (HDIs) are used in attempting to measure this broader approach to the improvement in quality of life. Another facet is that of "community development" which was often prejudiced in the past, for example by the system of migrant labour. Community development should once more receive general encouragement.
  2. It is important that development should be reasonably spread within a country so as to enable citizens living in different parts of the country to have broadly comparable opportunities. While acknowledging that equal facilities could never be replicated in every region, this means that attempts must be made to eliminate backlogs in the provision of essential infrastructure and to provide sufficient economic opportunities within the provinces.
  3. While not seeking to prevent or reverse the tendency of economic activities to agglomerate in metropolitan areas, fiscal transfers may be required to encourage regional development and employment to their maximum potential. As in other cases, the benefits of improving equity by providing services in rural areas must be weighed up against the benefits of doing so in urban areas.

Administration

  1. Whichever fiscal system is chosen, it needs to be administered. The ease and efficiency with which this can be done therefore become crucial norms for evaluating the system, particularly as some possibilities entail sufficient administrative disadvantages to render them not feasible. For example, the devolution of all taxes to subnational levels would clearly enhance the fiscal autonomy of the regions, but would lead to large-scale administrative confusion. It would also lead to the duplication of tax-collecting mechanisms and thus be costly. On the other hand, if all taxes were to be centralised, the administrative burden would be minimised, but some independence of the sub national governments would be lost. A variation is possible by placing surcharges on nationally administered taxes, by which the rate applicable in a certain jurisdiction could vary from that applicable elsewhere.
  2. Administrative efficiency would be enhanced if provincial taxes were to be handled by the national Commission for SARS on an agency basis as already indicated in paragraph 6.5 above.

Macro economic management

  1. Certain goals have macro-economic dimensions which make them impossible to decentralise. Examples are the stimulation of economic activity and the sound management of the economy. These functions must therefore be performed centrally by national institutions.

Loan financing

  1. The system of intergovernmental grants should not impede provinces' reasonable access to other sources of finance. For instance, a province may wish to acquire additional funds from the capital market to implement long-term infrastructural projects. In principle, loan financing for such projects makes it possible for costs to be spread over a similar period to that during which the benefits arise, thus ensuring intergenerational equity. (This argument implies that each generation should pay for its own current expenditures and that these should consequently not be financed with loans).
  2. Often collateral security must be provided for loans. If a given project will deliver an income stream over its lifespan, this could be pledged as security. However, many public services do not generate income, making it necessary to pledge alternatives, such as the income from grants or revenue sharing. This can only be done if the provinces are certain about their future income and the capital markets have confidence in the stability of the income. If this can be achieved, the income from the national government could be used to leverage private sector resources.
  3. This does not imply that provincial borrowing should not be co-ordinated, particularly as many capital intensive functions have been devolved to the provinces, (e.g. roads, housing, education and health care) The total demand for capital, if unco-ordinated and uncontrolled, could prove to be excessive.

Transition

  1. 11.1 Stability in the delivery of essential services must be maintained during the transition from the old order to the new. In addition, the developing system of intergovernmental grants should support the speedy restoration of delivery systems in the interests of socio-political stability. In this sense, the financial responsibilities of the FFC, namely that of facilitating adequate cash flows to finance essential services to all, are as important as the fiscal ones.

Resolving competing norms

  1. As pointed out in the introduction, the norms described above may be in competition with one another. For example, the norm of fiscal autonomy may require the devolution of authority, whereas that of equity may require nationally determined minimum standards. Likewise, the criterion that revenue should be raised by the government responsible for providing the service, may conflict with the requirement of administrative efficiency. Consequently, some balance in which society's objectives are maximised must be sought.
  2. Again, though the norms of accountability and fiscal autonomy require the devolution of taxes, the most important taxes, such as income tax on individuals and companies and consumption taxes, are usually centralised for administrative reasons in most countries.
  3. As already mentioned there are procedures which help to balance conflicting norms, and which avoid some of the disadvantages of centralising taxes while retaining other advantages. The first is that of adding a specific rate to a levy collected by the national government on behalf of a province. This is known as the "piggy-back option" and is administratively simple in a number of cases (e.g. personal income tax, but not value-added tax (VAT)) as the surcharge allows several levels of government to tax the same base, with only one level actually administering it. The second is revenue sharing, which provides a relatively simple and inexpensive way of reallocating resources back to lower levels of government. Where provincial disparities are prevalent, the division of the revenue according to formulae that take the disparities into account, enhances equity. The combined use of surcharges and revenue sharing may provide a reasonable way of balancing provincial autonomy with equity.
  4. The final way of financing provincial governments, if efficiency of tax administration has resulted in a relatively centralised system, is through intergovernmental grants. Depending on how they are structured, grants may satisfy a number of the norms listed above. For example, conditional grants, are often used to ensure a minimum standard of essential services, thus promoting equity, even though they may limit the fiscal autonomy of the sub national unit.
  5. Conditional grants may be matching or non-matching. A matching grant is one in which the national government matches the amount of money spent by the recipient government on a particular service, primarily to offset spillovers generated by the service. In this way a higher degree of recipient fiscal autonomy is maintained in that the decision on how much of the service to provide is still taken by the lower-tier government, despite its having been positively influenced to provide more than it would previously have done. Matching grants may, furthermore, be either open-ended or closed-ended. A closed-ended grant means that a ceiling exists for the amount that the donor will contribute, thus making possible sounder fiscal control of expenditures.
  6. Unconditional grants address the fiscal issue of a general lack of finance at sub national level. Unconditional grants are usually provided on equity grounds; they also interfere less with provincial preferences than do conditional grants. The fiscal autonomy of the recipient government is therefore largely maintained. One form, the equalising grant, allows more generous sums to go to poorer provinces.
  7. In summary: Although the redistribution of revenue represents a trade-off between some of the norms discussed above, a carefully designed system of revenue sharing can achieve a balance in which the positive aspects of the different norms predominate.

 

Mandate of the FFC

The Commission derives its mandate from Chapter 13 of the Constitution of the Republic of South Africa Act No. 108 of 1996 as amended.

The mandate of the Commission is enabled through the Intergovernmental Fiscal Relations Act No. 97 of 1997 as amended, the Financial and Fiscal Commission Act No. 99 of 1997 as amended, the Money Bills Amendment Procedures and Related Matters Act No. 9 of 2009, the Municipal Systems Act No. 32 of 2000 as amended, the Provincial Tax Regulation Process Act No. 53 of 2001 as amended, the Municipal Finance Management Act No. 56 of 2003 as amended, the  Intergovernmental Relations Framework Act No. 13 of 2005 as amended, and the Municipal Fiscal Powers and Functions Act No. 12 of 2007.

FINANCIAL AND FISCAL COMMISSION AMENDMENT ACT [ACT NO.4 OF 2015]

Gazette Number  38976 
Notice Number    592
Gazette Date       2015-07-07
Act                     4 2015

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FINANCIAL AND FISCAL COMMISSION AMENDMENT BILL, [B1-2015]

Legislative History

Date                Event 
 
2015-01-26       Bill published 
2015-01-26       Tabled in National Assembly 
2015-01-26       Referred to Portfolio Committee on Finance (NA)

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NOTICE – FINANCIAL AND FISCAL COMMISSION AMENDMENT BILL, 2014

The Minister of Finance intends introducing the Financial and Fiscal Commission Amendment Bill in Parliament. The explanatory summary of the Bill is hereby published in accordance with Rule 241(1) (c) of the Rules of the National Assembly. A copy of the Bill will be made available after its introduction

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Introduction

South Africa is a unitary state with three levels of government; local, provincial and national. Each of these tiers of government is assigned certain powers, functions and financial resources; each of which may be exclusive, concurrent or shared.

The three tiers of government are superimposed on an existing tax (and public expenditure) regime, which is characterised by severe vertical and horizontal fiscal imbalances. In other words, while national government raises the vast bulk of aggregate revenues, its expenditure responsibilities are much lower. There is thus a mismatch between revenues raised and expenditure responsibilities. The converse mismatch exists at provincial level. Provinces only raise a small proportion of the revenues to meet their expenditure responsibilities. This vertical mismatch is known as vertical fiscal imbalance. Horizontal fiscal imbalance exists amongst provinces, and also amongst localities within provinces. There are massive relative differences amongst provinces' expenditure responsibilities, and existing (also potential) revenue sources. A country characterised by the above-mentioned features, and with a sensitive political history, is dependent on a fiscal system which provides for intergovernmental fiscal transfers. It is essential that the relative sizes of fiscal resources which have to flow between and amongst governments and tiers are determined equitably and in a transparent manner. A system of intergovernmental fiscal relations (with an emphasis on fiscal flows) has the potential for political manipulation, unless it is based on equity, which in turn is based on sensible, reasonable, objective and quantifiable criteria. In addition, it is highly desirable to have an impartial and independent institution to ensure that the system developed and implemented contains the above mentioned characteristics. The future of the Financial and Fiscal Commission is assured, in some format, by the inclusion of Constitutional Principle XXVII which provides for a Financial and Fiscal Commission to be included in the final constitution.

 

Midrand Contact Details

Second Floor
Montrose Place, Waterfall Park
Bekker Street

Midrand

Tel: 011 207 2300
Fax: 011 207 2344

“For an Equitable Sharing of National Revenue"

 


info@ffc.co.za
0861 315 710

Cape Town Contact Details

Twelfth Floor
Constitution House
124 Adderley Street
Cape Town

Tel: 021 487 3781
Fax: 021 426 4935

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