Policy Brief 5 - How Provinces are Funded to Fulfil Rural Development Mandates
Provincial rural development mandates straddle many concurrent functions, but how each sphere perceives its role is not always clear. Provinces in South Africa have very different levels of tax effort, reflecting the different tax bases. Between 2005 and 2014, tax effort increased across all provinces, with some provinces relatively optimising their collection of own revenue, but the scope to increase revenue collection from current provincial
tax sources is limited. Provinces therefore rely heavily on transfers from national government, especially the
provincial equitable share (PES), which is criticised for perpetuating regional imbalances. The Financial and
Fiscal Commission (the Commission) found that the PES formula is not responsive to rurality, whereas infrastructure conditional grants are responsive to rural needs because the largest share of the main infrastructure grants goes to the three most rural provinces. Many conditional grants are targeted at the agricultural sector, although agriculture is not the dominant economic activity in all rural areas. The Western Cape has the second highest (after KwaZulu-Natal) agriculture output, whereas the Northern Cape contributes the least to national agriculture output and yet receives the largest share of agricultural grants.
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