Part A Recommendations on the Division of Revenue

1
Submission on Division of Revenue 2005/06 Presenta
tion to Parliament Select Committee on
Finance 25 May 2005
2
Background

• FFC Submission 2005/06
• Review of the PES formula and the LES formula
• Outstanding work on some of the projects carried
  forward this year
• Health conditional grants
• Financing welfare services
• Financing learner support material
• New work started on the following
• Assignment of powers and functions in the IGFR
  system
• Housing funding framework
• Transport funding issues

3
FFC Submission on DoR 2006/07

• Consists of two sections as agreed with
  Government in the last two years
• Part A deals with recommendations for the
  division of revenue for 2006/07
• Part B presents a progress report on the results
  of the Commissions on-going research into the
  financing of learner support material
• Submission also contains two Annexures
• Annexure A is read together with Part A of the
  Submission
• Annexure B presents Executive Summaries of the
  Submissions that were made by the FFC during the
  course of the last fiscal year.

4
Health Conditional Grants

• Problems - grant design and implementation
• SCOPA, PSCoF Auditor General Reports
• 2003/04 FFC Recommended a Review
• 2004/05 Submission focused on preliminary
  observations
• Health grants (12 of all grants)
• NTSG and HPTDG 72 of health grants
• Design weaknesses
• Performance against Policy objectives
• Allocation criteria (cost framework)

5
National Tertiary Services Grant

• Original Purpose/Objective
• Cross boundary flows/referrals for highly
  specialized services
• Detached from hospitals to fund tertiary
  services.. ensure equitable access for all
  citizens..
• Findings with the NTSG
• Inequitable distribution of tertiary facilities
• Coverage not comprehensive excludes level 2
  services
• The required level of service in public health
  facilities is not clearly specified

6
Recommendations - NTSG

• Government should retain the grant.
• Uneven distribution of tertiary facilities likely
  to persist in the short to medium term
• It is important for the national government to
  support services that are of a cross-boundary
  nature
• Government should clarify the rationale for using
  the NTSG to compensate provinces for cross
  boundary flows relating to level 3 health care
  services (tertiary) at the exclusion of level 2
  health care services
• Develop a policy framework and clearly define the
  required minimum level of service and clearly
  distinguish between requirements for tertiary and
  secondary health care
• Framework should indicate expected service
  levels, human resource requirements, financial
  and capital resource requirements and the funding
  mechanism for tertiary and secondary health care.
  

7
Health Professions Training and Development

• Purpose/Objective
• Finance teaching and research costs
• Redistributive goal - to develop capacity to
  train health professionals in all provinces
• Findings
• No comprehensive review since 1998/99
• Allocations have been cut on several occasions

8
Gaps identified - HPTDG

• Absence of a policy framework with quantified
  targets
• Grant lacks specificity
• There is no tight linkage between policy
  objectives and the use of funds to achieve
  certain targets
• Weak interdepartmental coordination between the
  national departments of health and education
• Provincial decisions may not always be compatible
  with national interest and therefore national
  government needs to play a significant role
• Absence of a costing framework
• It is necessary to set the principles upon which
  the allocations are based

9
Further work - HPTDG

• FFC will Continue engagement with stakeholders
• With the aim of developing a costing framework
  for the grant
• Investigate the challenges relating to the
  financing of training and development of health
  professionals in SA
• Evaluate the allocation method or criteria for
  allocating the grant among provinces
• Assess the efficiency with which the grant is
  currently being utilized

10
Further work - HPTDG

• Assess the extent to which the conditions of the
  grant are in line with the stated policy
  objectives of the grant so that the grant can
  only be used for the purposes for which it is
  designed
• investigate whether there are leakages with
  respect to the HPTDG not being used for the
  purposes for which it is designed
• Assess the extent to which the conditions of the
  grant are in line with the stated policy
  objectives of the grant
• Should ensure that the grant can only be used for
  the purposes for which it is designed
• To what extent does the grant cover all the
  health professionals
• for instance some diploma students are trained in
  colleges

11
Recommendations- HPTDG

• Retain HPTDG as conditional grant
• The framework for the HPTDG must be tightened to
  ensure that the grant is only used to fund
  accredited qualifications and training

12
Financing Social Welfare Services

• Past FFC Recommendations
• 2004/05 Submission
• PES allocations should distinguish between social
  grants and social welfare services
• 2005/06 Submission
• Social grants be converted into a national
  conditional grant and the delivery of welfare
  services be maintained at provincial level
• Objective of current report
• The development of a sustainable financing
  mechanism for social welfare services through the
  intergovernmental transfer system

13
Financing Social Welfare Services

• Policy environment
• Government adopted a social development approach
  that links individual welfare to economic
  development
• Expressed through the Welfare White Paper of
  1997, it was largely national in focus and not
  clear on provincial level implementation
• Resulted in lack of clarity on the nature of
  social welfare services together with undefined
  norms
• Goal setting has also been difficult as existing
  legislation on social welfare had to be reviewed
• A financing framework for social welfare services
• Must regulate inefficient provision through
  prioritization of needs and the proper rationing
  of services
• Delivery of welfare services can occur through a
  variety of models, viz. no-public role, public
  role and purchaser-provider system

14
Financing Social Welfare Services

• Challenges to provision
• Lack of a clearly defined basket of services
• Uncoordinated delivery and isolated operation by
  different providers and strained relations due to
  unresolved financing policy
• Urban concentration of resources, e.g.
  residential facilities, places of safety and
  established NGOs
• Inadequate number of qualified social workers,
  the magnitude of the potential population they
  have to serve and their uneven spread across
  provinces
• Implications of the Shift for Social Welfare
  Services
• Social Welfare services may no longer receive
  peripheral attention
• They may also experience decreased funding and
  further marginalization
• May not warrant a separate ministry
• Negative outcomes for children already in the
  system
• High child poverty tend to results in increased
  involvement in the child welfare system

15
Financing Social Welfare Services

• Trends in Expenditure
• Poorer provinces spend a high amount on
  administration than on other services when
  compared to relatively well-off ones
• Provinces with established NGOs tend to allocate
  more towards subsidies
• The largest portion of allocations is spent on
  child and family welfare services
• There is a noticeable declining trend in
  expenditure on social welfare services in the
  past three years with a concomitant increase of
  social security grants expenditure
• Future Research
• Estimate the level of demand and calculate a
  rough national average for the delivery of social
  welfare service
• Engage the National Department on the development
  of norms and standards for social welfare
• Recommendations
• Give specific consideration for allocating funds
  to social welfare service in the PES
• Expedite the setting of norms and standards for
  delivery of a minimum basket of welfare services
  by provinces

16
Framework for Powers and Functions

• Key Issues
• No clear delineation of responsibility for some
  functions that are shared by spheres of
  government.
• where functions are responsibility of one, but
  carried out by another sphere, uncertainty arises
  on whether its assignment, delegation or agency
  agreement.
• difficult for municipalities to plan and budget
  for the function in medium and long term.
• Municipalities with significant fiscal capacity
  spending more on functions not strictly
  categorised as local government functions in
  terms of Schedule 4B and 5B of the Constitution. 
• Consequences for the intergovernmental fiscal
  system 
• provision of such services could compromise the
  delivery of local govts CMBS

17
Framework for Powers and Functions

• Key Issues contd
• increased local government expenditure should
  result in an increased share for local government
  in the vertical division of revenue, even where
  additional expenditure responsibilities are
  assigned through legislation and
• an increasing asymmetry between the range and
  quality of services delivered by metros and
  larger municipalities on the one hand and smaller
  and fiscally weak municipalities on the other.
• the absence of a uniform framework, makes it
  difficult to compare the fiscal gap among
  municipalities in SA and to design
  intergovernmental transfers accordingly.
• Lack of comprehensive definitions and norms and
  standards for many functions.
• difficult for national or provincial government
  to assign or delegate a function, as specific
  responsibilities and related expenditure needs
  are unknown.

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Recommendations

• The draft DPLG Framework on the Assignment of
  Powers and Functions to Local Government and the
  instruments that give effect to the framework
  should be finalised as a matter of urgency. 
• An Intergovernmental Assignment Framework that
  applies to all three spheres of government should
  be developed. This framework should
• Identify the location of powers and functions
  according to generally accepted intergovernmental
  fiscal principles as outlined in sections 41(1),
  126, and 156 of the Constitution
• Ensure that agreement on funding arrangements is
  reached before a function is assigned
• Develop criteria for assessing whether a sphere
  of government has sufficient capacity to fulfil a
  function and
• Rationalise the current institutional
  arrangements for assigning or delegating
  functions.

19
Recommendations Contd

• Monitoring capacity should be established in the
  national sphere of government to ensure that
  assignment and delegation processes are
  consistent with the Intergovernmental Assignment
  Framework. 
• For any function that may be assigned or
  delegated, Government should
• Develop a clear definition of that function
• Develop norms and standards for that function, so
  as to understand service level responsibilities
  and the concomitant funding implications.

20
Funding Framework for Housing Delivery

• Key Issues
• There are numerous blockages in the housing
  delivery process, largely related to delays in
  finance and planning approvals. 
• Policy shift towards improving housing quality is
  not fully funded. 
• Additional costs that arise in the housing
  process such as new housing standards are
  generally borne by local government.
• Long-term financial liabilities arise for
  provinces or municipalities who carry rental
  housing stock, as rental arrears and operational
  expenses are not covered by rental income. 
• Increase in number of low income households that
  are unable to maintain the monthly service
  charges, increases the debt burden on
  municipalities.
• Alternatively the additional recurrent costs
  associated with increased responsibility to
  provide free municipal services, increases the
  financial stress on low capacity municipalities.

21
Recommendations

• In cases where municipalities have the capacity
  to become accredited to administer housing
  programmes, Government should ensure that funding
  for the administration of housing subsidies is
  made available.
• Accreditation process should reduce delays in
  rolling out housing delivery. 
• Government should consider the funding
  implications of any further policy changes, for
  example when higher building standards are
  specified nationally. 
• Funding gaps should be avoided particularly in
  municipalities with weaker fiscal capacity.

22
Recommendations Contd

• A sustainable financial framework for the
  on-going demands of rental housing schemes should
  be developed.
• Consideration should be given to linking new
  housing subsidies with the MIG and the equitable
  share formula so as to ensure that the
  municipalities can deliver basic services to poor
  households. In doing so, the following should be
  taken into account
• The need to provide municipalities with
  appropriate incentives to extend municipal
  infrastructure and spend funds efficiently and
  effectively
• The need to achieve equity in addressing the
  expenditure needs of local government
• The need to take account of the differing
  capacities of municipalities and
• The need to ensure that LES allocations keep pace
  with the installation of new housing
  infrastructure. 

23
Recommendations Contd

• Government should address housing delivery
  bottlenecks to reduce under spending in
  provinces, resulting from
• Delays in local and provincial government
  planning approvals (EIA, transport plans, social
  compact agreements)
• The lack of project management capacity in some
  provinces and municipalities and
• Delays in proclaiming land, especially where this
  falls within traditional communal areas.

24
Transport Funding Issues

• Key Issues
• Considerable under-investment in S.A.s transport
  infrastructure over the past two decades,
  although this is being addressed through the
  emphasis on infrastructure investment in the MTEF
  2005 
• Considerable debate internationally and within SA
  regarding the desirability of pricing road
  usage through fuel levies and user charges 
• Re-classification of some provincial roads as
  national roads has implications for the
  provincial equitable sharing mechanism 
• Insufficient funding of municipal road
  maintenance in SA, in spite of the fact that up
  to 52 percent of the road network legally falls
  under the jurisdiction of municipalities.

25
Recommendations

• Government should ensure that the following is
  implemented as a matter of urgency 
• Develop criteria and processes for classifying
  all roads and assigning each class of roads to
  the respective sphere of government or category
  of local government and
• assessing the length and condition of all roads,
  and the estimated expenditure need for
  rehabilitation and maintenance arising from
  this. 
• Government should develop a coherent funding
  framework for roads in South Africa, and this
  framework should consider the role of the
  provincial equitable share and existing
  provincial and municipal infrastructure grants.

26
Recommendations Contd

• Government should consider the devolution of bus
  and taxi subsidies to municipalities, where the
  capacity exists to manage these services. 
• Government should implement mechanisms to improve
  the efficiency of inter-modal transport planning
• Government should address certain issues that
  need to be resolved for setting up transport
  authorities, including funding arrangements and
  how the authorities governing bodies are
  constituted.

27
PROGRESS REPORT

• Report on Learner Support Material (LSM)May 2005

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BACKGROUND AND CONTEXT

• FFC carried out a small survey of schools and
  provinces following its analysis of the trends
  in the financing of learner support materials
• Concerns expressed by the then Minister of
  Education on the funding of LSM.
• Survey carried based on a sample of 22 schools
  in three provinces, WC, FS and EC.
• Survey addressed the following issues
• Textbook and stationery availability in schools.
• Causes of shortages LSM and per learner
  allocation.
• Lifespan of textbooks and buying cycle.
• School funding, timeliness of delivery
• control of LSM in schools.
• EMIS on LSM and logistics.

29
Problems identified in survey

• Differences exist in per learner allocation of
  LSM.
• Textbooks and exercise books availability varies
  between schools.
• No single explanation of causes for shortages
  of LSM (e.g. supply and timely delivery of LSM)
• Buying cycle of textbooks.
• Lifespan of textbooks
• Schools charge different school fees.

30
Conclusion

• Survey results indicate serious problems
  associated with provision of LSM.
• However, survey is based on very small sample of
  the schools population and the FFC intends
  expanding the survey in the current work cycle.