Minister of Finance, Mr Trevor Manuel, MP, Cape Town
3 May 2007
"Co-operative governance and intergovernmental fiscal relations"
Chairperson
Ministers present here
Members of Parliament and Provincial Legislatures
Mayors and councillors
Distinguished guests
Ladies and gentlemen
Historians will have to reflect on the amazing foresight that was
demonstrated in drafting our Constitution. We were able to draw from the best
experiences from all over the world but importantly we had to take account of
our own unique circumstances. Thus, in constructing a framework for our second
House of Parliament, we could have opted for a Senate, a House of Traditional
Leaders or even just an upper house we opted instead for the creation of a
NCOP. We imbued the NCOP with a custodial role over our provinces which were
young, vulnerable and untested. The Constitution gives the NCOP a
representative role "to ensure that provincial interests are taken into account
in the national sphere of government". This responsibility is quite
unprecedented in constitution making.
The Constitution also provides a framework for co-operative government, a
task to which it devotes an entire chapter. It sets out the framework between
spheres of government and organs of state as follows:
i) co-operate with one another in mutual trust and in good faith by
ii) fostering friendly relations
iii) assisting and supporting one another
iv) informing one another of and consulting one another in matters of common
interest
v) co-ordinating their actions and legislation with one another
vi) adhering to agreed procedures
vii) avoiding legal proceedings against one another.
This is indeed a tall order and the arena for the advancement of
co-operative governance vests in the NCOP. All of these tasks are without
precedent, the fact that we are here celebrating the 10th anniversary of the
NCOP attests to that. Some of these tasks are being developed in practice and
we are developing convention to facilitate the learning. Other tasks have yet
to be tested and we can be sure that some of the testing and some of the
interpretation will demand the greatest resilience and powers of persuasion.
This is the environment that will always define relations between strong willed
collectives who are invested with powers and functions and who are under
pressure to perform.
The key challenge in the context of co-operative governance lies in the
ability to truly advance provincial interests in an environment where of
necessity the NCOP straddles the three spheres of government "distinctive,
interdependent and interrelated" as they are, yet at the same time must mediate
horizontally within the provincial sphere. The scale of the task at hand must
really be appreciated.
We have, of course, passed a suite of important legislation which
includes:
* the Intergovernmental Fiscal Relations Act
* the Borrowing Powers of Provincial Governments Act
* the Public Finance Management Act, in terms of which we also publish for
scrutiny Section 32 and Section 40 reports on revenues and expenditures by
national and provincial departments
* the Taxation Powers of Provincial Governments Act.
These pieces of legislation all assist in creating a manageable and
predictable set of relations. We need to remind ourselves that whilst each
sphere of government has discrete responsibilities, the provinces are at the
forefront of the delivery of services that seek to reduce vulnerability,
poverty and inequality. In the context of our commitment to an activist and
developmental role for the State, this set of responsibilities defines the
bedrock of our commitment to our Bill of Rights.
We must recognise that unlike most jurisdictions in the world, our provinces
raise only about 3,5% of their own revenues. The ratio of 96,5% of fiscal
transfers is completely unprecedented. Constructing a workable arrangement for
this is the real test of the efficacy of our intergovernmental fiscal relations
system. In contrast, local government raises about 85% of its own revenues
through local taxes and user charges. During the current fiscal year the split
between the three spheres of government of nationally raised revenues is
national 50,4%, provinces 42,4% and local government secures 7,2%.
These issues are pertinent because our Intergovernmental Fiscal Relations
System (IFRS) is premised on seven key principles namely:
* Accountability and autonomy: each sphere has specific constitutionally
defined responsibilities, is accountable to its own legislature or council and
is empowered to set its own responsibilities.
* Good governance: accountability of political representatives to its
electorate and transparent reporting arrangements within and between spheres is
at the heart of our intergovernmental system.
* Redistribution: the three spheres all have important roles to play in
redistribution but because inequalities exist across the country, the
redistribution of resources is primarily a national function.
* Vertical division: determining allocations to each sphere inevitably involves
trade offs through a comprehensive budget process, driven by political
priorities and which covers all aspects of governance and service
delivery.
* Revenue sharing: the fiscal system takes into account the fiscal capacity and
functions assigned to each sphere.
* Broadened access to services: the Constitution and current government policy
prioritises service delivery to all South Africans.
* Responsibility over budgets: each sphere of governments has the right to
determine its own budget and the responsibility to comply with it.
Chairperson, I would like to invite this summit to evaluate the working of
our Intergovernmental Fiscal Relations against the framework of the combination
of our Constitution, the legislation I referred to earlier and the principles
enunciated. I am very sure that you will agree that the system works remarkably
well under the circumstances.
But all of that refers to the easy parts. Let me draw attention to three of
the matters that continue to test the arrangements for co-operative
governance.
1. Policy making and budgeting for concurrent functions
In any system of co-operative governance there are inter-linkages between
policy making and resource allocation where cooperation gets tested to its
limits. Our constitution makes certain functions concurrent education, health,
welfare, housing etc, to name a few. My colleagues in these national
departments are primarily responsible for policy formulation while provinces
are supposed to allocate budgets and effect implementation.
It is public knowledge that concurrence is one area where the system has
encountered some challenges. Accusations of unfunded mandates or misalignment
between policy and budgets abound. The design of our system has an inherent
tendency to lead to this tension. Typically, a minister responsible for a
concurrent function would ask for resources for a policy priority for example
"no fee schools". If such resources are granted through the division of revenue
process that does not guarantee that such a policy would be funded to the
extent she/he would prefer it to be. Subsequent (and indeed legitimate)
decision making processes might see less or no resources allocated to that
priority. To all intents and purposes a provincial executive can request its
legislature to appropriate its share of the equitable share differently. Hence
many national departments prefer earmarked allocations for their priority
policy programmes. This, in effect, takes away "autonomy" and discretion from
the province and thus reduces their sense of ownership of the programme and
accountability.
This is one area that we need to think about in the future. The system does
need some innovation if we are to circumvent both a set of failed policy
initiatives or a Division of Revenue Act that will each year be dominated by a
myriad of conditional grants. I invite the summit to consider this matter.
2. The assignment of powers and functions
Secondly and not unrelated to the first point is the issue of the assignment
of powers and functions between spheres. Again my appeal is that we draw on the
experience of the last decade to determine whether the current configuration of
powers and functions naturally lends itself to more efficient and effective
delivery of services to our people. The appeal is for an objective look at the
reality that some of the functions may not be assigned to the spheres that are
best suited to perform them (housing is one good example). It should be within
the capacity and mandate of the NCOP to raise matters and then debate them. If
the final outcome of such debates requires amendments to the schedules of our
Constitution, then we have to respond to such challenges maturely.
3. Oversight and accountability
The third area where our system needs review is in relation to oversight and
accountability. In this regard I would like to invite the summit to think about
two issues:
* Firstly, we have to explore how to enforce accountability for performance
more vigorously in the context of our intergovernmental system. Again this
becomes more difficult in relation to concurrent functions. For instance would
it be entirely unreasonable for an MEC to argue that his/her department failed
to implement a particular policy because the policy was bad in the first place?
And what is our collective responsibility in such a situation?
* Secondly, as evidenced in the work of the Select Committee on Finance, the
question of which institution is most appropriate for certain organs of the
State to account to. I should not hide the fact that certain provinces have
questioned whether it was appropriate to call members of the provincial
executive before the NCOP to account for their spending and performance. We
cannot ignore such developments since they are likely to reoccur and create
frustrations both in the NCOP and in the affected provinces. Again I want to
invite this summit to take a long view on the risk of contradictions that may
arise.
Chairperson, we have learnt many valuable lessons in the first ten years of
the existence of the NCOP. And the story of the practice of co-operative
governance must be told. Yet, we have to remain humble about the unfinished
business. As I indicated earlier some aspects of our commitment to co-operative
governance will be tested in a crucible that will be far less congenial than
the relations we enjoy now. In raising the three challenges that test our
resolve, I express the hope that we can circumvent difficulties by our ability
to anticipate and remedy them long before they present as crises.
I wish you well in these glorious celebrations.
Thank you!
Issued by: National Treasury
3 May 2007
