| Summary: | The motivation for fiscal decentralisation in a vast number of countries is to tackle the challenges facing modern government in its desire to provide public services in an effective and efficient manner. The study deals with the general theoretical framework of fiscal decentralisation and continues to focus on the significance of fiscal decentralisation in governance in a majority of countries, including South Africa. With particular reference to South Africa, the right of citizens to have access to publicly provided goods and services is entrenched in the Constitution. The Constitution further provides for cooperative governance and recognizes the three spheres of government as distinctive, interdependent and interrelated. Provincial and local governments are also mandated to perform an important function of delivering services to the people in a manner that ensures equity. Since the attainment of democracy in 1994 there has been some progress and remarkable changes, as well as challenges.
The Constitution is instrumental in the assignment of functions to each sphere of government including revenue raising powers to provincial and local governments. However, a situation exists that significant revenue raising powers lie with the central government compared to the provinces and municipalities which are assigned less taxing powers. The intergovernmental fiscal system in South Africa provides for the distribution of nationally raised revenue to sub-national governments to deal with a variety of issues including addressing vertical and horizontal fiscal imbalances and the delivery of services. The existence of vertical fiscal imbalances is a result of, amongst other factors, the concentration of broad taxing powers at the national sphere of government, while provinces and municipalities have limited access to own sources of revenue. Despite the inadequacy of revenue sources at the disposal of provincial and local governments, many expenditure responsibilities are decentralised. As a result, challenges such as the delivery of services at sub-national government level, capacity issues and unfunded mandates are experienced.
In spite of the challenges experienced by provincial and local governments in South Africa regarding the current exercise of revenue assignment and expenditure responsibilities, there is room for enhancing delivery of services. There is a need to improve on the efforts and ability of provincial and local governments to collect existing revenues assigned to them as well as the provision of public goods as mandated by the Constitution. This is crucial because of concerns that intergovernmental fiscal grants are a contributing factor to some municipalities and provinces which do not make an effort to maximise their own revenue collection. There are various challenges that contribute to insufficient revenue collection at sub national government. The Financial and Fiscal Commission (2006:163) notes that even though provinces and municipalities have revenue collection as a key strategic priority in their strategic plans, there is a general lack of commitment to increasing own revenue collection, particularly by line departments tasked with service delivery. There is also another challenge related to poor policies and procedures regarding revenue management and controls in the collection of revenue by both municipalities and provinces.
The study continues to make a comparative analysis between South Africa and selected countries which are already implementing fiscal decentralisation in order to deal with the inefficiencies and ineffectiveness of providing publicly provided goods and services. This is done with the view to assist in identifying both similarities and differences with South Africa, and where possible, provide meaningful lessons. The countries which have been selected for the comparative analysis are India, Hungary and Spain. These countries have been chosen on the basis of the existence of certain characteristics and basic building blocks of fiscal decentralisation which are comparable to South Africa. The similarities between South Africa and the selected countries include, amongst other things, the concentration of significant taxing powers at central government level as opposed to sub-national governments. Consequently, sub-national governments 4
are forced to rely on intergovernmental fiscal transfers, thus compromising autonomy and leading to ineffective delivery of services. Another similarity between South Africa and these selected countries pertains to the existence of borrowing powers of sub-national governments in order to finance capital infrastructure expenditure. There are however, differences between the intergovernmental fiscal framework systems of South Africa and each of the selected countries. These differences include, amongst other things, property tax is one of the taxes levied by local government in South Africa. However, in Hungary, property tax at local government is said to raise constitutional issues due to problems of multiple taxation. The other differences relate to the devolution of taxing powers to sub-national governments in India and South Africa. In South Africa, sections 227 and 228 of the Constitution provide for the devolution of taxing powers to the provincial and local governments respectively. Regarding the intergovernmental fiscal system in India, its Constitution empowers the president to establish the institution called the Finance Commission on a five yearly basis. The Finance Commission is required to recommend, amongst other things, the devolution of taxing powers from the central government to sub-national government as well as provide grants to the states in need of additional financial assistance.
The study concludes by focusing on the importance of a clear assignment of revenue sources and expenditure responsibilities which should incorporate central as well as sub-national components to fully realize the possible benefits of fiscal decentralisation. In addition, it is important that the priorities of national government and the sub-national governments’ budgets be aligned to avoid problems arising from service delivery and unfunded mandates. === MCom (Economics), North-West University, Potchefstroom Campus, 2011
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