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How Provinces are Funded to Fulfil Rural Development Mandates - Policy brief 5

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How Provinces are Funded to Fulfil Rural Development Mandates - Policy brief 5

11th July 2017

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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.

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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.

The Commission recommends that departmental reports be disaggregated in accordance with municipal boundaries, and that national government ensure that grant conditions take into account spending efficiency and performance. A comprehensive review of infrastructure conditional grants to rural areas should be carried out, to assess the reduction of backlogs and spending efficiency.

Report by the Financial & Fiscal Commission

  • How Provinces are Funded to Fulfil Rural Development Mandates - Policy brief 5
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