What is the relationship between fiscal decentralisation and the principles of good governance? How does fiscal decentralisation in South Africa affect the delivery of social services? This paper from the Institute for Democracy in South Africa suggests that financial decentralisation is a tool to broaden democracy. To be effective, it must be accompanied by adequate financial resources, capacity-building and civil society participation.
Reducing poverty through the extension of basic services and infrastructure among marginalised communities is a top priority for the South African government. A key challenge is to raise and redistribute revenues to match the social needs of poor communities whilst providing for economic growth. Fiscal decentralisation aims to provide a framework for the efficient provision of public services by aligning expenditure with regionally based priorities.
‘Fiscal decentralisation’ refers to the percentage of total government expenditure executed by sub-national governments. South Africa has a three-tier system encompassing national, provincial and local governments. Bringing the decision-making processes closer to people is expected to enhance citizen participation, increase government responsiveness to local needs and thereby improve quality of service. The actual outcome depends on design and the institutional arrangements for implementation. Characteristics of financial decentralisation in South Africa are:
- Fiscal decentralisation in South Africa is evolving towards a significant increase in the role and responsibilities of sub-national governments in providing public services.
- The provincial premiers are concerned about a growing vertical imbalance, meaning fiscal imbalance between the three levels of government. This is caused by the discrepancy of increasing expenditure responsibilities and limited revenue-raising abilities. About 97 per cent of provincial and local governments’ revenue comes from the national government.
- There is no automatic assurance that increased fiscal autonomy for sub-national governments will lead to improvements in public services.
- For sectors of particular relevance to poverty reduction, such as health and education, there is no strong evidence that fiscal decentralisation has reduced poverty.
- The financial resources available are inadequate to ensure efficiency, coverage and quality of local service provision.
Efficient delivery of pro-poor public services cannot be achieved in the absence of good governance. In the context of fiscal decentralisation, good governance means that national government enables sub-national authorities to fulfil their obligations. Policymakers should take the following observations into account:
- Financial decentralisation should not be used as a means for national governments to shift the burden of financing services to sub-national governments and private providers.
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Pro-poor budgeting creates incentives for macroeconomic risk-taking by increasing government vulnerability to financial deficit and over-expanding the size of the public sector.
- The transfer of responsibilities to sub-national governments could slow down the delivery of services unless accompanied by adequate capacity-building and civil society participation. Political commitment of local elites is required.
- Fiscal decentralisation requires citizen participation since resource allocations should reflect local preferences. The challenge is to overcome the technical complexity of the process and find appropriate ways to institutionalise participation.
- Further steps to enhance service delivery by sub-national governments need to focus more sharply on coherent policies targeted towards outcomes. Explicit universal quality standards of service provision should be developed to measure the real impact on targeted populations.
