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Financial and Fiscal Commission Briefing

This briefing outlines the role and mandate of the Financial and Fiscal Commission (FFC) in the economy and its contribution to the National Development Plan. It also covers other important issues related to intergovernmental fiscal relations.

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Financial and Fiscal Commission Briefing

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  1. Financial and Fiscal Commission Briefing For an Equitable Sharing of National Revenue Standing Committee on Finance 30 July 2014

  2. Presentation Outline • Role and mandate of the FFC • Role played in the economy • Contribution to National Development Plan • Other issues

  3. 1. Role and Mandate of the Financial and Fiscal Commission

  4. Constitutional and Legislative Mandate • Financial and Fiscal Commission (FFC) • Permanent statutory body established in terms of Section 220 of Constitution • Independent and subject only to Constitution and the law • Must function in terms of an act of Parliament • Mandate of FFC • Makes recommendations, envisaged in Chapter 13 of the Constitution or in national legislation to Parliament, Provincial Legislatures, and any other organ of state determined by national legislation

  5. Structure of the Commission • Commission comprises 9 persons: • A Chairperson and Deputy Chairperson • Three persons, appointed after consultation with the provincial premiers, from a list compiled in accordance with a process prescribed by national legislation • Two persons, appointed after consultation with organised local government, from a list compiled in accordance with a process prescribed by national legislation • Two other persons • All appointments made by the President • Appointments may not exceed 5 years, but Commissioners are eligible for reappointment

  6. General Principles • FFC is concerned primarily with intergovernmental fiscal relations (IGFR) • Legislative provisions or executive decisions that affect either provincial or local government from a financial and/or fiscal perspective • Includes regulations associated with legislation that may amend or extend such legislation • Commission must be consulted in terms of the FFC Act • Important stakeholders for consultation in IGFR • Parliament, Provinces, Ministry of Finance, The Presidency, Organised Local Government, Ministry of Cooperative Governance and Traditional Affairs, National Planning Commission, Intergovernmental Fiscal Forums

  7. 2. Role Played in the Economy

  8. Role Played in the Economy: 3 Pillars

  9. I. Role Played in Economy: Division of Revenue • Regular, annual engagement with the Division of Revenue Bill takes three forms: • Commission produces recommendations on the equitable division of revenue among the three spheres of government (S 9(1) of IGFR Act). This is accompanied by a technical report and simpler policy briefs. • Minister of Finance must consult the Commission 14 days prior to the introduction of the Bill in Parliament and indicate in a memorandum accompanying the Bill what account was taken of the Commission’s recommendations (Sections 10(3) and (4) of FFC Act) • The Commission then produces its third document, a response to the Bill • Another important advisory task relates to assignments among spheres of government. • Before tabling a proposal for a national or provincial assignment to local government in general, the national or provincial Minister must consult the Commission • An assignment of functions or fiscal powers has no legal force until the organ of state making such assignment has indicated the extent to which it gave consideration to the Commission’s views

  10. Role Played in Economy: MBAPRMA • Money Bills Amendment Procedures and Related Matters Act (MBAPRMA) enacted in 2009. Sections making reference to FFC • Section 4(4C) requires that when committees on appropriations consider any money bill, the recommendations of the FFC must be considered/reported on • Section 9(7A) requires that in passing the annual division of revenue bill, the appropriations committees must consult with the FFC

  11. FFC and MBAPRMA [Cont.] • MBAPRMA formalises a four stage budget process consisting of the • Medium Term Budget Policy Statement (MTBPS), • Fiscal framework which delineates revenue and expenditure aggregates • Division of Revenue Act • Departmental appropriations considered by the various portfolio committees • Makes provision for FFC input to: • Finance committee cluster on the MTBPS and the fiscal framework • Portfolio committees drafting of Budget Review and Recommendations (BRR) reports

  12. FFC’s Primary Outputs • Annual Submission on the Division of Revenue (DoR) • Submitted 10 months prior to tabling of the DoR by the Minister • Contains recommendations/proposals for the following fiscal year and medium terms expenditure framework (MTEF) • Submission on the Fiscal Framework and Revenue Proposals • Contains FFC’s response to the fiscal framework and revenue proposals contained in the budget tabled by the Minister • Submission on the MTBPS • Contains the FFC’s response to the MTBPS and adjustments to the division of revenue • Submission on the DoR Bill • Submitted to Parliament in February and outlines the FFC’s response to DoR Bill and relevant annexures • Submission on the Appropriation Bill • Submission made to the Standing/Select Committee on Appropriations • Any other special reports made at own initiative or request by organs of state

  13. II. Role Played in Economy: Developmental Impact • Allocative efficiency and value for money • Focus on Inclusive Growth • Adding more modules (gender, environment, and energy etc.) • Poverty and inequality impact

  14. III. Role in Economy: Support and Interventions Introduction to the Financial and Fiscal Commission 2014

  15. III. Role Played in the Economy: Support and Interventions [Cont.] • Participation on request in various Ministerial Task Teams and Steering Groups (HDACC, MDB etc.) • Website and Media • Other initiatives taken only on request • Meetings, Conferences and Events (Public Hearings etc.) • Partnerships and Coordination Secretariat (Memoranda of Understanding etc.)

  16. 3. Contribution To NDP

  17. 2014-19 Theme: IGFR in support of national development Dynamics of economy & social issues (equity)(1) Capable state issues: Efficiency Effectiveness Collective goods (3) Balance between Accumulation & Breakthrough: Managing past recommendations (2) • Elimination of poverty and reduction of inequality to 0.6 • Need for “Institutional transformation” • Toward a new model?

  18. IGFR in the NDP • Within the NDP, FFC assessment is that Chapter 13 does deal most explicitly with state concerns but there are other Chapters that have a strong relationship • for example, Policy (Chapter 1), Demography (Chapter 2), Economy and Employment (Chapter 3), Economic Infrastructure (Chapter 4), Rural Economy (Chapter 6), Environmental Sustainability (Chapter 5), Housing (Chapter 8), Education (Chapter 9), Health (Chapter 10), Social (Chapter 11), Corruption (Chapter 14), and Transforming Society (Chapter 15)

  19. IGFR in the NDP [cont.] • Interface between development planning tradition and traditional budget planning • Unevenness in capacity that leads to uneven performance in local, provincial and national government identified as being among the key factors exacerbating poverty and inequality • NPC diagnostic referred to the ‘Intergovernmental relations among the three spheres that are poor’ as contributing to increase costs for the poor, confining many to poverty traps

  20. Key IGFR Issues and NDP • Understanding the context of fiscal decentralisation versus centralisation • Assigning expenditure responsibilities • Instruments for financing subnational Government • intergovernmental transfers • local taxation and user fees • investment capital • Budget implementation • Harmonisation and alignment of support

  21. Expenditure Side • The role of the public sector is to: • Provide a stable economic environment • Promote a more equitable distribution of income/resources • Assure a more efficient allocation of resources (when markets fail) But, no-one says that these can all be done best by the central government!

  22. Key Issues in IGFR For NDP: Decentralisation Or Central • Decentralisation is critical for delivery • National dept is at times too far to deliver basic services • How far down do we decentralise? • Education, Hospitals at provincial level • Water, sanitation, electricity at municipal level • How do you deal with concurrent functions (between and within spheres) • Timing is important • When is it appropriate to shift functions?

  23. Key Issues in IGFR For NDP: Redistribution • How do we pay for redistribution to poor households? • Best done through tax system through intergovernmental grants? • Redistribution must be funded by national grants? • Make the rich in metros also pay for redistribution • Limited use of cross-subsidisation to be competitive • Redistribution • Rich to poor • Urban to rural • Intra-city: suburbs to townships • Issues of economy and competitiveness?

  24. Areas of FFC Intervention in NDP: 2014-2019 • Main Areas of Intervention • Knowledge production and sharing • Policy-level interventions through recommendations • Direct interventions, institutional capacity building • Focus work on inclusive growth • Organisational Issues • MoUs and Protocols of Engagement: The partners will formalize the partnership by signing an MOU and agreeing protocols • Active engagement of the private sector and NGOs should be ensured

  25. FFC Lens Throughout • Unpacking some of the factors that make a difference in whether and how goals of NDP are achievable? • Interestingly, how should delivery of NDP evolve in the medium term and towards 2030? • Should the emphasis be on promoting decentralization through capacity building, or should the national government assume the major responsibility for meeting constitutional mandates, despite the fact that these mandates are shared responsibilities • Advising on the fiscal and financial dimensions to many of these developments

  26. 4. Other Issues

  27. Ongoing IGFR Budget and Policy Issues Relevant For Committee • Maintaining overall fiscal discipline/Macro Issues • Adequacy of transfers to sub-national governments • Concurrency and lack of norms and standards • Continuous refinement/update of transfer formulas • Demographic vs. Other factors • Spending performance (conditional grants) • Efficiency vs. Capacity challenges • Striking balance between national and provincial interests, increasing indirect grants • Supply Chain Management/Procurement • issues and compliance/enforcement of laws

  28. Announcements and Ongoing Collaborations • Economics of Corruption • In collaboration with Public Service Commission under MoU • Public Sector Wage Efficiency and Productivity • In collaboration with Public Service Commission under MoU • Food Security and Rights Project • In collaboration with Human Rights Commission • FFC Intergovernmental Fiscal Relations Conference • Invitation extended to all Committee Members • Taking place 11-13th August 2014

  29. FFC’s Website: www.ffc.co.za Presentation to FISD, North West

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