SUBMISSION TO PARLIAMENT on the DIVISION OF REVENUE BILL for 2002 / 20003

1. SUBMISSION TO PARLIAMENT on the DIVISION OF REVENUE BILL for 2002 / 20003 ---------------------------- FINANCIAL AND FISCAL COMMISSION For Select Committee 6 March 2002

2. 6. The Size of Provincial Conditional Grants • Conditional Grants fund 12% of Provincial Government spending. • Conditional Grants fund small proportions of provincial Education and Welfare spending, over 20% of Health spending and nearly all expenditure on Housing.

3. 7. Composition of Provincial Conditional Grants • 43% of the total value of Provincial Conditional Grants attaches to the Health sector in 2000 / 01. • 24% to the Housing Subsidy • 18% to Supplementary Allocations • All 3 HIV-AIDs grants constitute 0.9% of total value of P.C.G. in 2001 / 02 (up from 0.4%)

4. 8. Variations and Fluctuations in the Value of Conditional Grants • Factors influencing changes in the value of individual grants include: • Entry and exit of new grants • Performance with respect to under-spending and rollovers.

5. 9. Under- and Over-spending on Provincial Conditional Grants • Compliance with PFMA reporting requirements increased from 63% to 98% of the total value of P.C.G. between 1999 / 00 and 2001 / 02. • Reported under-spending on P.C.G. increased from 5% to 16% during the same period. • Rate of under-spending declines for Social Sector grants and EWS predicts slight over-spending for all Health and Welfare grants (except HIV-AIDs). • Under-spending rates remain high for infrastructure grants (except Housing). • Under-spending high for Transitional and Special Allocation grants – lack of confidence to make new spending commitments?

6. 10. Provincial Conditional Grant Flows & Timing • Quarterly disbursements the norm. • There may be disjuncture against monthly personnel requirements. • Late (and infrequent?) disbursements contribute to under-spending over the short- to medium-term. • Initial allocations for Poverty Relief and HIV-AIDs grants made outside the Budget Process. • Quarterly reporting is the stated norm in the Conditional Grant Framework. However, full compliance with PFMA requirements is not obvious. • Inadequate or incomplete reporting may result in lower than average growth of disbursements and allocations.

7. 11. Organizational Capacity Issues and Under-Spending • The more well-established grants appear to exhibit more frequent and regular disbursements and reporting and hence, lower rates of under-spending. • The growth rate of disbursements appears to exceed provincial capacity to spend especially during the start-up phase. This is important where new policy initiatives are being operationalized. • Nearly 40% of total P.C.G. value is constituted by grants aimed at capacity building and institutional restructuring. However, these initiatives are fragmented.

8. 12.Output Performance Issues • Most Provincial conditional grants indicate measurable outputs. A few indicate quantified output targets. • Some grant descriptions exhibit a wide range of measurable objectives. This makes reporting onerous. • Output measures expected of forthcoming Strategic Plans. • The generation of such data is essential to enable planning for progressive realization towards equal access to basic services. • Increasing rates of spending may hide inefficiencies. Declining rates of spending do not prevent efficiency gains. • Measures of the “outcome” or impact of policy initiatives not provided.