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Developing innovative approaches to national allocations and transfers to local government and its use
Expanded Title:The design of a system of transfers is of critical importance to the efficiency and equity of local service provision and fiscal health of sub-national government. South Africa’s fiscal framework has evolved progressively over the years with an example of recent work being a review by National Treasury, the South African Local Government Association (SALGA), the Department of Cooperative Governance and Traditional Affairs (CoGTA) and the Finance and Fiscal Commission (FFC) of the system of local government infrastructure grants. Innovations also continue to emerge internationally, particularly relating to performance based grants. In this context, the WRC commissioned this research study aiming to build on work previously undertaken; review current processes related to transfers and allocations; and undertake an international scan of innovative approaches and relevant experience with a view towards identifying challenges and constraints and presenting future requirements and solutions for further evolution in the system of transfers and allocations for water services in South Africa. The study finds that the fiscal framework is largely adequate. The local government fiscal system under which the range of transfers has developed is held in high regard by international observers: overall South Africa has a sound local government fiscal framework, at least from the point of view of water and sanitation funding. Radical change, such as a shift to end user subsidies, is not supported. Effort should be on progressive improvement to the system rather than overhauling it. There are broad systemic challenges related to the administration of the national transfer system. Reporting is onerous for municipalities but has little effect on the performance of the grants. The primary reason is argued to be poor design of the performance system and inadequate national data monitoring and information feedback systems. Further to this there would appear to be instances in which the application of the grant differs in practice, as compared to what was envisaged. The biggest potential for the next progressive improvement in the transfers system lies in introducing incentives into grant design. The current grant system does not incentivise good performance. International experience indicates that incentive-based grants and loans have proven to be an effective driver for reform. Stakeholders in South Africa broadly support the introduction of incentives but it is clear that these would need to be correctly designed, communicated and applied. Incentives probably have to be limited to capital grants as the equitable share transfer cannot be made conditional. There is also substantial improvement possible through funding a well designed and coordinated capacity building initiative. Lack of technical capacity, particularly in more rural municipalities, is the most serious issue facing the water sector in South Africa but capacity building initiatives have generally not been successful. The argument emanating from this research is that capacity building programmes have not been well enough designed and funded. There is strong case for funding of capacity building from the international literature. Returns on money invested in capacity building are considered to be high as large savings can be made on infrastructure with proper maintenance, and revenue raising can be dramatically improved. The MISA regional management support contract initiative, the most recent effort in this direction, started poorly with many procurement delays.
Date Published:01/08/2017
Document Type:Research Report
Document Subjects:Water Resource Management/IWRM - Water Governance
Document Keywords:Policy and regulation
Document Format:Report
Document File Type:pdf
Research Report Type:Standard
WRC Report No:2487/1/17
ISBN No:978-1-4312-0917-0
Authors:Palmer I; Paladh R; Kaplan J; Walsh K
Project No:K5/2487
Originator:WRC
Organizations:Palmer Development Group
Document Size:2 229 KB
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