Briefing by the Ministry of Finance on the 1997/98 Adjustments Estimates

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Finance Standing Committee

16 February 1998
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FINANCE PORTFOLIO COMMITTEE
17 FEBRUARY 1998
BRIEFING BY THE MINISTRY OF FINANCE ON THE 1997/98 ADJUSTMENTS ESTIMATES

General comments:
Inflation has come down
Departments have done well under the fiscal framework
FFC formula is a set of assumptions, it Is not indicative of the budget
The question of the management of the entire process: division to the provinces needs to be revised
Provincial dependency on central government is unique in other countries the ‘vertical imbalance’ is closer to a 50/50 situation. Three risks in decentralization: local capture, macroeconomic instability, growing inter-provincial inequality. We need to find a balance between these three risks on the one hand, and provincial autonomy on the other.
Deficit = 1,2 Billion rollovers

1,5 Billion contingency that will be managed under Sec 100 1a of the constitution – conditions to be gazetted, one being that the province applying would have to show that it collected their own revenue optimally. This R1,5 billion is for irredeemable differences between the expenditure and revenue of provinces (not cash flow related).

Unforeseen & unavoidable expenditure. The key determinant to any additional allocation is whether those expenditures are unforeseen or unavoidable. Departmental overspending is presented to the treasury committee presided over by the deputy director of State Expenditure. After departmental submissions in a first round of hearings provisional allocations are made. In reaction the departments make a second series of submissions after which final allocations are made.

Growth is occurring at the expense of jobs - labour units costs are dropping
Inflation - cannot be the only macro-economic indicator.

Polmed - scheme unsustainable - after 10 years of service the member and his/her family have free medical cover for life. Absence of adequate control, but need for sensitivity to the enormous risks faced by the members.

Provinces are not doing enough to raise own revenue. The Department of Finance is awaiting the Katz commission report before legislation for a provincial surcharge on personal income tax. Provinces fear that they will face an exit of the wealthy if they levy a surcharge higher than another. Generally huge provincial bureaucracies reduce the quality of services delivered in the provinces
Commitment to phase out rollovers - at what point do rollovers become a fiscal problem?

Comments & questions by the committee members:

- formula for provincial funding to be revised
- thorough examination of provincial revenue raising
- the system of police medical care to be revised
- treasury must look on a formula to counter budgetary non-compliance
- concern about the legal assistance to P.W Botha
- concern also was shown on steps to deal with the issue of supernumerary employees in the E.C.
as this was costing the taxpayer
- rate of economic growth & inflation

After the briefing by the Ministry of Finance, the committee invited the departments which requested the additional funding for their programmes but with no concurrent powers with the provinces viz.Correctional Services & Justice

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