15th Annual Meeting of the Network on Fiscal Relations Across Levels of Government, OECD, 2-3 December 2019

1. THE SOUTH AFRICAN FISCAL DECENTRALISATION
SYSTEM & PERFORMANCE BASED BUDGETING
For an Equitable Sharing of National Revenue
OECD Fiscal Network – 3 December 2019, Paris
Daniel Plaatjies
Chairperson, FFC

2. UNITARY SYSTEM WITH FEDERAL FEATURES
• South Africa adopted the new political order of multi-
party democracy in the early 90s
• Political negotiations for reform agreed on a unitary
system of government – with federal features
• The system is premised on the principle of cooperative
governance
• The design and the structure of multi-level governance
is underpinned by the Constitution
– The system comprises of three spheres (national
government, 9 provinces and 257 municipalities)
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3. CENTRALISED POWERS & FUNCTION
• Whereas the Constitution establish three spheres of
government, expenditure and revenue powers are highly
decentralised
• National government collect the bulk of tax revenue and
drives expenditure agenda through policies
– Provinces and some municipalities rely almost entirely on
national transfers for revenue.
• The dominance of national government and high
dependency rate often leads to intergovernmental
disputes
– Spheres are encouraged to resolve disputes through
intergovernmental forums rather than the courts. 3

4. POWER SHARING
• The Constitution of South Africa embraces power sharing
and cooperation.
• First, political parties are free to contest election in every
constituent unit
• Second, some expenditure responsibilities are shared
concurrently among the three spheres.
– Functions are assigned on the basis of redistribution rather than
subsidiarity
• The manner in which concurrent functions are exercised
is a cause for ongoing disputes because “original powers
and delegated powers are not defined 4

5. REDISTRIBUTIVE NATIONAL TRANSFERS
• The distribution of economic activity in South
Africa is skewed
• The Constitution recognise the inequities and
entitle each sphere to a share of national tax
– Transfers to subnational governments are allocated
using a formulae that resembles an equalisation grant
• The entitlement element sometimes blurs the line
of accountability between the Spheres
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6. CHALLENGES FOR FISCAL FEDERALISM
• Whereas the legislative and institutional framework for
multilevel government are firmly in place, the country
continue to debate the desirability of the current model
of decentralisation
• A political commitment to a clear model of
decentralisation is lacking
– The future of provinces and district municipalities is under
discussion
• Subnational governments lack the necessary capacity to
deliver
• The weak economy is likely to undermine 6

7. WHAT IS PERFORMANCE-BASED BUDGETING (PBB)?
• Moving from the question “how much money will I get?” to “what can I achieve with
this money?”
• Combining performance information with budgeting to gain value-expenditure
control
• A useful approach to improve/monitor public sector efficiency by examining
performance and public finance at the same time.
• A useful approach to bring a sharper focus on policy priorities and results to examine
policy alignment and (fiscal) credibility.

8. TYPES OF PERFORMANCE BUDGETING
• There are three broad types of performance budgeting:
presentational, performance-informed, and direct
performance budgeting:
– Presentational performance budgeting simply means that
performance information is presented in budget documents or
other government documents.
– In performance-informed budgeting, resources are indirectly
related to proposed future performance or to past performance.
– Direct performance budgeting involves allocating resources
based on results achieved.

9. THE ONE-SIZE-FITS-ALL ARGUMENT
OF “THERE IS NO ONE-SIZE-FITS-ALL”
However, the main issue with performance budgeting is that there is no single model of
performance budgeting, as there is are no consensuses on:
– A single agreed standard definition of performance budgeting;
– The type of information it should include;
– The stage of the budget process when it should be introduced;
– Whether performance information should be used in deciding how to allocate
resources; and,
– If so, how.

10. CHALLENGE OF PBB
• The concept of performance budgeting is rational and should be implemented.
• The argument of “there is no one-size-fits-all” should not be an excuse for subjective
policy decisions being made without informed performance results to prove its value
of the public resource allocated.
• The indirect cost on fiscal credibility of repeatedly failing to deliver results for
government spending i.e. fiscal leakages means policy effectiveness becomes
compromised and ineffective, resulting wastages and corruption – South Africa’s
recent experience.

11. PERFORMANCE BASED BUDGETING
• Governments are facing mounting pressure to deliver
quality services through-out the world
• Growing fiscal constraints calls for delivery of
maximum outputs with minimum inputs
• Performance based budgeting has been introduced as
tool to manage for results in many parts of the world
• Performance based budgeting enables linking of
allocated funds to measurable outputs
• As a principle performance based budgeting must used
to guide the allocation rather than determining them.
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12. SA EXPERIENCES AND CHALLENGES IN
PERFORMANCE BASED BUDGETING
• South Africa uses an incremental budgeting system
which applies performance information unsystematically
• Government department are required to produce Annual
Performance Plans alongside their budget
• The allocation are determined independently of planned
performance outputs/outcomes
• Performance information should be monitored by
relevant oversight bodies
• Government introduced an Outcome Based Approach to
M&E in 2010 - system is not working optimally
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13. THANK YOU
For an Equitable Sharing of National Revenue