Response to FFC submission for Division of Revenue

Response to FFC submission for Division of Revenue 2011/12 Dept of Basic Education presentation to Select Committee on Finance 17 August 2010 Dept. of Basic Education: Response to FFC Recommendations 1

FFC Recommendations: Chapter 2 • In short term, government should continue to strive for fiscal consolidation – Agree – although it is always about making decisions that are informed by economic and social realities – Need to keep deficit (thus debt accumulation) in check while at the same time balancing this with need for counter-cyclical measures to stimulate economic growth – Also need to protect most vulnerable through social spending – In this context, we support FFC’s recommendations to continue to expand Child support and old age grants, maintaining high access to health and education Dept. of Basic Education: Response to FFC Recommendations 2

Chapter 2 (continued) • through restricting the growth in entitlement spending to those programmes that have demonstrably worked – Agree as long as this does not discriminate between provinces based on capacity to deliver – Important to balance how fiscal policy is applied to achieve effective spending with the rights of citizens (targeted beneficiaries) in provinces with low or compromised capacity to deliver • Government should refocus expenditure to ensure better coordination and deepen access to (by focusing on) improved service quality – Fully agree – this point is particularly relevant to education – Much scope to improve education outcomes – especially for poor – within current budgets Dept. of Basic Education: Response to FFC Recommendations 3

Chapter 2 (continued) • In particular the Commission recommends: – Continued expansion of child support grant and old age pension grant - Agreed – Sustaining the high levels of access to education and health services – Agreed – key challenge in education financing is mitigation of high income inequality – Reprioritising expenditure towards repair and maintenance – repair and maintenance is important priority in education but we also have a dire backlog that is severely compromising service delivery and limiting the efficient use of very expensive inputs (such as teachers and textbooks) Dept. of Basic Education: Response to FFC Recommendations 4

Chapter 2 (continued) • In the medium to long term, government should: – Introduce a block grant for education, health and social development that funds clearly defined and costed outcomes in these areas – Enable independent cost effectiveness and quality review of both public and private education, health and social wage Dept. of Basic Education: Response to FFC Recommendations 5

Chapter 2 (continued) – Introduce a block grant for education, health and social development that funds clearly defined and costed outcomes in these areas • Challenges in allocations made for basic education in provinces manifest in following ways: (1) the lack of sufficient poverty sensitivity (progressivity) built into the education component of the Equitable Shares Formula; (2) Province does not allocate sufficient or “implied” amount to basic education; and/or (2) allocations within the education budget are not sound – question is whether FFC’s above recommendation will address all or some of these challenges • Proposal will certainly protect social grants as a whole, but may not address problems associated with allocation decisions within social spending as a block • The costed norms approach could introduce poverty sensitivity into budget determinations – which will be good • Caution is that methodologies to determine costed norms and their implications for fiscal decisions are complex – important to appreciate this Dept. of Basic Education: Response to FFC Recommendations 6

Chapter 2 (continued) • Enable independent cost effectiveness and quality review of both public and private education, health and social wage • Agree – but must emphasise that these reviews are complex to conduct and lead to misleading conclusions when not properly done Dept. of Basic Education: Response to FFC Recommendations 7

Chapter 3: Recommendations on Reforming Conditional Fiscal Transfers • When introducing and terminating conditional grants, national departments must: – Introduce a mandatory, systematic process for designing and planning individual conditional grants – Ensure there is an independent evaluation of grant performance at entry, midterm and end of grant • Fully support these recommendations • Government should – Make the criteria for dividing grant allocations transparent – Continue to emphasise the importance of non-financial data reporting • Fully support these recommendations Dept. of Basic Education: Response to FFC Recommendations 8

Chapter 3: Recommendations on Reforming Conditional Fiscal Transfers • National departments must make accounting for delivery a prerequisite for most conditional grants – Agree, but we continue to be faced with the key challenge regarding conditional grants: how do you reconcile the emphasis on accounting for delivery, on one hand, with fact that you cannot prejudice beneficiaries who fall within the jurisdiction of underperforming public administrations, on the other hand? This means that the sanction for poor or suboptimal delivery cannot be a with-holding or reallocation of funds – We are therefore obliged to balance these two important considerations • Budget allocation process must follow grant frameworks specifically – Agreed Dept. of Basic Education: Response to FFC Recommendations 9

Other Recommendations § Chapter Two: Recommendations on Social Assistance During a Period of Fiscal Stress § DBE does not have substantive comments on these recommendations § Chapter Three: § Recommendations on the performance of conditional fiscal transfers in the intergovernmental system – covered above § Recommendations on local government revenue improvement strategies and fiscal stress - DBE does not have substantive comments on these recommendations § Recommendations on reforming local government Equitable Share Formula - DBE does not have substantive comments on these recommendations Dept. of Basic Education: Response to FFC Recommendations 10

Other Recommendations (continued) § Chapter Three (continued): § Recommendations on regionalising municipal services: the case of the electricity distribution industry in South Africa - DBE does not have substantive comments on these recommendations § Chapter Four: Recommendations on Intergovernmental Fiscal Issues in Urban Public Transport § DBE does not have substantive comments on these recommendations Dept. of Basic Education: Response to FFC Recommendations 11