On May 29, 2024, South Africans voted for their seventh administrations since the dawn of democracy. Voters received three different ballot papers to consider, one for the national government, one for the provincial government and one for the municipal authority which all represented different candidates.
In South Africa, the three spheres of government — national, provincial, and local (municipal) — have different sources of revenue. Each sphere has its own mechanisms for generating income, which is then supplemented by transfers from the national government. Here’s a detailed look at the various sources of revenue for each sphere:
1. The total revenue generated annually by the three spheres of government in South Africa can vary from year to year based on economic conditions, tax policies, and other factors. However, here are some approximate figures based on recent budget data:
1.1. National Government
The national government’s revenue primarily comes from various forms of taxation. In recent years, the national revenue has been substantial, reflecting the broad tax base and diverse sources of income. For the fiscal year 2023/2024, the national government projected revenue was approximately R1.69 trillion.
1.2. Provincial Governments
Provincial governments generate some revenue on their own, but they rely heavily on transfers from the national government. The total revenue available to provincial governments, including transfers from the national government, is typically around R680 billion to R700 billion per year. This includes the equitable share, conditional grants, and provincial own revenue sources.
1.3. Municipal Governments
Municipalities generate revenue from local taxes, service charges, and transfers from higher levels of government. The total revenue for all municipalities combined is generally around R450 billion to R500 billion annually. This includes their equitable share from national revenue, conditional grants, and own revenue sources like property rates and service charges.
Combined Revenue
Combining the approximate figures, the total annual revenue generated by the national, provincial, and municipal governments is around R2.82 trillion to R2.89 trillion. Breakdown of Total Revenue (Approximate for 2023/2024)
- National Government: R1.69 trillion
2.Provincial Governments: R680 billion to R700 billion
Municipal Governments: R450 billion to R500 billion
2. Sources of Income
2.1. National Government
Primary Sources:
Taxation: The national government collects various forms of taxes, which constitute the bulk of its revenue.
- Personal Income Tax (PIT): Tax on individuals’ earnings.
- Corporate Income Tax (CIT): Tax on company profits.
- Value-Added Tax (VAT): A consumption tax levied on the sale of goods and services.
- Excise Duties: Taxes on specific goods like alcohol, tobacco, and fuel.
- Customs Duties: Taxes on imports and exports.
- Other Taxes: Includes capital gains tax, dividends tax, and transfer duties.
- Non-Tax Revenue: Other sources of income for the national government.
- Fees and Charges: For government services and regulatory functions.
- Fines and Penalties: Collected from legal and regulatory breaches.
- Profits from State-Owned Enterprises (SOEs): Dividends from SOEs like Eskom and Transnet.
2.2. Provincial Governments
Primary Sources:
Transfers from National Government: The bulk of provincial revenue comes from national government transfers, which include:
- Equitable Share: A formula-based grant to ensure provinces can provide basic services.
- Conditional Grants: Earmarked funds for specific purposes such as health, education, and infrastructure.
- Provincial Own Revenue: Provinces also generate some revenue through:
- Motor Vehicle Licenses: Fees collected from vehicle registrations.
- Hospital Fees: Charges for medical services at public hospitals.
- Gambling and Betting Taxes: Levies on casinos, betting, and lotteries.
- Interest and Dividends: Earnings on investments and financial reserves.
- Other Fees**: Various administrative fees and charges.
3.3. Municipal Governments
Primary Sources:
Transfers from National Government: Significant portion of municipal revenue comes from national government, including:
- Equitable Share: Unconditional transfers to ensure municipalities can provide basic services.
- Conditional Grants**: Funds for specific projects or purposes, such as infrastructure development.
- Municipal Own Revenue: Local sources of income include:
- Property Rates: Taxes on property ownership based on property value.
- Service Charges: Fees for municipal services such as water, electricity, sanitation, and refuse removal.
- Tariffs and User Fees: Charges for the use of municipal facilities and services, including public transport and recreational facilities.
- Fines: Revenue from traffic fines, penalties for by-law violations, etc.
- Licenses and Permits: Fees for business licenses, building permits, and other regulatory services.
- Rentals and Sales: Income from renting or selling municipal assets and land.
4. The revenue sources for each sphere of government in South Africa are designed to match their respective responsibilities and service delivery roles. The national government relies heavily on broad-based taxes, provincial governments depend largely on transfers from the national government supplemented by their own revenue sources, and municipalities generate revenue primarily from local taxes, service charges, and transfers from higher levels of government. This system ensures that each sphere has the necessary resources to fulfil its functions while maintaining a degree of financial autonomy.
The South African government uses a systematic and formula-based approach to allocate revenue to various provinces and local municipalities. The main basis for this allocation is outlined in the country's legal and regulatory framework, including the Constitution and the Division of Revenue Act (DORA), which is enacted annually. Here’s an overview of the primary factors and procedures involved:
Basis for Revenue Allocation
4.1. Constitutional Mandate:
The Constitution of South Africa mandates an equitable division of nationally raised revenue among the national, provincial, and local spheres of government. This is intended to ensure that each level of government has sufficient resources to provide basic services and fulfil their responsibilities.
4.2. Division of Revenue Act (DORA)
DORA is an annual legislative act that specifies the equitable division of revenue raised nationally among the three spheres of government. This includes the amount allocated to each province and municipality.
The act outlines the division of funds into three main components: the equitable share, conditional grants, and specific purpose allocations.
4.3. Factors Considered in Allocation
4.3.1. Equitable Share Formula:
The equitable share formula for provinces considers several factors, including:
- Population Size: Larger populations receive more funds due to greater service delivery demands.
- Demographic Profile: Age distribution, health, education needs, and other demographic factors.
- Poverty Levels: To address socio-economic disparities.
- Infrastructure Needs: Provisions for infrastructure development and maintenance.
4.3.2. Conditional Grants:
Conditional grants are earmarked funds provided to provinces and municipalities to achieve specific national objectives. These grants come with conditions that the receiving government must meet, ensuring that the funds are used for their intended purposes, such as health, education, housing, and infrastructure projects.
3. Local Government Equitable Share:
For local municipalities, the formula considers:
- Basic Services Component: To fund the provision of basic services like water, sanitation, electricity, and refuse removal to households.
- Institutional Component: To support administrative and governance functions.
- Development Component: To address the developmental needs of municipalities, especially those that are less developed or rural.
5. Procedures and Systems for Allocation
5.1. Budgetary Process:
The allocation of government income is part of the annual budgetary process. The National Treasury prepares the budget, which is then presented by the Minister of Finance to Parliament.
The budget outlines revenue estimates and expenditure plans for the upcoming fiscal year.
5.2. Medium-Term Expenditure Framework (MTEF):
The MTEF is a three-year rolling expenditure planning framework that sets out the government's spending plans based on policy priorities. It provides a longer-term perspective on budgeting and ensures that resources are allocated in line with government priorities.
5.3. Intergovernmental Fiscal Relations Act:
This act provides a framework for intergovernmental relations and co-ordination between the different spheres of government. It ensures that there is a structured process for consultation and negotiation on fiscal matters.
5.4. Financial and Fiscal Commission (FFC):
The FFC is an independent advisory body that makes recommendations on the division of revenue. Its role is to ensure that allocations are fair, equitable, and aligned with national priorities.
5.6. Public Participation and Oversight:
Public participation is a crucial part of the budget process. Citizens and interest groups can provide input during the drafting and approval stages of the budget.
Parliamentary committees also play a significant role in scrutinising the budget and ensuring accountability.
6. Conclusion
In South Africa, the allocation of total revenue among the central (national), provincial, and municipal levels of government is determined annually through the Division of Revenue Act (DORA). The exact percentages can vary each fiscal year based on the budget priorities and fiscal conditions. Here is a general outline of how the revenue is typically distributed:
Typical Revenue Distribution Percentages
6.1. Central (National) Government:
The national government typically receives the largest share of the total revenue. This is because it is responsible for broad national functions such as defence, justice, and higher education, as well as redistributive policies and national public goods.
Approximately 48% to 50% of the total revenue is allocated to the national government.
6.2. Provincial Governments:
Provinces receive a significant portion of the revenue to fund key social services such as basic education, health, and social welfare.
On average, provinces receive about 42% to 43% of the total revenue.
6.3. Municipal Governments:
Municipalities receive the smallest share, reflecting their more limited range of responsibilities compared to the national and provincial governments. Their functions include local infrastructure, basic services (such as water and sanitation), and local economic development.
Municipalities generally receive around 7% to 9% of the total revenue.
- Breakdown of the Allocation (Approximate):
- National Government: 48% to 50%
- Provincial Governments: 42% to 43%
- Municipal Governments: 7% to 9%
Factors Influencing Allocation
- Equitable Share Formula: As explained previously, this formula is based on demographic factors, service delivery costs, and infrastructure needs.
- Conditional Grants: These are allocated for specific purposes and projects, influencing the overall distribution.
- National Priorities and Policy Shifts: Changes in national priorities and economic conditions can lead to adjustments in these percentages.
The new political dispensation will be testing the above structures and procedures but despite the manifestos of the various parties will find it difficult to fault the existing status quo.
* Kruger is an independent analyst.
** The views expressed do not necessarily reflect the views of Personal Finance or Independent Newspapers.
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