Intergovernmental fiscal transfers to provinces : how equitable is the equitable share?

Abstract

Intergovernmental fiscal transfers from national government to provincial governments are essential to ensure that provinces perform their allocated functions at the required standard. In this regard, the Constitution of the Republic of South Africa, 1996 enshrines the principle that provincial governments are entitled to an equitable share of the nationally raised revenue. To determine the size of the share to which each province is entitled, South Africa makes use of an equitable share formula. This article tests the fiscal stress experienced by the different provinces as well as the size of the provincial allocations against objective criteria to determine how equitable these transfers are. Based on an analysis of a variety of documents such as national legislation and official publications, this article concludes that the equitable share formula is mainly a population-driven formula and that the population size of each province is the predominant contributor to the size of a provincial allocation. The outcomes point to the fact that although there is a correlation between the size of the allocation to each province and the criteria used to determine the fairness thereof, other factors that may influence the cost of services are not considered by the formula. This is relevant because aspects like economies of scale, topography and geography may influence a provincial government’s ability to provide services.