In a December forum, organized by the National Constitutional Foundation, two interesting questions were repeatedly posed by participants. “How do we guarantee adequate opportunities for development for each of the districts?” “Why should some districts get unreasonably large amount from state coffers for development activities, while others get very little or nothing?” Indeed, in a nation which only has the capability of launching development initiatives on borrowed funds (under sovereign guaranties), these questions become pertinent as their repayment actually becomes an obligation for all, if not intergenerational. Undoubtedly these concerns form a challenge for development planners, especially in a country in transition, since their decision-making has to rely on national legal and constitutional framework. On allocation of funds, country practices vary. Considering their relevance, this note has chosen to discuss two examples briefly.
The first example is from South Africa, where perhaps the most interesting democratic transition in the past century occurred. With Mandela’s election as President in April of 1994, a federal form of governance allowing locally elected provincial governments with significant fiscal policy responsibilities was established. Upon resolution of the Provincial Question (number of State or Province), the Assignment Question (provincial powers), and the Representation Question (election by Provinces of their own leadership independent of the central government, and their central representation), the South African Constitution was approved by the Constitutional Assembly on October 11, 1996. This country, wherein the government comprises three spheres (national, provincial, and local), has a system of intergovernmental fiscal relations (through which development agendas are practically managed). The Constitution recognizes the country’s regional, economic, and ethnic diversity, and provides expression to that diversity without undermining the attainment of national unity and an equitable society.
From an implementation angle, the relationship between the national and provincial spheres is one in which the national sphere determines policy (including the norms and standards guiding functions) with provinces acting as the implementing authority. The expenditure responsibilities of the provincial sphere are financed from the centre through a revenue-sharing model. The centre allocates a portion of nationally-raised revenues to provinces through a formula-driven Provincial Equitable Share method, as well as through conditional grants. Unlike the national and provincial spheres, municipalities, especially the large metropolitan ones, have sufficient revenue-raising capacity to meet their expenditures, and additional resources are provided via the formula-driven Local Government Equitable Share.
Essentially, South Africa’s intergovernmental fiscal relations are characterized by relative centralization on the revenue side with highly decentralized expenditure responsibilities (where development activities are actually carried out). As such, unable to raise enough revenue from their assigned taxes and in order to achieve their constitutional mandate, Provinces rely heavily on intergovernmental transfers. In addition, the national government has introduced universal free basic services, inter alia, for education, electricity, water and sanitation to address affordability issues. Such a decision has entailed the provision of a minimum service level for all citizens and a scaled pricing mechanism for any service level utilized above that minimum.
The Constitution requires that the allocation of funds from nationally collected revenue should be divided on an equitable basis among the three spheres of government (Chapter 13, Section 214). This vertical division is in addition to the horizontal equitable division of revenue among the nine provinces and 284 municipalities. This is also a national government policy that reflects the relative priority functions assigned to each sphere of government. The horizontal division of revenue is formula-based, which takes into account the specific factors of demographics and economic activity.
Finally, and most importantly, to ensure justice amongst the spheres, the Constitution enables the national and provincial spheres to temporarily intervene in the affairs and the administration of a Province or a Municipality (in the case of Provinces) where there is evidence of failure to deliver on mandates. However, the approach of the upper spheres of government, in such instances, has been to take measures early in the process to avoid outright administrative take over. This approach has actually given the opportunity to develop more appropriate solutions, focus on improving conditions as opposed to punishing the relevant sphere of government, and leverage the scarce human and financial resources required to solve the problem, all through political dialogues.
The second example is from Germany, where the upper federal house (Bunderstat) is composed of the governments of its constituents. Under the German Constitution, originally enacted in 1949 as the "Basic Law" of the Federal Republic of Germany, the federal government administers a few institutions (such as the Foreign Service, the Armed Forces, and the Central Bank). On the other hand, schools and the local police are left to State and local governments. The general constitutional rule, however, is that the States administer federal statutes and regulations "as their own affair" or, in some cases, on behalf of the federal government, and also participate as political entities in the formation of federal policy (federal statutes that substantially affect the States, especially their budgets and administrative obligations require the assent of the Bundesrat, an assembly of the States' delegations). Hence the States' independent authority lies in their administrative autonomy, and as such, they enjoy certain protections against direct federal interference in the administrative process. On the other hand, they are required to also administer federal programs from their own funds. Nonetheless, the Basic Law matches independent State administration with a fiscal mechanism to ensure that the States will toe the federal line. The operational core of German federalism is, therefore, the Financial Constitution (contained in Articles 104-109 of the Basic Law, encompassing 33 long paragraphs).
General revenue sharing being the constitutional principle, in Germany, personal and corporate income taxes as well as value-added taxes raised in the States are shared between the Federal government, the States, and Local governments. The vertical distribution between the States and the Federal government has to be equitable, avoid excessive burdens on taxpayers, and preserve the uniformity of living conditions within the nation. The States' share is subject to a constitutional scheme of horizontal financial compensation (i.e. revenue-rich supporting revenue-scarce States). In addition, the Federal government may use its own funds to supplement the poorer States' budgets.
Whatever may be the form of government, the nexus between equal right to develop and political governance is obvious. From a purely juristic angle, this nexus can be established, in any given country, by creating a system of government in which sovereignty is divided between many constituent political sub-units, and in which the power to manage development is legally shared amongst national, state, provincial, and local governments. Sub-units, as empowered, would design and implement development schemes that are suitable for them, taking into account the variations of their own needs and objectives. This is how equal right to develop can be granted. And this can be meaningful only if all responsibilities and obligations are clearly laid down in the main organic law!
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