Public Sector Governance and Accountability Series: Budgeting and ...

502 Alta Fölscher
Background to Reforms
The constitution provides the institutional framework for budget reforms
in South Africa. It details the structure of the new state; provides a framework
for expenditure and revenue assignment; sets out key institutions,
roles, and responsibilities; and establishes the principle of cooperative governance,
which sets the tone for a consensus-seeking budget process. However,
the constitution largely leaves further national legislation and practice to
sort out how these principles are given effect.
At the time of the democratic transition in 1994, the new government did
not start with a clean fiscal slate. In fiscal year 1992/93, the main budget’s net
borrowing requirement had reached 8.7 percent of gross domestic product
(GDP), and in fiscal year 1994/95, public debt rose to almost 47 percent of GDP
(from a level of approximately 30 percent 10 years earlier), leaving very little
fiscal room for the state to improve the equity of public services. The annual
budgeting system that the new government inherited provided inadequate
tools with which to stabilize fiscal balances and manage the required policy
shifts. The system was highly fragmented, not only in terms of a delinking of
policy, budgeting, and implementation, but also institutionally, increasing
budgeting uncertainty, lack of clarity, and the scope for budget games. It
planned and controlled for inputs and cash, with limited opportunity for systematically
assessing the effectiveness and efficiency of spending or for relating
allocations directly to policy. It was not transparent, with poor underlying
information systems, hidden spending, and inadequate mechanisms to
extract good information for use in the budget process and for accountability
purposes. The budget process itself was largely incremental, offering insufficient
opportunity for the new government to identify ongoing nonpriority
activities and create fiscal room for higher priorities. Accountability was procedural,
and the system was plagued by deeply entrenched inefficiencies.
The new structure of state also required a system rethink. Compared
with a complex state with parallel structures of government serving different
population groups, the new South Africa was a unitary state with three interdependent
but distinct spheres of government: national, provincial, and
local. The constitution assigns to each of the three spheres of government
certain functions, which may be concurrent (shared responsibility between
spheres) or exclusive (sole responsibility of the unit of government). The
national government’s main role is policy making, regulation, and oversight.
It also administers exclusive functions (for example,justice,defense,and foreign
affairs). Provinces are mainly responsible for social delivery, either concurrently
with national government (for example, primary and secondary education,