The Generation of Income and the Expenditure Within a State
Case Study: Abuse of taxpayer funds The Public Protector recently found against the Minister of Cooperative Governance and Traditional Affairs, Minister Sicelo Shiceka. The investigation was conducted after allegations surfaced the Shiceka abused public funds by visiting a former girlfriend in jail in Switzerland during 2008 and staying in luxury hotels at taxpayers’ expense, including while he was on official sick leave. In her report, Public Protector Thuli Madonsela said she tried to find evidence in favour of the Minister, but couldn’t find any. The decision prompted President Zuma to fire Shiceka in a cabinet reshuffle.
“Te Public Protector:
www.pprotect.org. Te Auditor General:
www.agsa.co.za” [see more in Module 2
www.publicfinance4sa.info]
Determination of financial capacity
Now that we have established the needs of the community, it is time to determine (calculate, assess, work out) the capacity (potential or ability) of each government authority and each government institution to generate (find, collect money) income and funds. The question we ask here is, how wealthy is that community?
Several criteria can be used, according to Gildenhuys (1993:193): • Per capita income of a community; • The revenue potential of an ideal tax system; • Representative revenue system – financial capacity of the government is regarded as the potential revenue which may be collected within a certain demarcated (measured, limited) area or region.
This capacity (size/ability) to generate income obviously depends entirely on the economic prosperity of the community – if the people don’t have money, the authority will also suffer a lack. The more prosperous a community, the higher its tax-paying ability and therefore the higher the financial capacity of the government authority concerned.
The economic prosperity of a community = Financial capacity of authority
In South Africa with its first and third-world mix of standards and services there often exists great inequalities between regions and between local authorities. Because of a disparity in the prosperity of various local governments, there follows that there is a marked disparity in financial capacity. Sound intergovernmental relations should exist in order for such disparities to be eradicated (done away with completely) or, at least, lessened.
While other countries apply a formula for every region, province or local authority, a standard formula would not work in SA because of the vast differences in the financial capacity between communities. There exists then a policy which one might term situational economics – each case is judged on its merits and the needs of each region or local government are considered separately before the allocation of funds is considered – please see intergovernmental grants further on.
Division of Sources of Income
Which level of government should be authorised to provide services? The obvious answer is that the level of government which is closest to the people and also which can most effectively and efficiently provide such services. This is what we mean by the allocation of functions; a guideline is that a revenue source (income) relating to a specific public service, or generated from that service, should be allocated to the government institution responsible for that service: road taxes should be used to improve and build roads, for example.
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