The Homeland Public Sector

The largest single component of monetized area output in the homelands as a group is the public sector. Agriculture would be the most important economic activity if subsistence and commercial production were added together. But among monetized economic activities the homeland governments overshadow the private sector. Bophuthatswana's basic economic structure is somewhat anomalous because of its poor agricultural base and high mineral output. In fiscal 1971/72 the subsistence sector accounted for only 15 percent of output, compared to 24 percent for the public and 61 percent for the private sectors. In KwaZulu in fiscal 1971/72 about 24 percent of output was generated in the private market sector and 43 percent in the subsistence sector.^[28] The public sector is also responsible for virtually all of the capital formation in the homelands, although the agency system does bring some white investment in the growth points. Most of this spending comes from the Bantu Trust, but the homeland governments are increasingly engaging in expenditures for housing, fencing, wells, roads, schools, utilities, and other fixed capital items. Provincial governments and departments of the central government also make some investments, presumably in housing and infrastructure.

The expenditures of the homelands are contained in their annual budgets. These budgets show the growth in spending by the homelands, and their composition affords some insight into the relative emphasis on different activities. In summary form, the budgets of Bophuthatswana and KwaZulu distinguish internal and external sources of funds and show expenditures according to departments as allocated by the legislative assemblies. These initial allocations and revenue estimates are sometimes changed or supplemented during the financial year, but without distorting the general pattern.

[28] BENBO, Bophuthatswana, Economic Revue, 1975, 30; idem, KwaZulu, Economic Revue, 1975, 34.

The homelands obtain revenue from two sources: 1) taxes, fees, and licences directly under their control, collectively referred to in the estimates as Part I; 2) sums voted by the Parliament of the Republic, called Part II revenues. Until fiscal 1975/76, the Republic's contribution was composed of: (i) A sum based on the cost of services at the time of transfer to the homeland government, less revenue from certain services accruing at the time to the homelands, and less the salaries and allowances of seconded white personnel. This sum is referred to as the "statutory grant." (ii) A grant, determined annually and drawn from the Consolidated Fund, referred to as the "additional grant." In addition, the Department of Bantu Administration and Development pays a supplementary amount representing general overhead expenses, such as the salaries of white personnel on loan. The amount is small, amounting in fiscal 1974/75 to 9.2 percent of total revenue for Bophuthatswana and 6.1 percent for KwaZulu.

In late 1974 Vorster announced a new formula for "providing funds" for homeland governments that would furnish "a more accurate reflection of the degree to which their expenditure was financed from sources which were due to them." These suggestions in part met demands by homeland leaders that their fiscal footing be made more secure and also made it clearer to whites that payments to the homelands were transfers of funds to which blacks had legitimate claims, not burdensome handouts. Vorster was careful to point out that although the formula did not directly affect the amount of money available to homelands, it would place "homeland governments in a much better position to project revenues ahead and plan their expenditure programmes." The change involves a transfer of some indirect taxes, such as customs, excise, and sales taxes on goods consumed by blacks. Further grants would be made from taxes paid by companies or branches of companies in the homelands (and possibly in the border industrial areas), whether controlled by blacks or not.^[29]

The Bantu Laws Amendment Act of 1975 embodied these modifications. The statutory grant was changed to a 31 March 1974 base for all the homelands, in order to reflect changes in the costs of functions that had been handed over earlier and to permit all of the homelands, some of which had acquired functions earlier on a lower cost basis, to be treated equally. This amount will continue to be supplemented by the costs of any new programs subsequently transferred to the homeland governments. Except for African-controlled companies, the revenues of which are already subject to homeland taxation, homelands will also be credited with taxes paid by companies operating in their areas. In addition, allowance will be made for customs, excise, and sales duties derived from the area of the homeland. Payments to white

[29] Vorster to Federated Chamber of Industries, 2 Oct. 1974, Star Weekly, 19 Oct. 1974; Comment and Opinion (Pretoria), 14 Oct. 1974.

personnel will no longer be separated from the statutory grant. The effect of these changes will be to raise the regular or normal amounts paid to each homeland while reducing the discretionary additional grant. In fiscal 1975/76, the annual grant to the homelands was R163.6 million, and the supplementary grant totalled R86.5 million, together equalling R250 million. In addition, the revenue vote for Bantu administration provided R49 million for health services and R14 million for the salaries of seconded whites. Significantly, from the Loan Account the Bantu Trust received R116.4 million, up from R90.4 million the previous year, for developmental projects. Much of this money will be channelled through the investment and mining corporations.^[30]

The new allocation may help to reduce the dependency of the homelands. One approximate global estimate asserts that the homelands' share of customs and excise taxes comes to about R100 million annually, and that mining taxes and royalties will bring a further R100 million, the two sums together being roughly equal to the R199 million voted for all the homelands in fiscal 1973/74. However, the new law does not empower a homeland government to tax South African companies operating within its borders; South Africa will continue to tax such companies and remit revenue to the homelands. Mineral royalties will presumably still be paid over by companies to the tribal and regional authorities that have received them in the past and to the Bantu Trust. The new law may conceivably benefit Bophuthatswana if mining profits are treated as industrial earnings. There is considerable mining there, and potential for more.^[31] Mangope now can at least employ a line of argument not previously available to him.

The sources of revenue for Bophuthatswana and KwaZulu (for the years for which they are available) are shown in table 6.4. In both instances there are clear changes in the relative importance of the different categories of funds. From fiscal 1972/73 to fiscal 1974/75 Bophuthatswana's statutory grant remained more or less constant, then in fiscal 1975/76, under the older accounting practices, the transfer of a new Department of Health brought with it added revenue equivalent to that which the Republic had been spending at the time of the transfer. Similarly, for KwaZulu, the statutory grant remained around R20 million from fiscal 1972/73 to fiscal 1975/76. Although the statutory grants remained nearly constant, the level of grants from Parliament and revenues from internal sources rose. The additional grant to Bophuthatswana increased six-fold and that to KwaZulu twenty-fold. Internal revenues have almost doubled in Bophuthatswana since fiscal 1972/73 and have climbed by nearly 70 percent in KwaZulu during the same period. The proportionate importance of these homeland receipts and taxes

[30] Survey of Race Relations, 1975, 121–125.

[31] Star Weekly, 19 Oct. 1974.

has not risen however, because of the more rapid growth of the supplementary appropriation. The statutory grants declined relatively as well. The effects of the fiscal reforms can be seen in the separate calculations for fiscal 1975/76. It is probable, however, that the statutory amounts will once again diminish in weight—although not so precipitously as before—because the new excise and profit contributions will not be elastic enough over time to provide sufficient new revenues to permit homeland budgets to grow as rapidly as they have been growing, and as they will need to grow in the future.

The homelands will continue to receive much of their revenue from the Republic for at least the next two decades. Only a major shift in policy that would allow the homeland governments the fiscal autonomy to tax white businesses and mines, and would also allow them to collect income taxes from their absentee populations, could create a situation in which fiscal independence would prove feasible. The discretionary amount remains important even after the recent reforms, and there is no guarantee that an independently-minded homeland would not be subject to the sanction of budget cutting, including part or all of the statutory amount.

Rather surprisingly, the rapid growth of spending on the homelands—matched only by increases in defense spending—has not been challenged by white public opinion or politicians. The government has been successful in defending the amounts as necessary for internal security and for the alleviation of the pressures of black migration toward white cities. The spending levels can also be justified as ways of meeting foreign criticism of racial segregation and as humanitarian necessities. Although the homelands will have to rely upon funds that are subject to decisions beyond their control, it is unlikely that such support will be withdrawn capriciously. Nonetheless, dependence on the Republic for over 80 percent of revenues is a major factor constraining the political and economic independence of the homelands.

Since the autonomy of the homelands will depend vitally upon the capacity of their governments to finance themselves from internal sources, their present tax bases merit examination. Table 6.5 shows the sources of revenue under the control of Bophuthatswana and KwaZulu in two recent years. In both homelands the general personal tax is the preponderant source of income. The respective homeland assemblies have imposed new per capita taxes, R2.50 in the case of the Tswana and R3.00 for the Zulu; the assemblies will depend upon the Republic to collect these amounts from permanently absent persons. The increases appear to have added several million rand to the homeland revenue accounts, and the share of taxes in total revenue has been rising. The other important revenue item is township rental income. The remaining income consists of licensing fees and income from small charges for public services rendered by government

departments. In KwaZulu, forest revenues and income from sugar cane and fibre estates have amounted to over R1 million in recent years (included in "Other"). Since in both homelands over four-fifths of revenue comes from a fixed personal tax and from housing and hostel rentals, it is clear that raising revenue from these sources will be painful and politically unpopular. Given the already low incomes of many homeland citizens, tax or rental increases will have deleterious effects on welfare. Absentee workers and those in the homelands who do not feel any particular allegiance to the new political entities are not likely to greet new taxes—particularly when governmental services are so woefully inadequate in rural locations and in the burgeoning homeland cities—with any degree of enthusiasm. Probably the most that can be expected is that homeland internal revenues will rise rapidly enough to avoid even greater proportionate reliance upon the Republic's subventions.

Both homelands face practically insurmountable obstacles in increasing their autonomy by bringing a greater proportion of revenue under their

control. Even if every man, woman, and child in Bophuthatswana were to pay the per capita tax, the yield would be only in the order of R4.25 million per year — only 9.4 percent of total revenue for fiscal 1975/76. Similarly, even if all the de jure population of KwaZulu were to pay the tax, it would raise something in the order of R12 million — 13.9 percent of total revenue in fiscal 1975/76. In fact, the new tax in KwaZulu will raise about R1 million in fiscal 1975/76, about 33 percent of the net gain in Part I revenues. Similarly, Bophuthatswana's new tax will raise R1.2 million in fiscal 1975/76, 73 percent of the net gain coming in Part I revenue. Although these proportionate increases are impressive, revenue realized directly by the homelands fell in the case of Bophuthatswana from 25 percent in fiscal 1972/73 to 17 percent in fiscal 1975/76, and in the case of KwaZulu from 31 percent to 19 percent during the same period. Every delegation of function to the homelands and every increase in cost due to inflation only makes more difficult the gaining of greater control over revenue, and, therefore, greater freedom to initiate policies that would provide increased services, not merely maintain existing ones.

The fiscal 1974/75 budget totals and estimated populations show that Bophuthatswana spent R28 per resident and R16 per member of the de jure population; KwaZulu spent R27 per resident and R14 for each de jure citizen. The amounts are up by about four-fifths in nominal terms since 1970, perhaps by half allowing for inflation. In contrast, the Republic was spending R296 per white resident in 1970, or R53 for each person in the Republic. By 1975 these averages had risen considerably, but these lower figures suffice to indicate how far the homelands currently lag behind South Africa in public spending.

The funds that the homelands have at their disposal are disbursed by their several departments: seven in Bophuthatswana, six in the case of KwaZulu. Table 6.6 shows the allocation of funds among these departments. The addition of a Department of Health in Bophuthatswana in fiscal 1975/76 sharply reduced the share of the Department of the Interior, which had previously contained some health functions. With the bias in the pattern of spending toward the Departments of Works and Education, and the absence of a defense account, these budgets resemble those of states (provinces) or cities more closely than those of national units. As such, they delineate the regional character of the homeland governments.

The budgets of both homelands show how rapidly their functions and spending authority have expanded. Between fiscal 1972/73 and fiscal 1975/76 expenditures have almost exactly tripled — from R16 million to R50 million in Bophuthatswana and from R31 million to R93 million in KwaZulu. Bophuthatswana's rate of increase accelerated from 22 to 60 percent per year,

while KwaZulu's expenditure went up by about 40 percent per year. The proportion of the budget spent by each department shows differences from one homeland to another, but there are broad similarities. Authority Affairs and Finance, Community Affairs, Interior and Justice are essentially administrative departments and have maintained steady proportions of the budgets. Surprisingly, Agriculture also shows a constant rather small share (about 9 percent in each case) or expanding budgets. The rise in expenditures on new agricultural activities and continued spending on physical planning have not given Agriculture an increased share. The two largest spending shares are those of Works and Education, together taking 61 percent of the budget in Bophuthatswana in fiscal 1975/76 and 71 percent of the budget in KwaZulu that year. In Bophuthatswana, Works maintained a constant high share and Education fell a little. In KwaZulu the share of Works rose by 9 percent between fiscal 1972/73 and fiscal 1975/76, while that of Education fell by 5 percent.

The heavy increase in expenditures of the Departments of Works was made up in part by the cost of the "establishment of townships," to quote the budget item. In Bophuthatswana the figures also show increases in expenditures on townships, but less of a preoccupation with them than in KwaZulu. From fiscal 1972/73 to fiscal 1973/74 expenditures on townships actually fell by 8 percent but rose by 29 percent from fiscal 1973/74 to fiscal 1974/75 and by a further 16 percent in fiscal 1975/76. Increases in expenditures on housing took a much smaller proportion of the total increase in the Works vote, only 22 percent in fiscal 1974/75 and 17 percent in fiscal 1975/76. In KwaZulu 47 percent of the increase in the Works vote between fiscal 1972/73 and fiscal 1974/75 went to townships; between fiscal 1973/74 and fiscal 1974/75, 69 percent; and between fiscal 1974/75 and fiscal 1975/76, 57 percent

It is possible that these expenditures raise an ideological issue. The establishment of townships in the homelands is a highly controversial issue, being related to the resettlement policy that is aimed at reducing the numbers of Africans in white farming areas and the cities, especially those not employed there. It has been policy, at least until very recently, to compel as large a proportion as possible of the African labor force to migrate and to provide housing and facilities for dependents and the unemployed primarily in the homelands. Also, "black spot" removals have returned Africans to Bophuthatswana and KwaZulu. It is not possible to establish which expenditures are based on these policies. Nor is it clear why expenditures on new townships are relatively so much more important in KwaZulu than in Bophuthatswana. What is patent is that a great deal of the expanded expenditures on Works is going into social capital in the form of townships with electricity, water, and sanitation, and into the expansion of hospitals and schools. Whether or not this is the most efficient way to provide housing and urban services for

African populations, a major portion of homeland budgets will continue to be committed in this fashion.

The needs of the homeland populations for education, housing, and other urban services remain great. There are grave deficiencies to be made up even if the homelands want merely to ensure that every resident obtains a rudimentary education and has an adequate place to live. Highways, streets, power, water, and schools need to be provided in most areas. The homelands are also responsible in part for agricultural and commercial development. They must contend with inflation and with the expansion of their populations due to natural growth and the influx of persons from white farms and "black spots." Under these pressures, the homeland governments have sought increased funding from Parliament and have also searched for additional internal sources of funds.