Chapter Four

Inter-governmental Relations (IGR)

What are intergovernmental relations?

 Intergovernmental Relations [IGR] are conventionally defined ‘as important

interactions between governmental units of all types and levels.
 Intergovernmental Relations are defined as an interacting network of institutions at
national, provincial and local levels, created and refined to enable the various parts of
government to cohere in a manner more or less appropriate to our institutional
arrangements.
 It is an evolving system of institutional co-operation that seeks to address the relations
of equality and interdependence as defined by the Constitution.

Government relations are defined as the process of influencing public policy at all levels of
governance: local, regional, national, and even global. Government relations aims to persuade
government officials to change or maintain policy to more effectively fit the needs of a
particular group.

Intergovernmental relations (IGR) are, at their most basic level, the relationships between
different governments within a single country.

IGR can be characterised in different ways:

As vertical, between a devolved or local government and the central government, or

horizontal, between governments that operate at the same tier of government

Most federal countries have quite formal processes of IGR to help the governments to share
ideas, coordinate their activities and resolve their differences

According to Opeskin (1998), the term "intergovernmental relations" is commonly used to

refer to relations between central, regional, and local governments (as well as between
governments within any one sphere) that facilitate the attainment of common goals through
cooperation. Used in this sense, mechanisms for intergovernmental relations may be seen as
employing consensual tools for the mutual benefit of the constituent units of the federation.
Intergovernmental relations

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• For Van der Waldt and Du toit (1997) intergovernmental relations refer to the mutual
relations and interactions between government institutions at horizontal and vertical levels.
This is in line with Thornhill’s (2002) definition that ‘intergovernmental relations is all the
actions and transactions of politicians and officials amongst the national and subnational units
of government and organs of the state’

The term intergovernmental relations encompasses both forums where meetings take place –
sometimes referred to as the machinery of IGR - and the processes and practices used to
guide information-sharing, decision-making and how to resolve disputes.

 There are various forms and types of relationships among local governments and
higher tiers. The relationship is often to make cooperative governments at central,
state and local governments.
 In relation to the principles of co-operative government and intergovernmental
relations, constitutions of various countries bind all spheres of government to work in
accordance with the following three basic principles.

Principles of IGR

 First, there should be a common loyalty to the nation as a whole.

This means that all spheres of government are committed to securing the well-being of all the
people in the country and, to that end, must provide effective, transparent, accountable and
coherent government for the country as the whole. This is the object/goal of cooperative
government.

Second, the uniqueness(distinctiveness) of each sphere (Central, state and local

government) must be safeguarded.

 This entails the following:

 the constitutional status, institutions, powers and functions of each sphere must be
respected;
 a sphere/area must remain within its constitutional powers; and when exercising
those powers,
 a sphere must not do so in a manner that encroaches/violates on the geographical,
functional or institutional integrity of another sphere.

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Third, central, state and local governments must take concrete steps to realize
cooperative government by:

 Fostering friendly relations;

 Assisting and supporting one another;
 Informing one another of, and consulting one another on, matters of common
interest;
 Co-coordinating their actions and legislation with one another;
 Adhering to agreed procedures; and
 Avoiding legal proceedings against one another.

Models of IGR

Three important adjectives (distinctive, interdependent and interrelated) are crucial for
intergovernmental relations and set the stage for it’s understanding.

Interdependent

These could be through communication, consultation, coordination, assisting and supporting

each other in a variety of ways

Powell, in Levy & Tapscott (2001) notes that the ‘interdependence of the spheres is the
degree to which one sphere depends on another for the proper fulfilment of its constitutional
functions’. The term “interdependent” means that no sphere can operate in isolation. All
spheres are interreliant, mutually dependent and supportive of each other, especially in terms
of capacity support for provincial and local government.

Distinctive

This suggests that each sphere of government has its own status with a clear mandate. adds
that spheres must ‘not assume any power or function except those conferred on them in terms
of the Constitution’.

It notes that spheres ‘must exercise their powers and functions in a manner that does not
encroach on the geographical, functional or institutional integrity of government in another
sphere;

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It spells out the manner in which this is to be achieved, which is ‘cooperate with one another
in mutual trust and good faith...’. ‘Each sphere has distinctive legislative and executive
competencies’.

Interrelated

(a) submits that spheres must ‘preserve the peace, national unity and the indivisibility of the

Republic’ through the provision of ‘effective, transparent, accountable and coherent

government for the republic as a whole’. This implies that spheres are crucial parts that
collectively form the government of the country and if they are parts of a whole then, for the
whole to function effectively as required, the parts must relate amicably. This term
(interrelated) means that spheres are parts of a holistic system of government and that through
these interrelated spheres, a solid and unified government can evolve.

Approaches of IGR

Democratic approach

• It emphasize the right to autonomy of every government (regardless of level) to exist. This
will lead to a volatile situation and is a recipe for complexities. IGR should, in fact, aim for
effectiveness and efficiency in the public service and this requires that conflict and
competition are reduced and interdependence and the pursuit of a common agenda are
promoted. This brings about a comparative advantage given that resources are pooled
together and hence optimally utilised.

Constitutional approach

Accepts that there is a hierarchy of governments and this is a constitutional fact, since the
constitution was seen as the instrument for determining intergovernmental relations and
achieving harmony

The Financial approach

Where IGR is viewed from a financial perspective and the crux of the matter was what
responsibilities do the spheres of government have and what financial resources are attached
to it?

Normative operational approach

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Comprises broad elements, such as values (material, cultural, spiritual, social, institutional
and political values), as well as technical limitations, geographical factors and issues around
the distribution of resources should be considered

Why IGR

 The utilization of concurrent jurisdiction

 The intergovernmental delegation of legislative powers & administrative
responsibilities
 ‘Opting in’ & ‘opting out’ arrangement
 Intergovernmental agreement & accords
 Intergovernmental fiscal management

Objectives of IGR

 To map the numerous instruments of intergovernmental relations, intergovernmental

processes, and the current reality of intergovernmental relations across the different
spheres of government;.
 To assess the strengths and weaknesses of the system and to provide some insights
into the desirability of regulation;
 To inquire into the practice of national government supervision of the provinces and
provincial supervision of local government;.
 To examine the efficacy of intergovernmental relations in the legislative branch of
government – the role and function of the National Council of Provinces (NCOP),
including its oversight functions and role in interventions of the national and
provincial spheres.
 To examine the reasons for disputes between and within the spheres
Local Government finance
Local government finance is concerned with the identification of revenue, its
mobilization, allocation and utilization.
The utilization includes disbursements, accounting and auditing.
Managing intergovernmental relations

The Constitution of many countries build in a tension between national direction (national
government defining how to secure the well-being of all the people) and locally defined

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preferences (local governments determining their preferred choices within their areas of
jurisdiction).

The object/goal of intergovernmental relations is to manage this tension - to get coherent

government that delivers services to the nation through all the levels of government.

In other words, intergovernmental relations are not an end in themselves, but a means for
marshalling the distinctive effort, capacity, leadership and resources of each level of
government and directing these as effectively as possible towards the developmental and
service delivery objectives of government as a whole.

Intergovernmental relations should generally have this developmental character.So in

delivering governance to the nation through co-operative gov ernment; there are generally
four requirements to create good and cooperative government. These are:

a. Effective government - co-operative government must entail the effective and efficient
use of resources, not wastage and duplication, but the unlocking/releaseing of synergy of
collective effort. unlock

b. Transparent government - co-operative government should not be an entangled web of

committee and consultations, making it difficult to determine who is responsible for what
task.

c. Accountable government - the system and processes of cooperative government should

not impede holding executives accountable for their decisions and actions.

d. Coherent government - government should be rational, informed by best information

with due regard to consultation between spheres of government.

Contradictory or overlapping policies should not arise by oversight, the absence of

consultation or poorly informed decisions.

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 4.4 Local Finance

Financing Local Governments

Revenue Budget

Local governments have two primary sources of revenue: The revenues that they collect
themselves from their own local sources, and central government fiscal transfers and grants.

In some countries, provincial governments or states may also provide transfers or grants to
local governments.

User Charges

The common rationale when imposing service charges includes:

1. To recover costs to finance operation and maintenance, and in doing so, minimize the
burden that, otherwise, may need to be placed on local taxation.
2. To maximize revenues, hoping to realize net-revenues (charging what the market
will bear) to finance local recurrent expenditures (including primarily those of
providing the particular service).
3. To control service demand through user charges.

The issue of service charges in both developed and developing countries is a complex one.
The prices charged seldom reflect economic efficiency rationale — either they are too high
(e.g. energy) or too low (e.g. water and public transport).

In practice, however, the most important decisions in local government finance in most
countries concern the design and administration of local taxes and intergovernmental fiscal
transfers rather than service charges.

All recurrent revenue from user charges (water, electricity, waste collection, sewers,
irrigation, slaughterhouses, toll roads, parking, etc.) must be classified under a budgetary
subheading labeled User Charges.

The budgeting principles to follow are accuracy and transparency, which in practice means
classifying recurrent revenues according to their own nature, i.e., not mixing different types
of revenue sources under one broad revenue entry.

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The potential for appropriate user charge as a means of financing specific local government
services remains a fairly complex issue involving not only the technical aspects but political
and interest group factors as well. Under sound finances, user charges should be limited to
recover the cost of service provision.

Taxes

Local Taxes

In general, central governments regulate taxation and generally take the best-yielding taxes
for their own use.

Local governments generally do not have sufficient access to tax sources or tax bases to free
them from dependence on intergovernmental transfers. Local/municipal governments for
instance usually utilize three basic sources of local taxation:

i) property taxes,

ii) local income taxes, and,

iii) Taxes on expenditures (both retail and wholesale taxes).

All recurrent revenue from taxes must be classified under a subheading labeled Tax
Revenues. For instance, other taxes that must be accounted for under this budgetary entry
include:

 Vehicle taxes,
 All types of sales taxes (turnover or gross sales taxes, beer and liquor taxes),
 Entertainment taxes (sporting events), etc.
 Sales taxes are often classified under indirect taxes in contrast to property, vehicle and
income taxes, which are considered direct taxation.

Property Tax: Taxes on land and buildings are the most common form of current tax
revenue for local/municipal governments.

The ad valorem tax, or the property tax, is usually the local government‘s largest potential
revenue source.

Property tax revenues are normally general-purpose revenues contributing to a broad range
of municipal services, particularly physical infrastructure such as streets, roads and drainage.

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However, very often the proceeds from this tax source primarily finance current expenditures
(i.e., operating expenditures) rather than capital outlays.

Direct and indirect taxes

In economics, direct taxes refer to those taxes that are paid by the person who earns the
income. By contrast, the cost of indirect taxes is borne by someone other than the person
responsible for paying them.

For example, taxes on goods are often included in the price of the items, so even though the
seller sends the payments to the government, the buyer is the real payer.

Indirect taxes are sometimes described as hidden taxes because the purchaser of goods or
services may not be aware that a proportion of the price is going to the government.

A direct tax is paid by a person on whom it is levied.

In direct taxes, the impact (immediate effect) and incidence(ultimate effect) fall on the same
person.

If the impact and incident of a tax fall on the same person, it is called as direct tax.

It is borne by the person on whom it is levied and cannot be passed on to others.

For example, when a person is assessed to income tax or wealth tax, he has to pay it and he
cannot shift the tax burden to anybody else. In Ethiopia, Government levies the direct taxes
such as income tax, tax on agricultural income, professional tax, land revenues, taxes on
stamps and registrations etc.

Generally direct taxes are collected from commercial activities, personal income tax, land
use tax, property tax and sometimes taxes on natural resources which are called royalties (like
taxes on mining).

Indirect taxes

These are imposed not on a seller or producer but on the consumer. These are sales taxes and
excise taxes.

 Sales taxes (VAT)

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A tax imposed by the government at the point of sale on retail goods and services.

It is collected by the retailer and passed on to the state. Indirect tax is tax based on
apercentage of the selling price of goods and services.

State and local governments assess sales tax and decide what percentage to charge.

The buyer pays the sales tax to the retailer, who passes it on to the sales tax collection agency
of the government.

 Excise taxes

Taxes on the manufacture, sale, or consumption of goods, or upon licenses to pursue certain
occupations, or upon corporate privileges.

The local income tax is generally levied as a supplement to the national income tax. Income
taxes are charges levied by a local jurisdiction on the income or wealth of a person or
corporation.

Since the property tax, like all taxes, has its own limitations, if more local own source
revenue is needed and supported by local residents; it makes sense to utilize a supplementary
local income tax.

This usually is the case for large urban areas with high demand for local public goods. Also,
gross sales taxes (turnover taxes) are commonly used.

Other Non-tax Revenue Sources

Unless it was established for capital outlays only, this category of local government revenues
comprises a broad list of sources such as licenses, permits, and royalties.

If they were established for capital outlays only, they should be classified under capital
revenue.

Licenses and Permits: Include revenues derived from the issuance of local licenses such as
motor vehicle, business and professional licenses and other related charges.

Permits: Include the proceeds from construction and building permits and other type of
permits.

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Fees: Include the receipt of revenues stemming from such sources such as zoning fees, legal
aid fees, certification fees, etc.

Fines: Include revenues received from penalties, sanctions and other charges of similar
nature, imposed by the local government authorities on offenses, violations, and for neglect
of official duties.

Library fines and any court fines may be included in this revenue category.

Miscellaneous Revenue

Includes all revenue not categorized in any of the above revenue entries.

Interest income, receipt from the sale of surplus equipment and rental income from public
property, are examples of local/municipal miscellaneous revenue.

Capital Revenue

Capital revenue from local own-sources is not very common. However, typical sources
include proceeds from sales of municipal assets and income from surpluses in the operations
of local service providers. Other sources of capital, external to local governments, are
addressed below.

Inter-governmental Fiscal Transfers

Intergovernmental revenue accounts for all revenues received from federal, state, and other
units of government, in such forms as shared revenues and grants.

Similarly to own income sources, revenue from fiscal transfers needs to be classified into two
categories: current and capital.

There are a wide variety of structures for intergovernmental transfers.

Some of them give local governments a specified portion of the national tax revenues (a
revenue-sharing system); others distribute funds through annual appropriations approved by
the national legislature (a discretionary system); and

i. Current transfers

Transfers to finance recurrent expenditures should be classified as current revenue. It should

be noted that not all fiscal transfers are for capital expenditures.

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Some transfers systems allow for a percentage of the total transfers to be used for recurrent
expenditures, specifically in order to take care of those expenses associated with capital
investments, such as operation and maintenance (O&M).

ii. Capital Transfers

Transfers for the financing of capital outlays should be classified as capital revenue.

However, as discussed above, some systems allow part of the total transfers to be used for the
financing of recurrent expenditures, such as O&M.

In these cases only the net amount of the transfer should be classified as capital revenue.

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