1

Provincial Budgets and Expenditure Review

2002/03 – 2008/09

17 October 2006

2

Prov. Budgets and Exp Review (1)

• Two separate publications– Local government– Provinces

• Why two separate publications– Scope of LG has grown substantially over

the years and warrants a separate review– The LG financial year is different from the

provincial and national financial year

3

Prov. Budget and Exp Review (2)

• Provincial budgets, expenditure and service delivery trends– Builds on the 2005 Provincial Budgets and

Expenditure Review– Covers past expenditure and future budgets

(2002/03 to 2008/09)– Provides consolidated information– Allows comparison between provinces – Critical document to inform on service delivery

• Released one week before MTBPS– Assist in shaping the 2007 Budget

• Inform policy priorities• Guide provincial EXCOs in budget preparation

4

Prov. Budget and Exp Review (3)• Importance for portfolio and select committees

– Coincides with the tabling of annual reports and thus informs the debate

• Are targets set in strategic plans achieved?• Are we getting value for money? • What are the service delivery challenges? • Do we have data to measure service delivery performance?

– Platform for accounting officers to account– Foster good governance and transparency

• Report on government performance– Policy analysts, Public, etc

5

Prov. Budget and Exp Review (4)• 8 chapters in the document

– Introduction– Education– Health– Social Development– Housing– Agriculture and Land– Roads and Transport– Trends in Provincial Budgets

• Annexures:– Extensive financial information– 1st attempt of non-financial data

6

Intergovernmental Fiscal System (1)• 3 spheres of government

– Independent, interrelated and based on principles of cooperative governance

• All with different functions (exclusive and concurrent)

• Provinces and municipalities have key service delivery responsibilities

• Provinces and municipalities implement pro-poor programmes

• Continued need for provinces and municipalities to improve their service delivery capacity

7

Intergovernmental Fiscal System (2)

• Key concurrent functions– School education, health, social welfare

and housing• Policy formulation and setting of norms and

standards a national competence• Implementation mainly at provincial level

– Coordination challenges that arise • Is there alignment between provincial budgets

and national policy priorities?– The Review highlights how each of these

concurrent functions are structured• Which sphere is responsible for what

8

Intergovernmental Fiscal System (3)• Revenue sharing arrangement

– Vertical Division of Revenue • Between the 3 spheres• Informed by assigned service delivery

responsibility and revenue raising capacity of each sphere

• Based on governments policy priorities– Horizontal Division of Revenue

• Among the 9 provinces– Division of Revenue Bill

• Reflects the vertical and horizontal DOR– Culmination of an extensive intergovernmental

consultative process• Approved by both houses of Parliament/NCOP

9

Intergovernmental Fiscal System (4)Vertical Division of Revenue

Table 1.1 Division of nationally raised revenue, 2002/03 – 2008/092002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09

R millionOutcome Revised

estimate Medium-term estimates

State debt cost 46 808 46 313 48 851 51 160 52 049 53 324 55 716 Non-interest expenditure 244 716 282 396 319 690 367 816 420 676 465 850 515 552

Percentage increase 13,7% 15,4% 13,2% 15,1% 14,4% 10,7% 10,7%Total expenditure 291 524 328 709 368 541 418 976 472 725 519 174 571 268

Percentage increase 10,9% 12,8% 12,1% 13,7% 12,8% 9,8% 10,0%Contingency reserve – – – – 2 500 5 000 8 000 Division of available funds

National departments 129 297 148 142 168 018 196 429 214 964 233 996 254 495 Provinces 107 317 122 673 137 836 154 528 176 679 196 351 217 481

Equitable share 93 895 107 538 120 885 135 292 150 753 167 701 187 100 Conditional grants 13 422 15 135 16 951 19 237 25 926 28 649 30 382

Local government 8 102 11 581 13 837 16 859 26 532 30 503 35 575 Equitable share 4 187 6 350 7 678 9 643 18 058 20 076 22 775 Conditional grants 3 916 5 231 6 159 7 215 8 474 10 428 12 801 Total 244 717 282 396 319 690 367 816 418 176 460 850 507 552 Percentage shares

National departments 52,8% 52,5% 52,6% 53,4% 51,4% 50,8% 50,1%Provinces 43,9% 43,4% 43,1% 42,0% 42,3% 42,6% 42,8%Local government 3,3% 4,1% 4,3% 4,6% 6,3% 6,6% 7,0%

10

Intergovernmental Fiscal System (5)Funding of Provinces

• Provinces determine own budgets guided by national policy priorities– National transfers (96,4 per cent) the largest share of

provincial revenue• Own revenue (3,6 per cent)

– Equitable share 82,3 per cent of available resources• Unconditional transfer• Provinces have discretion on how to allocate based on

government priority• Main source of funding for social services

– Conditional grants 14,1 per cent of available resources• Health conditional grants second largest share• Performance and evolution of conditional grants need

thorough review

11

Intergovernmental Fiscal System (6)Consolidated Provincial Revenue

Table 8.1 Provincial revenue and expenditure, 2002/03 – 2008/092002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09

R millionOutcome Preliminary

outcome Medium-term estimates

Transfers from national 107 317 122 673 137 836 153 782 176 679 196 351 217 481 of which:Equitable share 93 895 107 538 120 885 135 292 150 753 167 701 187 100 Conditional grants 13 422 15 134 16 951 18 490 25 926 28 649 30 382

Provincial ow n receipts 5 844 6 312 6 241 7 380 6 552 6 983 7 365 Total reciepts 113 161 128 984 144 076 161 161 183 231 203 333 224 846 Total expenditure 116 275 131 858 141 954 161 145 183 020 201 903 221 873 Surplus(+)/deficit(-) -3 114 -2 874 2 123 16 211 1 430 2 973 Share of total provincial revenueTransfers from national 94,8% 95,1% 95,7% 95,4% 96,4% 96,6% 96,7%

of which:Equitable share 83,0% 83,4% 83,9% 83,9% 82,3% 82,5% 83,2%Conditional grants 11,9% 11,7% 11,8% 11,5% 14,1% 14,1% 13,5%

Provincial ow n receipts 5,2% 4,9% 4,3% 4,6% 3,6% 3,4% 3,3%Total receipts 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0%Source: National Treasury provincial database

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Provincial expenditure trends (1)• Biggest budgets at provincial level

– 51,4 per cent of non-interest spending taking place in provinces

– Education, health and social development constitute 76,5 per cent of provincial spending

– Non-social services include on average 23,5 per cent of provincial spending

• Housing and sustained human settlements• Agricultural support to farmers• Construction & maintenance of provincial roads• Running provincial administrations & governance

– Greater focus on provincial budgets, expenditure and performance needed

13

Provincial expenditure trends (2)• Total spending between 2002/03 and

2005/06– Increased by R45 bn to R161,1 bn between

2002/03 2005/06• Real growth of 6,6 per cent per year (exclude social

security grants)– Budgeted to reach R221,9 bn by 2008/09

• A further R60 bn added (Real growth of 9 per cent per year)

– Areas of growth• Education, health and social development• Capital spending more than doubled from R8,2 bn in

2002/03 to R19,8 bn in 2008/09– Delivery capacity improving

14

Provincial expenditure trends (3)Table 8.5 Consolidated provincial expenditure, 2002/03 – 2008/09

2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09

R millionOutcome Preliminary

outcome Medium-term estimates

Education 53 151 60 255 64 670 71 957 79 051 87 008 94 865 Health 32 860 36 987 40 599 47 116 51 686 55 993 60 647 Social development 2 743 3 209 3 650 4 220 5 289 6 145 7 430 Total social services 88 754 100 452 108 919 123 293 136 026 149 145 162 942 Contingency reserves – – – 381 631 918 1 328 Non-social services 27 521 31 406 33 035 37 472 46 363 51 840 57 603 Total 116 275 131 858 141 954 161 145 183 020 201 903 221 873 Shares of total provincial expenditureSocial services 76,3% 76,2% 76,7% 76,5% 74,3% 73,9% 73,4%

Education 45,7% 45,7% 45,6% 44,7% 43,2% 43,1% 42,8%Health 28,3% 28,1% 28,6% 29,2% 28,2% 27,7% 27,3%Social development 2,4% 2,4% 2,6% 2,6% 2,9% 3,0% 3,3%

Non-social services 23,7% 23,8% 23,3% 23,5% 25,7% 26,1% 26,6%Total 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0%Percentage growthSocial services 13,2% 8,4% 13,2% 10,3% 9,6% 9,3%

Education 13,4% 7,3% 11,3% 9,9% 10,1% 9,0%Health 12,6% 9,8% 16,1% 9,7% 8,3% 8,3%Social development 17,0% 13,8% 15,6% 25,3% 16,2% 20,9%

Non-social services 14,1% 5,2% 14,6% 24,1% 12,3% 11,7%Total 13,4% 7,7% 13,5% 13,6% 10,3% 9,9%

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Provincial expenditure trends (4)• Spending on social services

– Education, health and social development – Makes up 76 per cent of total provincial

spending– Spending nearly doubles from R88,8 bn in

2002/03 to R162,9 bn in 2008/09• Grew 6,7 per cent in real terms annually between

2002/03 and 2005/06• Budgeted for real growth of 4,9 per cent a year over

the next three years• Bulk of social services are pro-poor• Rural provinces share of social services higher than

urban provinces

16

Education

17

Education (1)• Education spending

– Nearly doubles from R53,2 bn in 2002/03 to R94,9 bn in 2008/09

– Equity and access improved – Capital spending grows sharply– Spending on LSM grows

• New curriculum statement• NPNC also growing strongly

– Pay progression for educators• Backlogs• Career-pathing, scarce skills, management

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Education (2)Table 2.8 Provincial education expenditure by economic classification, 2002/03 – 2008/09

2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09

R millionOutcome Preliminary

outcome Medium-term estimates

Current payments 49 614 55 185 58 947 65 358 70 915 77 773 84 199

of which:Compensation of employees 45 522 49 677 53 413 58 175 62 241 66 691 70 935 Goods and services 4 088 5 506 5 490 7 165 8 669 11 077 13 259

Transfers and subsidies 1 806 2 498 3 222 3 791 4 558 5 183 5 712 Payments for capital assets 1 731 2 572 2 500 2 808 3 578 4 052 4 953

Total 53 151 60 255 64 670 71 957 79 051 87 008 94 865 Percentage of provincial education expenditureCurrent payments 93,3% 91,6% 91,2% 90,8% 89,7% 89,4% 88,8%

of which:Compensation of employees 85,6% 82,4% 82,6% 80,8% 78,7% 76,6% 74,8%Goods and services 7,7% 9,1% 8,5% 10,0% 11,0% 12,7% 14,0%

Transfers and subsidies 3,4% 4,1% 5,0% 5,3% 5,8% 6,0% 6,0%Payments for capital assets 3,3% 4,3% 3,9% 3,9% 4,5% 4,7% 5,2%

Total 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0%Percentage growth (average annual) 2002/03 – 2005/06 2005/06 – 2008/09Current payments 9,6% 8,8%

of which:Compensation of employees 8,5% 6,8%Goods and services 20,6% 22,8%

Transfers and subsidies 28,0% 14,6%Payments for capital assets 17,5% 20,8%Total 10,6% 9,7%

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Education (3)

• There appears to be a lag in quality improvements

• Trends in matriculation results suggests improved quality and reduced inefficiencies:– actual numbers passing the exam increased from 322 492 in

2003 to 347 184 in 2005

– Matriculation pass rate improved from below 50% in 1997 to 73,2% in 2003. Drops to 68 % in 2005.

– Growing trends in passes in maths (55 % of those who wrote) and science (71,1 % of those who wrote)

20

Health

21

Health (1)• Health spending

– South Africa’s total health expenditure as a proportion of GDP is relatively high

• Public sector funding at 3.4% of GDP compares favorably with middle income countries.

• Relatively high expenditure influenced by large private health sector, escalating wage costs and the growing burden associated with HIV / Aids

– Nearly doubles from R32,9 bn in 2002/03 to R60,6 bn in 2008/09

– Grows 5,9 per cent in real terms annually• Improving equity• Primary health care, emergency ambulance and HIV

and AIDS programme funding growing strongly

22

Health (2)• Health spending

– Capital more than doubles between 2002/03 and 2008/09

• From R2,2 bn in 2002/03 to R5,5 bn in 2008/09• Growth in both buildings and equipment budgets

• Growth in per capita health funding – Spending grow from R853 per head in 2002/03

to R1 178 in 2005/06• Primary health care more than doubles

– R5,6bn in 2002/03 to R11,7 bn in 2008/09• Emergency medical services

– Significant step up (14,3 % real growth)

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Health (3)• Improved equity and access• Net gain of 16 000 health professionals

– Over 10 000 additional nurses being employed– Increase in EMS personnel– Gradual improvement in public sector doctors

per 1 000 uninsured persons• All rural provinces show a net gain• moderate decrease in WC and Gauteng• 77 doctors per 100 000 uninsured population

remains a concern

– 32 282 health science students in training in various disciplines

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Social development

25

Social Development• This chapter reviews the role of provincial

social development: – in the context of vulnerability; – the institutional arrangements underpinning

social development; – policy initiatives and legislative reforms;– spending, budget and service delivery trends

in the sector– as well as focusing on overall expenditure

and performance in the different programmes and large subprogrammes.

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Fundamental Restructuring in the sector

• Social Security moved to the National Sphere in– No longer part of provincial budgets from 1 April

2006– Administered by SASSA

• Provincial Social Development Responsible for Community Development and Welfare services.

• Provinces are now able to focus on improving the funding and delivery of developmental social welfare services.

27

Social Development (2)• Social development spending

– Social welfare services programme• Child care, protection services, care for older persons,

substance abuse, prevention and rehabilitation, disabilities, victim empowerment, HIV and Aids

• Largest share of social development budgets• Stepped up significantly; set too grow 22 per cent per year over

the next three years– The Children‘s, Old Persons, Child Justice Bills to have

an impact on social services budgets moving forward– Development and research– Stepping up of welfare personnel spending

• To increase the number of social workers

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Social Development (1)

• Social development spending– More than doubled from R2,7 bn in 2002/03 to R7,4 bn

in 2008/09• An annual growth of nearly 21 per cent in real terms• Significant step up of social welfare services• All provinces experience very high growth rates from 16,6 per

cent in Western Cape and 34,0 per cent in Eastern Cape

– Strong growth in transfers to NGOs• More double over period under review• Recognises greater role of NGOs

– Capital spending set to grow sharply• From R145 million in 2005/06 to R391 million in 2008/09

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2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09

R millionOutcome Preliminary

outcome Medium-term estimates

Compensation of employees

949 1 102 1 225 1 352 1 843 2 161 2 436

Other current payments 530 667 750 799 1 056 1 248 1 510

Transfers and subsidies 1 143 1 323 1 506 1 924 2 151 2 438 3 093

of which:Non-profit institutions 1 128 1 225 1 403 1 671 1 876 2 153 2 717

Payments for capital assets 122 116 169 145 239 298 391

Total 2 743 3 209 3 650 4 220 5 289 6 145 7 430 Percentage of totalCompensation of employees

34,6% 34,3% 33,6% 32,0% 34,8% 35,2% 32,8%

Other current payments 19,3% 20,8% 20,5% 18,9% 20,0% 20,3% 20,3%

Transfers and subsidies 41,7% 41,2% 41,2% 45,6% 40,7% 39,7% 41,6%

of which:Non-profit institutions 41,1% 38,2% 38,4% 39,6% 35,5% 35,0% 36,6%

Payments for capital assets 4,4% 3,6% 4,6% 3,4% 4,5% 4,8% 5,3%

Total 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0%Percentage growth (average annual) 2002/03 – 2005/06 2005/06 – 2008/09Compensation of employees 12,5% 21,7%

Other current payments 14,7% 23,6%

Transfers and subsidies 19,0% 17,1%

of which:Non-profit institutions 14,0% 17,6%

Payments for capital assets 6,0% 39,2%

Total 15,4% 20,8%Source: National Treasury provincial database

Table 4.4 Social Development economic classification, 2002/03 – 2008/09

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Non-social services spending

31

Non-social services spending• Include, among others,

– public works, roads and transport, housing and agriculture

• Key in economic growth, job creation and food security– Approximately 25 per cent of provincial spending– More than doubles between 2002/03 and 2008/09

• Sharp growth in housing expenditure to fund comprehensive housing strategy (R4 bn in 2002/03 to R8,7 bn in 2008/09)

• Sharp increase in roads budgets (from R5,2 bn in 2002/03 to R11,7 bn in 2008/09)

• Growth in agriculture budgets (R2,6 bn in 2002/03 to R5,2 bn in 2008/09)

32

HOUSING

33

Defining the Public Housing environment

• SA public housing driven by government policy to provide low

and medium income h/hlds with affordable housing

• This is achieved through a range of delivery mechanisms

incorporating essential services i.e. water, sanitation, roads and

electricity

• It aims to attract a range of community services necessary for

integrated and sustainable human settlements i.e. Public

transport ,Municipal services, Social infrastructure i.e. Schools,

health and recreational facilities, Commercial

34

Delivery progress

• Construction of 1,9 million new houses

• Transfer of 1,6 million government-owned houses to residents

• Over 2,8 million subsidies approved since the introduction of

the programme

• Property assets worth over R37 billion have been transferred

to poor households

• Spending more than double from R4 bn in 2002/03 to R8,7 bn

in 2008/09

35

Agriculture and land

36

Background

• A range of policies aim to modernize the sector and promote broad inclusiveness and equity i.t.o land ownership

• The land and agrarian reforms programmes are by far the most important programs driving transformation

• Agriculture contributes – 4% to GDP– 10% of total employment– Significantly to foreign exchange earnings

37

Institutional arrangements

• Agriculture is a concurrent function shared between national and provincial departments

• National is responsible for formulating policies while provinces are the implementing spheres

• National is separated into two departments:– Land Affairs – responsible for land reform programmes– Dept of Agriculture – accountable mainly for farmer

settlement and support• The sector also enjoy support from numerous state

agencies such as Land Bank, Agriculture Research Council, ARC, etc

38

Budget trends in National Dept of agriculture and sub-programmes

2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09R million Outcome Preliminary

outcome Medium-term estimates

AgricultureAdministration 169 192 210 210 247 262 275 Livelihoods, Economics and Business Development

58 71 269 680 747 919 951

Bio-security and Disaster Management

237 421 343 368 246 258 281

Production and Resources Management

135 136 162 187 241 253 265

Sector Services and Partnerships

335 375 424 466 477 501 527

Subtotal 933 1 195 1 408 1 912 1 958 2 193 2 300 Land Affairs

of whichRestitution 394 839 1 183 1 906 3 369 3 838 2 500 Redistribution and tenure reform

416 454 454 555 907 1 274 2 896

Subtotal 810 1 293 1 636 2 460 4 276 5 111 5 396 Total 1 744 2 488 3 045 4 372 6 234 7 305 7 696

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Provincial restitutions and claims

Claims Households Beneficiaries Hectares2 Land cost

(R thousand)

Financial compensation(R thousand)

Eastern Cape 16 040 42 178 157 494 56 686 211 541 585 993 Free State 2 120 3 956 24 107 44 464 9 846 46 858 Gauteng 13 133 12 981 58 365 3 555 62 537 620 323 Kw aZulu-Natal 13 813 39 702 238 509 339 200 726 853 808 304 Limpopo 2 717 27 480 148 344 203 355 696 161 51 689 Mpumalanga 2 075 29 366 151 228 100 122 502 957 67 021 Northern Cape 3 518 7 525 45 971 237 398 74 482 119 025 North West 3 441 15 794 87 019 79 271 127 103 162 520 Western Cape 14 788 17 685 92 514 3 101 8 096 509 099 Total 71 645 196 667 1 003 551 1 067 152 2 419 577 2 970 832

40

Provincial budget and expenditure trends

2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09

R millionOutcome Preliminary

outcome Medium-term estimates

Eastern Cape 572 752 822 787 870 955 1 059 Free State 146 183 177 299 224 246 263 Gauteng1 61 82 87 87 139 134 137 Kw aZulu-Natal1 444 487 637 787 853 985 1 078 Limpopo 718 786 733 981 1 029 1 203 1 252 Mpumalanga1 228 244 285 414 426 436 486 Northern Cape 60 65 91 132 129 149 167 North West1 241 255 364 322 378 436 463 Western Cape 131 161 197 259 254 287 305 Total 2 602 3 015 3 393 4 068 4 301 4 831 5 210

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Personnel vs Non-Personnel Expenditure

Compensation of employees2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09

R million

Outcome Preliminary outcome

Medium-term estimates

Eastern Cape 407 450 459 408 439 465 491 Free State 96 116 124 133 145 153 161 Gauteng1 29 35 38 42 69 73 73 Kw aZulu-Natal1 250 285 336 359 368 393 420 Limpopo 540 592 478 484 509 592 617 Mpumalanga1 113 117 126 144 156 162 172 Northern Cape 33 35 40 42 53 55 58 North West1 177 185 204 220 233 248 264 Western Cape 74 85 93 107 139 146 153 Total 1 718 1 901 1 897 1 937 2 111 2 289 2 409

42

Provincial expenditure by programme

R million

Adminis-tration1

Sustain-able

Resource Manage-

ment

Farmer Support

and Develop-

ment

Veteri-nary

Services

Tech-nology

Research and

Develop-ment

Services

Agricul-tural Eco-

nomics

Struc-tured Agri-

cultural Training

Total

Eastern Cape 243 55 323 89 42 6 30 787 Free State 94 62 87 24 19 2 11 299 Gauteng1 39 – 24 18 6 – – 87 Kw aZulu-Natal1 115 44 451 72 75 – 29 787 Limpopo 140 127 547 16 98 18 35 981 Mpumalanga1 33 68 180 44 22 45 22 414 Northern Cape 33 32 35 17 14 2 – 132 North West1 70 41 135 45 7 5 19 322 Western Cape 35 48 72 26 51 8 20 259 Total 800 477 1 854 351 334 86 167 4 068

43

Provincial expenditure by programme

• The majority of expenditure is for administration and farmer support and development

• Total expenditure for the 2005/06 financial year amounts to R4,1 billion and is budgeted to increase to R5,2 billion by 2008/09

• Spending is driven mainly by the farmer support and development programme which primarily aimed at unlocking the agricultural potential of the provinces

44

Concluding Remarks• Government continues to streamline

agricultural reform by ensuring representivity by all citizens of South Africa

• Through programmes such as CASP, LRAD and MAFISA, support is provided to beneficiaries to ensures sustainability of all reform projects

45

Roads and transport

46

Consolidated spending on roads

• The three spheres of government spent a total of R12,9 billion on roads in 2005/06.– National accounts for R1.8 billion (13,9%) of the total

aggregate.– Provinces account for R7.6 billion (58,7%)– Municipalities account for R3.5 billion (27,4%) of the total

aggregate

• In 2005/06– 890 km of surfaced roads upgraded and 2 218 resealed– EPWP programme extensive in roads sector

• 47 000 jobs created

47

Provincial transport spending• Provincial spending on roads

– Roads expenditure account for 4,7% of total provincial budgets

– Strong growth from R5,2 bn in 2002/03 to R7,6 bn in 2005/06

– Set to reach R11,8 bn by 2008/09• Spending on road traffic management

and safety stepped up– Provinces currently spending R1,5 bn– Budget to spend R1,8 bn by 2008/09

48

Provincial transport spending• Overload control

– Remain a priority to minimise damage to road network

– 1,1 million heavy vehicles weighed at 97 weighbridges country wide

– 64 362 penalties issued• Public transport infrastructure and

system prioritised– Spending doubled from R684 million in

2002/03 to R1,3 bn in 2006/07– Set to grow sharply as funds are committed

for 2010