Spending your money wisely
Introduction
In Kalahari Rain Song, a San woman shares an old tradition with a newly wed, “If that time comes in your life when you feel very hungry, you take a piece of cloth and you tie it very tightly around your waist, tighter and tighter every day if you have to. And that way, you will endure your hunger. You won’t die, so long as you keep your fire burning. It doesn’t matter if you have nothing to cook on it, it can be just a little drop of water in a small mug standing on that fire, it doesn’t matter. The fire is your life force. Keep it burning every day and God will help you to survive.”
I am sharing the above experience with you because 2009 is the year in which we have to tighten our belts and keep the fires of hope burning. Now is the time to pinch our pennies and polish our rands to spend our money wisely. Since the tabling of the Provincial 2009 MTEF budget on 25 February 2009 by the then MEC for Finance and Economic Development, Dr Zweli Mkhize, the recession tsunami has spread significantly, eroding employment, investments and corporate profits at an alarming scale across the world.
As I rise to revive the provincial MTEF budget, we are faced with the reality of a global recession. As early as 2004, United States (US) economist Jeremy Grantham sounded the alarm bells and by 2007 he was comparing the US economic conditions to an “unstoppable very slow motion train wreck, likely to be pretty ugly on impact.” The “recession train wreck” started moving with the sub-prime mortgage losses in the United States. Let me briefly share with this house some of the worst economic statistics that explain the current economic woes. Between 2003 and 2007 in the US:
* Currency in circulation increased by 74 percent
* Bank credit increased by 24 percent
* Real estate loans largely sub-prime increased by 183 percent
* Total revolving Credit increased by 80 percent
* Total consumer credit outstanding increased by 91 percent
* US Government debt with banks increased by 48 percent
* Total business credit increased by 67 percent
* Securitised total consumer loans increased by 112 percent
* Personal savings decreased by 70 percent
* US government Dissaving increased by 26 percent.
Approximately 80 percent of US mortgages issued since 2003 to sub-prime borrowers were adjustable-rate mortgages. However, when the train finally crashed, the impact was worse than anticipated. When interest rates began to rise, US house prices began to decline and refinancing became more difficult as adjustable-rate mortgages began to reset at higher rates.
Mortgage delinquencies (defaults) soared. The result has been a large decline in the capital reserves of many banks and tightening credit around the world. The housing market crashed very rapidly.
Bad debt and bank foreclosures soared. Many banks went into liquidation and the liquidity in the financial markets disappeared. This was the making of a perfect financial storm that would spread across the globe within a short space of time. The economy in the United Kingdom, our major trading partner, registered a contraction (-1.9 percent) in the first quarter of 2009. Even China, for long the growth engine of the world economy was affected, with exports and imports in January 2009 reflecting a 17 percent and 43 percent decline respectively, compared to the previous January.
The impact on the South African economy
Compared with other markets, South Africa is not near the top of the list of places most affected by the global economic crisis. At the recent World Economic Forum in Cape Town it was argued that, from a business perspective, Africa got a “worse wrap than it deserved,” but that, contrary to other emerging markets the sub-Saharan African economies had weathered the global economic crisis in relatively good shape. The South African domestic financial sector has remained intact, thanks to the robust financial sector regulatory regime. However, the real economy is beginning to feel the pain. With a decreased global demand for our products we could not escape the crisis. For the first time in 17 years, South Africa has slumped into an economic recession, registering a 6.4 percent contraction in Gross Domestic Product (GDP) in the first quarter of 2009 from a 1.8 percent contraction in the last quarter of 2008.
According to the latest treasury statistics (working paper 1.2 dated 27 May 2009), the KwaZulu-Natal economy contracted by 9.37 percent in the first quarter of 2009, which is 3.3 percent more than the national contraction. As the then Minister of Finance stated in his national budget speech some four months ago, “the storm has broken and it is more severe than anyone anticipated.”
Since October 2008 to date, 208 000 jobs have been lost, mainly in the agriculture, trade and manufacturing sectors. The unemployment rate has increased from 21.9 to 23.5 percent over the same period. Manufacturing production had a record year-on-year drop of 21.6 percent in April. Discouraged work seekers increased by 47 000.
The problem with statistics is that they lack a human face. Call it what you want being laid off or downsized losing your job hurts. It is one of life’s most traumatic experiences. Some people lose their houses, their cars and other possessions. It is heart-breaking when parents are unable to provide bread on the table. Family tensions increase, often resulting in divorce and worse.
While the recession has robbed thousands of an income, it has also bitten deeply into tax revenues. The National Treasury forecast tentatively that tax revenues would be as much as R8 billion lower than the gross R659 billion targeted in this year’s budget in February.
In times like these, common sense dictates that a caring government needs to respond appropriately to cushion its citizens from the devastating effects of a recession. However, a question often asked is how a government should respond during a recession. There is usually no one silver bullet that can be unleashed to stop a recession tsunami. A combination of multiple and well thought through and perfectly synchronised strategies have proved to be effective in minimising the effects of recessions. Our President, Mr Jacob Zuma, promised that although the economic downturn will affect the pace at which our country is able to address the social and economic challenges it faces, it will not alter the direction of our development.
Fighting off the recession spending your money wisely!
Increased government infrastructure spending
The worst thing to do during a recession is to reduce government spending. Increased spending, given the fiscal constraints obviously, has proved to be one of the most effective methods of mitigating the impact of a recession because it has the effect of stimulating economic growth. However, it is not any type of government expenditure that stimulates economic growth. Expenditure on current consumption has proved to have the undesired effect of increasing fiscal deficits, with little evidence of economic stimulus. Therefore government has to spend public money wisely; expenditure in infrastructure has been very useful in creating employment opportunities and improving the competitive advantage of countries, thus minimising the effects of recessions.
As an acknowledgment of the stimulating effect of infrastructure investments, KwaZulu-Natal for its part will increase infrastructure spending from R9.7 billion in 2008/09 to R10.9 billion in 2009/10 and to R12.7 billion in 2011/12. The largest portion of this expenditure is in the Department of Transport, which will invest R3.5 billion in 2009/10 rising to more than R3.9 billion in 2011/12 in road construction and maintenance. Human Settlement will spend R2.3 billion, R2.7 billion and R3.1 billion over the next three years, in human settlement developments.
Education and Health will spend a total of R5.8 billion and R5.2 billion respectively over the 2009/10 MTEF on school and health infrastructure.
These are huge investments and if spent wisely, these investments will create employment opportunities, cushioning our citizens from the devastating effects of this recession.
Expanded Public Works Incentive Programme
The 2009/10 budget makes available R84 million for KwaZulu-Natal through the newly created Expanded Public Works Programme (EPWP) incentive conditional grant. This grant provides an incentive to provincial departments to utilise labour intensive methods of service delivery, as encapsulated in the EPWP guidelines. As the programme is designed to operate on a claim-back basis, there is no ceiling on what the province can claim, as long as the guidelines are adhered to.
It is therefore important for all provincial departments to take advantage of this grant and employ as much labour as possible to deliver services and create employment opportunities at the same time. This will help our people in KwaZulu-Natal, absorbing some of the recession blows.
In the face of such severe global economic turmoil, our efforts should now single minded be focused on protecting the poor, providing job opportunities to create a better life and on creating wealth at the bottom of the economic pyramid. We will do this by increasing investments in social services, which will include food security, education, skills development, health services, and in development of infrastructure.
Monetary policy
Many developed countries have used monetary policy to ease the effects of the current global recession. For its part, the South African Reserve Bank has also dropped the lending rate (repo) by 4.5 percent in a very short space of time. Reducing the cost of borrowing is an attempt at injecting some liquidity in the market. At a household level, the reduction in the lending rate should improve the cash flow position and reduce the possibility of bank repossessions of household assets.
Fiscal prudence
During a recession it is crucially important for government and households to maintain fiscal prudence that is, spending within the means, especially when it comes to current expenditure. As indicated earlier, expenditure on current consumption does not mitigate the effects of a recession. In fact such expenditure makes matters worse. It is therefore important for all government departments to ensure that expenditure on nice to haves is eliminated. As government, we must spend public money wisely! The same applies to households. Often we spend money on things we don’t need and we are paying more than we need to pay. We are calling upon all citizens of this province to start reducing their level of indebtedness and start saving.
According to a report by Metropolitan Retail chief executive Phillip Matlakala, South Africa’s low savings rate is one of the biggest factors contributing to its relatively low growth rate. And our savings trend is worsening! Over the period under review, South Africa’s saving to GDP ratio has been on average 14 percentage points lower than the peer group. This gap increased markedly to an average of 16 per cent between 2002 and 2006.
According to Matlakala, a high saving rate for any economy is a yardstick of health and sustained growth. “High domestic savings were the hallmark of the Asian Tigers during the eighties and today. China, one of the world’s fastest growing economies, has followed the same trend, having the world’s highest savings rate,” the CEO reported.
While it is understandable that South Africans spent the last few years acquiring assets, following the improvement of the income of 2.4 million households between 2005 and 2007, we must now be sensible and save, given the global situation:
* Purchases should be limited to necessities and these purchases should not be done on credit
* Borrowing for current consumption is a deadly concoction during a recession. We urge you to refrain from using credit cards unnecessarily
* If at all possible, fast-track your mortgage bond repayments by paying more than the minimum monthly amounts
* Take advice from your financial advisors and consolidate your debt portfolios.
* It is also important to keep your current employment and become valuable to your employer. The more valuable you are, the slimmer are the chances that you might be retrenched when things are not going well.
The National Credit Act that was introduced in 2007 could not have come at a better time. Recent research commissioned by the National Credit Regulator found that it has certainly been shielding the poor. It found that the Act had a pronounced impact on the pricing of micro loans.
The study indicates that the average price of a R1 000, one month loan has decreased significantly between 2002 and 2008, while the range in pricing had also narrowed dramatically. With these strategies, we will weather the recession storm and kindle the fire of hope in our Province.
Priorities in the next five years
Our key priorities are in line with the focal points provided by President Zuma in his State of the Nation Address and by the KwaZulu-Natal Premier, Dr Mkhize in his State of the Province Address. We will now turn to the priorities that this budget will finance.
Food security and agrarian revolution
During its first post 2009 election Cabinet Indaba, Cabinet identified food security as one of the key priorities for this government in the next five years. According to the Department of Agriculture, Environmental Affairs and Rural Development, 3.5 million people in KwaZulu-Natal do not have regular and permanent physical and economic access to a basic food supply which is sufficient to meet their nutritional needs. This translates into 583 000 households (if we use an average of six people per household) who live in fear of starvation. Most of these households have access to arable land. As part of the food security delivery model, the Department of Agriculture, Environmental Affairs and Rural Development will provide agricultural production packs lasting one year to these households so that they start their home gardens. The packs include:
* Seeds for vegetables such as cabbage, green beans, onions, carrots, beetroot, maize, etc.
* Small implements, which include a hand spade, flat hoe, hand fork, watering can
* A fertiliser mix and limestone to allow for all-season cultivation.
The idea is to revive the concept of household gardening. The development and implementation of a comprehensive rural development strategy linked to land and agrarian reform and food security was emphasised as a key priority in the State of the Nation address. This was also emphasised by King Zwelithini at the official opening of the Legislature when he commented on the “intolerable shame that when we have so much land in KwaZulu-Natal we have people who eat from rubbish bins.” He said our forefathers grew up through soil cultivation and we also grew up in the same way.
Why do we allow our children to raid rubbish bins and not chastise them when they beg? There should be no reason for our children to rummage through rubbish bins for something to eat. As part of food security, community gardens will also be revived through the crop massification programme. This programme will include mechanisation such as the supply of tractors and ploughs which will be managed by the agricultural cooperatives.
The Department of Agriculture, Environmental Affairs and Rural Development, together with the Department of Economic Development and Tourism, are finalising the details of this programme. Training will be intensified through agricultural extension services. Further Education and Training Colleges, as well as Agricultural Colleges will also be pulled in to provide essential skills in agriculture. When fully implemented, this programme will eradicate food insecurity in KwaZulu-Natal and will revitalise the commercial agricultural sector which has been declining in the past years.
As the Premier indicated in his State of the Province Address, agriculture will be the platform for development in KwaZulu-Natal. Additional budgetary allocations that may be required for this purpose will be indicated in the Adjustments Budget later this year.
Skills Development
We will continue improving the skills base of KwaZulu-Natal. The declaration contained in the Freedom Charter that the doors of education and culture shall be opened to all remains as relevant today as it was 54 years ago when the Freedom Charter was adopted in Kliptown. Education is everybody’s business. As the key to break the shackles of poverty, it needs to occupy the attention and energy of all our people. And to breathe quality into education, we need Passion, People and Pride. The provincial government will continue to improve access of poor South Africans to quality education. Therefore the number of “no fee” schools will have increased from the current 57 percent to 60 percent of all schools by the end of the current MTEF period (2011/12).
Over the next three years, the Education budget will increase from R24.6 billion in 2009/10 to more than R30.1 billion in 2011/12. The expenditure areas will include the following:
* extension of no fee policy to quintile three schools
* learner teacher support material
* expansion of the school nutrition programme
* school infrastructure.
One of the goals the South African Government has set is to fight unemployment and poverty in the country, targeting to alleviate unemployment statistics by half the status quo by 2014. Many young people leave school without knowing what careers would suit their abilities, interests and personalities. Some go to university to gain some qualifications, where, according to a study by the Human Sciences Resources Council, close to 30 percent of students drop out in their first year.
A poor career choice due to peer pressure was identified as one of the reasons for the high drop out percentage. Some students finish their courses but can’t find employment the unemployed graduates. When these jobseekers are asked what they can do, their usual desperate cry is “anything!” This unfortunately is not the correct answer for employers they want skilled people. The world is yearning for suitably trained artisans. The average toolmaker in South Africa is 55 years old, the average construction worker in the United States is well into his 40s and the shortage of carpenters, plumbers, stonemasons, electricians, welders, cabinetmakers is no secret.
In KwaZulu-Natal, millions of people have been trapped in poverty because they are semi or unskilled. It makes infinite sense to give our young people industry specific training when we are talking about skills development. We will continue to fund the FET Colleges over the next three years and beyond. The Colleges will receive R561 million in 2009/10, R581 million in 2010/11 and R616 million in 2011/12. Our commitment to human capital formation is evident in the amount of resources we have dedicated to funding FET Colleges this is in line with the national priority of placing FET Colleges at the centre of a drive to develop the skills needed by our economy. The nine FET Colleges with their 76 skills delivery sites provide access to education and training to meet the needs of the labour market and empower our youth, cooperatives and small enterprises.
In addition to bursaries, internships and sponsored skills programmes, government offers learnerships for unemployed graduates, such as the KwaZulu-Natal treasury’s unemployed graduate’s stock market trading project. To ensure that we meet the needs of our young people, the President launched the National Youth Development Agency on Youth Day. The NYDA will promote skills development and the economic participation of our youth.
By 2010/11, our Masifundisane adult literacy campaign will have reached more than 670 000 adults. Not only will this free our adults from their prison of illiteracy, but they will also be able to become lifelong learners by building on the skills of reading, writing and counting which they would have acquired through Masifundisane. Close to 80 percent of the learners that Masifundisane has reached, are women. Through Masifundisane, government has empowered thousands of women through literacy skills and the open, challenging discussion in class; they are equipped with information and different perspectives of life.
Women are keys to success in our communities, churches and institutions.
Therefore it makes infinite sense that government empowers them through skills development programmes and training. Education is the backbone of life. It is through education that we acquire knowledge. And as Francis Bacon once put it: “knowledge is power.” Henrik Edberg was even more precise when he said, “But education is still important because it opens the mind and expands it. And if your years in school were bad or boring you can still educate yourself now.”
Strengthening health services
The total budget of the Health Department increases from R17.4 billion in 2009/10 to R21.7 billion in 2011/12. Part of the allocations in the Department of Health will finance the following:
* combating multi-drug resistance and extreme drug resistant (MDR/XDR) tuberculosis
* Occupation Specific Dispensation for professional health workers
* combating infant and child mortality
* medical goods and services
* a comprehensive HIV and AIDS programme
* the hospital revitalisation programme.
It is a fact that if we improve the health status of our citizens, we will have a productive society. As the old Arabian proverb states, “He who has health has hope, and he who has hope has everything.” We will be working closely with the Department of Health to ensure that service delivery does not suffer despite budget pressures.
Social development
Social Development’s baseline increases from R1.1 billion in 2009/10 to R1.3 billion by 2011/12, to strengthen care and services to older persons, crime prevention, child care and protection and services to persons with disabilities. This increase in baseline includes an additional allocation of R107 million to finance early childhood development.
Infrastructure investments
The KwaZulu-Natal government has invested in infrastructure like never before. Let me remind this House what these investments entail. Dube Trade Port and the King Shaka International Airport, the construction of the new airport at La Mercy is at 50 percent completion and the first phase will be completed by May 2010, in time for the 2010 World Cup. The installation of the roof sheeting on the passenger terminal will be completed by the end of this month. This R6.8 billion project is one of the biggest public infrastructure investments this Province has seen in many years.
According to a report about the economic and social effects of aviation globally, released by Oxford Economics in London, this venture will be a vital economic catalyst for KwaZulu-Natal and will
create up to 262 000 jobs. “The Dube Trade Port will also have significant catalytic benefits in black economic empowerment, competitiveness and skills development,” the report states.
This airport will have a direct link with the Dube Trade Port a trade zone that will provide dedicated space for import to, and export from KwaZulu-Natal of high value goods. By providing state-of-the-art air freight handling facilities, it is expected to attract industries such as motor components manufacturing, electronics, clothing and textiles, perishables and value-added logistics, which depend on specialised and dedicated cargo handling facilities.
2010 FIFA World Cup Legacy projects
The KwaZulu-Natal government has made a number of infrastructure investments which will ensure that the province successfully hosts the world during the 2010 World Cup, and leaves a lasting legacy for our people beyond the World Cup. We are already witnessing the potential of South Africa in hosting major sporting events. The Confederations Cup competition currently underway demonstrates our readiness to host the biggest soccer spectacle in the world in 2010. Construction of the world class Moses Mabhida Soccer Stadium, to which the province has transferred its last contribution of R150 million, is well on schedule.
The provincial government has also, through the Department of Local Government and Traditional Affairs, invested a total of R137 million towards the development of other stadiums that will be positioned as potential training venues for some of the teams participating in the World Cup.
These include:
* Harry Gwala stadium in Pietermaritzburg
* Ugu Sports & Leisure Centre in Zotswa, Port Shepstone
* Umhlathuze multi-sports Centre in Richards Bay
* Monte Vista Sports Centre in Newcastle
* King Goodwill Zwelithini stadium in Umlazi
* Princess Magogo stadium in KwaMashu
* Sugar Ray Xulu stadium in Cleremont.
Roads and Transport
Transport’s budget increases from R4.4 billion in 2008/09 to R5.1 billion in 2011/12. This increase includes R734.8 million, R87.3 million and R261.3 million over the next three years to accommodate expenditure on:
* road infrastructure development and maintenance
* public transport operations
* continued construction of the Sani Pass roads.
Part of this allocation will be utilised in upgrading road infrastructure and improving access to the main soccer venues and the King Shaka International Airport, in preparation for the World Cup.
Rehabilitation of Small Towns
The 2008/09 MTEF allocated R40 million for 2009/10 to the Department of Local Government and Traditional Affairs for investments in small town rehabilitation and rejuvenation. This allocation has been increased by another R15 million in the current financial year. In total, R158 million has been allocated to this programme over the next three financial years. The idea is to revive the economic health of those towns suffering from urban decay.
The programme will finance all qualifying infrastructure projects that have the potential of stimulating economic activities in those towns that, due to whatever reasons, have been under economic decline. Since most of these towns are in rural areas, this allocation is our response to the President’s call for government to take rural development seriously in the coming years. We appeal to our colleagues in municipalities to take advantage of this initiative to revive the economies of small towns.
The above mentioned infrastructure investments we will be making in the province will go a long way towards mitigating the effects of the current recession in the province. However, we are aware that without good governance, these investments will not yield maximum benefits.
Supporting small businesses and employment creation
It is widely accepted that small and medium sized enterprises contribute vigorously to economic growth and to the creation of sustainable employment, especially in the light of massive lay-offs from large firms. Some of the world’s strongest economies are based on small businesses, which have the capacity to be flexible and innovative to adapt rapidly to changing consumer taste and demand.
In this regard the relevant departments will provide more detail on their strategies to fight poverty, create jobs and provide services through cooperatives and small business.
The Legislature Public Private Partnership (PPP) project
The construction of the new Legislature complex will not only provide much-needed space to staff and Members of the Provincial Legislature, but will also broaden the public’s access to parliamentary activities with the potential of enhancing service delivery. The new complex will be established through a Public Private Partnership. Bidders had to include design plans and if everything goes according to plan, construction could start as early as mid-September 2009.
Good governance and financial management spending your money wisely
Sound financial management makes the difference between goals achieved and opportunities missed. The programmes initiated by my predecessor and current Premier, Dr Zweli Mkhize, reflect a healthy, well balanced inclusive approach to taking control of the KwaZulu-Natal government’s approximately R60 billion budget for the 2009/10 financial year.
If an organisation is not in control of its finances, it is significantly more likely to be spending too much, in general, or not enough on critical programmes and will, in all probability, receive less income than necessary. The onus to ensure that the public’s money your money is in safe hands rests on the KwaZulu-Natal government and treasury in particular. Therefore, our theme for the next five years is spending your money wisely. What does this entail?
Spending on Budget
We commit ourselves to foster a culture of responsible spending in our provincial and local governments. We will have no mercy on overspending, or on the other hand, underspending on critical delivery programmes. The emphasis will be on the importance of spending within the allocated budget and working closely with municipalities and departments. This will ensure that the people we serve obtain maximum benefit from the government services provided, within the resources available to it. Value for money entails, in addition to the cost of goods and services, quality, resource use, fitness for purpose, timeliness and convenience.
We appeal to all departments and municipalities to refrain from wasteful expenditure and to exercise prudence in financial management. This call is even more important now that we are faced with recessionary pressures and budget constraints. The days of extravagance are over. We need to do more with limited resources and account properly for the expenditure we incur. There are four areas of good governance that I would like to emphasise:
* clean audit reports
* elimination of fraud and corruption in government
* transparent supply chain management practices
* on-budget expenditure.
Audit outcomes
While the province has made significant progress over the years in terms of audit outcomes as indicated by the 2007/08 Auditor-General’s report, more still needs to be done. There are three departments that received qualified audit reports in 2007/08. This has to stop. Going forward we must ensure clean audit reports for the entire Provincial Government. The same goes for municipalities. I am very disturbed by the persistent trend of non-compliance by some of our municipalities in submitting their financial statements on time for audit purposes. I have therefore tasked treasury, through the Municipal Support Programme (MSP), to work very closely and cooperatively with the Department of Local Government and Traditional Affairs in supporting municipalities with their financial affairs, such that we eliminate both disclaimers and qualifications.
My colleague, the MEC for Local Government and Traditional Affairs and I have committed ourselves to support each other and our municipalities in achieving clean local government. As the Premier stated in his State of the Province Address, we are committed to the strengthening of cooperative government and will build relationships and partnerships to ensure early intervention before serious breaches in financial management occur.
Fighting fraud and corruption
In his State of the Nation Address, President Zuma said the following: “We have repeatedly stated our commitment to fight corruption in the public service. We will pay particular attention to combating corruption and fraud in procurement and tender processes.” As the political Head of Treasury, I would like to reiterate this call and urge all civil servants to refrain from any form of corruption. Fraud and corruption are morally wrong and they take away resources that could change the lives of the poor. We share the Premier’s concern about the image of corrupt government officials whose task it is to serve the public, but instead they are stealing money meant to improve the lives of our people.
Treasury will investigate the extent to which companies owned by government officials are involved in tenders in the different government departments. I have no fear in indicating that those who are involved in corrupt activities in the province will be found and arrested. Our project Unembeza, which is aimed at eliminating fraud and corruption in our IT systems, particularly the payment system known as BAS, is now in full force in nearly all provincial government departments. However, we acknowledge and appreciate the excellent work done by thousands of honest public servants.
Supply chain management
It is also our duty to ensure that our supply chain management (SCM) processes are beyond reproach. As the President said, this is the area where most corruption takes place. We will be monitoring very closely how provincial departments procure their goods and services. The first prize would be for the Province to refrain from using the quotation methods for significant tenders and rather utilise the normal competitive bidding process, which is not only cheaper, but also results in quality procurement. It further minimises the risk of fraud and corruption.
Spending within budget
We are very disturbed by the prevailing trend of budget over-runs in the Province. This House will recall that the Province over-spent its 2007/08 budget by a net amount of R164.3 million, largely due to the R1.03 billion over expenditure in the Department of Health. This trend continued into 2008/09. According to the recent financial statements, the province ended the financial year with a R2.34 billion net over-expenditure, largely attributed to the Departments of Health, Education and Transport. These three departments combined over spent by R2.57 billion in 2008/09.
While some of the over-expenditure can be explained by the implementation of the Occupation Specific Dispensation (OSD) in health and education, the increase in the number of patients receiving anti retroviral treatment in health and the inflationary pressures in the Department of Transport, such over-expenditure cannot continue. The province cannot spend money it does not have full stop.
As a result of this persistent over-expenditure, the Province has had to forego budgeted interest earnings and is currently servicing a huge overdraft at a cost of about R130 million per annum, at the prevailing interest rates.
To finance this over-expenditure, Cabinet has agreed to reduce all departmental baselines for 2009/10, 2010/11 and 2011/12 by 7.5 percent of the value of their goods and services budgets.
As you will notice in the revised fiscal framework presented below, the Province is now budgeting for a surplus. This in not a surplus in the true sense of the word, but rather a saving that we have to make in order to finance the cumulative budget deficit of the previous two financial years.
The revised fiscal framework
Let us now turn to the revised 2009/10 medium term fiscal framework of the province. The provincial total receipts amount to R60.5 billion in 2009/10 rising to R71.7 billion in 2011/12. These receipts are made up of equitable share allocations, conditional grants and provincial own receipts. Factored into this framework are baseline reductions and the resultant savings of R876.5 million in 2009/10, R1.02 billion in 2010/11 and R1.12 billion in 2011/12. These are the savings that will finance the deficit I spoke about earlier.
For us to realise these savings, we will require that all provincial departments spend within this framework for the next three years and beyond. Any over-expenditure in the current financial year will require more savings in the 2010/11 financial year. We are therefore appealing to all accounting officers to ensure that they remain within their reduced budgets, no matter what.
The details of each department’s revised allocations are contained in the explanatory memorandum to the 2009/10 budget statement I am tabling today. These details include the revisions as a result of the 7.5 percent budget reductions. Also included are small budget shifts that accommodate function shifts as a result of the slight reconfiguration of provincial government departments.
Sources of additional own-revenue
In times of budget constraints, it is always important to look out for other legitimate revenue sources that the province can exploit without burdening the poor. To this end, the Provincial Treasury is finalising some proposals that will be considered by the Ministers’ Committee on the Budget (MinComBud) and Cabinet as we prepare for the 2010/11 budget process. These proposals will be tabled by the MEC for Finance for consideration by the Legislature early in 2010.
Commitments for the adjustments budget
We now have a new government in the Province. However, this government took office after the main budget had already been tabled. It is therefore important that the revised budget I am tabling today leaves some room for this government to introduce new priorities that have to be financed. However, given the lack of synchronisation between the elections and the budget processes, as well as the tight fiscal envelope, it has not been possible to accommodate new priorities at this stage. However, Section 31(2)(d) of the PFMA does allow for the appropriation of money during the Adjustments Budget for expenditure already announced by the MEC for Finance during the tabling of the annual budget. It is therefore my commitment to this house that any new and legitimate priorities that will emerge as the provincial programme of action gets finalised, will be considered during the adjustments budget later this year.
Conclusion
Several players have contributed in various ways to ensure that we revive the already tabled budget proposals. I take this opportunity to express my gratitude to the Premier, Dr ZL Mkhize and the entire Cabinet for the leadership demonstrated in preparing the 2009/10 MTEF. We are also indebted to the former Minister of Finance, Trevor Manuel and the new Finance Minister, Pravin Gordhan for their guidance on how to revive the Appropriation Bill that was tabled on 25 February 2009.
The rest of Team Finance has also given good technical advice on how to ensure that the transition phase runs smoothly, with minimal disruption of the budget processes. To the Chairperson of the Finance Portfolio Committee, Ms Belinda Scott and the rest of the Committee, we look forward to robust engagements with you. I wish to thank all the officials in my new department under the leadership of S’miso Leslie “the dentist” Magagula, for ensuring that the budget documentation we are presenting today is of good quality.
It is now my honour to table the revised Appropriation Bill, 2009 for the province of KwaZulu-Natal for consideration in this house, together with the explanatory memorandum to the 2009/10 Budget Statements to be read with the 2009/10 Budget Statements and other associated budget documentation that was tabled on 25 February 2009. I call upon the members of the Legislature to debate and vote on this revised Appropriation Bill.
The true measure of good governance is improvement in the lives of our people. As MEC for Finance I will do whatever it takes to drive the growth and success of our clients the people of KwaZulu-Natal. As government we realise, like the legendary retired professional basketball player Michael Jordan, that “talent wins games, but teamwork and intelligence wins championships.”
In preparation for today, I have met with my entire colleague MECs. We have discussed the spending pressures in the various departments and sacrifices that have to be made by all of us. Therefore, we will take the journey towards good governance together. While laws and regulations, the use of internationally accepted accounting standards and common auditing standards certainly enhance good governance, proper implementation and facilitation are crucial to the success of spending the money of our people (your money) wisely.
With the collective energy generated by officials from all departments and all municipalities together with my colleagues in the Provincial Executive and councillors in the local authorities we CAN get through the recession and reach our common destiny of sound financial management and good governance in KwaZulu-Natal. We also appeal to our young people, men and women, to help us to make KwaZulu-Natal a great Province.
But above all let us keep the fires of hope burning
Hope is bright shining light which keeps darkness at the bay
Hope is gentle cold breeze on a hot summer day
Hope is to remain positive when going gets tough
Hope is seeking more when others think u had enough
Hope is dreaming of tomorrow
Hope is simmering under sorrow
Hope is sparkles when there are tears in our eyes
Hope is a beautiful thing & beautiful things never die
Hope is as light as a feather
Hope keeps all of us together
Hope is ubiquitous and free of cost
Hope is the last thing ever lost
I thank you.
