Introduction
Section 28 (1) of the Public Finance Management Act (PFMA) requires that the MEC for Finance in a province annually tables, in the Provincial Legislature, a multi-year budget projection of:
* The estimated revenue expected to be raised during each financial year of the multi-year period
* The estimated expenditure expected to be incurred, per vote, during each year of the multi-year period, differentiating between capital and current expenditure.
In line with this provision, I raise to table in this legislature the 2010/11 Medium Term Expenditure Framework (MTEF) budget for the province of KwaZulu-Natal. “Don’t tell me where your priorities are. Show me where you spend your money and I’ll tell you what they are.”
Today we will show honourable members where we intend spending our money, and you can tell us whether they address provincial priorities. But remember, “Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” Or, in the words of our beloved Madiba, “Money won't create success, the freedom to make it will.”
Our vision and priorities
2010 is the year in which we will do things differently. The new approach spells out our vision for our country and our province and is expressed in 12 measurable outcomes. These outcomes, with associated activities and defined targets to be reached by 2014, have shaped the 2010 budget allocations:
* Improved quality of basic education
* A long and healthy life for all South Africans
* All people in South Africa are safe and feel safe
* Decent employment through inclusive economic growth
* A skilled and capable work force to support an inclusive growth path
* An efficient, competitive and responsive infrastructure network
* Vibrant, equitable and sustainable rural communities contributing to food security for all
* Sustainable human settlements and improved quality of household life
* Responsive, accountable, effective and efficient local government
* Protected and enhanced environmental assets and natural resources
* An efficient, effective and development oriented public service and an empowered, fair and inclusive citizenship
* A better South Africa and a better World
To achieve our vision embodied in these outcomes, the province has embarked on a detailed information gathering process led by the Office of the Premier. This is conducted through the employment of volunteers. They operate in various communities to survey and record the needs of our communities at a household level. A full set of data for each household will enable us to determine poverty levels, health status and education levels at community level. This will provide the province with sufficient information to react appropriately in devising policies and plans that will have a meaningful impact on the lives of our people.
The exact cost of employing enough volunteers to conduct household surveys and community mobilisation is still being calculated and will therefore receive the required funding in the 2010/11 Adjustments estimate. In the meantime lead departments can utilise their existing baselines to finance this programme. Provincial priorities that are imperative in achieving the 12 outcomes continue to be funded and my colleague MECs will elaborate on this when they table their respective budgets. The priorities include:
* Food security - under the slogan “one home one garden”
* The protection and empowerment of women and children
* Treatment of disease, especially TB and HIV
* Provision of food parcels as an interim measure
* Improved births registration
* Increased access to Early Childhood Development services and schooling
* Provision of school nutrition and free schooling
* Skills development programmes
* The establishment of policing forum and street committees
* The re-integration of identified offenders back into communities
* Social crime prevention
* Implementation of social cohesion and moral regeneration programmes
* Creating markets for young entrepreneurs
Economic scenario
The current economic crisis has brought forward questions about ethics and values and there is now a strong feeling that our planet needs a new compass to set us on a path of real progress. We have to practice what Nobel Prize winner Albert Einstein believed, “the world will not evolve past its current state of crisis by using the same thinking that created the situation.” We must learn from the mistakes we have made and from mistakes made globally. The new growth path to achieving faster growth, higher employment and reduced levels of poverty entails:
* Sound macroeconomic policies
* Microeconomic reform
* Massive education and skills programmes
* Public employment programmes and job creation through economic growth
* Support to the poor and vulnerable by providing a social safety net
* Support to business to grow the economy and create employment
* A capable, efficient and effective government
We will embark on this road with the credo of doing more with less. We will not cut on service delivery but we have to be more focused and work harder and smarter to outwit the less than favourable economic landscape. However, we are meeting in an atmosphere of optimism today. Our economy is no longer in the intensive care unit. In fact we are recuperating beyond expectations due to our sound macroeconomic and fiscal policies. From a rating of 15th last year the World Economic Forum's global competitiveness index now rates South Africa sixth out of 133 countries for “soundness of banks.”
We welcome the good news by Statistics South Africa that the manufacturing sector, which employs about 1.7 million people, made a dramatic recovery in the fourth quarter of last year. The 10 percent quarterly increase (adjusted and annualised) in manufacturing boosted our total national fourth quarter gross domestic product (GDP), which expanded by 3.2 percent in the final three months of the year when compared with the third quarter. Provincial GDP increased by 3.09 percent (annualised and quarterly) from the third quarter, with a 9 percent growth in the manufacturing sector in the fourth quarter.
New vehicle sales are now on the increase. Business confidence is improving once again and trade activity is positive. There is an increase in manufacturing and according to the Manpower’s Quarterly Survey; some companies have recorded a 22 percent increase in their manufacturing activities and are now considering hiring more workers in the first quarter of 2010.
The Kagiso Purchasing Managers Index (PMI), a reliable yardstick of factory output, rose sharply to 53.6 points in January 2010 from 52.5 points in December 2009 (bureau of economic research).
The global economy is likewise recovering faster than previously anticipated. As world economic growth is bouncing back from negative territory in 2009 the International Monetary Fund had to adjust its economic growth forecast upwards to 3.9 percent this year and 4.3 percent in 2011.
For South Africa, the National Treasury projects real GDP growth to rise to 2.3 percent in 2010 and 3.2 percent in 2011. Returning to annual growth rates of five percent and higher will require a much greater effort. We need to broaden economic participation to young people, rural communities and marginalised groups in particular.
For KwaZulu-Natal, Provincial Treasury is forecasting an increase in the gross domestic product (GDP-R) of between 2.2 percent and 2.7 percent in 2010. The inflation rate is expected to be within the 6.5 percent to seven percent range. On the whole these indicators are positive signs that give us hope. But while we are hopeful we need to be reminded that we are still in the recovery ward. Despite the positive growth during the last quarters of 2009 both the national and provincial economies shrank on a year on year basis.
The approximately 25 percent Eskom tariff increase is lower than initially mooted. However, it will still have an impact on our economy as the table below indicates:
Impact of the Eskom tariff increases on the provincial budget:
* Provincial electricity increase year one: R45 539 964
* Provincial budget increase year one: R3 688 526 000
* Provincial electricity increase year two: R106 108 116
* Provincial budget increase year two: R3 283 293 000
* Provincial electricity increase year three: R185 752 960
* Provincial budget increase year three: R2 491 916 000
* Cumulative provincial electricity increase: R337 401 040
* Cumulative provincial budget increase: R9 463 735 000
* As a percent 3.57 percent
* Electricity increase as a percent of budget increase year one: 1.23 percent
* Electricity increase as a percent of budget increase year two: 3.23 percent
* Electricity increase as a percent of budget increase year three: 7.45 percent
Effects of the recession
The effects of this recession are wide and varied. Serious inroads have been made into the gains of accelerated economic growth and employment during the period 2001 to 2008. The impact is best measured in human terms: The International Labour Organisation reports that about 34 million people across the world lost their jobs in the past 18 months. The World Bank estimates that nearly 200 million people may fall back below the poverty line as a result of the recession. In South Africa 870 000 people have lost their jobs since the crisis began. KwaZulu-Natal lost 220 000 jobs up to the fourth quarter of 2009. When the number of people who have given up looking for work (the discouraged work seekers) is included in the unemployment figures, the statistics are frightening:
KwaZulu-Natal labour force characteristics
Quarter: Q1 2008
Population of working age (15�"64 years): 6 250 000
Labour Force: 3 315 000
Employed: 2 562 000
Unemployed: 753 000
Not economically active: 2 935 000
Discouraged work seekers: 183 000
Quarter: Q2 2008
Population of working age (15�"64 years): 6 273 000
Labour force: 3 359 000
Employed: 2 614 000
Unemployed: 745 000
Not economically active: 2 914 000
Discouraged Work Seekers: 167 000
Quarter: Q3 2008
Population of Working Age (15�"64 years): 6 295 000
Labour force: 3 312 000
Employed: 2 583 000
Unemployed: 729 000
Not economically active: 2 983 000
Discouraged work seekers: 186 000
Quarter: Q4 2008
Population of working age (15�"64 years): 6 318 000
Labour Force: 3 321 000
Employed: 2 631 000
Unemployed: 690 000
Not economically active: 2 997 000
Discouraged work seekers: 224 000
Quarter: Q1 2009
Population of working age (15�"64 years): 6 340 000
Labour Force: 3 248 000
Employed: 2 514 000
Unemployed: 733 000
Not economically active: 3 093 000
Discouraged work seekers: 271 000
Quarter: Q2 2009
Population of Working Age (15�"64 years): 6 362 000
Labour force: 3 043 000
Employed: 2 457 000
Unemployed: 586 000
Not economically active: 3 319 000
Discouraged work seekers: 448 000
Quarter: Q3 2009
Population of working age (15�"64 years): 6 384 000
Labour force: 3 024 000
Employed: 2 458 000
Unemployed: 566 000
Not economically active: 3 360 000
Discouraged work seekers: 480 999
Quarter: Q4 2009
Population of working age (15�"64 years): 6 405 000
Labour force: 2 983 000
Employed: 2 409 000
Unemployed: 574 000
Not economically active: 3 422 000
Discouraged work seekers: 452 000
Sadly the effects are most likely to be felt by the poorest. The hardest hits are youth and women who form the vast majority of the poor. The table below gives statistics about unemployment by age. It is clear from this that we need to focus specifically on creating more employment opportunities for young people.
Percent unemployment by age, 2009 (South Africa)
15 �" 24: 48.3
25 �" 32: 28.5
35 �" 44: 17.1
45 �" 54: 10.8
55 �" 64: 6.7
Total 24.3 (Narrow definition)
Government has a two-pronged approach a short term strategy that deals with immediate amelioration represented by the framework agreement, four and a further range of measures that will impact on unemployed and discouraged work seekers. In this regard I want to repeat Premier Mkhize’s plea to companies during his State of the Province Address to take advantage of the lay-off training scheme.
The province is also concerned about the persistent income inequality as measured by the Gini-Coefficient. Between 2001 and 2007, the Gini Coefficient increased from 0.65 to 0.67, National Economic Development and Labour Council (NEDLAC) framework agreement for South Africa’s response to the International economic crisis. The Gini coefficient is a number between zero and one that is a measure of inequality indicating widening income inequality. Ideally, the province should be striving for a coefficient closer to zero to indicate equality in terms of income earnings. In simple terms, a coefficient of zero indicates that 10 percent of the population earns 10 percent of the income for example- perfect income equality.
Implications for the 2010/11 budget
The recession bit hard into the state coffers. National tax revenue collection has underperformed in 2009/10 with a projected under-collection in tax revenue of some R69 billion. It is expected that this trend will continue in the 2010/11 financial year, as tax revenue growth is expected to lag the recovery.
This underperformance in tax collection against budget means that government has less money to finance its spending programmes. This in turn necessitates increased annual borrowing requirements. In the 2009/10 fiscal year, the country has had to borrow 7.3 percent of GDP. While South Africa’s reputation for the “soundness of its banks” has benefited us in borrowing money at a lower interest rate, we all know that money is an expensive commodity and we have to be cautious of the consequences of unsustainable debt levels. Generally countries with high debt levels (Japan, Greece, and Italy) can be expected to grow more slowly in the long term than countries with low debt or surpluses (China, Chile).
Increased borrowing pushes up the country’s debt stock resulting in higher debt-service costs. According to National Treasury, debt-service costs are already beginning to crowd out other investments, a trend that is likely to persist for the next few years. The national net loan debt is projected to rise from R526 billion at the end of 2008/09 to R1.3 trillion in 2012/13. Perhaps there is wisdom after all in what former USA President Ronald Reagan said, “We don't have a trillion-dollar debt because we haven't taxed enough; we have a trillion dollar debt because we spend too much.” So let us do more with less and participation in budget formulation.
In ensuring that this budget addresses the concerns and needs of the people of KwaZulu-Natal, I have embarked on a number of community participation pre-budget road shows. This is an ideal forum for our people to indicate what lies at the heart of their needs and requirements. What has come out quite clearly is that the people want us to address issues such as job creation, economic growth and poverty reduction. Closely linked to these, are a number of severe social challenges such as the HIV and AIDS and TB pandemics that continue to plague the province and the country as a whole, as well as the provision of quality education and skills development.
Our responsibility as the government of KwaZulu-Natal is to ensure that every possible measure is taken to allocate public spending to the priorities of the people. Equally important is to ensure that we spend public money wisely, effectively and efficiently.
Given our moderate economic growth and rising public debt interest costs government is scrutinising departmental performance to improve efficiency, obtain better value for money and move resources to where they are needed most. To this end I have met with all my colleagues, the MECs, to discuss their budgets vote by vote. This has given us the opportunity to gain insight into spending pressures and to seek solutions together and I thank them for their enthusiastic participation in these discussions.
The 2010/11 MTEF
I now turn to the Provincial Fiscal Framework for the 2010/11 MTEF.
Table 1: Summary of provincial payments and estimates by vote
Outcome:
Department: Office of the Premier
Audited 2006/07: 303 766
Audited 2007/08: 395 396
Audited 2008/09: 463 842
Main Appropriation 2009/10: 454 010
Adjusted Appropriation 2009/10: 435 718
Revised Estimate 2010/11: 435 718
Medium-term estimates 2010/11: 419 284
Medium-term estimates 211/12: 405 145
Medium-term estimates 2012/13: 425 306
Department: Provincial Legislature
Audited 2006/07: 160 791
Audited 2007/08: 209 999
Audited 2008/09: 247 649
Main Appropriation 2009/10: 287 051
Adjusted Appropriation 2009/10: 306 768
Revised Estimate 2010/11: 309 356
Medium-term estimates 2010/11: 322 193
Medium-term estimates 211/12: 353 132
Medium-term estimates 2012/13: 380 684
Department: Agriculture, Environmental Affairs and Rural Development
Audited 2006/07: 1 291 802
Audited 2007/08: 1 252 713
Audited 2008/09: 1 752 824
Main Appropriation 2009/10: 1 950 032
Adjusted Appropriation 2009/10: 1 999 301
Revised Estimate2010/11: 1 991 217
Medium-term estimates 2010/11: 2 188 337
Medium-term estimates 211/12: 2 361 767
Medium-term estimates 2012/13: 2 481 127
Department: Economic Development and Tourism
Audited 2006/07: 507 910
Audited 2007/08: 1 510 954
Audited 2008/09: 1 771 422
Main Appropriation 2009/10: 2 487 690
Adjusted Appropriation 2009/10: 2 492 401
Revised Estimate 2010/11: 2 470 752
Medium-term estimates 2010/11: 1 624 798
Medium-term estimates 211/12: 1 473 278
Medium-term estimates 2012/13: 1 547 147
Department: Education
Audited 2006/07: 16 218 726
Audited 2007/08: 18 406 747
Audited 2008/09: 22 991 742
Main Appropriation 2009/10: 24 609 443
Adjusted Appropriation 2009/10: 26 058 854
Revised Estimate 2010/11: 26 271 374
Medium-term estimates 2010/11: 29 034 762
Medium-term estimates 211/12: 31 600 250
Medium-term estimates 2012/13: 33 292 209
Department: Health
Audited 2006/07: 11 663 951
Audited 2007/08: 14 959 441
Audited 2008/09: 17 103 101
Main Appropriation 2009/10: 17 448 526
Adjusted Appropriation 2009/10: 18 329 163
Revised Estimate 2010/11: 20 641 179
Medium-term estimates 2010/11: 21 657 681
Medium-term estimates 211/12: 23 628 833
Medium-term estimates 2012/13: 25 106 593
Department: Provincial Treasury
Audited 2006/07: 506 002
Audited 2007/08: 379 645
Audited 2008/09: 693 565
Main Appropriation 2009/10: 624 923
Adjusted Appropriation 2009/10: 523 449
Revised Estimate 2010/11: 670 467
Medium-term estimates 2010/11: 640 637
Medium-term estimates 211/12: 666 077
Medium-term estimates 2012/13: 686 857
Department: Human Settlements
Audited 2006/07: 1 252 921
Audited 2007/08: 1 522 181
Audited 2008/09: 1 876 146
Main Appropriation 2009/10: 2 571 813
Adjusted Appropriation 2009/10: 2 573 713
Revised Estimate 2010/11: 2 570 713
Medium-term estimates 2010/11: 3 111 613
Medium-term estimates 211/12: 3 429 147
Medium-term estimates 2012/13: 3 621 603
Department: Community Safety and Liaison
Audited 2006/07: 59 360
Audited 2007/08: 78 797
Audited 2008/09: 109 287
Main Appropriation 2009/10: 127 638
Adjusted Appropriation 2009/10: 127 638
Revised Estimate 2010/11: 125 613
Medium-term estimates 2010/11: 140 744
Medium-term estimates 211/12: 149 207
Medium-term estimates 2012/13: 156 740
Department: The Royal Household
Audited 2006/07: 38 147
Audited 2007/08: 39 114
Audited 2008/09: 47 853
Main Appropriation 2009/10: 40 643
Adjusted Appropriation 2009/10: 40 643
Revised Estimate 2010/11: 40 643
Medium-term estimates 2010/11: 43 845
Medium-term estimates 211/12: 46 214
Medium-term estimates 2012/13: 48 560
Department: Cooperative Governance and Traditional Affairs
Audited 2006/07: 654 132
Audited 2007/08: 744 650
Audited 2008/09: 1 020 672
Main Appropriation 2009/10: 1 092 420
Adjusted Appropriation 2009/10: 1 093 918
Revised Estimate 2010/11: 1 053 918
Medium-term estimates 2010/11: 1 061 903
Medium-term estimates 211/12: 1 129 745
Medium-term estimates 2012/13: 1 186 801
Department: Transport
Audited 2006/07: 2 539 187
Audited 2007/08: 3 121 798
Audited 2008/09: 5 025 223
Main Appropriation 2009/10: 5 147 898
Adjusted Appropriation 2009/10: 5 231 798
Revised Estimate 2010/11: 5 204 798
Medium-term estimates 2010/11: 5 631 057
Medium-term estimates 211/12: 5 930 515
Medium-term estimates 2012/13: 6 267 113
Department: Social Development
Audited 2006/07: 941 579
Audited 2007/08: 1 015 188
Audited 2008/09: 1 232 408
Main Appropriation 2009/10: 1 361 280
Adjusted Appropriation 2009/10: 1 361 280
Revised Estimate 2010/11: 1 361 280
Medium-term estimates 2010/11: 1 668 170
Medium-term estimates 211/12: 1 873 676
Medium-term estimates 2012/13: 1 968 432
Department: Public Works
Audited 2006/07: 450 267
Audited 2007/08: 479 297
Audited 2008/09: 731 259
Main Appropriation 2009/10: 867 440
Adjusted Appropriation 2009/10: 798 625
Revised Estimate 2010/11: 793 101
Medium-term estimates 2010/11: 868 214
Medium-term estimates 211/12: 920 437
Medium-term estimates 2012/13: 967 154
Department: Arts and Culture
Audited 2006/07: 179 290
Audited 2007/08: 206 435
Audited 2008/09: 253 289
Main Appropriation 2009/10: 256 432
Adjusted Appropriation 2009/10: 267 323
Revised Estimate 2010/11: 264 323
Medium-term estimates 2010/11: 357 018
Medium-term estimates 211/12: 328 491
Medium-term estimates 2012/13: 358 124
Department: Sport and Recreation
Audited 2006/07: 113 566
Audited 2007/08: 160 598
Audited 2008/09: 213 267
Main Appropriation 2009/10: 259 187
Adjusted Appropriation 2009/10: 266 187
Revised Estimate 2010/11: 261 187
Medium-term estimates 2010/11: 307 107
Medium-term estimates 211/12: 364 970
Medium-term estimates 2012/13: 383 364
Total:
Audited 2006/07: 36 881 397
Audited 2007/08: 44 482 953
Audited 2008/09: 55 533 549
Main Appropriation 2009/10: 59 586 426
Adjusted Appropriation 2009/10: 61 906 779
Revised Estimate 2010/11: 64 465 639
Medium-term estimates 2010/11: 69 077 363
Medium-term estimates 211/12: 74 660 884
Medium-term estimates 2012/13: 78 877 814
Table 1 gives a summary of provincial allocations by vote.
Education
The lion’s share again goes to education. The education budget is set to rise from R26.058 billion in 2009/10 to R33.292 billion in 2012/13. This shows an average annual growth of 8.5 percent (nominal) and 3.5 percent in real terms. This is to give effect to the key priority of government, namely to improve the quality of education.
A total of 1 465 882 learners at our public schools in KwaZulu-Natal are expected to benefit from the no fee policy by 2012/13. There are currently 3 382 no fee schools in the province, including farm schools. The no fee school policy will be extended to cover quintile three schools in 2010/11. Furthermore, funding has been made available for the re-imbursement of schools in quintiles three to five that enrol learners from poor backgrounds.
To address the shortage of school infrastructure, eight schools are currently being constructed and mobile Early Childhood Development (ECD) classrooms will be delivered to 200 primary schools. In line with this, the number of Grade R classes in the province have increased to 5 500 over the past five years.
A hungry child cannot perform to his or her potential. Therefore, the national school nutrition programme is being extended to cover quintile two secondary schools. This increases the coverage to 1 845 000 learners in 2010/11, rising to 2 168 821 learners in 2012/13.
Health
In terms of health services, the budget allocated to the Department of Health increases from R18.329 billion in 2009/10 to R25.107 billion in 2012/13, receiving the second highest share of the provincial budget. An annual average growth of 11.1 percent (nominal) and 6.0 percent in real terms is reflected.
This budget will continue to be utilised for improving the provision of health care in the province. This includes the comprehensive management of HIV and AIDS, maternal, neo-natal and women's health and the comprehensive management of TB. The budget allocated to the Department of Health will provide for the treatment of 33 918 308 people at Primary Health Care Facilities in 2012/13. This is an increase of 7 727 150 from the 2009/10 financial year. Of these 1 775 407 are children under the age of five years.
The new born Nevirapine uptake rate is set to remain at 100 percent over the entire MTEF. The newborn baby AZT uptake is planned to be increased from 91 percent in 2009/10 to 100 percent in 2012/13. The total number of registered ART patients on treatment is set to more than double between 2009/10 and 2012/13, increasing from 335 148 patients to 695 557 patients.
Transport
The budget allocated to the Department of Transport increases from R5.232 billion in 2009/10 to R6.267 billion in 2012/13 which shows an average annual growth of 1.3 percent in real terms (6.2 percent nominal). This will enable the department to continue to construct, maintain and repair the provincial road network; plan, regulate and provide an integrated transportation system; and manage road traffic. It will also allow the department to rehabilitate 1 400 000 m2 of road per year and reseal 1 800 000 m2 of tarred road, among others. A number of projects are implemented using labour intensive methods and the MTEF sees the continued use of Zibambele contractors with 40 000 contractors being employed annually. Through the EPWP projects, the department will be creating 5.240 million person days of work annually.
Human Settlements
The budget of the Department of Human Settlements rises from R2.574 billion in 2009/10 to R3.622 billion in 2012/13, which is an average annual increase of 6.9 percent in real terms (12.1 percent nominal). This allocation allows the department to continue to accelerate housing delivery in rural areas throughout the province and to continue with the slums clearance programme aimed at eradicating all slums in the province by 2014. In terms of the rural housing programme administered by this department, the department plans to complete 43 702 houses over the MTEF. The department receives a new conditional grant in 2010/11 of R133.800 million to assist with the rehabilitation of community settlements affected by severe storms and flooding during 2008 and 2009.
Access to social services such as housing and potable water in KwaZulu-Natal has improved steadily over the years. For example, more than 1.3 million households now have access to decent housing compared to 910 000 in 2001. The number of households without access to potable water has declined from 594 000 in 2001 to about 100 000 currently.
Agriculture, Environmental Affairs and Rural Development
The Department of Agriculture, Environmental Affairs and Rural Development will focus on rural development, agrarian reform, social and economic infrastructure development and sustainable natural resource management. The budget allocated to the department increases from R1.999 billion in 2009/10 to R2.481 billion in 2012/13 which is an annual average real increase of 2.5 percent (7.5 percent nominal). This allocation will ensure that 791 956 food insecure households will benefit from the food security interventions over the MTEF. Furthermore, more than 800 000 beneficiaries per year will be receiving seed packs.
Social Development
The budget of the Department of Social Development increases from R1.361 billion in 2009/10 to R1.968 billion in 2012/13, which is an annual average increase of 7.9 percent in real terms (13.1 percent nominal). The department will continue to focus on various initiatives, such as the national youth service, victim empowerment, substance abuse and HIV and AIDS programmes. Cooperative Governance and Traditional Affairs
The Department of Cooperative Governance and Traditional Affairs sees an increase in its budget allocation from R1.094 billion in 2009/10 to R1.187 billion in 2012/13. This is a decrease of 2.0 percent in real terms (increase of 2.8 percent nominal). This budget growth is low due to the province recalling all World Cup 2010 funding post 2010, to the Provincial Revenue Fund. The department will, however, continue to focus on the local government turnaround strategy, infrastructure investment, capacity building and cooperative governance.
Economic Development and Tourism
The Department of Economic Development and Tourism’s budget allocation in 2009/10 is R2.492 billion. This decreases to R1.547 billion in 2012/13, mainly due to the completion of the airport portion of the Dube Trade Port (DTP) project administered by the department. This reflects negative growth of 18.6 percent (14.7 percent nominal). The allocation allows for the continuation of projects such as the Richards Bay Industrial Development Zone, the Moses Kotane Institute (which trains teachers and students in mathematics and science) and DTP. The department will also be initiating new projects, such as the Tourism Buddy programme which trains guides on the correct protocol and information required to assist foreign tourists during the 2010 World Cup. Also, the allocation provides for the establishment of the Agri-Business Development Agency which is a special purpose vehicle focusing on improving the land reform process and providing support to emerging farmers, including the sourcing of appropriate markets.
Public Works
The Department of Public Works’ budget increases from R798.625 million in 2009/10 to R967.154 million in 2012/13, which is an average annual real increase of 1.7 percent (6.6 percent nominal). This allocation will be used for continued payment of property rates on all provincial properties, the expansion of the IDIP programme to other departments as well as continuing the mentoring and training of the construction industry in KwaZulu-Natal.
Provincial Treasury
The budget allocation of the Provincial Treasury increases from R523.449 million in 2009/10 to R686.857 million in 2012/13, which includes a substantial amount of R235 million per year, being a provision for the interest costs related to the provincial overdraft. This interest on the overdraft allocation is kept constant over the MTEF, resulting in an average annual real growth of only 4.5 percent. The allocation also provides for the Municipal Support Programme which continues to support and assist municipalities in improving their level of financial management and reporting.
Office of the Premier
The Office of the Premier’s budget allocation decreases from R435.718 million in 2009/10 to R425.306 million in 2012/13, which is a decrease in real terms of 5.4 percent (0.8 percent nominal) due to the fact that the full Soccer Development allocation is moved to the Department of Sport and Recreation from 2011/12. Among others, their allocation allows the Office of the Premier to complete phase two of the provincial Nerve Centre; undertake a number of activities in relation to hosting five soccer teams (Greece, Algeria, Nigeria, Cameroon and Paraguay) during the 2010 World Cup and to continue focusing on training public servants at the Provincial Public Service Training Academy, with the intention of training 6 000 public servants in 2010/11.
Arts and Culture
The Department of Arts and Culture’s budget allocation increases from R267.323 million in 2009/10 to R358.124 million in 2012/13. This is an increase of 5.2 percent in real terms (10.2 percent nominal). This increase is influenced by the fact that 2010/11 includes a substantial once-off allocation of R56.943 million for a number of infrastructure projects, such as the renovations of halls and camp sites and the construction of arts centres. The department is also commencing the process of provincialising public libraries in 2010/11, which is being done in a phased-in approach.
Sport and Recreation
The Department of Sport and Recreation sees its budget allocation increasing from R266.187 million in 2009/10 to R383.364 million in 2012/13 which is an average annual increase of 7.8 percent in real terms (12.9 percent nominal). As mentioned earlier, this substantial real growth is influenced by the movement of Soccer Development funding from the Office of the Premier. A large portion of the department's allocation relates to the Mass Sports and Recreation Participation Programme conditional grant which funds the promotion of mass participation within schools and communities through a number of selected sports and recreation activities.
Provincial Legislature
The budget of the Provincial Legislature increases from R306.768 million in 2009/10 to R380.684 million in 2012/13, which is an average annual real increase of 2.5 percent (7.5 percent nominal). This allocation is inclusive of the remuneration of the Members of this House. The allocation also provides for public participation events, aimed at improving the interaction between the legislature and the citizens of the province.
Community Safety and Liaison
The Department of Community Safety and Liaison’s budget increases from R127.638 million in 2009/10 to R156.740 million in 2012/13, which is an average annual real increase of 2.2 percent (7.1 percent nominal). This allocation provides for the volunteer social crime prevention programme which aims to drive social crime prevention through visible policing.
Royal Household
The Royal Household’s budget allocation increases from R40.643 million in 2009/10 to R48.560 million in 2012/13, which is an average annual real increase of 1.2 percent (6.1 percent nominal). The intention is for this vote to be listed as public entities during the course of the year, where after it will be incorporated into vote one: Office of the Premier.
“Finance is the art of passing money from hand to hand until it finally disappears.”
Own-revenue estimates Due to the continued existence of the provincial overdraft the province is not able to realise any interest from the provincial revenue fund. As a result, we have had to revise downwards the provincial own-revenue by R115.226 million in 2010/11, R126.857 million in 2011/12 and R105.237 million in 2012/13. After factoring in these downward revisions, the province is estimating to collect R1.804 billion, R1.943 billion and R2.068 billion over the MTEF mainly from motor vehicle licence fees, gaming and health patient fees. However, the Province needs to explore more ways in which we can increase our own revenue and Provincial Treasury is working on proposals in that regard.
Reprioritisation
Preparing this framework required the province to look seriously at reprioritising the existing provincial baseline. For example, allocations for 2010 Soccer World Cup related expenditure, which were still in departments’ baselines, had to be recalled to the provincial fiscus for reallocation to other priority areas, as these allocations would no longer be required for Soccer World Cup purposes post 2010. Therefore, amounts of R172.513 million, R181.139 million and R193.196 million over the 2010/11 MTEF are returned to the provincial revenue fund for reallocation. These amounts are mainly from the Department of Cooperative Governance and Traditional Affairs, funded the construction of stadium for the World Cup in five districts.
Additional Allocations from the equitable share
The province receives some additional allocations from the equitable share over the 2010/11 MTEF. However, most of the additional funding is specifically ear-marked for wage related costs, as can be seen in table two below.
Table two provision for national priorities:
2010/11
Policy Priorities funded through the Equitable Share: 2 118 108
Inflationary Adjustments: 1 173 546
Higher than anticipated wage settlement: 651 970
Education OSD: 292 592
Health OSD: 5 000
Provincial Treasury: 5 000
To strengthen municipal support units:
Total: 2 123 108
2011/12
Policy Priorities funded through the Equitable Share: 2 262 733
Inflationary Adjustments: 1 310 567
Higher than anticipated wage settlement: 655 283
Education OSD: 296 883
Health OSD: 5 000
Provincial Treasury: 5 000
To strengthen municipal support units: 2 267 733
2012/13
Policy Priorities funded through the Equitable Share: 2 408 177
Inflationary Adjustments: 1 448 912
Higher than anticipated wage settlement: 658 597
Education OSD: 300 668
Health OSD: 5 000
Provincial Treasury: 5 000
To strengthen municipal support units: 2 413 177
As indicated in the table above amounts of R2.123 billion, R2.268 billion and R2.413 billion are added to the provincial equitable share over the MTEF period. These amounts will finance the following:
* The carry-through costs of the higher than anticipated 2009 wage agreement (11.5 percent instead of the budgeted 5.5 percent)
* The implementation of the OSD for educators
* The implementation of the OSD for health practitioners
* Strengthening of the municipal support unit in Provincial Treasury.
It is important for this House to note that these additional allocations are still not sufficient to cover the full costs of the wage agreement and the implementation of various OSDs. According to our estimates there is a R1.1 billion shortfall for those two expenditure areas, and if not fully funded in future, the shortfall will carry-through the 2010/11 MTEF, with serious budgetary implications.
Besides the amounts mentioned above the province also receives a fairly small increase in its equitable share allocation due to various updates of the data that informs the equitable share formula. The bulk of this is allocated to financing some provincial priorities, which I will discuss later.
Conditional grants
Conditional grant funding shows strong growth over the 2010/11 MTEF increasing by R2.158 billion, R2.301 billion and R3.405 billion. It should be noted that the amounts discussed here are included in the allocations per vote in table one.
The province receives four new conditional grants in the 2010/11 MTEF, these being:
* The technical school recapitalisation grant to improve conditions at technical schools and modernise them to meet acceptable standards
* The FET College Sector grant (which was previously equitable share funded), to commence planning for the eventual shift of these colleges to the newly established national Department of Higher Education and Training
* the Expanded Public Works Programme grant for the Social Sector, to subsidise non-profit organisations working in home community based care programmes for the Departments of Health and Social Development
* The Housing Disaster Relief grant, to rehabilitate community settlements that were affected by severe storms and flooding during November and December 2009.
Most of the existing conditional grants will receive an inflationary increase only in the 2012/13 financial year, with the following exceptions:
* The infrastructure grant to provinces allocated to education, health and transport sees a decrease of R2.136 million in 2010/11 due to a technical adjustment made by National Treasury and increases in 2011/12 and 2012/13 of R17.265 million and R285.696 million in 2012/13, respectively. R52.954 million of the 2012/13 additional funding is earmarked specifically for the improvement of school infrastructure
* The comprehensive HIV and AIDS grant receives substantial additional funding over the 2010/11 MTEF as follows: R485.729 million in 2010/11, R787.325 million in 2011/12 and R1.151 billion in 2012/13. This is added to support government's commitment to addressing the HIV and AIDS pandemic. In support of this, the CD4 count threshold for TB sufferers and pregnant women moves from 200 to 350, and triple therapy is provided to all children born with HIV and AIDS
* The public transport operations grant has become a conditional grant from 2009/10. The allocation in 2009/10 only provided funding for 2009/10 at that stage. The conditional grant allocation now provides funding for the entire 2010/11 MTEF as follows: R714.587 million in 2010/11, R773.473 million in 2011/12 and R815.611 million in 2012/13.
Provincial priorities funded
As a result of the provincial overdraft Cabinet agreed to allocate only funding to those provincial priorities deemed essential and to rather focus any additional funding received on ensuring that the provincial overdraft is managed downward. Therefore, the additional equitable share allocation as a result of data updates which I referred to earlier was used to manage the provincial bank overdraft downward. In addition the 2010 funding recalled from the departments post 2010 was also used for this purpose. The following provincial priorities, amounting to R328.169 million, R330.351 million and R355.984 million over the MTEF received additional funding:
* R235 million being a provision for the payment of interest on the overdraft
* The function shift to all departments for the management of ill health of personnel (Policy on incapacity leave and ill health retirement)
* Carry-through costs of the 2009/10 adjustments estimate, i.e. statutory increases for MPLs
* Implementation of the job evaluation review for the Provincial Legislature
* Municipal support programmes
* The provincialisation of community libraries.
Paying off the overdraft
“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.” I am confident that the province will see its way out of the current bank overdraft situation over the 2010/11 MTEF, in the light of:
* continuing the baseline trajectory of departments taking into account the 7.5 percent reduction in the value of the Goods and Services budgets
* The continued implementation of the Cabinet-approved cost-cutting measures
* The Province implementing the first charge rule 7.5 percent reduction.
The house will recall that the Province began budgeting for a surplus from the 2009/10 financial year; and that the source of this surplus was the implementation of the 7.5 percent cut in departments' goods and services budgets. The aim was to repay the provincial overdraft over three years. The implementation of the various OSDs and the higher than anticipated 2009 wage agreement resulted in the province projecting to not achieve the desired surplus in 2009/10. This therefore necessitates that the province continues to budget for a surplus. To ensure that future growth and service delivery are not continuously hampered by rises in the bank overdraft and the associated interest costs, the MTEF allows for a reduction in the provincial bank overdraft which not only costs us money, but we also lose income.
The surplus then consists of keeping the departments' budgets at the reduced amounts (i.e. after the 7.5 percent cut in the value of the Goods and Services budgets), as well as only allocating a portion of the amount that the Province receives due to the data updates of the equitable share formula, to provincial priorities. In a nutshell: every cent we save will go into paying back our overdraft.
Surplus budgeted over the 2009/10 MTEF increases by the amount that the province receives, but does not allocate for spending to the departments. Therefore the budgeted surplus of the province increases from R1.211 billion in 2010/11 to R1.805 billion in 2011/12 and to R2.220 billion in 2012/13. This should be sufficient to pay off the provincial overdraft over the 2010/11 MTEF, as long as the province is not again affected by higher than budgeted wage agreements. The provincial and national fiscus has been placed under immense pressure as a result of the 2009 wage agreement. As Minister Ghordan announced in his speech on 17 February 2010, it will be necessary to moderate salary increases going forward to ensure that funds are also available for growth in public service employment and so that spending on service delivery is not compromised.
Cost-cutting measures
When tabling the 2009/10 adjustments budget, I indicated to this House certain cost-cutting measures to ensure that the province returns to a healthy financial position. The focus of these cost cutting measures is for the province to do more with less. It should be noted that these measures were not only implemented for the duration of the 2009/10 financial year, but will remain in place at least until the provincial overdraft has been fully repaid. Please allow me to repeat these measures:
* Freezing of all posts (in exceptional circumstances, the Executive Authority can approve the filling of essential/critical posts with a report being sent to the Office of the Premier and the Provincial Treasury)
* No furniture or equipment to be bought (excluding those that are funded by conditional grants)
* Essential training to be done in-house (exceptions to be approved by the HODs)
* Overseas trips to be rationalised
* Business class travel only for MECs and HODs (and the Speaker and MPLs as decided by the
Legislature)
* Car hire bookings - class of vehicle to be lowered
* Catering for meetings to be stopped
* Kilometre controls be implemented on travelling (1750 kilometres per month per official unless there are exceptional circumstances - the exceptions should be approved by the HODs)
* Officials to travel together unless absolutely unavoidable
* Only essential trips to be undertaken
* Meetings, strategic planning sessions and workshops to be held in departments' offices instead of private venues
* Air travel to be limited to important meetings with only one official to attend on behalf of the department, unless otherwise required
* No team building exercises or year-end/Christmas functions (only permitted if paid for by the staff themselves)
* Cut down on unnecessary overnight accommodation. Staff to sleep over only if the total distance to and from the destination is more than 500 kilometres
* Where there are one-day meetings in other provinces, officials must travel there and back on the same day (where possible)
* No performance bonuses to be paid from 2010/11
* No promotional items to be purchased (t-shirts, caps, bags, etc)
* No leave conversion payments to be made (leave to be taken)
* Strict control of overtime
* Re-evaluate the hosting of provincial events (including budget dinners)
* Implement transversal cell phone policy to curtail costs
* Spending on travel to be investigated with a view to reducing costs including hotel and flight bookings
* Introduce bulk media buying
* Review policy on subsidised vehicles for officials
* Fraud and corruption in the public service to be eliminated
* Supply Chain Management to be strengthened to eliminate collusion between suppliers and government officials.
We point out that most of these cost cutting measures are simply elements of good governance and should stay in place even when the provincial overdraft has been paid off. “Good government is the outcome of private virtue” �" let us remind ourselves of this.
I am pleased to report that the vast majority of departments are enthusiastically implementing our cost cutting measures and some are even going beyond what is required. This is highly appreciated and with that kind of support we will turn the corner, I have no doubt about that.
Implementation of the first charge rule
In addition to the 7.5percent reduction mentioned earlier the province implemented the first charge rule (in terms of Section 34(2) of the PFMA) for the first time during the 2009/10 adjustments estimate. This was done as some departments’ over-expenditure in prior years was of such a level that the 7.5 percent reduction was insufficient for them to repay their over-expenditure amounts.
This meant that the affected departments, namely education, health and transport saw a further reduction in their budgets available for spending, in order to fully pay back the over-expenditure they had incurred in 2008/09. Therefore these departments’ budgets available for spending was reduced in 2009/10 by R111.466 million for education, r758 million for health and r185.492 million for transport.
Important to note and understand, though, is that these amounts were not removed from their budgets but were allocated to unauthorised expenditure to allow the necessary accounting treatment of these amounts by Provincial Treasury. These amounts were then the first instalment of the first charge rule.
In 2010/11, education and transport are affected by the second instalment of the first charge rule, with their budgets available for spending reducing by R106.039 million and R185.466 million, respectively. Health is not yet being charged the second instalment, to allow the joint task team, comprising officials from Provincial Treasury and the Department of Health, more time to implement their turnaround strategy.
Furthermore, the Standing Committee on Public Accounts (SCOPA) approved several amounts to be authorised and these will be included in the next Authorisation of Unauthorised Expenditure Bill, to be tabled in the Provincial Legislature. However, several amounts were not approved for authorisation, and therefore become a first charge against those votes. The votes affected are:
* Education - R27.563 million to be implemented as a first charge in 2010/11
* Human Settlements - R18.606 million to be implemented as a first charge in two equal instalments of R9.303 million in 2010/11 and 2011/12
* The Royal Household - R11.299 million to be implemented as a first charge in three equal instalments of R3.766 million in 2010/11, 2011/12 and 2012/13
* Transport - R200 000 to be implemented as a first charge in 2010/11.
Procurement reforms and fighting corruption
It is clear that government does not have any room to manoeuvre. Spending on budget is the only option. Besides the cost cutting measures adopted by Cabinet there is still more wasteful expenditure we need to cut. Our procurement system remains a cause for concern. As Minister Gordhan put it, “A major site of both wastage and inefficiency is in our procurement system. Through a combination of corrupt practices, inefficient procurement, poor planning and in some instances, collusion by the private sector, we are not getting the kind of value from our purchases that our people deserve”.
Our provincial cost cutting measures directed all departments to take immediate steps to eradicate fraud and corruption, which continues to be a drain on the provincial fiscus. We also appeal to our business people to give government value for money. Inflating prices just because it is government can never be justified. Do not collude with corrupt officials - it is stealing from the poorest and robbing others of service delivery. We need to change the mindset from “making a killing” to “making a living” if we want all our people to benefit.
The days of giving work to companies who cannot deliver a service and only act as intermediaries are numbered. So are the days of civil servants who use the state to enrich themselves. A number of arrests have already taken place and more are to come. The purpose of South Africa’s policy of Black Economic Empowerment (BEE) has never been to enrich only a few people. It is essentially a growth strategy, targeting the South African economy's weakest point: inequality. We have to broaden the base that is associated with growth, development and enterprise development, and not merely redistribute existing wealth.
Empowerment is about building capabilities so that people can contribute to economic development and improve their lives and livelihoods, not about extracting large economic rents from government.
Supply chain management
The province is developing a system that will eliminate fraud in our supply chain management and give us value for money. Treasury, together with the Office of the Premier, are finalising this system.
The Premier emphasised in his State of the Province Address, “Government is investigating a shared services model to ensure efficient management of tenders and regular price comparison to eliminate the possibility of inflated prices.” Prices are mainly inflated when government departments procure goods and services through a “request-for-quotations” instead of a competitive tender process.
The new system will provide all departments with the most current prices of all items. The price list will be updated on a daily basis and officials who procure goods and services above market-clearing price will have to explain why. It will work like the Reuters system which publishes going prices of all commodities traded in the market place and will block the issuing of orders if the price is above the listed price for that item. It will also allow service providers to bid against one another on the strength of competitive prices to supply particular goods or services.
Before the system is introduced government will do a spend-analysis province wide. The analysis will indicate what are the most frequently procured goods and services; what is the annual expenditure on these items across government; and who the main suppliers are, etc.
It will provide a direct link to existing general period contracts already negotiated by National Treasury (in general period contract prices are almost always cheaper). An aspect of the system also entails the re-negotiation of all existing provincial contracts to ensure value for money.
We envisage that the system will be finalised during the 2010/11 financial year. It is about time that government becomes a price maker not a price taker given the size of its procurement.
Capital expenditure
The province has set aside R11.093 billion in 2010/11 growing to R12.9 billion in 2012/13 for infrastructure development within the various departments. This increase in capital expenditure recognises the positive effect infrastructure investments have on employment creation and economic growth. Since 1994, the province has embarked on the eradication of infrastructure backlogs to promote equity for the citizens and improve access to public services throughout the province. This manifested itself mainly in the construction of social infrastructure such as schools, clinics and roads. Most of the structures built since 1994, are now due for major maintenance and rehabilitation. For the desired life of facilities to be reached, structures must continually be maintained. The general consensus among experts is that an amount that is equal to 4 percent of the replacement value of an asset is adequate to keep the structure in a “new” condition, with a scheduled maintenance programme.
About 49 percent of the infrastructure allocation will be spent on maintenance of infrastructure. Maintaining the provincial assets will prolong the lifespan of the asset base. Where possible, departments are also urged to utilise the Expanded Public Works Programme (EPWP) guidelines to increase the labour absorption in their infrastructure maintenance programmes. This will allow the province to access the EPWP incentive grant.
The EPWP Incentive grant has been increased from R84 million in the current year to R169.470 million for 2010/11. Again there is no cap on the amount that may be spent and provinces may apply for more EPWP funding. This is a great initiative that enables departments to create job opportunities, while delivering services at the same time. Given the high unemployment rate labour intensive projects must be at the centre of all our initiatives.
In an effort to help departments with infrastructure development, Provincial Treasury coordinates the Infrastructure Delivery Improvement Programme (IDIP), with the Departments of Education, Health on the client side and the Department of Public Works, as an agent. The client departments have streamlined their infrastructure planning capability considerably, while the management of their respective projects has also improved. Due to the visible success of the IDIP programme, it has been agreed to extend IDIP beyond the initial three-year time horizon. National Treasury will continue to fund the implementation of the programme. However, provinces have been requested to fund the first two months of the 2010/11 financial year until National Treasury has finalised the procurement model.
Thank you
Several role players have contributed in various ways to ensure that we are able to table the 2010/11 budget today. I take this opportunity to express my gratitude to the Premier, Dr ZL Mkhize and the entire Cabinet for the leadership and support demonstrated in preparing the provincial recovery plan, and the 2010/11 MTEF budget. We are also indebted to Minister Pravin Gordhan for his wisdom and guidance in preparing the MTEF budget. The team finance has provided sound technical advice during this process and I thank them sincerely. The members of the Ministers’ Committee on the Budget (MinComBud) have worked tirelessly alongside me, in crafting the budget which I am tabling today. We engaged in lively debate on many complicated issues along the way, which has added to the value of the documents I am presenting today.
To the Chairperson of the Finance Portfolio Committee, Ms Belinda Scott and the rest of the committee, we look forward to continued robust engagements with you. I would also like to thank the officials in my department, ably led by S’miso Magagula, for ensuring that the budget documentation is of excellent quality.
Conclusion
It is now my honour to table the Appropriation Bill, 2010 for the province of KwaZulu-Natal for consideration in this House, together with the estimates of provincial expenditure (previously known as the budget statements). I call upon the Members of the Legislature to robustly debate this Appropriation Bill. To my fellow MECs, “Our incomes are like our shoes; if too small, they gall and pinch us; but if too large, they cause us to stumble and trip.” May your incomes in the new financial year be like a nice pair of shoes, not too small, but large enough to slip into and be comfortable.
Source: Provincial Treasury, KwaZulu-Natal Provincial Government (/)
