statement delivered by honourable WB Nel, MEC for Finance
2 March 2007
Madam Speaker
Premier
Honourable members of the House
Heads of departments
Invited guests
Officials of the provincial administration
Comrades and friends
Ladies and gentlemen
Times like this present unique opportunities to reflect on issues that
really matter in peoples' life. For the government, the budget day presents an
opportunity to reflect on the critical challenges confronting the citizens of
this province and how public action and resources are used to respond to the
challenges.
The Eastern Cape has aptly been described as one of the poorest provinces in
the country. The province is estimated to have the second highest incidence of
poverty in the country, with some 69% of the population receiving incomes below
the poverty line. The incidence of poverty is highest in the rural areas of the
former Transkei and Ciskei. The unemployment rate estimated at 30% in 2005 is
unacceptably high and yet there is acute shortage of skilled manpower, pointing
to the structural disarticulation of the provincial economy. The human
development index of this province is among the lowest in the country.
The Provincial Growth and Development Plan (PGDP) contends that most of the
constraints to growth and development in the province stem from severe poverty,
high levels of inequality between the poor, densely populated labour reserves
and relatively affluent, sparsely populated commercial agricultural areas and
between well serviced urban centres and under serviced townships and informal
settlements. Reducing poverty has therefore become the single most important
challenge confronting the province.
Madam Speaker
Poverty is a state of pronounced deprivation in well-being. To be poor is to
be hungry, to lack shelter and clothing, to be sick and not cared for, to be
illiterate and not schooled. But for the poor people, living in poverty is more
than this material deprivation. Poor people are vulnerable to adverse events
outside their control. They are often treated badly by the institutions of
state and society and excluded from voice and power in those institutions. All
these forms of deprivation severely restrict what Amartva Sen, a renowned
development economist, calls the "capabilities that a person has to lead the
kind of life he/she values and desires."
What framework of action is needed to effectively reduce poverty in all its
manifestations?
Quite obviously, Madam Speaker and Premier, economic growth is central to
the success in poverty reduction. But as we know poverty is an outcome of
economic, social and political processes that interact with and reinforce each
other in ways that worsen or ease the deprivation poor people face everyday. To
generate the dynamics for sustainable poverty reduction requires action on
three fronts. Firstly, we would need to expand economic opportunities for the
poor by stimulating overall economic growth and by building up their assets and
increasing the returns on these assets, through a combination of market and
non-market interventions. Secondly, we have to empower the poor by making our
departments and other state institutions more accountable and responsive to the
needs of the poor and by strengthening the participation of poor people in
political processes and local decision making.
Lastly, we have to enhance the security of poor people by reducing their
vulnerability to ill health, economic shocks, policy induced dislocations,
natural disasters and violence as well as helping them to cope with adverse
shocks when they occur.
Madam Speaker
Underpinning the three interventions I have just outlined is the ability of
the poor to accumulate and use assets and the most effective instrument of
government action for reducing poverty is the budget. The budget I table in
this House today has been crafted to facilitate the use of government action
and resources to expand the assets of the poor and reduce inequalities in our
society.
Firstly, the budget is designed to facilitate the use of state power to
redistribute resources especially basic services such as education, health and
infrastructure that create assets for the poor. Secondly, the budget has made
resources available to support the implementation of policies and institutional
reforms that support effective service delivery to our people. Lastly, the
budget calls for the engagement of poor households and poor communities in
decisions on the choice, design, operation, monitoring and evaluation of
programmes and services that build their assets.
Premier, the 2007/08 budget seeks to reinforce the important and soul
searching statement that you have always been making in this province, "We will
not abandon the poor".
Madam Speaker
The government of the Eastern Cape will not abandon the poor. We should not
abandon the poor because it is socially and morally wrong to demonstrate that
type of attitude. The Eastern Cape Provincial Government (ECPG) is now more
than ever ready to use the power of the state to move the frontiers of poverty
in this province. We will be able to do this because, Madam Speaker and
Premier, under your able leadership we have been able to weather the storm that
threatened to undermine the financial viability of the province. Your
unwavering commitment and 'Godly' belief are an inspiration to all in the
province and has made a massive impact on me and my outlook in life.
Madam Speaker
Three years ago this time, the province was faced with a serious financial
crisis that threatened to push it into insolvency. The overall financial
position of the province reflected an exposure of some R3,6 billion comprising
amongst others of a R744 million bank overdraft, projected over expenditure of
Rl,2 billion by the Department of Social Development, outstanding debts and
other liabilities totalling some R899,6 million and a deficit budget of R563
million that was tabled at the time.
Through your strong leadership, guidance and personal involvement, Madam
Premier, the government was able to implement measures that sought to stabilise
the fiscus and eliminate the deficit, achieve economies in expenditure,
leverage additional resources and generally enforce financial discipline in the
administration. Today, the Eastern Cape provincial administration is free of
debt. The financial position is stronger than ever and there is no threat of
financial insolvency. As a result of the effective expenditure management
exercised under your administration, the province has moved from a position of
near bankruptcy in March 2004 to a position of strong solvency in March 2007.
So Premier when you say that "we will not abandon the poor", you are very
correct because it is our responsibility to see that the interest of the poor
is protected. More so because we have the financial resources, commitment and
the interest to effectively reduce poverty in the province. We will not rest on
our woes until we break the back of poverty in this province.
2. The 2006/07 budget performance
Madam Speaker, Premier, honourable members of the House
I would like to give a snapshot review of the performance of the budget in
the current financial year. I will use this review to establish the context
within which the 2007/08 budget proposals are derived.
Revenue
From the revenue perspective, the provincial fiscus looks very strong and
encouraging. Revenues from the major sources are generally in line with the
projections. As of the end of January 2007, a total of R23,7 billion,
representing 84% of the projected revenue for the financial year 2006/07 had
been mobilised. Up to January 2007, the province had received R20,7 billion of
its total equitable share of R24,6 billion representing 84% of the expected
equitable share from the national government.
Up to January 2007, 82% of the total R2,9 billion conditional grants
earmarked for the province had also been received from the national government.
Over the same period, the province mobilised over R630 million from is own
sources. The provincial own revenue is projected to reach R713 million by the
end of the financial year indicating an over collection of some Rl16 million or
19%.
Expenditure
Madam Speaker
The financial performance from the expenditure perspective is very
discouraging. The province continues to face serious problem of under spending.
Total spending by the province as at end January 2007 stood at R21,1 million,
or 76% of the adjusted budget for the financial year. The January in-year
monitoring report, which consolidates information submitted by departments,
indicates that the province will end the financial year with an under
expenditure of some R454 million. Provincial Treasury, however, estimates that
the end-year under expenditure may be close to R3 billion.
The budgets for goods and services, transfer payments and capital assets are
all likely to be hugely under spent by the end of the financial year. The
biggest under expenditure is likely to be on transfer payments and subsidies to
households, state institutions, municipalities and non-profit organisations
(NGOs). For this expenditure item nearly Rl,5 billion is likely to be under
spent. The bulk of this amount will be the housing conditional grant for which
spending has been very discouraging during the year.
The budget for goods and services is also projected to be under spent by
over R1 billion by the end of March this year. And more than R500 million of
the budget for capital payments, including buildings and other fixtures,
machinery and equipment, is also likely to be unspent during the year.
Moreover, actual spending of conditional grants is likely to be less than the
budget by some R700 million, attributable mainly to the slow spending of the
forensic pathology and the integrated human settlement development grants.
Madam Speaker
A common factor accounting for the under spending of the budget is the lack
of capacity to plan, implement, monitor and evaluate transfers and subsidies.
In some cases, monies have not been transferred because the recipient
institutions and bodies have not been able to comply with the requirements such
as the submission of business plans, lack of proper costing and credible
procurement plans are the major contributory factors for the under spending of
the goods and services budget. But above all, Madam Speaker and Premier, there
is more cash available to spend now than the capacity of departments to spend.
The need to build capacity in the administration and also creatively utilise
the existing capacity to step up spending cannot therefore be over
emphasised.
Madam Speaker
To prevent the unspent portion of the housing conditional grant going back
to the national government, the Department of Housing, Local Government and
Traditional Affairs has put together a comprehensive plan that seeks to fast
track the housing projects and thus expenditure. The plan envisages the
engagement of established construction companies in the low cost housing
sector. The Department is also seriously engaging with contractors currently on
site and the municipalities to address the problems that have caused many of
the housing projects to be blocked so that construction of houses will proceed
unimpeded.
3. The 2007 Medium Term Expenditure Framework (MTEF)
Madam Speaker, Premier and honourable members of the House
The 2007/08 MTEF has been shaped and influenced by a number of policy
interventions that seek to address the issue of poverty and inequality in the
province. Madam Speaker, permit me to outline some of the key priorities that
seek to influence the 2007 MTEF commencing with the accelerated shared growth
and investment agenda.
Accelerated and Shared Growth Initiative (AsgiSA)
The challenge of development is to improve the quality of life especially
that of the poor in a sustainable manner. For a poor province such as the
Eastern Cape, a better quality of life generally calls for higher incomes but
it involves much more. It encompasses as ends in themselves better education,
higher standards of health and nutrition, more equality of opportunity, less
unemployment, greater individual freedom and a richer cultural life.
Madam Speaker
Economists such as my Head of Department usually argue that the first
characteristic of development is economic growth. According to them, economic
growth entails increases in per capita income and although economic growth in
itself cannot guarantee that development will take place, restoring adequate
rates of self-sustained growth is critical for development.
Indeed no poverty alleviation strategy can be sustained without restoring
economic growth. Economic growth can increase people's incomes, support
education and health expenditure, generate investment and employment
opportunities and raise living standards. More importantly, greater
participation of the poor in the growth process and sharing in the benefits of
the growth reduces inequality and widens the growth potential.
Madam Speaker, under any circumstance economic growth is not an end in
itself, its effect must be widely distributed if it is to be sustainable. This
requires not only raising per capita incomes, but also systematically reducing
disparities in income. This is the critical factor underpinning the current
development paradigm as contained in the Accelerated and Shared Growth
Initiative for South Africa (AsgiSA) programme.
The current development agenda of the province and indeed, of the country,
focuses on two things: growth and empowering the poor to participate in that
growth. This paradigm is in essence a strategy for pro-poor growth. The
emphasis is on growth driven by the private sector and the empowerment of the
poor so that they can participate actively in the growth process and share in
the benefits. In this framework government actions would not only seek to
address the serious imperfections in the marketplace but would also facilitate
the transformation of the society in identifying the barriers to and potential
catalysts for change. Political and civil liberties, competent, pragmatic and
flexible state interventions should become the pillars of the change process.
Over the medium term, therefore, AsgiSA projects in the province will be given
significant resource boost.
Investment in the people
Madam Speaker
One critical objective of the government under the new development paradigm
is to continue to invest in the people of this province, i.e., to promote
education and health. The economic returns from investment in people are often
extremely high. Markets in developing countries generally cannot be relied upon
to provide people especially the poorest with adequate education, healthcare,
nutrition, and family planning services. Also a healthy literate labour force
stimulates economic growth through productivity increases and enhances poverty
reduction benefits from that growth. Both the re-engineering of service
delivery and development of human capability can also lead directly to the
reduction of poverty and inequality.
Public spending on education and health provides services directly to the
poor and helps them to expand their assets. Free primary education for the poor
is critical for expanding their human assets especially for girls. Subsidising
prevention of infectious diseases and helping poor households finance the costs
of catastrophic health episodes are also key elements in strengthening poor
people's health asset and reducing their vulnerability to health shocks.
Madam Speaker
Over the 2007 medium term, the government of the Eastern Cape will pump R49
billion into education. Over the same period R26,4 billion will be spent on
health services in the province.
Investment in infrastructure
Madam Speaker
Underpinning the challenge of reducing poverty and inequality in the
province is the need to provide and sustain adequate and appropriate
infrastructure. Infrastructure is necessary if markets are to fulfil their
central role of increasing wealth and living standards. And because the
provision of broad infrastructure services is beyond the capacity or interest
of the market, it has primarily be the responsibility of government. The main
focus here is on economic infrastructure (transport facilities, public
utilities and public works) and social infrastructure (education, health and
recreation). In some sectors this will require direct investment in new
infrastructure whereas in other sectors it will require investment in
rehabilitation, upgrading and maintenance. Over the 2007 medium term, the
government will spend R12 billion on infrastructure facilities and services in
the province.
Madam Speaker
The major challenges with infrastructure provision in the province are
threefold. Firstly and as I indicated in the House last year, infrastructure
spending in the province does not distinguish between economic and social
infrastructure and prioritise either type. And neither does it distinguish
between spending on infrastructure that target the poor and those for the
non-poor. The lack of such a distinction works against the design of effective
infrastructure programmes and beclouds the trade offs in investing in either
type of infrastructure. Moreover, the lack of prioritisation between social and
economic infrastructure complicates the task of selecting the right financing
mechanism, resulting in inefficiencies, both in terms of timeliness and value
for money. It also means that the objective of public spending facilitating the
accumulation of assets by the poor is greatly undermined.
Secondly, the provincial infrastructure budget has remained very low for
many years. Since the 2004/05 financial year, however, the infrastructure
budget has been increasing. Although the provincial infrastructure budget is
set to increase significantly over the medium term, this is nowhere near the
funding required in dealing with the backlogs to provide new infrastructure and
upgrade and maintain the existing facilities.
Thirdly, the recent financial years have witnessed slow and low levels of
infrastructure spending in the province, attributable mainly to the lack of
project management and inadequate planning in departments.
This development has dire consequences both for reducing poverty and
inequality and sustained private investment. Although macroeconomic reforms are
necessary conditions for sustained growth and private investment, without the
accompanying improvement in the public sector's performance particularly in the
area of infrastructure development, the private supply response to the policy
reforms is likely to remain limited. And inadequate social infrastructure
constrains the government's capacity to reduce poverty and inequality.
Madam Speaker and Premier
The solution to the infrastructure problems lies in the formulation of a
comprehensive provincial infrastructure plan. The plan should indicate which
infrastructure type has priority, what kinds of infrastructure projects should
be prioritised and the relative contributions of the infrastructure projects to
the reduction of poverty and inequality. Quite clearly also, the government
alone cannot finance and deliver the required infrastructure facilities and
services in the province. Private sector participation in joint financing,
delivery concessions, turnkey delivery, project financing and other
institutional innovations for infrastructure provision therefore becomes
imperative.
The Provincial Treasury will finalise the formulation of a 10-year
infrastructure plan for the province in the coming financial year. As a prelude
to the Public-Private Partnership (PPP) initiatives, the Provincial Treasury
held a two-day successful conference on PPPs early last month. The Provincial
Treasury will follow the process up with workshops and discussions in the next
few weeks with potential private investors on a range of government
infrastructure projects that are thought could be provided through the PPP
approach. Although the government cannot guarantee returns against all the
natural uncertainties associated with investment in infrastructure, it will see
to it that those who invest in the province are not arbitrary disrupted in
their daily activities or robbed of their rewards by opportunistic human
intervention.
Adopting new technologies and best practices
Madam Speaker
Technology enables countries to loam from each other and improved technology
enhances the productivity of capital (both human and physical), enables cost of
production and distribution to be reduced and mitigates climatic changes and
environmental degradation. For its part information asymmetry contributes to
the establishment of an equilibrium in which resources are inefficiently
allocated. The imperfect information problems include weak information flows,
agency problems that distort prices and retard competition and consequently the
welfare of participants and weak capacity for gathering and processing
information. These problems and the market failure they bring about suggest the
need for creative ways of doing business in government.
Madam Speaker
The transfer and adaptation of new technologies and best practices will
receive greater attention in the government's new development agenda.
Government action to improve information flows through investment in relevant
information technologies and more generally to reduce agency problems and the
consequences of information asymmetries will also be given serious attention in
the medium term.
Shared Service Centres
Beginning in April 2007, the government will start exploring the possibility
of establishing agencies such as shared service centres and micro-credit
schemes that find more efficient ways around information asymmetries. The idea
of shared services centres allows a creative way of utilising in the most
efficient and effective manner the limited capacity in government. Such
agencies may also create the opportunity for the private sector to make
available critical skills not available in government to enhance service
delivery. They also have the potential and flexibility in simplifying
bureaucratic procedures that do not only reduce wasteful spending,
opportunities for corruption and diversion of resources to illicit activities,
but also create opportunities for the poor to participate in government
procurement processes. Share service centres for procurement, internal audit
services, document management, archival services, infrastructure planning and
monitoring and facilities management will receive serious consideration by the
Provincial Treasury in the new financial year.
Centralised electronic suppliers database
The Provincial Treasury will also commence the implementation of a
centralised electronic suppliers database. The idea of implementing such a
database was mooted last year, but for some reason this could not take off. The
situation with the provincial supply chain system, however, is that each
department maintains its own supplier's database with varying degrees of
completeness, accessibility and efficiency. The proposed centralised suppliers
database will reside in the Provincial Treasury and linked to all the 13
departments of the administration on an integrated electronic platform. A
unique environment will be created that will enable the integration and
inter-operability of software and processes that will administer the platform
and keep the data in their current form and within the business rules and
protocols that will be determined by the Provincial Treasury. The system will
also allow departments' real time access to updated information on the profile
of suppliers including the nature of their businesses, location, ownership and
associates, applicable preferential treatment, volume of business with
government, employment generation potential and the like.
Unemployed graduates programme
Madam Speaker and Premier
Attacking poverty involves, in a large measure, empowering the poor to shape
their own destines. Three types of investment are of particular importance in
this regard, viz:
* investment in education and health to improve well-being, enhance
productivity and increase income-earning potential
* investment in social protection or social safety nets to adjust to new
conditions, mitigate the social costs of economic adjustments and to take
advantage of higher risk and higher return opportunities
* investment in the participation of the poor in key decision making to address
poor people's sense of exclusion.
In the government's resolve to empower young unemployed graduates in the
province to enable them replace their fears with hope, their repression with
freedom and their exclusion with inclusiveness, the Provincial Treasury has
established a programme to train and place these young men and women in
government departments and their agencies. The unemployed graduates programme,
commenced in December 2006 following the honourable Premier's call to all
unemployed graduates in the province to register with her office or in their
district offices. The call received responses from over 1 800 unemployed
graduates, of which 93 have already been trained by the Provincial Treasury and
placed in the departments of social welfare, health, education and treasury
itself.
In the next financial year, the unemployed graduates programme will expand
and receive new focus. Funds will be made available to support the programme
implementation and ensure its sustainability. The remaining unemployed
graduates will be trained and placed in the relevant departments and public
entities. We welcome our private partners to assist the government in this
noble endeavour so that together we will not abandon the poor but seek to
enhance their level of confidence, self-esteem and hope for the future.
Conditional grants
Madam Speaker
A major shift has taken place in some of our conditional grants. Commencing
in April 2009, the Further Education and Training (FET) recapitalisation grant
would be included in the provincial equitable share. The FET programme,
however, will continue as part of the Department of Education normal
responsibilities and the province has been requested to ensure its
sustainability. To this end, the equitable share of the Department of Education
for financial year 2009/10 has been adjusted upwards by R124,5 million to take
account of the FET recapitalisation.
A new grant, called Community Library Services, has been introduced in the
2007/08 financial year to scale up and institutionalise community library
services in underserved areas. The grant is provided to support the
recapitalisation of library infrastructure facilities. An amount of R22,9
million has been allocated to the Department of Sports, Culture, Arts and
Recreation for the 2007/08 financial year. This grant will increase to R42,6
million in 2008/09 and R58,7 million in 2009/10 financial year.
The integrated housing and human settlement development grant has been
revised upwards by Rl00 million in the 2007/08 budget. Additional Rl00 million
has also be allocated for the 2008/09 financial year and R120 million for the
2009/10 financial year.
Madam Speaker
There have also been some minor revisions in the other conditional grants to
target specific priority issues. The 2007/08 baseline figure for the hospital
revitalisation grant has been revised upwards to address tender shortfalls and
faster than anticipated progress on hospitals included in the programme.
Additional adjustments have also been made in the outer years to allow for
additional hospitals to enter the programme. The national tertiary services
grant baseline for 2007/08 has also been revised upwards to fund radiology and
oncology equipment and strengthen cancer treatment services.
Further additions have been made to fund adjustments in the salaries of
health professionals as part of the health personnel review programme. The
comprehensive HIV and AIDS grant has equally been revised upwards to extend
coverage of the programme. The mass sports and recreation participation
programme has also been allocated additional funding to support the proposed
"2010 Leaving a Legacy Programme". This programme seeks to expand mass sports
participation and support club structures at grass roots level.
Provincial Infrastructure Grant (PIG)
Madam Speaker
Commencing in the 2007/08 budget year, the PIG has been redistributed to
ensure that all beneficiary departments are allocated their share of the grant.
In the 2007/08 budget, the Department of Roads and Transport will receive a
total of R838,6 million, of which R96,6 million has been provided to scale up
of the Expanded Public Works Programme (EPWP) in roads, focusing on access
roads. Over the medium, infrastructure provision under the EPWP will be scaled
up by a total R515 million. This will bring to the Department of Roads and
Transport a total of R2,7 billion of the PIG over the medium term. The EPWP is
one of the important arsenals that the government is using to attack poverty in
the province. The programme should therefore be accorded the importance that it
deserves by the participating departments.
The Department of Education will receive R178 million of the PIG over the
medium term to support the removal of schools built with mud structures. The
Department of Health will also receive R538 million of the grant in the next
three years to improve health infrastructure facilities. An amount R153 million
of the grant has also been allocated to the Department of Agriculture over the
next three years to provide rural farm roads and fencing along highways and
major roads in the province to prevent rampant straying of animals on the
highways. A total of R243 million of the PIG has also been allocated to fund
the 2010 FIFA World Cup infrastructure related projects in the next three
years.
Local government support
Madam Speaker
We are all aware of the crucial role that local government plays in the
country's transformation process. It is imperative therefore that this sphere
of government is adequately supported and capacitated by the national and
provincial governments to enable it fulfil its service delivery and
developmental mandate.
Substantial increases have been made to the transfer payments and subsidies
to the local sphere of government over the last few years in recognition of its
increased service delivery responsibilities. Nevertheless, a number of
municipalities are not yet in a position to meet their developmental and
service delivery responsibilities due to inadequate economic base and/or high
levels of poverty and unemployment. Cumbersome administrative and budgeting
systems, inefficient service delivery, poor management and disproportionate
wage bills compound the problems of municipalities. National policies such as
the extension of free basic services to poor households also put additional
pressure on municipalities. Municipalities also face great challenges in
addressing backlogs in social services, spatial distortions and planning for
sustainable growth and development.
Madam Speaker
The municipalities in the province are among the poorest in the country. The
ability of municipalities to raise revenues from their own sources to provide
for new infrastructure services and remove backlogs is influenced by local
circumstances, such as income levels, affordability criteria and consumption
patterns within the municipalities. Municipalities with a large proportion of
poor households and limited economic opportunities struggle to raise revenues
as the poor households expect to receive basic services for free.
The ability of municipalities to cross subsidise between services and
customer groups also impact on their ability to raise funds from their own
sources.
Although various reforms have been introduced to the local government fiscal
system, many municipalities are still struggling to become financially viable.
During the 2007/08 financial year, a comprehensive investigation into the
financial viability and service delivery capacity of selected medium and
low-level municipalities will take place.
Madam Speaker
It is hoped that the investigation would be able to establish unambiguously
the underlying factors hampering service delivery in the local sphere of
government and provide recommendations that can be implemented to adjust the
local government fiscal capacity. We also hope that the study will succeed in
identifying and introducing new sources of revenue that would replace the
regional services and joint services board levies in the medium to the longer
term. The study would also come out with appropriate capital finance
arrangements for the various levels and categories of municipalities.
4. The 2007/08 budget
Madam Speaker, I now turn to the budget for the financial year 2007/08,
starting with the revenue side.
Revenue
Over the medium term, revenue to the province will increase steadily from
R31,4 billion in 2007/08 financial year to R39,4 billion in 2009/2010,
representing an increase of some 25% over the period. Transfers from the
national government will increase from R30,8 billion to R38,8 billion over the
medium term. The province's equitable share will increase from R27,1 billion in
2007/08 to R34,1 billion in 2009/10.
Over the same period, conditional grants to the province will increase from
R3,7 billion to R4,7 billion. Revenue from the province's own sources will also
increase from R614,4 million in 2007/08 to R679,8 million in 2009/10.
Compared to the original appropriation for the financial year 2006/07, one
can observe significant changes in the proposed revenues for the 2007/08
financial year. The changes are given as follows:
Transfers from national government: 12%
of which Equitable Share: 10%
Conditional grants: 34%
Own revenue: 29%
Total revenue: 13%
Compared to the revised estimates for the 2006/07 financial year, however,
the changes in the projected revenues for the 2007/08 are as follows:
Equitable share: 10%
Conditional grant: 29%
Own revenue: 0%
Total revenue: 12%
Expenditure
Over the 2007 medium term, the province expects to spent a total of R103
billion. For the financial year 2007/08, we propose a budget of R31 billion
representing an increase of 14% over the revised estimates for the 2006/07
financial year but 16% over the 2006/07 original appropriation. The budget of
R31 billion proposed for the next financial year includes funding for the
following key items:
Compensation of employees: R18,6 billion
Goods and services: R6,4 billion
Transfers and subsidies: R3,4 billion
Capital payments: R2,5 billion
The 2007/08 expenditure proposals provide for the following increases over
the 2006/07 revised estimates.
Compensation of employees: 14%
Goods and services: 13%
Transfers and subsidies: 8%
Capital payments: 28%
Total expenditure: 14%
Allocations to departments
Madam Speaker
I now wish to announce the allocations to departments for the financial year
2007/08. The appropriation of a budget of R31 billion for financial year
2007/08 leaves the province with a contingency reserve of R438 million. The
specific allocations to departments are as follows.
Vote 1: Office of the Premier
The Office of Premier is allocated an additional amount of R19 million,
bringing its total budget for the financial year to R311,8 million. This amount
represents 6,5% over the revised estimates for the 2006/07 financial year. The
additional amount is to be used to support the increased activities of the AIDS
Council, Amputee Club of South Africa and Eastern Cape Youth Commission.
Vote 2: Provincial Legislature
Madam Speaker
The allocation to the Legislature for the 2007/08 financial year is
increased by 9,9%, bringing the total allocation to R154,5 million. Included in
this amount is R12,6 million to fund, among others, the increased participation
of the public in parliamentary processes, support to political parties and
committees of the House. Additional R10 million has been allocated to the
Department of Public Works to be used to upgrade facilities in the
Legislature's complex.
Vote 3: Health
Madam Speaker
The budget of the Department of Health will increase by 11,2% to R8,1
billion in the next financial year. Included in this amount is R250 million
provided to fund the recruitment of professionals under the department's
Project 5 000, improve the remuneration of health professionals, expand the
emergency medical rescue services and support the 2010 FIFA World Cup
Communication Project. Also included in the budget is R150 million allocated
from the PIG to support the upgrading and rehabilitation of hospitals and
clinics.
Vote 4: Social Development
The Department of Social Development budget will increase by R201,8 million
or 26,9% in the next financial year. This will bring the Department's
allocation for financial year 2007/08 to R951,7 million. The increased
allocation will enable the Department to implement its developmental and
welfare mandate to support the shifting of the frontiers of poverty in the
province. Part of the allocation will be used to support NGOs involved in
developmental and welfare services, increase social service professionals,
prevent and treat substance abuse and address the rights of children to care
and protection.
Vote 5: Public Works
The allocation to the Department of Public Works is increased by Rl03,7
million or 20,2% over the revised estimates for the 2006/07 financial year.
This brings the total allocation to the department to R618 million. As I
mentioned earlier, Rl0 million has been included in the Department's allocation
to fund the upgrading of facilities in the legislature's complex. Another R3
million is also included in the Department's allocation to be used to finalise
the preparatory work for the development of the Bhisho Office Complex.
Vote 6: Education
The baseline budget for the Department of Education has been adjusted for
additional R316,5 million in 2008/09 financial year and R633,1 million in
2009/10 financial year. This is to allow for the improvement in the level of
remuneration of teachers, increase the number of clerical and support staff,
hire teaching assistants (especially in the foundation phase of the schooling
system) and provide incentives to teachers in critical subject areas.
In the next three years, the Department of Education will also receive R345
million to fund improvement in the quality of education through systemic
evaluation, teacher supply and development, information and communication
technology (ICT) for learning, teaching and administration and enhancement of
adult literacy. Further, a provision of R478 million has been made in the
baseline budget of the Department over the medium term to be used to remove all
mud structure schools in the province. R150 million (including R50 million
allocated from the PIG) will become available for use in the 2007/08 financial
year.
Madam Speaker
In total, R14,7 billion will become available for use by the Department of
Education in the 2007/08 financial year. This represents an increase of 12,2%
over the revised estimates for the 2006/07 financial year. I am, however,
appealing to the Department to get rid of the wasteful expenditure of some R300
million in respect of double packing of teachers in the sector.
Vote 7: Housing, Local Government and Traditional Affairs
For the financial year 2007/08, the Department of Housing, Local Government
and Traditional Affairs will receive R1,6 billion. This amount represents an
increase of 56% over the revised estimates of the current financial year.
Included in the Department's allocation is an amount of R1,05 million
integrated housing and human settlement development grant. An amount of R12,2
million has also been included in the Department's allocation to fund the
implementation of the Traditional Leaders Act (Act 4 of 2005).
Vote 8: Agriculture
For the financial year 2007/08, the Department of Agriculture will receive
an allocation of R989,2 million, representing 14,7% increase over the revised
estimates of the current financial year. Included in the Department's
allocation are conditional grants of R119,7 million, comprising of the
following:
R69,8 million for the Comprehensive Agricultural Support Programme, R42,9
million for provincial infrastructure grant and R7 million for LandCare
grant.
Vote 9: Economic Affairs, Environment and Tourism
The Department of Economic Affairs, Environment and Tourism is allocated
R621 million, representing a reduction of R79,5 million below the revised
estimates of the current financial year. The reduction in the Department's
allocation is attributable to a once off adjustments made to the current budget
to fund the East London Industrial Development Zone (ELiDZ). Included in the
Department's 2007/08 allocation is R113 million provided to support the ELiDZ.
Also included in the allocation is an amount of R51,1 million that will fund
trade and investment promotion in the province, revitalise provincial parks,
partly fund the Eastern Cape Development Corporation (ECDC) restructuring and
the conversion of its physical assets into cash and provide budgetary support
to the Eastern Cape Gambling Board, Eastern Cape Liquor Board, Eastern Cape
Parks Board and the NBI-Provincial Government Joint Skills Development
Project.
Vote 10: Roads and Transport
The bulk of the allocation to the economic services sector will be used to
provide roads and transport facilities in the province. Accordingly, the
Department of Roads and Transport budget increases from the current R2 billion
to R2,2 billion in the next financial year. Included in this Department's
allocation is a provincial infrastructure conditional grant of R838,6 million,
of which R96,6 million is provided to scale up he EPWP in roads, focusing on
access roads.
Vote 12: Provincial Treasury
The Provincial Treasury is allocated R243,9 million for the 2007/08
financial year. In the current financial year, the Provincial Treasury revised
downwards its baseline budget by R35 million. This amount was provided for the
implementation of the Financial Management Improvement Programme (FMIP) in the
provincial administration which could not take place due to some concerns
expressed by the portfolio committee of finance. The growing pressure on the
Department's budget arising from the implementation of the new organisational
structure, expansion of the Chief Financial Officer (CFO) Support Programme,
Unemployed Graduates Programme, increased support to municipalities, the
shifting of the shared internal audit services from the office of the Premier
to the Treasury, investigation into Share Service Centres for procurement,
facilities management, infrastructure planning and monitoring, etc.,
investigation into the financial viability of selected municipalities, have
meant that the original baseline budget has to be re-instated. To this end, the
R35 million that was surrendered to the revenue fund has been given back to the
Department. Also included in the Department's allocation is R12 million to fund
the implementation of the centralised electronic suppliers database and also
the investigation into own revenue mobilisation.
Vote 14: Sports, Recreation, Arts and Culture
The allocation to the Department of Sports, Recreation, Arts and Culture is
increased from R325,7 million in the current financial year to R406 million in
the next financial year. This represents an increase of 24,6% over the revised
estimates for financial year 2006/07. Included in the Department's allocation
are two conditional grants, viz.
* R28,4 million Mass Sport and Recreation Participation Programmeme
grant
* R22,7 million Community services library, services grant
The Department has also been re-reimbursed for an amount of R4 million it
used to support the African Heritage Cross Country Rally and South Africa
Airways Golf Open.
Vote 15: Safety and Liaison
The Department of Safety and Liaison receives an increase of 25,7% in its
allocation for the 2007/08 financial year. This brings to a total allocation of
R30,6 million for the year. The increase in the Department's allocation is to
be used to fund the community policing structures, crime prevention and filling
of critical vacant positions in the Department. I must add that the budget for
this Department has increased from R12,8 million in the financial year 2005/06
to the proposed R30,6 million next year.
5. Conclusion
Madam Speaker, Premier, honourable members of the House
I believe that the budget and policy statement I have delivered today marks
the beginning of the third phase of the government's growth and development
agenda. The first phase, covering the two financial years of 2004/05 and
2005/06 placed emphasis on stabilising the finances of the province. During
this period, measures were introduced to consolidate expenditures by reducing
wasteful and fruitless spending, seeking economies in expenditure, making
spending departments and their agencies to recognise the constraints on revenue
and generally enhancing fiscal discipline. The second phase covering the
current financial year entails a carefully restructuring of expenditure, paying
off all government outstanding debts, and generally establishing a sound
foundation for the province's finances. The third phase marks the beginning of
the new development paradigm, viz using the power of the state to redistribute
public resources to effectively reduce poverty and inequality.
Madam Speaker
For the government's poverty alleviation strategies to succeed, the
leadership in this province needs to demonstrate that it is genuinely committed
to the cause of the poor and that it is prepared to allocate the necessary
resources to poverty alleviation programmes and to provide the necessary
political and administrative support to ensure their sustainability. Since the
poor are weak and lack political effectiveness and suitable forms of
representation in decision-making process of the government, sensitivity and
political commitment become vital elements in seeking support for improvement
of their conditions.
The success of the poverty alleviation strategy is also linked to a
government's ability to discern the sources of the poor people's 'deprivation
trap' and to respond timely with targeted programmes and policies. The fight
against poverty and inequality must be based on a strategic planning that takes
account of the multidimensional nature of poverty and its causes, as well as
the need to secure the buy-in and participation of civil society, the private
sector and the poor themselves.
Madam Speaker
I wish to extend my sincere gratitude to the Premier for her leadership and
support and to my Cabinet colleagues for their untiring support and guidance. I
also wish to extend my appreciation to the Chairperson of the Finance Portfolio
Committee and members of the committee for always keeping the Department in
check and on its toes.
Madam Speaker
I wish to thank the officials of my Department for the untiring effort with
which they undertake their duties. My special thanks go to Professor Newman
Kusi, the Superintendent-General and Head Official of the Provincial Treasury
for his enthusiasm, commitment to work and good sense of humour. His extensive
knowledge of financial management and also dedication to his job is unsurpassed
in my career in government. The province is indeed blessed to have a man of his
calibre at the helm of Treasury. We in this province are indeed grateful for
his wisdom and unselfish teaching that he adopts in his daily routine.
Thank you, dankie, enkosi kakhulu!
Issued by: Provincial Treasury, Eastern Cape Provincial Government
2 March 2007
Source: Eastern Cape Provincial Government (http://www.ecprov.gov.za/
