Speech by Barbara Creecy, Gauteng MEC for Finance at the tabling of the 2015/16 Budget Vote of the Gauteng Provincial Treasury, Gauteng Provincial Legislature
Madam Speaker; Honourable Premier;
Colleagues in the Executive Council; Honourable Members of this House;
The HOD of the Gauteng Provincial Treasury; Comrades and Friends;
Citizens of Gauteng who are listening to us on radio right now;
Ladies and gentlemen
Key priorities for 2015/16 budget vote
Honourable Members, when I tabled the main provincial budget early in March this year, I spoke of the challenges weak economic growth poses for our tax revenue and the resulting reduction of the equitable share and conditional grants over the Medium Term.
I also spoke of the dilemma decreased revenues poses, in a province where the population is rising faster than the national average and
there is an increasing demand for quality services and government investment in infrastructure.
I note once again the difficulties which Provincial Treasury has in financing the Premier’s ambitious 10 pillar programme of transformation, modernisation and re-industrialisation.
In constantly searching for better ways to finance government’s priorities one draws inspiration from the father of our Nation, the late President Mandela when he said: “The challenge is to move from rhetoric to action, and action at an unprecedented intensity and scale”.
In November last year, I outlined four aspects to our financing approach:
- Firstly, we will work hard to reduce spending on non core goods and services and corruption;
- Secondly, we will look for ways to increase our own revenue and alternate funding sources;
- Thirdly, we will maintain spending on quality social services for our people; and
- Finally, we will increase spending on infrastructure to give expression to the TMR and create work.
In the course of this 2015/16 departmental budget speech I will outline how the Provincial Treasury will use the R584.4 million appropriated by this House to make these commitments a reality.
Focusing Spending on core programmes and quality social services
Honourable members the Gauteng Provincial Treasury (GPT) is charged with ensuring that Provincial Budgets are aligned to the priorities as set out in the Premier’s State of the Province Address as well as the Five Year Strategic Plans of Departments.
In the absence of increased fiscal resources to fund the electoral mandate, GPT has had to support provincial departments through a rigorous process of budgetary re-prioritisation for the 2015/16 Budget process. Through this support a total of R9.4bn was re-allocated in the current financial year to the 10 pillar programme.
We are fully committed to facilitate greater synergy between the Gauteng Provincial Treasury (GPT), Gauteng Planning Division, and counterparts in other spheres of government. Our view is that central coordination of planning and interface between all spheres of government is important to ensure that we maximise spending across the GCR.
For the first time this year we embarked on a new process of oversight over local government budgets where we analysed the allocations of local government to funding the 10 pillar programme in the GCR. The analysis covered municipal infrastructure budgets to ascertain alignment of the various municipal projects to the TMR and the corridors as announced by the Premier in his state of the province address.
Cutting spending on non-core services
Honourable members over the past financial year through the application of cost-containment measures outlined by National Treasury we managed to save approximately R100 million by cutting back administrative expenses such as catering, venues, travel and advertising.
This year we will tighten cost containment on non-core items and enforce budget blocking on items such as consultants, outsourced services, fleet services and property payments. This will ensure that expenditure allocations as appropriated are not exceeded.
We are particularly concerned about the need for a balance between spending on the provincial wage bill and spending on infrastructure and goods and services. We are all aware of the challenges provincial departments will face should the expenditure on the wage bill crowd out the spending on items such as textbooks, medicines, hospital equipment and other essential goods and services.
Going forward, we remain committed to ensure that the provincial wage bill does not exceed 60% of the total budget. To this extent, we will be exploring different mechanisms within the ambit of the law to manage the personnel budgets of provincial departments.
In line with the Department of Public Service and Administration (DPSA) requirements, we will play an active role in assessing new proposed organisational structures by departments before they are endorsed by the DPSA to ensure that there is a proper alignment between proposed structures and budgets.
Another area where we believe timely interventions can save money is contract management. We can no longer tolerate payment for goods and services that do not meet the performance standards set out in our contracts because we all know it contributes to significantly higher costs. In the 2015/16 financial year, we will be working with the Department of Infrastructure Development towards aligning their contracts to the Contract Management Framework.
Promoting clean government
Honourable members in his book From Third World to First, the Singapore Story, the late Singapore Prime Minister Lee Kuan Yew says: ‘We made sure from the day we took office in June 1959 that every dollar in revenue would be properly accounted for and would reach the beneficiaries at the grass roots as one dollar, without being siphoned off along the way”.
Because we understand that corruption in its nature impacts hardest on the poor and the vulnerable in our society, Provincial Treasury has a special responsibility to assist Provincial Departments and District and Local Municipalities to promote a clean and accountable government.
Through our combined efforts we can report that in the 13/14 Financial Year we saw a substantial improvement in audit outcomes at both Provincial and Local Government level with nineteen provincial departments and entities and thirteen councils and entities achieving clean audits.
A further twenty-nine achieved unqualified audit outcomes with now only seven entities across the city region receiving negative audit outcomes and requiring stringent focus. We will not rest until all seven are unqualified and we can be sure that tax-payers money is reaching the communities it is intended for.
In the coming financial year, as part of an effort to address financial management and reporting challenges encountered by departments and entities, we will be conducting targeted training of officials in the offices of the Chief Financial Officers.
The aim is to improve financial reporting competence and excellence in the province and ultimately contribute positively towards the achievement of unqualified audits. Training is not an end in itself; hence we will also be providing on-going support to institutionalise good practice in the manner in which we conduct our business
Working together with the Gauteng Audit Services, we will not only monitor the implementation of the audit recommendations raised by the Auditor General but we will ensure that weaknesses in the control environment and their root causes are addressed. In the 2013/14 financial year, 90% of all audit findings were addressed prior to the onset of the audit.
In line with our commitment to prevent the misuse of public funds, we will develop a fraud detection and case management system for forensic investigations.
This tool will assist us to track reports issued to relevant Accounting Officers for implementation of recommendations. In addition the business intelligence tool to track and trace accruals, commitments and irregular expenditure will be deployed in four departments.
In order to strengthen corporate governance in municipalities, we will intensify the implementation of the Municipal Finance Hands-On Support Programme with specific emphasis on assisting municipalities in the areas of budgeting and reporting, assets and liabilities, revenue and expenditure management and supply chain management.
In terms of direct support through our municipal hands on support programme we have provided advice, guidance, assistance and support in terms of:
- Financial management focussing and guiding the municipalities in terms of policy choices in the areas of budgeting, revenue and financial governance;
- Improving and managing financial sustainability, during the budget process a key focus on how best to manage long outstanding debtors, optimise revenue and curb expenditure, lease management alternatives, reduce distribution losses and the development of effective revenue enhancement strategies for long term sustainability.
In addition, GPT offers support in terms of Generally Recognised Accounting Practice (GRAP) standards, and conducts other finance related training initiatives to ensure that the municipal officials keep abreast of the latest accounting developments.
Restoring Public Confidence in the Public Procurement process
In line with the Premier’s vision to enhance openness in government, we launched the Open Tender Pilot last year in two departments - Roads and Transport and Treasury.
The aim is to promote transparency in the procurement processes and ensure bids are awarded through fair competition. We believe this will go a long way towards restoring public confidence in the government procurement system.
The Cedar Road tender was the first project used for the Open Tender Pilot and the contract has been awarded. The banking services tender is still in progress and will also be subjected to similar public scrutiny through opening the adjudication process to the public.
Based on the lessons learned from these pilot projects, Treasury will develop a plan to rollout the open tender process across GPG. In line with the State of the Province Address we are targeting to prioritise projects above R50-million for open tender adjudication in the current financial year.
Honourable members, to support the rollout of the process, we will need a dedicated facility where the public will be able to observe tender adjudication. In this regard, we are currently engaging the Department of Infrastructure Development to assist us in this regard.
Improving Provincial Revenue collection
Honourable Members in 2014/15, Treasury collected R5-billion in own revenue of which R700 million is an over collection above the revenue target. This is small but significant for the province especially under the current tight fiscal space.
Given the limited fiscal envelope, we began a process last year to explore options to optimise and increase our own revenue base. We have developed a Revenue Strategy which is currently on the EXCO cycle for consideration. Our annual target is to increase our provincial revenue by 10% in the current financial year.
What we can say at this point is that the strategy is premised on three core outcomes:
- Increase GPG Own Revenue (focusing on motor vehicle licenses, patient fees, interest revenue and casino gambling tax);
- Eliminate loopholes in our collection mechanism; and
- Increase the cost effectiveness, internal efficiencies and operational efficiencies.
These three outcomes are interdependent and mutually reinforcing, as the pursuit of one outcome frequently enables the achievement of another outcome. As we eliminate loopholes in our collection process, this will have a direct impact on increasing what is due to the province.
Alternate Financing of Infrastructure projects
Honourable Members, as we have said before the ambitious task of implementing infrastructure service delivery cannot be achieved by using public funds only. It was on that basis that I announced last year that the process of registering the Gauteng Infrastructure Financing Agency (GIFA) as a government component has been completed. The responsibility of GIFA going forward is to function as a vehicle that will leverage private sector finance and expertise to address backlogs and accelerate the delivery of infrastructure in our province going forward.
It is through partnerships that we can increase targeted public spending, principally on outputs to agreed standards, leverage private sector financing and efficiencies, and allocate risks to the party best able to manage it.
The province has set aside R70 million for GIFA to prepare bankable Gauteng City Region projects and take them to market for alternative funding.
The agency’s project pipeline for this financial year includes seeking investors for the following opportunities:
- Rooftop Solar Panel Project;
- Tri-generation Project;
- Kopanong Precinct Project;
- Jewellery Manufacturing Precinct Project;
- Development of Enterprise Building 2;
- Development of Enterprise Building 3;
- Additional Rolling Stock for the Gautrain Project
Reducing Municipal Debt
Honourable members, I am sure we all agree that it is important to ensure municipalities are financially sustainable and able to deliver quality services to our people.
In April this year we ring-fenced funds to ensure that departments pay their monthly bills for water and electricity to municipalities, and that rates and taxes are paid timeously by the Department of Infrastructure Development.
But we must do more. This view is underscored by the fact that as at the end of April, debt owed by departments to municipalities amounted to about R900 million. This situation cannot be allowed to continue. It simply cannot be acceptable that the provincial sphere owes another government entity and there is no plan to sort it out.
We have a moral responsibility as the provincial government to make sure that we are not undermining the financial sustainability of another level of government.
To address this challenge, we have established the Debt Management Committee comprising finance officials from both the province and municipalities. This committee will function as the first point of contact between the departments and municipalities to verify outstanding debt that must be paid, and a platform to discuss and settle disputes so as to minimise disconnection of services. In future, no critical services will be cut-off without the prior knowledge of the Debt Management Committee.
Our commitment and obligation to pay municipalities what is due to them is concomitant with the obligation to ensure that municipalities also pay their creditors timeously.
Honourable Members, I am happy to announce that we have been able to work in collaboration with the Department of Cooperative Governance and Traditional Affairs and the South African Local Government Association to facilitate the arrangement and signing of Eskom payment plans on arrear bulk electricity accounts for the Westonaria and Randfontein local municipalities.
The payment plan agreement for Westonaria will see the fulfilment and settlement of outstanding debt amounting to about R60 million by the end of April 2016.
The Randfontein payment plan agreement will see the fulfilment and settlement of outstanding debt amounting to about R82 million by the end of July 2017.
As a department we have a well-established intergovernmental structure called the Gauteng Parastatal Forum where we engage extensively with state-owned enterprises such as Eskom and the water boards. In this inter-governmental relations structure key focus has been placed on ensuring that agreements entered into are adhered to and progress will be reported on regularly. This further demonstrates our commitment to ensure that local government works better.
Improving Spending on Infrastructure
While I expressed my appreciation earlier this month when we announced that the provincial government spent 99% of its infrastructure budget in 2014/15, I remain concerned about challenges in this area.
Particularly I am concerned about ongoing project delays, cost overruns and procurement challenges still being experienced on projects and also our compliance with the Division of Revenue Act (DORA) requirement as we transition towards the incentive conditional grant for infrastructure.
In order to address these issues, we will this year introduce targeted measures to enhance efficiencies within the various infrastructure programmes and portfolios. This will be done through carefully managing construction costs, professional fees, contingency costs and escalation costs.
In this regard, GPT has now brought in a dedicated team of professionals ranging from Quantity Surveyors, Specialists and Engineers to work with the Infrastructure unit based at Provincial Treasury to assist departments in their infrastructure delivery.
The capacity we are bringing will assist the province to be ready as we transit towards the Incentive Grant system in line with DORA. This system will offer additional resources to provinces who can demonstrate capacity to deliver infrastructure across the value chain.
Procurement from Township Enterprises
Honourable Members, there are many difficulties encountered by new, township-based businesses in accessing formal markets in general, and government procurement opportunities. In support of the Provincial Strategy on Township Economic Revitalisation, Gauteng Provincial Treasury has developed a Procurement Strategy that will serve as a catalyst for the revitalisation of our township economies.
The key interventions of this strategy are to:
- Grow the number of township suppliers on the province’s central database
- Revise the government procurement guidelines and conduct training for township enterprises and government procurement units
- Increase awareness of market access opportunities for township enterprises
- Increase the local manufacturing content requirements for goods sourced from township and mainstream for goods and services
Honourable members, it is Government’s intention to support specified industrial projects as a means of revitalising the township manufacturing and productive activities sector. This in turn will give greater impetus to the procurement of local content.
A new departmental structure
To operationalise these many commitments we have in this financial year adopted the generic functional structure of provincial treasuries as approved by the National Treasury. The new structure will be implemented after endorsement by the DPSA.
Let me conclude by thanking the Premier for his leadership and support around tough decisions; my colleagues in the Executive Council for their understanding of our difficult economic times and their willingness to help us in our quest to use scarce government resources more economically and effectively; the Portfolio Committee under the Chair of Hon Sakhiwe Khumalo and team Treasury under the steadfast leadership of Ms Nomfundo Tshabalala for all the hard work they do to allocate and account for the Province’s Resources. I am sure I speak on behalf of all of us when I say yours is a job well done!
Thank you
