National Treasury: Provincial budgets and expenditure, 2016/17 [awaited]
National Treasury spoke about the financial performance of Mpumalanga, Western Cape and Gauteng for 2016/17. For Gauteng, Treasury noted underspending on Compensation of Employees (CoE), and overspending in Health and Education. Own revenue collection increased. There were medical negligence claims pressures, and overspending on medicines. Irregular expenditure awaited condonation. Accruals amounted to R9.7 billion, and fruitless and wasteful expenditure to R457 million. For Mpumalanga, there was underspending in Education, but overspending on CoE. Health underspent on CoE. There were high litigation costs and gratuity leave payments, and underspending on social development. A moratorium on posts caused only critical posts to be filled in Education, Health and Social Development. For the Western Cape, there was underspending on CoE. Health underspent on goods and services and transfers. There was underexpenditure by Human Settlements on social and rental interventions, and underexpenditure by Transport and Public works. The province over collected on own revenue due to conservative revenue targeting.
Western Cape Provincial Treasury stated that it submitted a balanced budget geared towards continued fiscal consolidation, based on curtailed expenditure and enhanced revenue generation. The number one objective was to grow the economy. Challenges were low growth, policy uncertainty, infrastructure gaps, drought, rising fiscal pressure, and high joblessness for youth. The fiscal and budget policy approach was to manage risk and maintain fiscal sustainability in a constrained economic and fiscal environment. Own revenue was mainly derived from motor vehicle licence fees. There was lower than anticipated tax revenue collection. Reduction and containment of debts to government departments was a challenge.
Mpumalanga Provincial Treasury cited challenges of own revenue collection, economic infrastructure expenditure, the fiscal position, debts and accruals, unauthorised, irregular and fruitless and wasteful expenditure, and youth unemployment of 70%. There was a focus on enterprise development through support of SMMEs and cooperatives. The province spent 99.3% of its budget. Infrastructure expenditure stood at 81%. The lowest infrastructure expenditure was by Agriculture, Rural Development, Land and Environmental Affairs (ARDLEA) at 28%. Debts decreased over the review period.
Gauteng provincial Treasury noted that it had contributed 34.9% of the GDP. The central challenge was to re-industrialise. Infrastructure development was linked to job creation. The province had to accommodate 250000 new arrivals per year, which caused problems for Education and Health. There was a focus on revitalising the township economy. Most departments exceeded their revenue targets. There was satisfactory spending on conditional grants. Human Settlements was the main contributor to fruitless and wasteful expenditure. Education was the main contributor to accruals and payables.
In discussion, Members commended the three provinces, especially Gauteng, for providing good examples of best practice and innovation. They asked questions about disaggregation of unemployment figures; the spending spike on housing in Gauteng; problems with immigrants in Mpumalanga; infrastructure development; health litigation; transport challenges in the Western Cape; whether EXCOs understood the implications of expenditure ceilings; underspending on infrastructure in Mpumalanga; Infrastructure projects; CEO initiatives; staff debt, and water harvesting.
Introduction by the Chairperson
The Chairperson noted that continuation of reports by the provincial treasuries, which was done every year. An apology was received from Dr Ivan Meyer, Western Cape Finance MEC as the Western Cape provincial government had to submit at a meeting in Knysna about the storm disaster.
The object of the meeting with provincial treasuries was to exercise fiscal oversight, also of public entities, in terms of their strategic goals and compliance with the Public Finance Management Act (PFMA). Goals were good governance and sound financial management, compliance with legislation, the Constitution and Treasury regulations. There had to be accountability, and fighting of corruption and State capture. Monitoring and evaluation had to be taken down to the lowest level of governance in the regions. Government had to be decisive on consequences for financial mismanagement, as stated in the PFMA. There had to be oversight of public entities. Rural provinces had asked for a review of the Equitable Share (ES), which was on the cards. The Budget Council was sitting on 14 July. He reminded the provincial treasuries that the Treasury document on provincial expenditure was comprehensive and detailed, and also looked at risks. It was not necessary for the provincial treasuries to go in detail through figures. They had to look at accruals, fruitless and wasteful expenditure, and the fiscal position. They had to be monitored where red lights were flickering. The Western Cape was fortunate to have tourism that could contribute to economic growth. Gauteng was also capable of producing own revenue. Provinces had to learn good practice from each other, especially about intergovernmental relations, as SA was a unitary state.
National Treasury on Mpumalanga, Western Cape and Gauteng provincial expenditure 2016/17
Ms Ogalaletseng Gaarekwe, Director: Intergovernmental Relations, said that for Gauteng, Treasury noted historical underspending on CoE over the preceding four years. There was overspending on Health and Education, and underspending on goods and services. Own revenue collection increased by 5.7% from 2015/16 to 2016/17. There were medical negligence claims pressures, and overspending on medicines. A total of R7.9 billion in irregular expenditure awaited condonation. Accruals amounted to R9.7 billion, and fruitless and wasteful expenditure to R457.4 million. Poor planning and spending on infrastructure projects remained a problem for the province.
For Mpumalanga, there was underspending on Education as a result of late appointment of contractors and poor performance on some projects. There was overspending on CoE as a result of inadequate provision for the item. In Health, the Department underspent by R98.2 million on CoE, and underspent on medicines. The province still registered high litigation costs and leave gratuity payments. There was underspending on Social Development, due to slow delivery of social infrastructure projects. Slow progress on construction of libraries remained a challenge in the province. The province had a moratorium on filling of posts which only allowed for the filling of critical posts in Education, Health and Social Development.
For the Western Cape, there was underspending on CoE due to the non-filling of posts. Health underspent, largely on goods and services and transfers. In Human Settlements, there was significant underexpenditure on social and rental interventions. Transport and Public Works underspent due to savings on consultants and the maintenance budget not being fully spent. On own revenue, the province over collected to the amount of R553 million, due to conservative revenue targeting. There was excessive growth in the budget for non-core items like advertising, catering, communication consultants and travel and subsistence.
Comment by Chairperson
The Chairperson remarked that the MECs were political heads of departments. They sat in the Budget Council. The effect of fiscal control was especially felt in Health and Education. There would be a revised fiscal framework with the advent of the Medium Term Budget Policy Statement (MTBPS). Provinces had to adapt to low growth. There was pressure on health and education. Accruals, irregular and fruitless and wasteful expenditure put pressure on budgets. The Minister of Finance had referred to expenditure ceilings. Engagements were important, and there would be a report to the Finance Minister. Parliament had to pick up on challenges and render assistance. It had a mandate on how to assist. Section 154 of the Constitution prescribed how national and provincial government had to assist local government. The Western Cape would be the first to brief on its economic growth and fiscal position. The Committee researcher had compiled a report with a table indicating Auditor-General audit reports on departments and entities. The Western Cape had enough own revenue to grant it fiscal space.
Western Cape Provincial Treasury on its expenditure for 2016/17
The briefing was presented by Mr Zakariya Hoosain, Provincial Treasury HOD; Ms Marsha Korsten, Chief Director: Public Policy; Ms Julinda Gantana, Chief Director: Public Finance, and Mr Aziz Hardien, DDG: Government and Asset Management. The briefing set out the WC government fiscal policy principles. It tabled a balanced budget, dedicated to continued fiscal consolidation, based on curtailing expenditure whilst enhancing revenue generation. CoE was targeted by introducing upper limits on personnel budgets. Continued fiscal discipline was achieved by ensuring that all departments and entities remained within budget limits and avoided irregular, fruitless and wasteful expenditure. Efforts were made to achieve a balanced allocation of resources that reflected government priorities. The number one objective was to grow the economy. Key economic challenges were low growth, policy uncertainty, infrastructure gaps, drought, rising fiscal pressure, and high joblessness for youth. The drought and water crisis continued to be a major risk to the economy, particularly to the agriculture sector. The fiscal and budget policy approach was designed to manage risk and maintain fiscal sustainability in a constrained economic and fiscal environment. Own revenue was mainly derived from motor vehicle licence fees. There was lower than anticipated tax revenue collection. Reduction and containment of debt owed to government departments was a challenge. The province spent 99% of its adjusted budget.
Mpumalanga Provincial Treasury on its expenditure for 2016/17
The briefing was presented by Mr Eric Kolwane, Finance MEC; Ms Bede Nkamba, HOD, and Mr Lennerd Van Vuuren, Economic Analyst. Focus areas and challenges included provincial own revenue collection; expenditure on economic infrastructure; the fiscal position, including bank balances, cash flow statements, debt and accruals, and unauthorised, irregular and fruitless and wasteful expenditure. There was high job creation in community services, and concern about key industry job losses in mining and trade, and low job creation in manufacturing. Youth unemployment made up almost 70% of the unemployment number. There was a focus on enterprise development to support SMMEs and cooperatives. There was containment of personnel expenditure while protecting education and health services staff. The province spent 99.3% of its budget. Infrastructure expenditure amounted to 81% of the adjusted budget. The lowest spender was DARDLEA at 28%. The main contributors to accruals were Education and Health. Revenue challenges included failure by municipalities to pay over revenue collected on an agency basis. Debts continued to decrease over the review period. Health was the main contributor to irregular expenditure.
Gauteng Provincial Treasury on its preliminary expenditure for 2016/17
The briefing was presented by Ms Barbara Creecy, Finance MEC, and Mr Jeff Mashele, DDG: Sustained Resource Development. Gauteng had contributed 39.4% of the GDP. The current challenge was to re-industrialise, according to a new economic development plan. Infrastructure development was linked to job creation. The province had to absorb 250 000 new people each year, which caused problems for Education and Health. There was a focus on revitalising township economies. The steel industry had to be protected, whilst supporting tourism and agri processing. Most departments exceeded their revenue targets for the period under review. Expenditure was 99% of the adjusted budget. Personnel costs accounted for 55% of overall spending at year-end. There was overall satisfactory spending (98 to 100%) of conditional grants. Its Treasury was committed to improved infrastructure spending in future. The Department of Roads and Transport was the main contributor to irregular expenditure, and the Department of Human Settlements to fruitless and wasteful expenditure. The Department of Education was the main contributor to accruals and payables. Departments were commended for their adherence to allocated budgets, but were advised to ensure that business plans were signed off before the commencement of the financial year.
Dr E Mateme (ANC, Limpopo) pointed out an inconsistency in the Western Cape data. Unemployment was expressed as a percentage, whereas other figures were based on headcounts. She asked about unemployment figures in terms of headcount. She said it was not racist to insist that in a transforming society, there had to be disaggregation into racial groups. The NCOP had received figures that did not tally with the reality of the Eden District Municipality in the Western Cape, which was visited. She grew up in a homeland, and the disparities in the Eden district were worse than in that homeland. Democracy was synonymous with equity. Equity implied that those who previously received less, had currently to get more. That was not the case in the Western Cape. She commended Gauteng for best practice and innovation. But there was a spending spike of extraordinary expenditure in March. She asked if that was because of fiscal dumping. The question was where that money had been pushed to. There were many examples of best practice in Gauteng. With regard to Mpumalanga, she commented that Ubuntu principles prevented government from sending people away. Gauteng had referred to mechanisms that could establish the identity of a person. The question was how Mpumalanga grappled with that.
Mr O Terblanche (DA, Western Cape) commented that he had a special relationship with all three provinces. He was born in the Western Cape, worked in Gauteng, and liked to visit the Kruger Park. He referred to infrastructure development in Gauteng. He advised that site clearance processes be revisited. The environmental impact assessment (EIA) process could take two years. For implementation, site identification had to be done well in advance. Inviting tenders followed on that, for the construction process to start. He was concerned about claims against the State in the health environment, and the impact of litigation on health finances. He suggested that infrastructure spending in Gauteng be directed towards maintenance of existing structures, rather than constructing new ones. He remarked that the Western Cape was the first province that recorded no overspending on personnel. That was an example of best practice. The three provinces presenting today were the leading provinces, which could set an example of best practice to others. The Western Cape had capital works issues. Gauteng could provide an example of good practice, in paying for Gautrain in full. The Western Cape could think of providing an equivalent to that, as traffic congestion was a problem for that province. There were capital related issues in Mpumalanga. The province had to indicate how it intended to grow its economy.
Mr L Nzimande (ANC, KZN) commented that the Western Cape was making a positive contribution to economic management, but he was not sure about COE. They were told this related to the determination of upper limits, but he wondered if that spoke to proper budgeting. There were three entities that regressed from a clean audit to an unqualified audit. He asked why that was so. There was over collection of revenue, relative to the stated target. It had become a trend to predict conservatively, to plan for less in order to exceed the target. He referred to the stealing of commodities from mines in Mpumalanga, which had to be compared to what was mentioned by Limpopo. The Mpumalanga MEC stated that the mines were doing well, but Limpopo had stated that the stealing of trucks from mines impacted negatively on economic growth. He asked about the trend in Mpumalanga.
Mr F Essack (DA, Mpumalanga) commented that year in and year out there was reference to staff debt in Mpumalanga. This was raised two years before, and also in the preceding year. It ended up as fruitless and wasteful expenditure. A couple of million Rands had been written off. It could no longer be condoned.
Mr Nzimande noted that six municipalities had been taken over for debt collection. He asked under what section of the Constitution the interventions had taken place.
Dr Mateme asked that unemployment data be disaggregated according to race, age and gender.
The Chairperson commented that there had been underspending by metros on Urban Settlement Development Grants. The Western Cape had to zoom into that. It was part of the oversight of the Finance and Appropriation Select Committees. There would be a meeting with the metros in August. He referred to the initiative by the Finance Minister and the President to engage with CEOs. He asked if the provinces engaged with the private sector. He asked if the EXCOs understood what the expenditure ceiling meant. It was a means to aid fiscal consolidation. The lowest spending in Mpumalanga was by DARDLEA, at 28%. He asked what that stood for.
Ms Creecy, Gauteng Finance MEC replied to Dr Mateme about the spending spike on housing in March. There had been underperformance on spending in the previous year. R1 billion of the conditional grant was removed by the national department as a consequence. A new MEC was appointed, who wanted a turnaround on spending. A significant amount of time elapsed during the dispute with the national department, whose approval on conditional grants had to be obtained. Construction was delayed as a result. There was a meeting with the national department, at which it was asked what could be done to spend, granted that interdepartmental issues had caused a delay. It was not feasible to go on building 30 RDP houses at a time, when 250 000 immigrants were coming in per year. It was decided to build mega human settlement projects, which was a mix of public and private housing opportunities. Government approved the buying of land, but the approval only came through in the last quarter of the year, which led to a spending spike.
Ms Creecy answered Mr Terblanche that infrastructure projects had a two year lead-in period. Gauteng worked with the 110 steps prescribed by the Infrastructure Delivery Management System (IDMS). If the steps were followed, there were no budget increases. There was an infrastructure committee to monitor infrastructure and to intervene when necessary. EIAs were not a problem for big departments, because the lead-in period was cut down from two years to between 60 and 90 days. When large land parcels were cleared for development, it had to be known if the land was suitable for dense occupation.
On infrastructure spending on maintenance, she noted that the Department of Health was currently spending more on maintenance. Old structures were refurbished. Many were saying that there had to be more clinics in densely populated areas, but the trend was towards refurbishing.
On contingent liability and medical legal claims, she said there was a trend towards commercialisation of claims. Government had to decide whether to settle or to dispute. It became a management issue, especially with regard to negligence in hospitals. A similar approach as with the Road Accident Fund (RAF) had to be followed; otherwise all health departments would be at risk. Lawyers who used to work on road accident claims, were currently working in the health arena. Lawyers would agree to take on a case for nothing, and if the case was won the lawyer and the patient would each get a certain amount, but often the patient would get far less than the lawyer. The State had to be protected against the burgeoning of claims by means of legislation. On engagement with CEOs, there were meetings with business formations. The EXCO met with cluster sectors and visited factories. In the metal industry, cheap steel import issues were looked at. She had visited industries with the Premier, and also the Chamber of Mines about the West Rand. The emphasis was more on sectors than on formations. The problems experienced by factories had to be looked into. Help had to be given from national and provincial government. On whether the EXCO understood the implications of fiscal control, she noted that she had formerly been MEC of Education, which was known as a big spender. When she became MEC for Finance, she asked her predecessor for guidance. He told her that no matter what the question was, the answer was that there was no money. The EXCO would say that they knew that, but would still request money. MECs were called to Treasury and Cabinet, to get bad news about spending, and had to take it back to the province.
Mr Kolwane, Mpumalanga Finance MEC, replied to questions about foreigners coming into the province. He did not know what questions Gauteng asked through the thumbprint mechanism that revealed information about a person. In Mpumalanga, the question was what could be asked to foreigners who were flocking in. One had to consider the state of the economies of Mozambique and Swaziland. It had to be taken up by the Department of International Relations and Cooperation (DIRCO). It had to be dealt with as an issue between governments so that the province did not suffer. People who went to Gauteng usually had money. It was not the same in Mpumalanga. The stealing of trucks from mines was self inflicted by certain mine owners, as a joint venture with the community, so that they could run away from accountability to that same community. Raw materials were stolen at Nkomathi Antracite to account for less to the community in terms of what the owners declared.
With regards to staff debt, Mr Kolwane noted that it was hard to recover where people had left the employ of the State. A decision had to be made to pursue the matter, granted that it could simply enrich lawyers. It was not worth the while to run after two million if lawyer’s fees could amount to more than that. Debt clearing had a historical basis. Most debts could be traced back to 2012/13. If officials were still in the employ of the State, debt could be recovered. Debts were going down because fewer persons were currently employed by the State. It was important to understand how it happened in the first instance. The six municipalities were taken over because they were not paying collected licence money to the province, but used the money to deal with their own problems. Own revenue was increasing. Victor Kani municipality had volunteered to be placed under administration because it was starting to default.
He answered the Chairperson about whether the EXCO understood what was meant by an expenditure ceiling. The answer was no and yes. The EXCO understood, but still wanted money in spite of the explanation. It was impossible to satisfy everyone. He answered the Chairperson that ARDLEA stood for Agriculture, Rural Development, Land and Environmental Affairs. With regard to initiatives with CEOs of companies, the national approach was adhered to. Mpumalanga was huge on agriculture, mining and forestry. There were 200 mines and 180 mining companies. There was engagement with CEOs of State Owned Companies (SOEs). ESKOM had been told that there were many power stations, but no return for the provinces. Mpumalanga could not just continue to supply coal to industry which caused pollution, without getting a slice of the pie. The province had to be beneficiated for use of its resources. Concerning forestry, he noted that there was engagement with the Department of Forestry. Sometimes there was land available that was not exploited for agri-forestry. The land could be used to grow fresh fruits and other produce. Mpumalanga had a university. Brain power could be put into forestry. Benefits could be shared.
The Chairperson commended Mr Kolwane for innovative thinking.
Ms Bede Nkamba, Mpumalanga Provincial Treasury HOD, added that drought had had a negative impact on Mpumalanga. There were delays with commencement of agricultural projects. The Department had to resort to rollovers, which would be supported. There was a joint action plan with the Budget Council about personnel in Education. The negative impact of moratoriums on appointments had to be dealt with. The issue was taken to labour. The question was how the reduced expenditure ceiling would translate into the budget for education, also for goods and services.
Mr Hoosain, Provincial Treasury HOD, answered for the Western Cape about socio economic factors that informed strategy. The MEC tabled a MTBPS informed by two research documents, a provincial economic review and a municipal counterpart of that. The documents provided complete disaggregation. Local government was engaged to share information. Documents could be shared with the Committee. The Provincial Government had engaged with the metro about short to medium term responses to transport challenges. It was an ongoing process. The three provinces shared best practice information about infrastructure recommendations. He could not speak for the MEC about political initiatives related to engagement with business. There was a forum for government to meet with business. MECs would engage with the respective sectors, to strengthen relations.
Ms Marsha Korsten, Chief Director: Public Policy, supplied figures related to employment in the Western Cape. There were 2.99 million registered as employed at the provincial level, and 2.386 million at district level. 614 000 were unemployed. Figures were obtained from the Stats SA Labour Force Survey, and were not disaggregated at the provincial level. The province did its own analysis that took the population profile into account. Unemployment was broken down. Unemployment was concentrated among black and coloured people at a figure of 95%. The unemployment distribution among male and female was 50/50. 70% of the unemployed were between 15 and 35. Half of the unemployed had secondary education. 30% had matric. Figures were included in the provincial budget review. 70% of the budget went to health and education. There was a focus on lower income groups, and the most vulnerable.
Ms Julinda Gantana, Chief Director: Public Finance, replied about own revenue for the Western Cape. She agreed with Mr Nzimande that projections were conservative. 4.6% own revenue budget growth was projected over the MTEF. Low economic growth had to be taken into account. Own revenue depended on how much disposable income there was for people to spend. Tax revenue collection relied on gambling taxes from disposable income. Donor funding was part of own revenue, but huge support from Treasury and global funding had come to an end and could not be included in projections. With regard to CoE, she noted that an upper limit was introduced, which was then appropriated. There was 0.9% underspending of the CoE budget. The introduction of an expenditure ceiling reduced the maneuverability of departments in terms of what they could fund. It was taken down to post level. The department had to decide which posts to prioritise. There were some delays, as people had left the system and posts had to be advertised. The aim was to move towards a more reliable CoE budget.
Mr Aziz Hardien, DDG: Government and Asset Management, replied for the Western Cape about the Auditor-General’s concern about public entities. Issues were supply chain non-compliance and predetermined objectives. There were first-time issues, which would be addressed on the way forward.
Ms Gaarekwe replied for the National Treasury about the documentation of immigrants, that some were not documented. It was escalated to DIRCO to take to the SADC Forum, about how it impacted on SA. There was the challenge in Limpopo that half of the Zimbabweans who worked there stayed in Zimbabwe. With regard to Human Settlements departments transferring money at year end, she advised that there had to be good planning when land was bought. Departments had to account for money transferred to other entities.
The Chairperson reminded the Western Cape Treasury that due to climate change, the province would have to cope with less rain. His province, Namaqua, had to depend on boreholes and desalinated sea water. When schools were built, there had to be tanks installed to harvest water. He had observed that water was running away in the vicinity of Parliament. He commended Gauteng province for good budget management and controls, and good procurement. Provincial treasuries would have to face the fact that they would have to make unpopular decisions. On oversight visits it was clear that the provinces wanted to talk to the Chairpersons of the Finance and Appropriations Select Committees, as if those Chairpersons had money tucked away in their cars. Decisions had to be made in the budget process about what was right and what was wrong, and about what had to change.
Minutes were adopted for 7 June.
The Chairperson adjourned the meeting.
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