Provincial Economic Review and Outlook (PERO); Western Cape Jan-Jun 2024 performance

Meeting report

The Budget Committee meeting opened with a brief round of introductions with Members identifying themselves as Mr N Masipa (DA), Mr T Walters (DA), Ms W Kaizer-Philander (DA), Ms P Lekker (ANC), Ms B Stoffel (ANC), Mr M Booysen (DA), Mr N Constable (PA), Mr L van Wyk (DA), Ms B van Minnen (DA), Dr N Mbombo (DA), Mr D Bryant (DA), Mr D Wessels (DA), Mr G Bosman (DA), Ms N Nkondlo (ANC), and Ms A Bans (ANC). The introductions also included several officials from various Western Cape Provincial Departments who were in attendance.

Mr Dustin Davids, the Procedural Officer, confirmed that the meeting had the necessary quorum.

The Chairperson highlighted the extensive agenda for the meeting. He congratulated newly appointed Western Cape Finance Minister, Ms Diedre Baartman, for tabling her first budget.

2024 Provincial Economic Review and Outlook (PERO): Provincial Treasury briefing

Ms Julinda Gantana, Provincial Treasury Head of Department, said that the Budget Office would take the Committee through the presentation, with the team working collaboratively.

Mr Phillip Prinsloo, Economist, Provincial Treasury, described the Western Cape as being at a critical juncture, with economic challenges tightening and demands for public services heightening. Declines in key sectors such as construction and manufacturing posed significant challenges. He emphasised the risks associated with energy, the extent of crime, and service delivery pressures in healthcare and education. However, he acknowledged the agricultural sector's success as a source of hope, while stressing the importance of targeted policies to address these various challenges effectively.

This year’s Provincial Economic Review and Outlook (PERO) included several updates. It was a fully internal, freely available publication, supported by increased academic paper citations. The report also featured greater use of employment and Gross Domestic Product (GDP) data in map formats and incorporated the analysis of 32 new datasets. The structure of the report remained largely unchanged from the previous year, with Chapter 1 authored by himself, Chapter 2 by Sean Kirsten, Chapter 3 by Chad Capone, Chapter 4 by Jonathan Hendrix, and Chapter 5 by Carmen Maharaj.

In discussing the global economic context, the International Monetary Fund (IMF) projected global economic growth at 3.2% for 2024 and 3.3% for 2025. While the global economy showed resilience after recovering from the COVID-19 recession, it remained below historical averages. He cited risks such as high borrowing costs, reduced fiscal support (excluding the United States), lingering impacts of the pandemic, and geopolitical tensions. China, South Africa’s largest trading partner, had weaker domestic demand, challenges in the real estate sector, supply-demand imbalances (particularly in the pork industry), and a youth unemployment rate of 17%. In the long run, China’s ageing population was also a risk, with its growth rate expected to slow to 3.3% by 2029, although the IMF predicted stronger near-term growth at 5% in 2024 and 4.5% in 2025.

South Africa’s GDP per capita had declined by 6.3% over the past decade, while Georgia and China experienced substantial increases of 58.9% and 59.4%, respectively. He attributed Georgia’s success to factors such as low corruption, minimal bureaucracy, simple procedures, and a low tax burden. In contrast, China’s achievements were driven by market-oriented reforms, foreign direct investment, and special economic zones with flexible investment policies.

South Africa’s economic performance showed a 0.4% expansion in the second quarter of 2024. The finance sector made the largest positive growth contribution of 0.3 percentage points after expanding by 1.3% during the quarter. Conversely, the transport sector and agriculture made negative contributions of -0.2 and -0.1 percentage points, respectively. Over the past decade, four sectors—utilities, manufacturing, mining, and construction—underperformed. The construction sector, in particular, was 27.5% smaller than it was a decade ago.

Economic Outlook for South Africa and the Western Cape

Standard & Poor’s (S&P) Global projected South Africa’s growth at 1% for 2024 and 1.6% for 2025. This was an improvement compared to the average growth of 0.8% over the past decade but was still close to the population growth rate of 1.4%. The construction sector was expected to grow by 4.7% in 2024, likely due to a low baseline after seven consecutive years of decline. This growth would be supported by lowered interest rates, positive impacts on real estate, and government construction initiatives listed in the National Infrastructure Plan 2050, alongside investments in renewable energy projects. The finance sector was also anticipated to contribute 0.5 percentage points to growth in 2024 and 0.7 percentage points in 2025.

Inflation had been on a declining trend since August 2022, with the most recent measurement at 4.6% in July 2024, close to the South African Reserve Bank’s mid-target rate of 4.5%. The repo rate had remained relatively high at 8.25% since May 2023 but was expected to decrease by another 50 basis points by the end of 2024, following a recent 25-basis-point cut.

The Western Cape provincial economy had recovered from the COVID-19 recession and was now 1.1% larger than before the pandemic. Employment had increased by 9.6%, outpacing the 6.9% growth in population. Real exports from the province had expanded by 106.9% over the past decade, driven by a 190.7% increase in agricultural exports. Mining, while still a small share of exports, grew significantly, with manganese exports increasing by over 1000% in the past five years.

Western Cape’s growth prospects for 2024 and 2025 were slightly more optimistic than national averages. Finance, transport, and construction were expected to make significant contributions, with the Western Cape economy projected to grow by 1.3% in 2024 and 1.8% in 2025.

Key Messages of PERO 2024

Ms Gantana highlighted that the PERO had consistently been a key publication in providing and supporting evidence-led decision-making. This was particularly important given the current stage of the planning cycle, which involved focusing on the Provincial Strategic Plan (PSP), Strategic Plans (SPs) for votes, and working towards the first full year of Annual Performance Plans (APPs) for the Seventh Administration.

The sluggish performance of the national economy had reduced economic growth prospects for the Western Cape, despite the province experiencing increased demand for public services.

Ms Gantana addressed the construction and manufacturing sectors, which had experienced significant contractions over the past decade. She emphasised the need for thoughtful policy interventions from government to support the recovery and revitalisation of these sectors.

On electricity risks, while there had been some improvements in 2024, energy supply remained a risk to the provincial economy. This necessitated the development of localised energy projects and the implementation of energy efficiency measures.

For education, Ms Gantana expressed concern over the growing learner-teacher ratio and declining budget allocations for the Western Cape Education Department (WCED). These trends placed increased pressure on the quality of education in the province.

Turning to healthcare, she pointed to significant strain on the system, particularly as the growth in the healthcare workforce lagged behind the province's population growth. This mismatch had led to a decline in nursing capacity while mental health issues surged, placing further pressure on the sector.

Ms Gantana discussed regional disparities in crime rates. While overall crime had declined significantly in the Western Cape over the past decade, the murder rate had alarmingly increased by 43%. She identified this as a persistent and severe challenge requiring targeted interventions.

She concluded by commending the agricultural sector for its exceptional performance in economic growth and exports over the past decade. She described the sector as a "beacon of hope" and noted its competitive advantage, which could be leveraged to strengthen ties with the underperforming manufacturing sector.

Discussion

Mr N Masipa (DA) noted South Africa's economy expanding by 0.4% in the second quarter and that the largest negative growth contributions came from the transport and agriculture sectors. He inquired about the Western Cape's economic outlook, how it compared to the national figures and what factors contributed to the provincial performance.

On the impact of inflation and the weak economy, Mr Masipa noted the statement that housing demand had surged by 83.2%, and he requested the real number behind this percentage. He sought specific figures for the reported declines in housing delivery and serviced sites, which had decreased by 70% and 90%, respectively, and the national decline of 41%.

Turning to renewable energy investments in the Western Cape in 2023, he referred to the creation of 3 179 Greenfield jobs and asked about the associated costs. He asked if these investments had resulted in job losses in other sectors, as often argued by labour representatives.

On employment recovery, Mr Masipa noted that agriculture exports had flourished, and he asked about the Western Cape's projected economic growth of 1.3% in 2024 and 1.8% in 2025. What were the implications of these growth rates for achieving the goal of a R1 trillion economy by 2025 and what did the trajectory indicate for future growth?

Mr N Constable (PA) observed that while various regions were mentioned, there was no data specific to the Central Karoo. He asked for an understanding of the economic outlook for that region.

Mr Constable referred to the unemployment rate for Africans, which was reported at 31%, and asked for the corresponding unemployment rate for Coloured individuals in the Western Cape. He also raised concerns about the protection of small businesses from illegal foreign nationals operating in communities, which he felt was a significant issue affecting local businesses.

On education, Mr Constable highlighted the problem of overcrowded classrooms and asked if this issue was recorded in the PERO. He stressed the importance of ensuring adequate budget allocations for education, particularly to address the reported shortage of 2 400 teachers in the Western Cape.

Ms N Nkondlo (ANC) raised concerns about time allocation in the committee. The department’s presentation had lasted nearly an hour, while Members were only allocated three minutes to engage. She suggested that the committee revisit how time was distributed to ensure it reflected the significance of the issues under discussion.

The Chairperson assured Ms Nkondlo that all Members would have a fair opportunity to ask their questions and invited her to continue.

Ms Nkondlo referred to to the Minister’s budget speech and asked for clarity on the statement that citizens of the Western Cape were living at a “better standard of life.” The HDI and Gini coefficient data presented showed an increasing Gini coefficient for the Cape Metro, which was higher than that of the province. She had difficulty reconciling the Minister’s statement with the data presented. The presentation indicated growing population and poverty in the Western Cape. How did these indicators align with the Minister’s comments?

Ms Nkondlo addressed the racial demographics of unemployment in the province, referring to the data presented. She asked what factors were driving the high unemployment rate among the African population and if these factors were also applicable to the youth. Referring to the period from 2019 to 2024, unemployment among Africans, coloured individuals, and those with less than secondary education was reported to be over 30%. She requested an explanation of the drivers contributing to this prolonged unemployment in these groups.

Turning to crime interventions, Ms Nkondlo sought clarity on the data presented on crime in hotspot areas. The data used different quarters and years to compare crime statistics, such as Quarter 4 of 2018 and Quarter 4 of 2023, alongside other periods. Why had Treasury chosen these specific time frames instead of consistently using the same quarters across all comparisons. She acknowledged not being a statistician but asked for a clearer explanation to understand the rationale behind this approach and how it reflected the crime trends, both with and without the presence of Law Enforcement Advancement Plan (LEAP) officers.

Provincial Treasury response

Ms Diedre Baartman, Provincial Minister of Finance, stated that she would address some of the non-technical matters, touching on areas like the HDI and the Gini coefficient. Using HDI as an example, she explained that it includes various metrics such as life expectancy at birth (to measure health), average and expected years of schooling (to evaluate education), and gross national income per capita (to assess the standard of living). Gini coefficient measures disparities, illustrating this with a personal example: when she became a Minister, her income changed, which affected the Gini coefficient for her area, but it did not create or eliminate jobs. The technical team would elaborate on how metrics like GDP, HDI, and the poverty line are calculated.

The Minister noted that while the PERO presented provincial data, it was disaggregated into different districts. She highlighted that a Municipal Economic Review and Outlook (MERO) would be released later in the year, providing more detailed district-level data. Such reports were useful for tracking economic developments within specific constituencies and could help address particular queries.

Turning to concerns about teacher layoffs, Minister Baartman referred to a meeting of the National Budget Council, where ministers from all provinces had discussed fiscal pressures. The Western Cape faced significant challenges, but KwaZulu-Natal alone had submitted a request for R9.8 billion out of a total R15 billion for equitable share funding. Despite these challenges, she emphasised the importance of protecting frontline services in education and health. She shared that she had proposed a resolution at the Budget Council to ensure public sector wages were fully funded and frontline workers were prioritised. This resolution would be submitted to the Cabinet on 2 October 2024 for further consideration.

The Minister mentioned that during the Budget Council, presentations were made on how industries were affected by various interventions, including bailouts, and suggested that these insights might provide useful context for further discussions.

On protecting small businesses from illegal foreign nationals, she recommended that this matter be addressed with the Department of Economic Development and Tourism, using data and evidence from PERO to inform budgetary and planning processes.

Minister Baartman referred to specific pages in the PERO (pages 67, 69, 71, and 72) that provide data on employment and labour matters by race and metrics. The technical team would assist with any additional information and handed over the technical aspects to the HOD and officials.

Ms Gantana responded about the growth of jobs strategy, confirming that the province’s target was to achieve a R1 trillion economy by 2035. However, she acknowledged that at the current growth rate, which was below the required 4–6% per annum, this target was unlikely to be met.

Mr Prinsloo explained that the Quarter 2 data for the Western Cape had not been available at the time the report was written. However, the data had since been released and would be provided, specifically on the transport and agriculture sectors and their growth rates.

The real number or actual figure for the reported 83.2% increase in housing demand was 292 520. There was not a specific economic outlook for the Central Karoo in the PERO, as such information is included in the Municipal Economic Review and Outlook (MERO). However, the PERO did include data on maternal and child mortality rates, average growth over the past decade, and the latest economic growth rates by sector for the Central Karoo.

On the cost of creating green energy jobs, Mr Prinsloo admitted that they did not have information on whether these investments had displaced jobs in other sectors. Research would be needed to determine this.

Mr Chad Capon, Provincial Treasury Deputy Director: Budget Policy Office, addressed the unemployment rate for coloured individuals in the Western Cape, reporting that it stood at 18.9% as of the second quarter of 2024. On the high unemployment rate among the African cohort, he explained that higher education levels were generally associated with lower unemployment rates. Unemployment was highest among those with less than secondary education, aligning with the data presented, which showed significant unemployment in this demographic.

Mr Sean Kirsten, Economist at Provincial Treasury, detailed the Western Cape’s GDP growth for Quarter 2 of 2024, reporting a 0.5% increase from Quarter 1. The largest contribution came from the finance sector, which accounted for 0.4 percentage points of the growth, followed by manufacturing and wholesale trade.

Mr Kirsten spoke to the definitions of key metrics. The Gini coefficient measures income inequality, ranging from 0 (perfect equality) to 1 (perfect inequality). The HDI in contrast, measures human development through indicators such as life expectancy at birth, years of schooling, and gross national income per capita. While both metrics are essential, they serve distinct purposes.

On the LEAP officer deployments, Mr Prinsloo explained that the six quarters selected for the analysis were chosen because LEAP was implemented gradually. Not all 13 hotspot areas had LEAP officers from the start, so the comparison used six quarters when all areas had officers fully deployed to ensure fairness.

Minister Baartman requested further clarification on how the poverty line was calculated.

Mr Prinsloo explained that the poverty line is determined by Statistics South Africa and is based on specific thresholds. For 2024, he estimated the amount to be approximately R1 450, noting that individuals earning less than this amount fell below the poverty line. He offered to confirm the exact figure at a later stage.

Further discussion

Mr Masipa noted that one of his questions had not been answered about the real figure behind the reported 83% surge in housing demand. He requested an explanation of the actual numbers.

Mr M Booysen (DA) suggested it would be interesting to compare the number of days without load-shedding to the volume of diesel being burnt to supplement electricity supply. This could offer insights into behind-the-scenes operations. He described his commentas a "naughty and patriotic thought."

Mr T Walters (DA) asked for clarity on the LEAP versus non-LEAP data presented. He observed that the decreases in certain crimes appeared to align with visible policing efforts, while increases in murder and drug-related crimes seemed linked to gangsterism and the drug economy. Would it be correct to assume that gangsterism and the drug trade were the primary drivers of these trends?

Ms B Stoffel (ANC) said it was important to include absolute figures alongside percentages in committee discussions. Percentages without corresponding figures made it difficult to assess the data’s implications accurately.

On unemployment trends and insights, Ms Stoffel noted a statement describing the Western Cape as displaying a "unique unemployment pattern." She stressed the need for more detailed breakdowns to identify where these patterns occurred and their contributions to specific areas.

She highlighted the reported difference in unemployment rates between the Cape Metro (26%) and rural districts. However, she expressed concern that such data did not align with her observations of stagnant development in rural areas, where infrastructure and living conditions had remained unchanged for decades. She requested clarification on what development initiatives were occurring in rural districts beyond the influx of people into the metro areas.

Ms Stoffel agreed with other Members that there was a need for detailed breakdowns in unemployment and economic development data. She called for specifics on how many individuals, particularly Coloured individuals, had been employed in development initiatives. While she appreciated the presentation, the inclusion of detailed figures and breakdowns would enhance the Committee’s understanding and ability to respond effectively.

Further responses

Minister Baartman addressed the topic of district-level information. She explained that the PERO and the MERO were previously tabled together. However, it was found that aligning the MERO with the municipal budget process, rather than the provincial timeline, made it more useful for municipalities. The adjustment allowed Provincial Treasury to engage more effectively with municipalities and districts, providing information that aligned with their respective budgetary processes.

The Minister noted that if the Committee preferred, the documents could be tabled simultaneously again, as was previously the practice. She clarified that while some figures in the PERO referred to district-level data, others did not. For example, page 70 of the PERO included information on the economically active population at the district level, page 78 provided a formal-to-informal employee percentage split, and page 87 detailed unemployment rates as a percentage of the total population, broken down by district.

Minister Baartman stated that if there were specific percentages or figures Members wanted to see included in the publication, the Provincial Treasury would be happy to provide them. The publication aimed to be as useful as possible for Members, given their critical role in oversight, lawmaking, and public participation.

She suggested that Provincial Treasury could engage with municipalities later in the year during the MERO tabling to determine if the current approach of separating the two publications had been helpful for the municipal budget process.

On diesel usage, Minister Baartman said she would ask the team if they had specific information. Discussions at the Premier’s Energy Council, where Provincial Treasury was also represented, had raised questions about energy tariffs and funding requests from national entities such as NERSA. However, she pointed out that the system had seen increased energy supply, which had been a focus of the province’s energy discussions.

She asked the team to provide further details on LEAP and non-LEAP areas in response to the committee’s queries.

Ms Gantana clarified that the housing demand had increased by 292 529 in real terms. Simultaneously, there had been a reduction in the number of serviced sites, reflecting an overall increase in demand alongside a decline in available sites. She repeated the figures to provide clarity.

On diesel usage, a Provincial Treasury official referenced the latest weekly performance update from Eskom, noting that the utility had spent R4.83 billion on diesel between April and 19 September 2024. This represented a 71% reduction compared to the R16.75 billion spent over the same period in 2023. However, there had been an increase in diesel usage during September due to a temporary outage at the Koeberg nuclear power station, which had been widely reported in the media.

Another official addressed the correlation between murder and drug-related crime. He confirmed that there was a positive correlation between the two, making this link plausible.

On percentages versus absolute figures, the official explained the rationale for using percentages in the report. Percentages allowed for easier comparisons, particularly between regions like the Central Karoo and the Cape Metro, where significant size differences made direct numerical comparisons impractical. Percentages were also more user-friendly for readers and provided a clearer perspective. For instance, stating that housing demand had increased by 292 000 could be misleading without context, as the base could range from 1 million to 10 million, significantly altering the interpretation.

Further questions

Ms Nkondlo referred to the earlier discussion on unemployment trends in the Western Cape. While the response indicated that low education levels might be a driver of unemployment among Africans, she sought clarity on the matter. She pointed out that the data presented a nuanced picture: employment growth between 2019 and 2024 was reportedly highest among African, female, older age, and more educated cohorts. However, the unemployment trends showed that the unemployment rate was highest among the African population, at 31.5% as of the second quarter of 2024.

She asked for a simplified explanation of this seeming contradiction, noting that the data implied those with less than secondary education were the most affected by unemployment. She suggested that this data should inform resource allocation trends in the province and that it would be important to revisit how programs and budgets address these disparities.

Ms Nkondlo expressed appreciation for the lesson on the differences between the HDI and the Gini coefficient, but sought further clarity. Referring to the Minister’s speech, which stated that the quality of life for Western Cape residents was improving, today’s presentation indicated that population and poverty levels in the Western Cape were growing. The lower-bound poverty line had increased to 3.7 million people by 2022, with a significant spike in 2020 due to COVID-19. Therefore how could these seemingly contradictory statements be reconciled? A simplified explanation was needed to help ordinary citizens understand how quality of life could improve while poverty also increased.

Mr Masipa referred to page 19 of the PERO which addressed South Africa’s ageing water infrastructure and the need for R1 trillion to repair and upgrade it. He asked what portion of this funding was allocated to the Western Cape and if the province had the fiscal capacity to undertake the necessary repairs.

Responses

Minister Baartman addressed employment figures and percentages. She clarified that an increase in employment within a particular cohort should be distinguished from the overall percentage change in the labour force. Page 67 of the PERO detailed the composition of the African narrow labour force, while page 69 provided figures for the Western Cape as a whole.

For example, the African labour force had increased from 1.2 million to 1.4 million as of the second quarter of 2024. This change represented a percentage increase within that specific cohort, which was different from the overall percentage figure of the entire labour force. She suggested that the technical team could provide clarity by tabulating these figures.

Minister Baartman explained the relationship between the Gini coefficient and the HDI and how the two metrics interact. The HDI focuses on education attainment, life expectancy, years of schooling, and standard of living (measured by gross national income per capita). In contrast, the Gini coefficient measures income inequality.

A low Gini coefficient could indicate relatively equal incomes in a particular area, but this did not necessarily mean that all incomes were above the poverty line. Conversely, areas with high income disparities could still have a significant portion of residents earning above the poverty line.

The Minister emphasised that these metrics should always be read in context with one another. GDP, for instance, primarily measures economic growth and employment trends, while the poverty line reflects the minimum income required to avoid poverty, as defined by institutions such as Statistics SA. The HDI, on the other hand, measures overall quality of life through indicators like life expectancy and education.

She acknowledged the complexities of interpreting these metrics and stated that she was attempting to explain them in accessible terms. She asked the technical team to provide further insights into how these indicators should be understood in relation to one another, particularly on the correlation between lower levels of education and unemployment among the African cohort.

Ms Gantana explained that while it was important for the Provincial Treasury to be aware of risks related to water infrastructure, water competences fell primarily under the National Department, with shared responsibilities at the municipal level. Despite these delineations, the provincial government recognised water as a critical risk area. The Provincial Treasury was in the process of finalising a circular to address these concerns.

Treasury was adopting a thematic approach to intake discussions, focusing on broader impacts of climate change and disaster management. Water and energy were key areas being examined to better understand potential preventative measures. These measures, she clarified, were not necessarily directly linked to water itself but to mitigating the impacts of severe climate events within the provincial mandate. It was important to take a holistic perspective in addressing such risks.

Mr Prinsloo responded to questions on unemployment and quality of life. While education was a significant factor in unemployment disparities, another key factor was the timing of labour force growth. Over the past five years, the African labour force in the Western Cape had grown the fastest among population groups. However, this growth coincided with a period of relatively low economic growth, limiting employment absorption and contributing to higher unemployment rates in that cohort.

On quality of life, Mr Prinsloo noted that it is determined by various factors, including HDI such as life expectancy. He addressed the seeming contradiction of an increasing number of people living below the poverty line alongside an overall improvement in quality of life. While the number of poor people had risen, this was in the context of an expanding total population. The proportion of people living below the poverty line in the Western Cape had actually declined, which pointed to an overall improvement in quality of life. The Gini coefficient, which measures income distribution, had also improved over time, indicating a more equitable distribution of income and contributing to improved well-being among the population.

Western Cape Government January to June 2023/24 Performance: briefing

A Western Cape Department of the Premier official said the 4th Quarter 2023/24 and 1st Quarter 2024/25 performance reports would be presented together. It was important to understand how the quarterly reports fit into the broader budgeting cycle. The quarterly performance reports are critical tools for fiscal discipline, as they link budget implementation with the Annual Performance Plan (APP) and provide oversight into departmental activities, including risks and outliers.

The Western Cape had a strong track record of meeting deadlines for performance reporting, both to the Provincial Treasury and National Treasury. This commitment was a key governance process that underpinned fiscal discipline in the province.

The performance data aligned with the Provincial Strategic Plan. Quarterly performance reports provide insights into the socio-economic environment on a more granular level compared to annual publications like the PERO, which offer a broader and retrospective view.

Quarter 4 2023/24 Performance Overview

The overview of the Quarter 4 represented the outcomes of the 2023/24 financial year. The fiscal had extreme weather events—beginning in December 2022 and recurring throughout 2023—that had led to multiple disaster declarations. Departments, particularly those responsible for infrastructure, had to reprioritise budgets repeatedly in response to these events.

Further to this, fiscal constraints, including fiscal consolidation, a reduction in conditional grants, and insufficient funding for cost-of-living adjustments, had shaped the financial year.

The province spent 99.1% of its 2023/24 budget, leaving an underspending of 0.8%, equivalent to R768 million. The Department of Health and Wellness accounted for R119m of this underspending, primarily due to compensation delays for employees and over-expenditure driven by medical inflation. The Department of Infrastructure had underspent by R513m, which included a R250m conditional grant reallocated to another province.

Public entities spent 95.6% of their adjusted budget of R913m, resulting in an underspending of R40m. Wesgro and CapeNature accounted for most of this underspending due to delays in relocating the InvestSA office and procurement challenges, respectively.

On infrastructure, the province spent 94.2% of its budget. There was significant reprioritisation caused by weather-related impacts on road infrastructure and delays in human settlements projects due to community risks, relocations, and invasions.

The province over-collected revenue by R885 million in 2023/24, driven by higher-than-expected receipts from health patient fees, motor vehicle licence fees, and gambling taxes. Departments would apply to retain a portion of this revenue and roll over underspent funds, subject to Provincial Treasury’s recommendations, as part of the adjustments budget process.

Non-Financial Performance Data
It was noted that non-financial performance data was important in providing quarterly insights into the socio-economic environment. This data would allow the Committee to track provincial progress and align with broader governance and planning objectives.

For quarter four, public entities achieved 86% of their quarterly targets, consistent with the performance reported in Quarter 3. Departments collectively reported on 697 targets, achieving 87%, with 9% partially achieved and 4% not achieved. Among public entities, 122 targets were reported, with an 81% achievement rate, 11% partially achieved, and 8% not achieved.

Four of the ten public entities achieved 100% of their targets, and the governance cluster performed best within the departmental framework, achieving 95%. Across the financial year, eight departments achieved performance rates equal to or above the provincial average of 87%, while five departments fell below this benchmark. Challenges causing the underachievement included demand-driven indicators, stakeholder dependencies and budget constraints.

For public entities, the provincial average performance across all four quarters was 81%. Six entities met or exceeded this average, while four fell below. Similar factors, including demand-driven indicators and stakeholder dependencies, contributed to underperformance.

Linking Performance to the Provincial Strategic Plan

Key achievements in Quarter 4 data for Provincial Strategic Plan (PSP) included:

Growth and Jobs

The provincial GDP increased by 0.03% in quarter four, while the unemployment rate rose slightly to 20.3% compared to 20.2% in quarter three.

Well-Being

The HIV positivity rate among individuals aged 15–24 was reported at 1.4%, below the target of 1.5%. Additionally, 15.2% of children born in government facilities weighed less than 2 500 grams, an improvement over the target rate of 17.1%.

In education, 99.3% of school governing bodies met the minimum governance criteria, and 50 schools were equipped with local area networks.

In health, the satisfaction rate for patient experience of care stood at 84%, while 72.3% of TB clients successfully completed their drug-sensitive TB treatment. In social development, 11 802 older persons benefited from subsidies for community-based care, and 16 560 individuals received meals at departmental feeding sites.

Safety

Homicides during quarter four increased by 25% compared to the same period in the previous year but decreased by 50% compared to quarter three. LEAP priority areas recorded 565 homicides, representing a 34% increase compared to the same period in the previous year. Preventative areas recorded a 39% decrease in homicides.

Moreover, 2 269 sexual assault cases were reported at public healthcare facilities, reflecting a 20% increase compared to the same period last year but a 5% decrease from quarter three. LEAP officers conducted 2 017 arrests targeting key crime drivers and 32 integrated operations to enhance rural safety.

Social Development

Social development interventions included 13 victims of human trafficking and their children accessing shelter services. In addition, 168 subsidised beds in funded inpatient treatment centres were supported under the provincial substance abuse strategy.

Discussion

Mr van Wyk sought clarity on provincial expenditure. He requested an overview of the column on transfers and subsidies, noting its significance as one of the larger spending categories, alongside compensation of employees and goods and services. He also asked if the public entity budgets were in addition to the provincial expenditure reflected for various departments and how they fit into the overall budget framework.

Ms van Minnen referred to average performance outlined on page 12 and asked why there were significant variations in quarterly performance, noting discrepancies such as the much lower performance in quarter three for certain departments. There needed to be greater consistency.

She referred to slides starting from slide 14, which discussed the socioeconomic picture, and observed a lack of comparative data across multiple areas, except for safety. She questioned the section on bursaries, asking if there was follow-up to track outcomes for recipients or if the reporting merely ended with the award of bursaries. On the slide 15 statistics, she asked if increases or decreases were tied to identifiable trends.

Ms van Minnen discussed safety figures and asked if it was possible to isolate data on proactive policing efforts, such as roadblocks for drunk driving. She queried if the reported figures were due to increased policing or other factors.

Mr Masipa congratulated the Minister, referencing the surplus budget of R885 million and commending the additional revenue collected from gambling taxes. He noted that the Quarter 4 2023/24 unemployment rate stood at 20.3% and had slightly decreased to 20.2% in Quarter 2 of 2024/25. He remarked that this indicated growth.

Responses

The transfers and subsidies column in the expenditure breakdown comprised expenditures to various entities. From a governance perspective, the Department of Local Government accounted for R139 million in transfers to municipalities, funding various collaborative projects.

In education, transfers of R3.8 billion included norms and standards payments to schools for day-to-day maintenance, operational needs, security, and municipal rates and taxes.

In social development, the R1.1 billion reflected transfers to non-governmental organisations (NGOs). The Western Cape Province adopted a model that relied on NGOs more extensively than other provinces.

On infrastructure, 2023/24 was the first year of the newly established Department of Infrastructure. Transfers in this category were primarily for housing projects under the Human Settlements programme, which provided funding to the City of Cape Town and other municipalities.

Of the R913 million allocated to public entities, most of these were Category 3C entities predominantly funded by the province. For example, Provincial Treasury made transfers to the Western Cape Gambling Board (WCGB), Community Safety provided funding to the Western Cape Liquor Authority (WCLA); Economic Development made transfers to Wesgro, and Environmental Affairs supported the Western Cape Nature Conservation Board (CapeNature).

On the varying performance across quarters, at the start of the financial year, departments often have a slower performance rate. This is because the quarterly calculations are made against the total annual indicators, which number approximately 870 for the province.

As an example, in education, the department might report on six indicators early in the year but increase to 65 indicators by the end of the financial year. These details were outlined in the Quarter 4 release provided to Members, which unpacked the number of indicators reported per quarter and included specifics on which indicators were covered.

The province’s unique approach was incorporating partially achieved indicators in its performance reporting. This was important because some targets, while not fully achieved, might reach 95% and could not be dismissed as failures.

Quarterly performance reporting is part of a broader process that culminates in the annual performance report. These quarterly results collectively contribute to the final annual targets. Members could refer to the annual reports of departments, which had already been shared, for a comprehensive view of how achievements over the quarters aligned with annual targets.

Further to this, systems were in place to address underperformance. These included departmental reviews and input from cluster audit committees, with further details available in the Quarter 4 release shared with Members.

The fluctuations in performance indicators across quarters arise because not all indicators are reported on every quarter. Using education as an example, only five indicators were reported in the Quarter 1 of 2024/2025, while the total for the year would be 55, with most reported by year-end.

There is need for improvement on the socioeconomic comparisons. While comparisons were made in some areas, such as safety, there were gaps, particularly in the well-being category. These gaps would be addressed in future reports to provide better contextualisation. Quarterly updates were cumulative, building toward an annual overview. However, reporting was limited to data provided by departments as part of APP monitoring, which constrained the ability to contextualise certain metrics fully.

On bursary data, while departments reported on bursaries awarded, they did not always track additional outcomes, such as course completion or subsequent employment. These data points might require specific follow-ups with departments, as they were outside the scope of current APP monitoring.

A correction was made to an earlier statement on the unemployment rate. Unemployment for Quarter 4 of 2023/24 was 20.3%, but it had since increased to 22.2% in Quarter 2 of 2024/25, as per the latest Statistics SA data.

Evaluation of provincial priorities, such as bursaries, would involve assessing their impact on outcomes and outputs. Such evaluations would inform adjustments to future targets.

Minister Baartman expressed appreciation for the contributions of Dr Zeenat Ishmail, Head of Provincial Data Office in the Department of Premier, in improving the reporting process. Several slides in the presentation had not been part of previous reports. Over the past five years, adjustments had been made to ensure reporting was more useful and relevant to the Budget Committee.

The Minister encouraged Members to suggest improvements to how Provincial Treasury or the Department of the Premier reports to the committee. She highlighted changes made to performance reporting, such as incorporating key indicators aligned with APP outcomes and including partial achievements for better context.

Drawing from her experience as a former Member, she emphasised the committee’s influence over departmental targets in strategic plans and APPs. She encouraged Members to engage with departments during these processes to ensure targets were realistic and of high quality. Departments would likely welcome suggestions for improving their reporting and performance indicators.

Further discussion

Ms Nkondlo sought clarity on slide 7 on the lack of explanatory notes for overspending in certain areas, such as Heritage Western Cape and Casidra, while notes were provided for underspending. Overspending in Public Works on slide 8 reflected a discrepancy of approximately R65 million between the adjusted budget and actual spending.

Ms Nkondlo asked how departments or entities fund such over-expenditures, given the stated budget allocations. She inquired about the approval process for overspending and if there were specific mechanisms in place to allocate additional funds.

There needed to be detailed explanations on the over-expenditure. On the 9.6% overspending in Public Works, from where were the additional funds sourced, who approved the overspending, and the process involved.

On performance indicators, Ms Nkondlo questioned how partially achieved targets were calculated and if they were counted as performance achievements at year-end. She asked for a breakdown of the 697 targets, including the 64 partially achieved and 29 not achieved, and if these could be considered unachieved for the purposes of performance evaluation.

Ms Nkondlo also asked about the socio-economic impact indicators in the report. She requested baselines or sample sizes to contextualise reported figures, such as the percentage of infrastructure programs funded or the number of job opportunities created. She argued that such contextual information was necessary to assess the socio-economic impact of the work done during the quarter.

Ms Stoffel pointed to slide 6 on provincial expenditure at the end of March 2024, which amounted to R81 billion, and a preliminary underspending of R768 million. She focused on underspending in the health sector, particularly in compensation of employees. She asked if this was due to vacancies or other systemic issues, expressing concern about health being a key government priority.

She emphasised the importance of prioritising health and questioned why the health department struggled with staff shortages despite its critical role. She requested a detailed explanation of why vacancies were not filled, stressing the need for accountability in such a crucial sector.

On housing, Ms Stoffel highlighted the R513 million underspending in infrastructure, stating that this amount could have funded many housing projects in the province. She criticised the reallocation of funds to Limpopo, given the housing crisis in the Western Cape, and called for the Committee to take stronger action to address this issue. The lack of spending on critical areas like housing and overspending in others required greater accountability and possibly consequences for non-compliance with budgetary allocations.

Ms Stoffel echoed the concern about overspending and asked if there were consequences for departments or entities that overspent or failed to spend their allocated budgets.

Ms R Windvogel (ANC) raised concerns about overspending in goods and services in the Department of Health and Wellness, noting that this recurred annually. She asked for an explanation of the contributing factors to the overspending and government’s response to address this. She questioned if this highlighted the need for an increased budget for health, particularly in healthcare facilities.

Ms Windvogel noted the underspending on the Health Department’s compensation of employees and sought clarity how it occurred, especially given the province’s frequent complaints about the cost-of-living adjustments putting pressure on its budget. She highlighted the apparent contradiction between underspending on compensation and the reported staff shortages in healthcare facilities.

Further responses

Minister Baartman acknowledged the explanation of calculations on slide 6 could be simplified for better clarity. She explained that the concept of "net underspending" involved summing overspending and underspending to determine if the overall result was an overspend or underspend. The language used could be refined to make it more accessible.

The Minister elaborated on specific challenges faced by departments, particularly Health. Factors such as medical inflation or fuel price increases could drive overspending. For instance, if medical inflation exceeded initial projections, essential items like plasters or needles still had to be purchased, even at higher costs. Similarly, unforeseen increases in fuel prices could lead to budget overruns, requiring departments to approach Provincial Treasury for additional funding.

Minister Baartman replied about infrastructure spending and budget baselines. She referred to page 5 and noted that Health spending for the year was 99.6%, leaving a 0.4% underspend. Departments aimed to spend as close to 100% of their budgets as possible, as both underspending and overspending had implications. Overspending, in particular, could result in scrutiny from the Auditor-General. The Provincial Treasury would give context on overspending, including the process followed when departments projected overspending and approached it for additional resources.

Ms Gantana appreciated the questions from the Committee, noting that they were instrumental in refining the way information was presented. She addressed the risks related to Health, acknowledging the persistent pressures within the system. Both Provincial Treasury and Department of Health and Wellness had consistently highlighted these pressures, particularly the rising service load and increasing demand for services.

Ms Gantana noted that the data reflected these trends, showing that allocations were not keeping pace with demand due to various factors. This issue had been recognised at multiple levels, including departmental, treasury, and provincial cabinet levels. There was a shared understanding that the risks within the system needed to be addressed.

One of Minister Baartman’s early engagements with the National Minister of Finance had included raising these risks, particularly those carried forward from the end of the financial year. These discussions aimed to address pressures within specific sectors and were ongoing at both provincial and national levels.

Ms Gantana contextualised the underspending by the Department of Health and Wellness, noting that it was less than 1% of the budget. While some specific areas of concern existed, she pointed to the department’s strong track record of audit outcomes as an indication of its overall performance.

She encouraged Members to engage further during the 2023/24 Annual Report process.

On over-expenditure, Ms Analiese Pick, Provincial Treasury Chief Director: Public Finance, clarified that the figures presented were preliminary outcomes for Quarter 4 2023/24, with final outcomes to be detailed in the departmental annual reports submitted to the relevant standing committees.

Ms Pick explained the accounting differences between public entities and departments. Public entities operated on an accrual accounting basis, where expenditures included non-cash items such as depreciation. Such items could appear as over-expenditure in preliminary reports but were not cash-backed, and these would be addressed in the annual reports of these entities.

Turning to the Department of Infrastructure overspending of approximately 9%, she said that the Public Finance Management Act (PFMA) allowed departments to address overspending within a programme by shifting up to 8% of funds between programmes at the end of a financial year. Public Works, as a programme within the Department of Infrastructure, utilised this provision, and the adjustments would be detailed in its annual report.

Ms Pick elaborated on oversight mechanisms, stating that accounting officers were prohibited from reallocating funds to transfers or compensation of employees (CoE) to address overspending. Provincial Treasury monitored these shifts closely to ensure compliance with the PFMA. In rare cases of unauthorized expenditure at the vote level, which had never occurred in the Western Cape, an appropriation bill would be required. This would involve recovering the overspent funds either from the Provincial Revenue Fund or through deductions from future departmental budgets.

Ms Pick provided context on the challenges faced by the Department of Health and Wellness. Health accounted for nearly half of the province’s R18.8 billion goods and services budget, with an allocation of R9.7 billion. Goods and services expenditures were driven by essential items such as medical equipment, laboratory services, and operational needs. Many of these costs were influenced by external factors like exchange rate fluctuations and inflation, beyond the Department’s control.

She highlighted examples, such as the National Health Laboratory Service (NHLS), which set its own tariffs. Any increase in patient numbers directly increased laboratory costs. Medical equipment, a significant expenditure, was subject to price increases driven by inflation and exchange rates. These items were "non-negotiable" because they were essential for maintaining service delivery.

To balance its budget, the Health Department often delayed filling posts or froze certain positions, particularly when goods and services costs exceeded projections. This strategy, while necessary, contributed to staff shortages. The department used its approved post list (APL) to manage CoE expenditure, budgeting for only 95% of the required posts to ensure that spending stayed within limits.

Ms Pick acknowledged that the R119 million CoE underspending represented services not delivered but she emphasised the need to contextualise this within the Health Department R29 billion budget. The underspending occurred because of the department’s need to manage runaway costs in Goods and Services while adhering to Provincial Treasury’s cash management policies.

Addressing the R530 million underspending in infrastructure and human settlements, Ms Pick stated that this underspending, along with its impact on specific projects, would be detailed in the annual report. The reasons included delays caused by issues such as community resistance, land invasions, and the reprioritisation of resources due to disasters.

Ms Pick provided insight into how budget cuts compounded these challenges. Health faced baseline increases of only 2.3% on average over the past three years, while non-negotiable goods and services costs grew by 4.5% to 7%. These dynamics, coupled with national budget cuts, exacerbated the Health Department’s financial pressures.

Concluding her remarks, Ms Pick reiterated the importance of viewing these figures in context, highlighting the systemic pressures, operational constraints, and fiscal realities faced by departments. She assured Members that additional details on the impact of these expenditures would be included in the forthcoming annual reports.

An official explained the process of non-financial performance reporting, addressing questions related to baselines, calculations, and the detail of indicators. He clarified that the platform shared the performance of institutions rather than the performance of individual indicators due to the large volume of over 1 000 indicators tracked in the province. The baseline and targets for these indicators are established through each institution’s APP, which is approved and shared at the start of the financial year. The APP provides detailed descriptions of each indicator, the rationale behind them, and the calculations used to set both annual and quarterly targets.

The institutions report their performance through a national electronic system, the Working Performance Reporting System. This system records performance in detail, based on targets and achievements per indicator. Institutions are required to validate their reported performance within one month after the end of each quarter. This process ensures accuracy for the Auditor-General and confirms that the reported achievements are valid.

However, larger institutions or those with regional offices sometimes face delays in gathering and validating data, which may lead to instances of partially achieved indicators. Partially achieved indicators reflect progress toward completion but may still have outstanding data. Quarterly performance reporting is cumulative, building up to the annual targets confirmed in the annual reports.

Indicators achieved at 100% or above are marked as "achieved," those between 50% and under 100% are "partially achieved," and those below 50% are categorised as "not achieved." the calculation framework is robust and shared with the Committee, Cabinet, and the Cluster Audit Committee.

Table 1, Table 2, Figure 11, and Figure 14 were referred to in the document release shared with the Committee, such as. These documents provide more context on the indicators, their integration, and the calculations behind their categorization. Institutions can provide additional information on their indicators and performance upon request.

Minister Baartman stated that the full pack of the performance information for all the departments had been sent to the Committee the previous week. The current presentation was based on the information already provided to the Committee and aimed to offer a snapshot, although more detailed information could be found in the documentation. The Annual Performance Plan and the Annual Report would also contain additional details.

Further discussion

Mr Masipa suggested for improved reporting that in future it might be helpful to provide a snapshot showing that the transferred funds were included in the reporting by these entities, even though the overall figure was captured here. On the performance targets, he confirmed that they were all at 98 or 99%, with none exceeding the departmental budget.

Mr Booysen commented that, having heard the questions and answers, he now had a much better understanding, especially in his capacity as the Chairperson of the Standing Committee of Health.

Ms Stoffel said her understanding was that the CoE underspending was due to the delay in appointing doctors. Was that indeed the case? If so, she inquired about the specific reasons behind the delay. There was an ongoing issue of hospitals lacking sufficient doctors and clinics that were unable to operate 24/7 or during extended hours due to staffing shortages. Despite this, there was underspending in compensation. She wanted clear information to ensure she could respond accurately when addressing these concerns in the future.

The Chairperson replied that an official had previously explained the overspending and underspending in detail. He proposed that the issue be included in the resolutions to request further information.

Ms Stoffel agreed that more information and clarity could be provided at a later stage, but emphasised the need for an answer on the matter.

Ms Nkondlo appreciated the technical details provided, particularly on Quarter 4 and how the data had been represented. However, she raised concerns about the perpetual cycle of quarterly reporting. When looking at an annual report, the Committee would be told that the department was still in quarter one of the following year, leading to an ongoing cycle of delayed accountability. How could this be addressed, as the quarterly reporting approach needed to be consistent and accountable?

She also expressed concern over the delays in appointing funded posts, particularly for doctors and nurses. In this day and age delays in filling funded posts were unacceptable. She questioned the meaning of "making it up" with regard to goods and services and sought clarity on how such underspending, particularly in compensation for employees, translated into service delivery. She asked Treasury officials to consider the oversight perspective in addition to the accounting process, as the ultimate concern was how these issues impacted service delivery on the ground.

Ms Nkondlo noted the impact of budget cuts on teaching posts and questioned why similar explanations for freezing doctor and nurse positions were being accepted. Funded posts had been planned for and money had been allocated for them, so the freezing of these positions was concerning from both a service delivery and budgetary standpoint. She urged for a clear understanding of the content of the report, highlighting that members of the public were not privy to lengthy explanations and needed clear, accessible information.

The Chairperson assured Ms Nkondlo that these concerns would be included in the resolutions.

Further responses

Ms Gantana acknowledged the validity of the issues raised by the Members, referring jokingly to the Treasury team as "bean counters." Provincial Treasury was not in a position to directly respond to the reasons for the delays, as that would fall under the responsibility of the department managing the positions. However from an accounting and budgeting perspective, when reviewing the numbers, there appeared to be no alternative for the Health Department given the constraints on goods and services. The decision to delay filling positions was likely a deliberate one due to fiscal pressures. She referenced the reality of working within a constrained fiscal environment, where difficult decisions had to be made.

She concluded by noting that the response provided had been from a budgeting and accounting standpoint. While the department understood the limitations it faced, she assured members that if further information was needed, particularly on the Quarter 1, the department would be open to providing additional details in the future.

Minister Baartman reviewed the documents that had been sent to the committee and noted that, within the 82-page quarter four document, the Department of Health had outlined the reasons for certain issues. She referred specifically to page 43, where it mentioned the pressures on goods and services due to various factors, including the full commissioning of non-COVID-19 services, the need to address the backlog in theatres, an increase in patient numbers and acuity, rising fuel prices, more complex service requirements, and higher municipal service tariffs, as well as increased expenditure on cleaning and security services.

The Minister explained that the report submitted to the committee contained much more detailed information on these matters. She suggested that, to assist the committee, an extract could be prepared focusing on these specific issues. She acknowledged that it could be challenging to navigate the full documentation but assured the committee that the department would be willing to provide more information where possible.

Provincial Treasury on 1st Quarter Performance of Western Cape Government for 2024/25

Ms Pick and another official provided performance information and financial data for Quarter 1:

On average, departments achieved 78% of their targets for Quarter 1 with 17% of targets not achieved. Nine departments met or exceeded the provincial average, while four departments performed below this benchmark. Key factors contributing to underperformance included demand indicators and dependence on other stakeholders.

Public entities had an average performance rate of 77%. Six entities achieved or exceeded the provincial average, while three performed below the benchmark. The main factors contributing to the lesser performance included internal process issues and reliance on external stakeholders.

A socioeconomic picture of the targets was also shared, with provincial GDP showing a 0.2% increase in Quarter 1. However, the unemployment rate had risen to 21.4% in Quarter 1 and the unemployment rate had further increased to 22.2% in Quarter 2, according to Statistics SA.

Key Performance Highlights

Contributions of eight institutions towards job creation in Quarter 1 based on performance indicators and other data sources were noted. The homicide rate in the province showed a concerning 21% increase compared to Quarter 1 of 2023/24, with the number of homicides in the 30 metro priority areas increasing by 36%. However, the five rural priority areas showed a 10% decrease in homicides.

Healthcare Performance

A total of 1 416 sexual assault presentations at public healthcare facilities were noted in Quarter 1, marking a 22% decrease compared to the same period in 2023/24. Further to this, several initiatives aimed at improving safety were highlighted, involving seven institutions, including the Department of Health, Social Development, Agriculture, Infrastructure, and the Western Cape Liquor Authority.

Well-Being Indicators

The HIV-positive rate for 15 to 24-year-olds in Quarter 1 was 1.34%, precisely meeting the set target. The testing and verification of HIV-positive youth remain crucial for linking them to care. It was also reported that 16.11% of children born in government facilities weighed under 2 500 grams, slightly below the target of 16.5%, indicating a slightly lower risk of stunting than anticipated. The final slide included data on six institutions that contributed to Quarter 1 outcomes through various initiatives.
Financial Outcomes for Quarter 1 2024/25
Ms Gantana indicated in the table that the main budget is R84 billion. The adjustments column shows R2.8 million, which represents rollovers approved by national departments from the previous financial year. She clarified that while this is not a formal adjustments budget, it is reported for transparency.

Of the R84 billion budget, R19.7 billion (23.5%) had been spent by 30 June 2024. Projected overspending across various votes currently amounts to R640 million. However, this figure excludes a reported R400 million pressure from the Department of Health and Wellness post-30 June, bringing the total projected overspending to approximately R1 billion.

Breakdown of Projected Overspending
Ms Gantana provided details on the projected overspending of R640 million, excluding the R400 million from Health projected for post-June 2024:

• The Department of Health and Wellness accounts for R503 million of the overspending, primarily driven by higher-than-inflation costs for goods and services. Mitigation strategies include applying for rollovers from previous underspending (R119 million in Quarter 4 of 2023/24) and revenue over-collections (R55 million).
• The Department of the Premier shows R107 million in overspending, driven by increased costs for Microsoft licences due to exchange rate fluctuations and a higher number of licences required. Efforts are underway to reduce IT service costs across departmental baselines.
• The Department of Mobility projects R29 million in overspending, largely due to costs for Integrated Transport Hub ICT projects. Rollovers from prior revenue collections are being applied to mitigate this pressure.
• The Department of Education reported a R400 million pressure in July 2024, largely attributed to fiscal consolidation measures.

Provincial Overview of Expenditure (as of 30 June 2024)
Ms Gantana elaborated on the provincial expenditure patterns, emphasising the delivery models utilised by various departments. She illustrated how actual expenditure reflects the driving costs of services— whether it stems from CoE, goods and services, or capital expenses.

Public entities, as of 30 June, had spent 21.5% of their R875 million budget. Some entities applied for rollovers of prior underspending to manage current pressures, including a R15 million underspend related to relocation projects deferred from 2023/24.

Spending on Infrastructure
Infrastructure spending for the province stood at 17.3% of the budget as of 30 June, reflecting typical first-quarter trends. Municipal partnerships often result in slower spending in the Quarter 1, as municipalities operate within their prior financial year.

The Department of Education's current budget excludes approved funding for the Rapid School Building Programme through the Budget Facility for Infrastructure (BFI). These allocations will be addressed in the adjustments budget.

Revenue Collection
34% of the targeted R642 million in own revenue had been collected by departments. For gambling taxes, 28% of casino taxes and 57% of horse racing taxes had been collected. There were no significant risks on revenue over-collections at this stage.

Discussion

Ms Nkondlo sought clarity on rollovers and their treatment in the new budget. She asked if a rollover becomes over-expenditure when it is incorporated into the new budget as extra money. For example, the transition of Wesgro under-expenditure from Quarter 4 2023/24 into Quarter 1 2024/25, which now reflects over-expenditure. How is this accounted for in the Quarter 1 budget?

On percentage spending in Quarter 1 on slide 26, Ms Nkondlo queried if there is a standard percentage of the budget that departments are expected to spend in the Quarter 1 or is it similar to the performance information targets. She referred to the interpretation of spending data on page 32. She expressed concern over the cost drivers on page 29, noting that 75% of the Premier's budget in this quarter was allocated to goods and services. Was this an anomaly or a standard occurrence influenced by quarterly pressures?

Ms Nkondlo addressed performance information discrepancies, comparing Quarter 4 of the previous financial year to Quarter 1 of the current year. She cited the example of WCED achieving 20% of its target while 80% was partially achieved, expressing difficulty understanding the significance of these figures. She compared the improved performance of the Department of Infrastructure from 30% in Quarter 1 of the last financial year to 40% in the current year. She asked if this improvement was sufficient given the department’s large budget and the consolidation of infrastructure functions.

Ms P Lekker (ANC) raised questions on page 28 on the retention of mobility funding in light of the 2024 adjusted estimate process. She asked how over-expenditure could occur while the process for adjusted estimates was still underway. On the rollover process and its relation to over-expenditure, permission to utilise rollover funds is required before they can be spent. She expressed confusion about how over-expenditure could be exercised without such permission.

Mr Masipa requested clarity on unemployment trends on page 22, where unemployment had increased to 21% and is now reportedly at 22%. He asked which industries had lost the most jobs and requested direction to the department that could provide detailed information. On page 26, he highlighted a footnote stating projected overspending of R640.7 million for the province, including R53 million for Health and Wellness, and queried if the Premier’s overspending figure was R107 million or R107 000. He referred to page 23 asking if the 72 neighbourhood watch structures had a budget for their duties or received stipends for their oversight roles.

Responses

Minister Baartman referred to the education targets outlined on page 43 of the documents, noting that education had set five targets, of which only one had been achieved. One of the reasons for the non-performance in certain areas was the dependency on the opening of schools, particularly on a target that involved contacting public schools electronically via email. The Minister called for further clarification on the reasons for the non-performance from the relevant officials.

She addressed the increased costs for the Provincial Parliament, explaining that the high costs were partly due to the need to pay out Members who had left Parliament after the elections. These payments, which included gratuities and pension contributions, could not be spread across the four quarters of the financial year and had to be settled in the current period.

On the Microsoft licence costs, the high expenditure was because the licence is paid as a once-off amount, rather than being distributed over the four quarters. The costs are also subject to fluctuations in the Rand-dollar exchange rate. This is similar to the effect of medical inflation, where price adjustments are made in response to inflationary changes.

On Wesgro, Ms Pick stated that at the end of the quarter, as reflected in Slide 7, there had been an underspending by Wesgro of approximately R15 million. This underspending occurred because the planned relocation of the Investor Centre, for which funds had been budgeted, did not take place. This led to the underspending by the end of the 2023/24 in Quarter 4.

She explained that there is a process for addressing both underspending and over-collection of revenue, enabling public entities and departments to apply for the utilisation of underspent funds. Approval for this process is granted by the Treasury and, once received, it is incorporated into the adjustments budget. Following approval, the funds are added to the main budget for the subsequent financial year. However, this process had not yet been finalised, as the adjustments budget had not yet been presented.

Wesgro had indicated the expenditure for the relocation would occur in 2024/25. She cautioned that, if approval for the rollover was not granted, the expenditure would result in an over-expenditure. At this stage, the projected over-expenditure was potential rather than actual, as the costs for the relocation had not yet been incurred.

While actual expenditure had already begun in 2024/25, Wesgro had also presented projected expenditure for the remaining quarters. Since the relocation costs had not been included in the budget for the current financial year, Wesgro projected that they might face overspending. To mitigate this, they had applied for a rollover. If the relocation costs were added to the main budget, it would no longer be classified as over-expenditure.

Ms Pick emphasised that this was a projected or potential over-expenditure, not an actual one at present. The rules governing the rollover of underspending require a comprehensive evaluation of eligible items. She referred to the example of control over underspending on transfer payments, which cannot be rolled over. Further details on these rules would be included in the recommendations made to the Provincial Parliament in the adjustments budget.

Ms Pick added that the Microsoft licence expenditure in Slide 29 under goods and services was a once-off payment. As such, the department encountered an outlier in the quarter’s expenditure. She clarified that the department had not fully budgeted for these licences due to exchange rate fluctuations and the need for additional software licences. These factors contributed to the overall expenditure at the end of the financial year.

An official referred to the document release which contained indicators for education and infrastructure and comments on the reasons for underperformance. For eduction, only five indicators are reported on quarterly, while the remaining 52 are reported annually, typically in the last quarter of the financial year. This made it challenging to assess quarterly performance accurately, as the institution's achievements are largely tied to annual targets. For the quarter in question, only 10% of the indicators were reported against the APP.

On infrastructure, reporting for the quarter covered 10 to 26 indicators out of a total of 44. These indicators are distributed across different quarters based on targets approved by Cabinet and the delivery plans of the department. An annexure listing the 15 indicators in question with comments on underperformance had been provided for reference.

On the unemployment increase between Quarter 1 and Quarter 2, there were significant job losses across various sectors. There were 53 000 fewer people employed in the agriculture sector, 28 000 fewer in the construction sector, and another 28 000 fewer in the trade sector. These figures represented a substantial decrease in employment compared to the previous quarter, particularly in the trade and construction sectors.

Minister Baartman replied to the projected overspending of R640 million on page 26 of the report. This overspending amount was derived by aggregating the specific pressures reported by the Office of the Premier, Department of Health and Wellness, and Department of Mobility.

The Chairperson thanked the Minister, the HOD, and officials for their participation.

Committee Report on 2024 Provincial Economic Review and Outlook

The Chairperson explained that the Committee had concluded its deliberations on the Provincial Economic Review and Outlook 2024 in accordance with Standing Rule 92 of the Western Cape Provincial Parliament. He called for a proposer and a seconder for the adoption of the report.

Mr D Wessels (DA) proposed, and Mr Masipa seconded the motion and the report was adopted.

The Committee minutes of 18 September 2024 were also adopted.

Committee resolutions

Mr Davids summarised the resolutions noted during the day’s discussions.

1. A request for information on employment breakdowns at district level in the Western Cape.
2. Concerns on the expenditure involving the Department of Health and Wellness and the Department of Infrastructure.
3. Clarification on the cost of employment (CoE) for the Department of Health and Wellness, particularly relating to shortages of medical staff.

Mr Masipa asked if departments needed to be summoned to account directly to this Committee.

Mr Davids clarified that the Budget Committee could recommend the matter be referred to the relevant Standing Committee. The Standing Committee Chairperson could then be requested to provide feedback to the Budget Committee.

The Chairperson appreciated Members’ contributions to what had been a lengthy session.

Meeting adjourned.