1

Provincial Budgets and Expenditure Review: 2003/04 – 2009/10

5 September 2007

2

Prov. Budget and Exp Review

• 8 chapters in the document– Introduction– Education– Health– Social Development– Housing– Agriculture and Land– Roads and Transport– Trends in Provincial Budgets

3

Intergovernmental Fiscal System (1)

• 3 spheres of government– Independent, interrelated and based on principles

of cooperative governance• All with different functions (exclusive and concurrent)• Provinces and municipalities have key service delivery

responsibilities

– Matters testing the robustness of Intergov. system• Misalignment between policy objectives and resource

allocation• Sphere accountable for delivery• Does assignment of powers and functions align itself

toward efficiency and effectiveness

– Review of provincial and local government underway (65 questions)

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Intergovernmental Fiscal System Vertical Division of Revenue

2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10

R millionOutcome Revised

estimate Medium-term estimates

State debt cost 46 313 48 851 50 912 52 178 52 916 52 967 50 915

Non-interest expenditure 282 396 319 690 365 848 418 436 480 957 541 231 599 386

Percentage increase 15,4% 13,2% 14,4% 14,4% 14,9% 12,5% 10,7%

Total expenditure 328 709 368 541 416 760 470 614 533 873 594 198 650 301

Percentage increase 12,8% 12,1% 13,1% 12,9% 13,4% 11,3% 9,4%

Contingency reserve – – – – 3 000 8 000 13 000

Division of available funds

National departments 148 201 168 046 195 384 213 470 240 881 262 092 286 333

Provinces 122 673 137 836 153 782 177 887 202 765 229 296 254 444

Equitable share 107 538 120 885 135 292 150 753 171 271 193 474 215 784

Conditional grants 15 135 16 951 18 490 27 134 31 494 35 822 38 660

Local government 11 521 13 808 16 682 27 079 34 311 41 843 45 608

Equitable share 6 350 7 678 9 643 18 058 20 676 23 775 29 444 Conditional grants 5 171 6 131 7 038 9 021 13 636 18 069 16 164

Total 282 396 319 690 365 848 418 436 477 957 533 231 586 386

Percentage shares

National departments 52,5% 52,6% 53,4% 51,0% 50,4% 49,2% 48,8%

Provinces 43,4% 43,1% 42,0% 42,5% 42,4% 43,0% 43,4%

Local government 4,1% 4,3% 4,6% 6,5% 7,2% 7,8% 7,8%

Source: Budget Review 2007

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Funding of Provinces

• National transfers (97 per cent) the largest share of provincial revenue– Own revenue (3 per cent)

• Equitable share 81,4 per cent of provincial revenue

• Conditional grants 15 per cent of provincial revenue– Health conditional grants largest share

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Improved access to social services

• Improved access– Eradication of segregation policies– Infrastructure: schools and health facilities– Increased school enrolment

• 12 million learners in school compared to 8 million in 1985

• Out of age learners are being phased out

– Increased coverage of social security grants• 3,6 million beneficiaries in 2001 compared to 12 million

currently

– Free basic health care– Low cost housing

• 2,4 million housing units completed and in the process of completion (1994/95 to 2006/07)

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• Real expansion in provincial budgets driven by growing transfers

• Equitable share largest share of national transfers to provinces – 81,4 per cent– Grows at 7,6 per cent per year in real terms over

the MTEF– Government continues to prioritise social services

funded through ES• Large growth in conditional grants

– Housing grant grows from R4,6 bn in 2003/04 to R11,5 bn in 2009/10

– Growth in health grants mainly in HIV and Aids and hospital revitalisation

– Infrastructure grant to provinces R8 bn by 2009/10 (R3 bn higher than current levels)

Provincial revenue trends

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Provincial expenditure trends

• Between 2003/04 and 2009/10, expenditure has grown from R131,9 billion to R257 billion: a real growth rate of 6,9 per cent a year

• Budgeted to spend R210,5 billion in 2007/08– nominal growth of 13,2 per cent from 2006/07 outcome – real growth of 7,8 per cent from 2006/07 outcome

• Over the MTEF, increase to R257 billion in 2009/10 at an average annual growth rate of 11,4 per cent

• Capital spending sustains its upward growth path (13,1 per cent average annual over the MTEF)

• Provincial spending trends vary between provinces• Provinces must continue to maintain healthy balance

between – Revenue streams and expenditure– Social and non-social services spending

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Table: Provincial total expenditure by economic classification, 2003/04 – 2009/102003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10

R millionOutcome Preliminary

outcome Medium-term estimates

Current payments 105 907 113 961 127 860 142 363 160 970 177 917 193 961

of which:Compensation of employees

80 758 87 557 95 169 104 264 118 140 128 931 139 806

Goods and services 24 932 26 185 32 565 37 966 42 820 48 974 54 142

Transfers and subsidies 16 314 17 812 20 556 28 019 31 548 37 242 40 495

Payments for capital assets 9 637 10 181 12 763 15 573 17 941 19 932 22 545

Total 131 858 141 954 161 178 185 956 210 460 235 091 257 001

Percentage of total provincial expenditure

Current payments 80,3% 80,3% 79,3% 76,6% 76,5% 75,7% 75,5%

of which:Compensation of employees

61,2% 61,7% 59,0% 56,1% 56,1% 54,8% 54,4%

Goods and services 18,9% 18,4% 20,2% 20,4% 20,3% 20,8% 21,1%

Transfers and subsidies 12,4% 12,5% 12,8% 15,1% 15,0% 15,8% 15,8%

Payments for capital assets 7,3% 7,2% 7,9% 8,4% 8,5% 8,5% 8,8%

Total 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0%

Current payments 10,4% 13,1% 9,8%

of which:

Compensation of employees 8,9% 13,3% 8,8%

Goods and services 15,0% 12,8% 12,4%

Transfers and subsidies 19,8% 12,6% 13,3%

Payments for capital assets 17,4% 15,2% 12,1%Total 12,1% 13,2% 10,5%

Source: National Treasury provincial database

2007/08 – 2009/10

Percentage growth (average annual)

2003/04 – 2006/07

2006/07 – 2007/08

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Education (1)• Nearly 12 million children are enrolled in the

public schooling system compared to around 8 million in 1985 – KZN, EC and LP accommodate more than 50% of

learners, educators and schools – Over-age enrolment in schools has gradually

been managed downwards – More learners are staying in school longer – as

evidenced by the increasing numbers writing the Grade 12 examinations

• Over 367 000 educators employed in 25 194 public schools– average learner educator ratio of 33:1 compared

to an average ratio of over 50:1 in 1994– Significant progress in reducing high learner

educator ratios in poorer provinces with the ratios ranging from 29:1 in NW to 35:1 in MPU

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Education (2)• Expenditure increased by 9,4% (4,8% real) per year

from R60,3bn in 2003/04 to R78,9bn in 2006/07– Grows further by 10,8% (5,8% real) per year to

R107,3 billion by 2009/10 • Level of growth is driven by key interventions:

– The no-fee schools policy was introduced in 2007• Schools falling within the lowest 40 per cent income quintile are

deemed poor and exempted from paying school fees• 55,2 per cent of schools (13 912) covering 41,8 per cent of

learners (just under 5 million learners)• Over R3 billion is to be spent on no-fee schools in 2007/08

– Capital spending grows sharply from R2,6bn in 2003/04 to R3,7bn in 2006/07 and will reach R5,2bn by 2009/10

• This reflects government’s commitment:– To ensure that school infrastructure backlogs are addressed– That each child be accommodated in fully equipped classrooms

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Education (3)

• Personnel spending is largest share of provincial education budgets– Spending decreased from 82,4% in 2003/04 to

79,3% in 2006/07 and decrease further to 76,6% by 2009/10

• The trend has allowed space for other key inputs needed to improve quality of education

– However, personnel still show significant growth at 8% (3,5% real) from 2003/04 to 2006/07 and 9,5% (4,6% real) from 2006/07 to 2009/10

– Various personnel interventions drive these increases

• R4,2 billion for pay progression in 2004/05• R2 billion to bolster management and administration

(06/07)• R6 billion for targeted personnel interventions (08/09

onwards)

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Education (4)

• Grade 12 results used as yardstick for performance– Learners writing exams have increased

• Suggest greater throughput rate

– Learners passing exams have increased• 249 000 in 1999 compared to 351 000 in 2006• However, percentage pass rate dropping

– Learners passing with university endorsement 16,3 per cent

– Total number of passes in maths and science increasing

• Passes in maths higher and standard grade dropping• Science higher grade passes down but SG passes up

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Health (1)

• Real annual growth of 6,7% from 2003/04 to 2009/10, with strong real growth on goods and services (8,0%), capital assets (13,2%) and compensation of employees (6,1%)

• Personnel accounts for approximately 53,6% of total budget, with R8bn higher spending in 2006/07 than in 2003/04– Policy initiatives in place to increase the number of health

personnel – Improved remuneration of health professionals via a new

wage dispensation– This will increase the compensation budget by 10,8%

annually, from 28,7bn in 2006/07 to R39,1bn in 2009/10– Of the 249 597 employed in the sector, 146 727 were health

professionals (58,8%)

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Health (2)2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10

R million

Outcome Preliminar

y

Medium-term estimates

Current payments 32 208 35 505 40 456 46 703 51 590 56 809 62 237

of which: Compensation of employees

20 983 23 398 25 481 28 740 32 876 35 795 39 091

Goods and services 11 173 12 088 14 954 17 952 18 714 21 014 23 147

Other current payments 52 19 21 11 – – –

Transfers and subsidies 2 351 2 400 2 815 2 260 2 165 2 159 2 282

Payments for capital assets 2 428 2 693 3 844 4 685 5 496 5 971 6 662

Total 36 987 40 599 47 116 53 648 59 252 64 939 71 182

Percentage of total

Current payments 87,1% 87,5% 85,9% 87,1% 87,1% 87,5% 87,4%

of which: Compensation of employees

56,7% 57,6% 54,1% 53,6% 55,5% 55,1% 54,9%

Goods and services 30,2% 29,8% 31,7% 33,5% 31,6% 32,4% 32,5%Other current payments 0,1% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0%Transfers and subsidies 6,4% 5,9% 6,0% 4,2% 3,7% 3,3% 3,2%

Payments for capital assets 6,6% 6,6% 8,2% 8,7% 9,3% 9,2% 9,4%

Total 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0%

Percentage growth (average annual)

2003/04 – 2006/07

2007/08 – 2009/10

Current payments 13,2% 9,8%

of which: Compensation of employees

11,1% 9,0%

Goods and services 17,1% 11,2%

Transfers and subsidies -1,3% 2,7%

Payments for capital assets 24,5% 10,1%

Total 13,2% 9,6%

Table 3.6 Provincial health expenditure by economic classification, 2003/04 – 2009/10

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Health (3)

• Primary health care services have expanded significantly – 20 million more patient visits annually

than eight years ago

• Health personnel employed increased by 7160 over the past year and by 31 710 since 2004 – The scarce skills and rural allowance

strategy contributed to this– Resulted in the recruitment of 3 253

doctors, 13 202 nurses, 5 433 ambulance personnel and 531 pharmacists since 2002

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Health (4)

• By March 2007, the HIV and Aids programme had 264 423 patients on treatment at 313 sites across 53 health districts, compared to 143 434 patients treated one year earlier – This is in addition to the persons treated in the

private sector and by non-governmental organisations (NGOs)

– Mother-to-child transmission prevention programmes and voluntary counselling and testing programmes also expanded coverage over the last year and are now available in almost all public sector facilities

• The hospital maintenance, rehabilitation and construction programme is currently contributing to the revitalisation of over 40 hospitals

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Social Development (1)Table 4.6 Provincial social development expenditure per economic classification,2003/04 – 2009/10

2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10

R million

Outcome Preliminaryoutcome

Medium-term estimates

Current payments 1 769 1 975 2 155 2 584 3 392 3 916 4 281 of which:

Compensation of employees 1 102 1 225 1 320 1 575 2 169 2 445 2 688

Other current payments 667 750 835 1 009 1 223 1 470 1 593

Transfers and subsidies 1 323 1 506 1 924 2 342 2 732 3 541 3 998

of which:

Non-profit institutions 1 225 1 403 1 729 2 156 2 510 3 318 3 739

Payments for capital assets 116 169 141 248 426 419 457

Total 3 209 3 650 4 220 5 173 6 550 7 875 8 735

Percentage growth (average annual)

2003/04 – 2006/07

2007/08 – 2009/10

Current payments 13,5% 12,3%of which:

Compensation of employees 12,6% 11,3%Other current payments 14,8% 14,1%

Transfers and subsidies 21,0% 21,0%

of which:

Non-profit institutions 20,7% 22,1%

Payments for capital assets 28,7% 3,5%

Total 17,3% 15,5%

Source: National Treasury provincial database

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Social Development (2)

• Social assistance function now with national sphere provinces can now focus attention on the delivery of developmental social welfare services

• All provinces rely strongly on NGOs as partners to service delivery

• Competition for scarce resources causes significant challenges within the sector viz. the employment of qualified Social Workers.

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Social Development (3)• Sector intends to strengthen its capacity

– Training and employment of Social Auxiliary workers

– increase Social Worker graduates with the awarding of about 1000 bursaries per year (medium to long term)

• Spending on social welfare services set to treble over the seven year period – Budgets grew by 17,3% annually from R3,2bn

in 2003/04 to R5,2bn in 2006/07– Trend continues over the MTEF period and

will see social development budgets reaching R8,7 billion by 2009/10

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Social Development (4)

• With budget increases of this magnitude, the sector is in a good position to scale up preventative programmes, as well as early intervention and protection services

• In 2006/07, provinces spent R5,2 billion on social development activities– There was underspending of R119,8m

which represents 2,3% of budgets– The underspending was mainly on

compensation of employees (which highlights the difficulty the department is having with attracting Social Workers)

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Social Development (5)

• Expenditure in the Social welfare services programme grew by 15,2% annually from R2,0bn in 2003/04 to R3,1bn in 2006/07– By 2009/10, provinces are budgeting to spend

R5,6bn on these services

• Transfers to non-profit organisations grew by 20,4% annually (2003/04 to 2009/10)– From R1,2bn in 2003/04 to R2,2bn in 2006/07– The growth in the budgets is sustained in the years

ahead– Transfers to NGOs will amount to R3,7bn by

2009/10

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Housing (1)

• Housing subsidy allocations grow sharply over the review period from R4,6 billion in 2003/04 to R11,5 billion in 2009/10

• Underspending dropped considerably• Over 3 million subsidies approved• 2,4 million houses completed and in the

process of completion

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Housing (2)• Affordability for households falling

outside of the subsidy programme– Housing finance through finance sector

charter and credit-linked subsidies

• Availability of land

• Inclusionary housing– Achieving a better balance of race and class– Identifying suitable land for low-cost housing– Stepping up social housing– Stimulating the sector to deliver affordable

housing

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Agriculture and land

• The land and agrarian reforms programs are by far the most important programmes driving transformation– Access to commercial agricultural sector by previously

disadvantaged groups

• The land reform programme is important in addressing the skewed land ownership patterns– 1,7 m hectares of land redistributed to 252 000 HH

• Agriculture important rural economic development– Stimulating rural economies– Food security

• Agriculture budgets double from R3bn in 2003/04 to R6bn by 2009/10

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Roads and Transport• Consolidated expenditure on roads:

– National and provincial roads budgets increased rapidly (17,6% annually) from R7,0bn in 2003/04 to R11,2bn in 2006/07

• Infrastructure expenditure on roads and transport– In 2006/07, infrastructure budget was R8,5bn

• Road and traffic safety• EPWP: Roads and Transport

– In 2006/07, sector had 238 EPWP projects across provinces

– Most in KZN at 74 (31% of total); EC at 67 (28%); LP with 41 (17%) and GP with 35 (15%)

– KZN created most jobs or 73% of total jobs created (49 597

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Conclusion

• Provincial spending continues to grow in real terms

• Strong growth in capital expenditure • Detail analysis is presented in chapters

for education, health, social development, agriculture, housing, and roads and transport

• Non-financial information needs to be improved to have proper assessment of performance