Staff and spending cuts on the cards to contain provincial costs
Balancing act to fund increased demand for services within budget limits has kept provincial finances sustainable
The government is considering merging or closing provincial entities with duplicated functions and reducing nonessential administrative personnel to help contain costs.
According to the 2019 Budget Review, provinces continue to balance rising costs and growing demand for services within tight budgets. Sound financial management by provincial treasuries, and national interventions where necessary, have ensured that provincial finances remain sustainable, the document states.
“Provinces continue to implement cost-containment measures agreed with the minister of finance in January 2016. These measures focus on improving revenue collection, merging or closing provincial entities with duplicated functions, and cutting spending on non-core goods and services,” the Budget Review states. The purchase of buildings under lease is also being considered. In addition, provinces have identified several new initiatives that can boost revenue, such as selling redundant vehicles.
However, compensation, which accounted for 61% of provincial spending in 2018/2019, continues to increase above inflation. Provinces have managed these costs by limiting growth in personnel and saving in other areas. The number of provincial employees fell from 923,646 in 2012/2013 to 881,228 in 2017/2018, returning the total number of provincial employees to a level slightly lower than in 2010/2011. But the cost of those employees rose from 58.5% to more than 60% of provincial spending over the matching period, says the Budget Review.
In his budget speech, finance minister Tito Mboweni said taxes raised in wealthier areas fund poorer provinces and municipalities. In the coming year, the government expects revenues of R1.58-trillion and spending of R1.83-trillion. In the budget, 47.9% of nationally raised funds are allocated to national government, 43% to provinces and 9.1% to local government over the medium term. Over the past eight years, after taking inflation into account, provincial allocations have grown 2.1%, compared with average annual population growth of 1.8%.
Allocations to each province are calculated largely on the basis of demand for major public services, such as the number of school enrolments and visits to public clinics and hospitals.
“The different rates of growth in the provincial equitable share allocation for each province respond to changes in these demographic factors. Together with provincial treasuries, the National Treasury is reviewing the formula to ensure it is responsive to data and policy developments, and balances the needs of all provinces,” the Budget Review says.
According to the review, local government gets the smallest share of the division of nationally raised revenue because it has significant own revenue-raising powers. Local government raises about 70% of its own revenue, but would be able to raise more if municipalities improved revenue collection. In 2017/2018, almost half of all municipalities collected less than 80% of their billed revenue.
“We need to build a strong culture of payment in our country,” Mboweni said in his budget speech.
“Collecting the revenue due to the state is the underlying foundation of our democracy, of building a nation, and it is our duty to pay for services, especially if we can afford to do so. National Treasury will lead a process to encourage those, including government departments, who owe money to municipalities to pay for services.”
The National Treasury’s state of local government finances report found that 128 municipalities were in financial distress at the end of 2016/2017. The problems in revenue management are the largest contributor to financial distress in local government. Households, followed by commercial customers and government, owe the largest share of outstanding municipal revenues.