PROVINCES: Sort out your books ... or else
Spending and budgetary performances may be improving — but there’s still a long way to go
There’s a clear message to provinces and municipalities in this budget: get your financial house in order or national government will step in and do it for you.
Not that central government itself is without sin. The budget statement says: "All spheres of government [have] experienced an erosion of capacity and a weakening of institutional integrity."
As the fight to identify and expose corruption intensifies, national government is telling provinces and municipalities it will work with them to rebuild their governance and administration structures.
The question, after seeing how much money has gone astray in recent years, is whether all officials will want to see improvements in the system.
Of budget expenditure destined for those who govern us, 47.9% is allocated to national government, 43% to provinces and 9.1% to local government. "Where necessary, national government will use the powers granted by the constitution, the Public Finance Management Act (1999) and the Municipal Finance Management Act (2003) to ensure that distressed provinces and municipalities return to financial health," the Budget Review says.
The budget provides funds to increase provincial treasuries’ capacity to manage financial interventions, and for the National Treasury to develop municipal recovery plans.
It’s clear why the government wants to sort out spending. Provinces are responsible for basic education and health services, roads, housing, social development and agriculture. Municipalities provide basic services including water, sanitation, electricity reticulation and community services.
"Where governance and financial controls are weak, these services are jeopardised," the Budget Review says.
A recurring problem is underspending of money allocated to these services. The Budget Review says the situation has stabilised to some degree but it remains a challenge.
Provinces underspent their combined budget of R561.8bn by 1%, or R5.6bn, in 2017/2018. That’s fractionally more than the 0.9% of the previous year. In the past four years, 97% of conditional grants, destined for specific projects or categories, have been spent.
However, that is no guarantee of efficiency. The Budget Review says: "Full expenditure can mask inefficient spending. In 2017/2018, 99% of the human settlement development grant was spent but only 77% of delivery targets were met."
The financial performance of SA’s 257 municipalities varied widely in 2017/2018.
Many adopted unrealistic spending plans, which resulted in 217 municipalities underspending their operating budgets and 220 their capital budgets.
Of the R30bn in conditional grants transferred to municipalities, R28bn, or 93%, was spent. That was a big improvement from the previous year’s 86.8%.
A number of reforms are planned for the way provincial and municipal grants are managed. National and provincial officials are reviewing the formula that calculates how much money is allocated to each province, so it is more responsive to data and policy developments.
Provincial governments are reliant on national government for more than 95% of their spending power. Municipalities have more avenues to raise revenue, and to fill gaps caused by reduced central funding.
The Budget Review says provinces continue to balance rising costs and growing demand for services within their tight budgets.
It says sound management by provincial treasuries, allied to national interventions, has kept finances sustainable. However, salaries and wages, which accounted for 61% of spending in 2018/2019, continue to increase faster than inflation.
According to the budget, provinces have managed these costs by limiting growth in personnel and saving in other areas. The number of provincial employees declined from 923,646 in 2012/2013 to 881,228 in 2017/2018. Despite this, their costs have gone up.
How much further can numbers be cut? Provincial employees include teachers, doctors and nurses.
Reduce the headcount too much and service delivery will be affected. It’s a delicate balancing act.