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Provincial Budgets and Expenditure Review 2001/02 – 2007/08 15 September 2005

Provincial Budgets and Expenditure Review 2001/02 – 2007/08 15 September 2005. Prov. Budget and Exp Review (1). Unlike previous reviews, focuses only on provincial finances and performance Scope of LG has grown substantially over the years and warrants a separate review

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Provincial Budgets and Expenditure Review 2001/02 – 2007/08 15 September 2005

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  1. Provincial Budgets and Expenditure Review2001/02 – 2007/0815 September 2005

  2. Prov. Budget and Exp Review (1) • Unlike previous reviews, focuses only on provincial finances and performance • Scope of LG has grown substantially over the years and warrants a separate review • Difference in municipal and provincial/national financial years • LG to be published immediately after the LG elections • In time for use by new political office bearers

  3. Prov. Budget and Exp Review (2) • Provincial budgets, expenditure and service delivery trends • Builds on the 2004 Trends in Intergov. Finances • Covers past and future budgets (2001/02 to 2007/08) • Provides consolidated information • Allows comparison between provinces • Critical document to inform on service delivery • Released before 1½ months MTBPS • Assist shaping the 2006 Budget and MinMecs • Inform policy priorities • Guide provincial EXCOs in budget preparation

  4. Prov. Budget and Exp Review (3) • Importance for portfolio and select committees • Coincides with the tabling of annual reports and thus informs the service delivery debate • Are targets set in strategic plans achieved? • Are we getting value for money? Broadened access and quality of services? • What are the service delivery challenges? Remedies? • Do we have data to measure service delivery performance? • Platform for accounting officers to account • Foster good governance and transparency • Report to external stakeholders on government performance • Policy analysts, Public, etc

  5. Prov. Budget and Exp Review (4) • 9 chapters in the document • Introduction • Education • Health • Social Development • Housing • Agriculture and Land • Roads and Transport • Personnel • Trends in Provincial Budgets • Annexure A: • Extensive financial information

  6. 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 • Provinces and municipalities implement pro-poor programmes • Continued need for provinces and municipalities to improve their service delivery capacity

  7. Intergovernmental Fiscal System (2) • Key concurrent functions • School education, health, social welfare and housing • Policy formulation and setting of norms and standards a national competence • Implementation mainly at provincial level • Coordination challenges that arise • Is there alignment between provincial budgets and national policy priorities? • The Review highlights how each of these concurrent functions are structured • Which sphere is responsible for what

  8. Intergovernmental Fiscal System (3) • Revenue sharing arrangement • Vertical Division of Revenue • Between the 3 spheres • Informed by assigned service delivery responsibility and revenue raising capacity of each sphere • Based on governments policy priorities • Horizontal Division of Revenue • Among the 9 provinces • Division of Revenue Bill • Reflects the vertical and horizontal DOR • Culmination of an extensive intergovernmental consultative process • Approved by both houses of Parliament/NCOP

  9. Intergovernmental Fiscal System (4)Vertical Division of Revenue

  10. Intergovernmental Fiscal System (5)Funding of Provinces • Provinces determine own budgets guided by national policy priorities • National transfers (97 per cent) the largest share of provincial revenue • Own revenue (3 per cent) • Equitable share 65,4 per cent of national transfers • Unconditional transfer • Provinces have discretion on how to allocate based on government priority • Main source of funding for social services • Conditional grants 34,6 per cent of national transfers • Social assistance grant payments reason for large conditional grant share • Health conditional grants second largest share • Performance and evolution of conditional grants need thorough review

  11. Provincial Budgets and Expenditure Review: 2001/02 – 2007/08Chapter 9: Trends in Provincial Budgets

  12. Chapter Outline • Introduction • Provincial Revenue Trends • National transfers to provinces • Provincial equitable share • Conditional grants • Provincial own revenue • Provincial Expenditure Trends • Social services spending • Non-social services spending • Personnel expenditure • Payments for capital assets • Conclusion

  13. Introduction • SA’s Intergovernmental System places provinces at the epicentre of government’s delivering programme • Concurrent functions such as: • School Education • Health • Social Welfare Services • Housing • Social Services are approximately 82 per cent of total provincial spending • Non-social services includes: • Agricultural support to farmers • Construction & maintenance of provincial roads • Provincial administrations & governance functions • Delivery of social services continues to be a pillar of government’s transformation agenda • Improved & expanded social service delivery linked to strong economy • Budget has become key instrument of co-operative governance

  14. Provincial Revenue Trends • National transfers are the largest source of funding for services provided by provinces • Equitable share & conditional grants • The change in the financing mechanism for social security grants impacts on the analysis in this Review • Provincial share of nationally raised revenue above 96 per cent • Equitable share largest share of national transfers – 64 per cent • Grows at 4 per cent per year in real terms over the MTEF • Government continues to prioritize social services funded through ES • The type and number of Conditional Grants reflect the evolution of the intergovernmental fiscal system • Three types: Recurrent, capital and transitional and capacity building • As system matures, transitional and capacity building grants will be phased out • The increase CG transfers mainly due to social security grants

  15. Provincial Revenue Trends

  16. Provincial Revenue Trends

  17. Provincial Revenue Trends:Own Revenue • 2,7 per cent of total revenue in 2005/06 declining marginally to 2,5 per cent in 2007/08 • Budgeted at R5,9 billion in 2005/06, R6,1 billion in 2006/07 and R6,4 billion in 2007/08 • Average annual growth rate of 0,9 per cent between 2004/05 and 2007/08 • Provinces tend to understate their own revenue forecasts - declines from the 2004/05 preliminary outcomes of R6,3 billion to R5,9 billion (5,7 per cent) • Own revenue is made up of tax receipts (casino taxes, horse racing taxes, liquor licences and motor vehicle licences), non-tax receipts, transfers received, sale of capital assets and other own revenue collected • Motor vehicle licence fees are the biggest source of revenue - 41,6 per cent 2004/05, and is set to rise further to 48,3 per cent by 2007/08 • The drop in non-tax revenue is due to sharp decline in interest revenue

  18. Provincial Revenue Trends:Own Revenue

  19. Provincial Expenditure Trends • Between 2001/02 and 2004/05, expenditure has grown from R122,7 billion to R188,9 billion: a real growth rate of 8,4 per cent a year • Budgeted to spend R213,8 billion in 2005/06 (nominal growth of 13,2 per cent, real growth of 8,6 per cent from 2004/05 outcome) • Over the MTEF, increase to R253,6 billion in 2007/08 at an average annual growth of 10,3 per cent or 5,1 per cent faster than inflation • Capital spending sustains its upward growth path (9,5 per cent average annual over the MTEF) • Social development one of the fastest expenditure growing items in provinces • Provincial spending trends vary between provinces • Provinces must continue to maintain healthy balances between revenue streams and expenditure

  20. Provincial Expenditure Trends

  21. Social Services Spending • Social services spending makes up the bulk of provincial expenditure – approximately 82 per cent • This includes Education, Health and Social Development • Grew by 8,8 per cent in real terms over the period 2001/02 to 2004/05 • Over the MTEF, expected to grow by a further 4,6 per cent in real terms • Spending doubles over the seven-year period from R100,4 billion in 2001/02 to R206 billion by 2007/08 • Bulk of social services goes to programmes targeted at poor persons and households to improve the quality of life for South Africans • The more rural, poorer provinces’ share in social services spending is higher than urban provinces • Significant changes in the composition of social services are evident, e.g. Social security grants

  22. Social Services Spending

  23. Social Services Spending

  24. Non-Social Services Spending • Include, among others, public works, roads and transport, housing and local government, agriculture, sport and environmental affairs • Approximately 18 per cent of total provincial expenditure • Economic functions delivered are very important for economic growth and job creation • Grew at an average annual rate of 13,8 per cent between 2001/02 and 2004/05 • Slowing down slightly but the strong recovery continues through 2007/08 • The strong growth will strengthen programmes such as: • The new housing strategy • The comprehensive agricultural support programme (CASP) • The expanded public works programme • Doubles between 2001/02 and 2007/08 from R22,3 billion to R45,9 billion • Contribution towards stimulating economic growth, creating employment opportunities and reducing poverty

  25. Personnel Expenditure • Success of containment of personnel costs to acceptable and sustainable levels - from 55,2 per cent (2001/02) to 46,5 per cent in 2004/05 and to 43,6 per cent by 2007/08 • Provincial education and health departments employ over 658 000 personnel • Largest contributor is education (R57,5 billion or 59,4 per cent of total provincial personnel spending in 2005/06) • Education grows by 7,5 per cent from 2004/05 to 2005/06, 7,1 per cent in 2006/07 and 6,8 per cent in 2007/08 • Health is at R25,8 billion or 26,7 per cent in 2005/06 • Slight decline in Health growing by 10,8 per cent in 2005/06, 7,7 per cent in 2006/07 and 5,9 per cent in 2007/08 • Personnel spending growth is still well above inflation • Over 65 per cent of total provincial personnel spending is concentrated in four provinces (KZN, EC, GT, LIM)

  26. Personnel Expenditure

  27. Payments for Capital Assets • Includes spending on construction, rehabilitation of buildings, roads and other immovable assets • Excludes spending on housing subsidy (capital transfer) – NERF • Grew robustly between 2001/02 and 2004/05, at an average annual rate of 18,6 per cent • Rising at an average annual rate of 15 per cent from R11,9 billion in 2005/06 to R13,9 billion in 2006/07 and R15,3 billion in 2007/08 over the MTEF • 36 per cent of capital spending is on roads and transport followed by Health (29,4%) & Education (24,1%) • Preliminary capital spending outcomes (2004/05) show R1,8 billion underspending in provinces – present some challenges • The infrastructure delivery improvement programme (IDIP) aims to make infrastructure delivery more efficient and effective

  28. Payments for Capital Assets

  29. Conclusion • Provincial spending continues to grow in real terms • Social Development fastest growing item over the last three years and continue to rise rapidly over the MTEF • Growth (SD) has no impact on other spending – robust growth in education, health and infrastructure • Strong growth in capital expenditure – nearly triples over seven-year period • Positive contribution to economic growth and employment creation • However, underspending in 2004/05 indicates capacity constraints that inhibit certain sectors from delivering infrastructure in line with the resources available • The infrastructure delivery improvement programme (IDIP) aims to make infrastructure delivery more efficient and effective • Detail analysis is presented in preceding chapters for school education, health, social development, agriculture, housing and roads and transport and personnel

  30. Provincial Budgets and Expenditure Review: 2001/02 – 2007/08Chapter 2: Education

  31. EducationChapter Outline • Overview of Education Landscape • Review of key provincial expenditure trends (2001/02 to 2004/05) and budgeted expenditure (2005/06 to 2007/08) • Brief review of selected public school education outputs and quality

  32. Education Landscape • Three bands: - General education and training (grades R to 9) - Further education and training (NQF levels 2 to 4 – including grades 10 to 12 and FET Colleges) - Higher education • Concurrent function: - Provincial: Funding/Provisioning and Delivery of GET and FET - National: - Policy/Monitor/Support to provinces - Sole responsibility for Higher Education

  33. Education Landscape(Provincial Education)

  34. Education Landscape(Provincial Education)

  35. Prov. Expenditure Trends

  36. Provincial Expenditure Trends

  37. Composition: Prov education spending

  38. Provincial Expenditure Trends

  39. Provincial Education Programmes

  40. Provincial Expenditure Trends(National School Nutrition Programme)From 1 April 2004, the education sector has been responsible for the implementation of the national school nutrition programme

  41. Education performance (1) • Relative to inputs, outputs and quality of education remain a concern • Trends in matriculation results suggests improved quality and reduced inefficiencies: • Between 1999 and 2003 numbers writing exam declined from 511 474 to 440 267 - increasing to 467 985 in 2004 • (actual numbers passing the exam increased from 249 831 in 1999 to 330 717 in 2004) • Matriculation pass rate improved from below 50% in 1997 to 73,2% in 2003. Slight drop to 70,7% in 2004. • Growing trends in passes in maths and science

  42. Education performance (2) Except for North West, increase in number of endorsements. Sharp increases in LIM, FS and NC

  43. Education performance (3)

  44. Education performance (4)

  45. Education performance (5)Key issues for discussion • Are matric results the only yardstick for performance? • Recent standardised international tests show South Africa as a weak performer • 2001/02 Systemic evaluation (Grade 3) showed poor numeracy and literacy skills of learners • Can progress be measured? Data problems? • Quality and availability of data a great concern • Key challenges remain - need to improve the quality of education - need to achieve better outcomes

  46. Provincial Budgets and Expenditure Review: 2001/02 – 2007/08Chapter 3: Health

  47. Summary This Chapter: • Provides an overview of health funding in the public sector context. • Reviews key policy & sectoral developments. • Examines overall expenditure trends. • Focuses on expenditure & service delivery trends in key service delivery areas. • Focuses briefly on aspects of personnel in the sector.

  48. Key trends • Real budget growth exceeds 4% per annum • Improving equity • Primary health care, emergency ambulance and HIV and AIDS programme funding growing strongly • Capital and NPNC expenditure significant real growth • Under-spending on capital and conditional grants • Professional personnel increased by 2605 after scarce skills and rural allowance • Weaknesses in sectoral non-financial information

  49. The Public Sector Context: Total Health Funding in South Africa • There are large differentials between private and public spending. • Nearly 60% of health funding goes towards funding private health care, while only the wealthiest 15% are insured. • Only 40% of health funding goes towards the majority of the population

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