The budget hearing happened inside the Durban City Hall, the hearing had ignited traffic throughout the CBD, and part of West street road lanes were blocked; starting from the corner of Post Office to the corner of Aliwaly Street. But on the greener side; entertainment was provided for commuters who simply did not have plans to come and hear the long speeches of numbers and strategies.
The gospel superstar Andile Kamajola graced the day; he sang most of his popular songs. And his embedded message was: “Go and vote!”
Andile performing at the Durban City Hall.
The country’s debt has doubled since 2008. We now need to pay back our borrowings, with a large debt redemption of R80 billion due this year. With large capital outflows, we will not be in a position to fund investment, which will impact on future economic growth. As expected, the economic outlook in KwaZulu-Natal is also subdued. The growth rate is expected to slow down by 0.6 per cent in 2016.
Office of the Premier receives funds for the establishment of an operations centre for the Poverty Eradication Master Plan. The funds are allocated for the duration of the contract posts created with R11.775 million in 2016/17, R12.218 million in 2017/18 and R12.919 million in 2018/19.
Economic Development, Tourism and Environmental Affairs receives R27.720 million over three years (R9.240 million in 2016/17, R9.240 million in 2017/18 and R9.240 million in 2018/19) for transfer to Ezemvelo KZN Wildlife for its Rhino anti-poaching efforts.
Provincial Legislature receives R95.522 million over three years (R30.536 million, R32.063 million and R32.923 million in 2016/17, 2017/18 and 2018/19, respectively) for the Zero-based budget adjustment. In terms of the Financial Management of Parliament Act, which is applicable from 1 April 2015, the Legislature is no longer required to submit additional funding requests to Provincial Treasury via the MTEC process as provincial departments and public entities do. Instead, the KZN Legislature’s additional funding requirements should be determined following a meeting between the Speaker and the MEC for Finance.
In view of this, and in line with Resolution 4/2015 taken by the Standing Committee on Oversight (STACOV), the KZN Legislature prepared a zero-based budget exercise to highlight additional funding requirements. In addition to these additional amounts, the Legislature has an over-provision of some R8 million against their statutory allocation and this is also diverted towards the Legislature’s operational budget in each year of the MTEF.
Provincial Legislature receives a once-off amount of R5.500 million for allocation in 2016/17. This relates to the province hosting the Commonwealth Parliamentary Association Conference in the province in 2016/17 which requires funding of R4 million, as well as the replacement of a lift in the Legislature building for an amount of R1.500 million.
Education receives R150 million, allocated in 2016/17 (R100 million) and 2017/18 (R50 million) for sanitation at schools. There is currently a backlog of schools that do not have adequate toilet facilities and schools that require water supply in the province.
Provincial Treasury receives R12 million in 2016/17 for purchasing biometric scanners for all provincial departments. These scanners serve as an additional layer of security for the BAS accounting system and the PERSAL payroll system, as an audit revealed specific security weaknesses in the system.
Provincial Treasury also receives R3 million in 2016/17 for Inkosi Albert Luthuli Central Hospital (IALCH) to finalise the floor repairs. This amount is allocated to Treasury in view of the fact that this is a PPP project and the PPP unit has therefore been closely involved with the floor repairs.
Community Safety and Liaison receives R5 million in 2016/17 for local government election monitoring. These funds will enhance the department’s oversight by deploying departmental officials as monitors who can assess any external factors (outside the voting stations) that may hinder the peacefulness and fairness of the elections. The monitors have a responsibility to alert the SAPS should any trouble arise. The funds also provide for deploying lawyers inside the voting stations to offer legal advice to any member of the public inside the voting stations guided by the Electoral Act.
Social Development receives R46.410 million in 2016/17 and R49.102 million in 2017/18 to provide for a 6 per cent increase in transfers to NGOs with this increase first provided for in the 2015/16 Adjustments Estimate.
It appears that the department had introduced new transfers in 2013/14 to NGOs without providing sufficient budget in their baseline to ensure the continued inflationary growth in transfers to their existing NGOs. While provision is made for this 6 per cent increase from 2015/16 to 2017/18, the department will have to put processes in place to ensure that they are in a position to carry these increases through beyond 2017/18.
Social Development receives additional funds in 2016/17 and 2017/18 for capital developments relating to the Inkululeko Programme. These funds provide for the development of an Elderly Day Care Centre.
Allocation to Health
As mentioned, the allocation to Health is for NHLS, exchange rate pressures and for the procurement of hospital linen. Regarding the NHLS pressures, the department receives additional funding to address the funding gap resulting from the move to the fee-for-service payment mechanism. To further address the gap, the department will review and implement gate-keeping processes to reduce costs.
Funding allocated for pressures related to the weakening exchange rate affecting imported medicines, medical equipment and supplies totals R785.696 million, R1.640 billion and R1.648 billion over the MTEF. This cost was calculated at R1.875 billion in 2016/17, growing to R2.122 billion in 2018/19. The Department of Health, together with Provincial Treasury, will undertake a headcount exercise in 2016/17 and any savings realised will then be redirected to mitigate the pressure that remains after the additional funding is added.
The department’s spending pressures will also be monitored in-year with respect to the medical exchange rate for a possible further allocation to be made in the 2016/17 Adjustments Estimate if the exchange rate does not improve sufficiently.
With regard to the hospital linen, the department had requested additional funding of R162.549 million for the procurement of hospital linen and patient clothing for the various hospitals to ensure that there is clean linen available at all times, to reduce the pressure on the laundry services and to reduce the amount of hospital linen that is outsourced for cleaning during laundry machine breakdowns. In this regard, R80 million was allocated in line with affordability.
Allocation for Drought Relief
R200 million is allocated in 2016/17 for various drought relief efforts in the province. This is in addition to the R114 million that was reprioritised during the 2015/16 Adjustments Estimate by the Department of Agriculture and Rural Development for drought relief, as well as the R33 million allocated to the Department of Co-operative Governance and Traditional Affairs in respect of water provision for the Umkhanyakude District Municipality.
Of the R200 million allocated in 2016/17, R150 million is allocated to the Department of Co-operative Governance and Traditional Affairs and provides for:
- The drilling and equipping of 100 boreholes across the province;
- The procurement and installation of mobile packaged plants to support critical areas for each of the 14 Water Service Authorities;
- The procurement of water tankers to support firefighting in the province;
- The procurement and installation of raw water mass storage facilities to augment the water source for each of the 14 Water Service Authorities.
The balance of R50 million is allocated to the Department of Agriculture and Rural Development and provides for the scooping of dams, as well as procuring winter fodder in areas which have insufficient grazing due to the drought.
Provincial Fiscal Framework for 2016/17
The provincial fiscal framework takes into account the changes in the equitable share, conditional grants and provincial own revenue allocations, as well as priorities funded using provincial cash resources.
The province has made an aggregate downward revision to its provincial own revenue allocations, with the main contributor to this reduction being Provincial Treasury. This relates to lower revenue anticipated to be collected against Casino and Horse racing taxes due to the decline in disposable income leading to subdued gaming activity. Table 4 shows the fiscal framework for the 2016/17 MTEF.
KwaZulu-Natal’s total budget allocation from National Treasury is R105.387 billion in 2016/17, R113.084 billion in 2017/18 and R120.066 billion in 2018/19. When we add our provincial own revenue and provincial cash resources to this, the total allocation over the MTEF is R109.756 billion, R116.464 billion and R123.459 billion.
The provincial departments are planning on spending R109.006 billion, R115.714 billion and R122.709 billion over the MTEF. Line 3 shows that the province continues to budget for a Contingency Reserve of R750 million per annum over the MTEF.
The Contingency Reserve is being kept for a number of reasons, but mainly to protect the province against the impact of unforeseen expenditure pressures when they arise. In view of the fact that the current wage agreement is a 3-year agreement with the wage increments being linked to inflation plus 1 per cent, some pressures may arise in this spending area as inflation has increased since the agreement was signed. In the previous financial year the entire contingency reserve was used to fund the wage shortfall.
The commitment made to maintain the expenditure ceiling requires that the conditional grant allocations in aggregate for all 9 provinces be cut by R2.100 billion in 2016/17, R649 million in 2017/18 and R809 million in 2018/19. These cuts are not proportionately applied across all grants, though, as the reductions are effected in a manner that attempts to protect essential service delivery programmes. As such, as far as possible, grants that address key social service delivery have been protected, with the baselines of the National School Nutrition Programme (NSNP) grant and the EPWP grants being left unchanged when compared with the 2015/16 MTEF baseline.
At a high level, the province’s conditional grant allocation, when comparing the 2015/16 MTEF baseline with the 2016/17 MTEF allocation, increases by R105.077 million in 2016/17, R315.017 million in 2017/18 and R1.899 billion in 2018/19. While the aggregate position shows an increase, some grants see a reduction in their allocations.
Contributing significantly to the growth in 2018/19 is a significant increase in the Comprehensive HIV, AIDS and TB grant, as well as the Human Settlements Development grant. The following amendments are made to the conditional grant allocation:
- The province receives R104.066 million in 2016/17 for the EPWP Integrated Grant for Provinces, with this grant being for the creation of EPWP job opportunities. This is an incentive-based grant and allocations are therefore based on past performance. This grant is allocated to various departments in line with the schedules to the Division of Revenue Bill, 2016.
- Similarly, the province receives R61.553 million for the Social Sector EPWP Incentive Grant for Provinces. This grant is allocated to Education, Health, Community Safety and Liaison, Social Development, as well as Sport and Recreation in line with the schedules to the Division of Revenue Bill, 2016. This grant is used to expand and/or top up the stipends paid to the cooks involved in the NSNP programme, to subsidise home community-based care-givers, stipends for volunteers used in the Volunteer Social Crime Prevention Programme, subsidising of stipends for Community Care Givers (CCGs), as well as the employment of volunteers related to sport programmes.
- The Comprehensive Agriculture Support Programme (CASP) grant reduces by R8.189 million and R10.111 million in 2016/17 and 2017/18, respectively while increasing by R3.649 million in 2018/19. The allocation letter from National Treasury indicates that the reduction is as a result of an Agriculture Task Team which was sanctioned by the Technical Committee for Finance (TCF) and Budget Council, where relevant provincial and national stakeholders met and a resolution was taken to top-slice the CASP grant for the Department of Forestry and Fisheries to be able to provide an oversight and monitoring function on the grant in order to realise the outcomes envisioned in the National Development Plan and the Agricultural Policy Action Plan. The allocation letter goes on to say that the management and operation of this grant must change to ensure better performance and the grant is therefore also cut as a result of this. The allocation letter also states that this grant is converted from a Schedule 4 (supplements provincial funding) grant to a Schedule 5 (specific purpose) grant and that a portion of this grant is ring-fenced for training and retention of extension officers.
- The Land Care grant sees a reduction of R525 000 in 2016/17 and R482 000 in 2017/18, while increasing by R204 000 in 2018/19.
- The Education Infrastructure grant initially showed an increase of R133.309 million in 2016/17 according to the first allocation letter received from National Treasury and this related to the fact that this grant has become an incentive-based grant. Departments needed to obtain a minimum score of 60 per cent to qualify for an additional incentive allocation. A total of 6 focus areas were assessed and these are HR capacitation, End-of-year evaluation, User Asset Management Plan (U-AMP), Infrastructure Programme Management Plan (IPMP), Construction Procurement Strategy Project proposals and concept reports. The Department of Education attained a final score of 64 per cent and therefore received an incentive allocation of R133.309 million. Since then, though, this grant is reduced over the 2016/17 MTEF in line with lowering the expenditure ceiling. This means that this grant increases by R100.673 million (and not the R133.309 million mentioned above) in 2016/17, while declining in 2017/18 by R106.550 million and by R1.643 million in 2018/19.
- Similarly, the Health Facility Revitalisation grant is also an incentive grant similar to the Education Infrastructure grant. As such, the department needed to obtain a minimum score of 60 per cent to qualify for an additional incentive allocation with the same 6 focus areas being assessed. Health attained a final score of 67 per cent and therefore received an incentive allocation of R109.454 million as per the first allocation letter received from National Treasury. Since then, though, this grant is impacted by budget cuts and the allocation in the first year, therefore, only increases by R67.172 million (as opposed to the R109.454 million initially communicated by National Treasury). The grant declines by R3.988 million in 2017/18 while showing inflationary-related growth in 2018/19 of R53.809 million.
- The National Health Insurance grant sees a minor reduction of R3 000 in 2016/17 while being removed from the province’s baseline from 2017/18 onward. This grant stops being a direct grant to provinces as the effectiveness of this grant in preparing for the roll-out of NHI has been quite opaque in provinces. The grant is therefore moved to the national Department of Health for a more targeted approach.
- The HPV Vaccine grant, which was scheduled to end in 2015/16, continues as an indirect grant for the first two years of the 2016/17 MTEF before changing to a direct grant in 2018/19. These funds are shifted from Health’s equitable share allocation, with R44.976 million added to the province in 2018/19.
- With regard to the Comprehensive HIV and AIDS grant, this grant’s focus is extended to now include TB. As such, the name of the grant is amended to take this into account (Comprehensive HIV, AIDS and TB grant) and a sizeable additional allocation is received, particularly in the outer year where R714.127 million is added to the baseline of this grant. The increase in the baseline is for the continued expansion of the Antiretroviral Treatment Programme, HIV prevention and to cater for TB screening and treatment (in the outer years). This grant is affected by budget cuts, though, with a decrease of R48.853 million in 2016/17. This is not a budget cut, per se,but a function shift to National Health for HIV/AIDS testing.
- The Human Settlements Development grant sees a reduction of R290.255 million in 2016/17, while increasing by R211.122 million in 2017/18 and R460.118 million in 2018/19. It must be noted that this decrease was mitigated by the additional allocation of R308.377 million from National Treasury in the 2015/16 financial year – the subject of the 2015/16 Second Adjustments Appropriation Act.
- The Provincial Roads Maintenance grant increases over the 2016/17 MTEF. These funds move to the incentive portion of the grant to reward provinces that make efficient investments in road asset management information databases. For 2016/17, provinces and the Department of Transport will be tasked with collecting data that is needed to inform an efficiency indicator which will be used from 2017/18 as a tool to encourage provinces to make efficient investments. The grant increases by R74.213 million, R55.241 million and R173.516 million over the 206/17 MTEF.
- Funds are also added to the Public Transport Operations grant over the 2016/17 MTEF, with R46.804 million being added in 2016/17, R46.805 million in 2017/18 and R96.872 million in 2018/19.
- The Department of Social Development receives funding for a new grant, namely the Early Childhood Development grant, with this funding stream commencing in 2017/18. In line with this, R92.380 million is allocated in 2017/18 increasing to R144.948 million in 2018/19.
- The Community Library Services grant is reduced in 2016/17 and 2017/18 by R1.111 million and R1.333 million, respectively, while showing inflationary growth of R8.585 million in the outer year.
- The remaining grants show inflationary growth only in the outer year and these include the Ilima/Letsema Projects grant, HIV and AIDS (Life-skills Education) grant, the NSNP grant, the Maths, Science and Technology grant, the Health Professions Training and Development grant and the National Tertiary Services grant.
Speech content by MEC of Finance :Belinda Scott