Date: 27/11/2003
Source: Western Cape Provincial Government
Title: Rasool: Western Cape Adjustments Estimate Budget
THE ADJUSTMENTS ESTIMATES - DELIVERING ON GROWTH AND DEVELOPMENT
Of the R77,654 million appropriated by the province eight months ago with the aim of targeting growth and development objectives through iKapa elihlumayo, R32,5 million was shifted to the Education Vote and R45.15 million to the Economic Development and Tourism Vote.
EDUCATION
Because education has a key role to play in the fight against poverty and the expansion of the economy, Provincial Treasury and the Department of Education had entered into a strategic relationship to attain the objectives of iKapa elihlumayo.
Funds had been set aside for:
* Testing for literacy and numeracy
* FETs - the door to the economy
* Career guidance
* Investing in the future of the youth.
R32,5 million had been allocated to education (above and beyond what the Western Cape Education Department had already budgeted for) in the following manner, for rollout over the next two years.
* R0,500 million to do an analysis of assessment results in primary schools to test whether the foundation for functional literacy and numeracy has been established
* R2,5 million to test all grade 8 learners in June for career path selection
* R2,5 million has been allocated to develop a career guidance course for all schools
* R0,500 million to train 400 guidance teachers from high schools
* R14,500 million to develop and run further education and training (FET) courses and purchase equipment to introduce a curriculum in sync with the economy
* R12 million for a loan scheme for poor students.
IKAPA ELIHLUMAYO: KICK-STARTING THE STRATEGY FOR GROWTH, SKILLS, JOBS AND EMPOWERMENT
At the Provincial Growth and Development Summit on 14 November government made a commitment to its social partners that it would put down a deposit for growth, skills, jobs and empowerment in this Adjustment Estimate. Today we put down a deposit on the agreement to:
* create 100 000 jobs across sectors in the economy
* spread development across the province, especially to poor areas
* live investment to the province to the value of R5 billion
* increase the level of investment in infrastructure;
* invest in 100 historically disadvantaged enterprises and entrepreneurs, 30% of which will be women
* to put up the fight for existing jobs while stimulating other industry sectors with growth potential.
The Adjustment Estimates propose an allocation of R177 million to fund our Economic Stimulation Package over a three-year period, to leverage initiatives that will achieve the objectives of iKapa elihlumayo, starting with a first tranche of R45-million in this mid-year budget. The projects to which funds were allocated this year, encourage economic activity across the spectrum of the economy. Most of the key sectors in agriculture, manufacturing and services were targeted as well as some non-sector projects.
Allocations have been made to:
1. The Resource-Based Sectors (R10 million)
In terms of the resource-based sectors, initiatives are being funded that focus on niche production with strong export and job creation potential. These niche sectors include honey bush, rooibos, proteas and mari-culture.
The Langkloof Honey bush Tea Project as an example has significant export market potential, and through empowering local communities aims to create over 500 jobs over three years. On the other hand, government is putting R250 000 at the disposal of the rooibos industry to do the spadework for us to do battle in the United States (US) courts to get the name 'rooibos' back for our industry. Government will assist the industry further in the next financial year with this legal battle.
Similarly, mari-culture has great potential in our province, and if stimulated and set up properly could lessen the scramble for fishing rights and quotas, and, more importantly, be an alternative to the wanton poaching, which threaten species like perlemoen. Government must do more than policing, and we propose to allocate R200 000 towards the Hawston Perlemoen Village in order to drive mari-culture as a real alternative to both quotas and poaching.
2. The Manufacturing Sectors (R9,1 million)
Projects targeted in the manufacturing sectors are of a more strategic nature, and have a two-fold objective of building partnerships through the funding of industry initiatives, and funding catalytic projects aimed at enhancing competitiveness and growth. Industry initiatives to be funded include the Cape Craft and Design Institute, the Cape Town Boat Building and Technology Initiatives, the Oil and Gas Supply Initiative, the Cape Initiative with Materials and Clotex. These bodies will be our implementing agents.
On the whole we would want to intervene in the clothing and textile industry, which threatens to shed thousands of jobs because of the strengthening of the Rand:
* Our partnership with Southern African Clothing and Textile Workers Union (SACTWU) in the Fashion Festival - to which we contribute R500 000 - is aimed at creating awareness among local consumers to buy Proudly South African to save jobs and enjoy quality and to let the 80 000 workers in the clothing factories know that we stand behind them while strategising with manufacturers, retailers, labour and government in repositioning the industry, and improving our competitiveness (on which we will spend R1 million)
* The clothing and textile trading houses - to which we contribute R800 000 - is critical to marketing our products to national and international buyers so that we have increased markets throughout the world
* We also invest R1 million to ensure that CMT (cut, make and trim) operations can be upgraded and re-enter the formal market so that they are protected from the kind of exploitation they are currently experiencing.
In total we invest R2,75 million in the oil and gas industry so that entrepreneurs can prepare themselves to supply this industry once it comes on stream, but also, in a very exciting initiative, believe we can attract a major contract to Saldanha to build off-shore oil and gas platforms here in South Africa.
In the same vein, we believe that Cape Town has a major competitive advantage in boat building - particularly luxury yachts - and we invest R1 million for now to upgrade our skills and to unit and diversify the industry.
3. The Service Sectors (R14,3 million)
Again we are attempting to stimulate these sectors for grants, employment and empowerment. In Tourism, for example, we invest R4 million to develop entrepreneurs, especially those who have remained marginalized, to participate in this industry, while creating infrastructure outside Cape Town to ensure greater geographic spread of tourism revenue. In this regard we want the Presidential node of Beaufort West to become the northern gateway for tourists (and we spend R400 000 to help develop this) and a similar amount is spent on the Cape Flats Tourism Project. We are funding the feasibility study to unlock massive private sector investment for the Kleinmond Harbour and Waterfront Development to the value of R300 000.
The Film Studio Bid has been adjudicated and this exciting project will soon take its pride of place next to the Cape Town International Convention Centre (CTICC). We are, however, aware that we need to make a prior investment in the film industry and hence we are allocating R3,5 million to prepare the Western Cape for this sector. However, we are investing about R2 million hereof for the development or the black film sector so that they overcome their historical marginalisation and take up their rightful place in the growing film industry in the Western Cape.
4. Other Interventions (R11,5 million)
Most of this money will be utilised to deliver on our undertaking of developing enterprises and entrepreneurs in the Western Cape. R4 million will be utilised to unlock an almost equal amount from our provincial banker, ABSA, and we will soon launch a Small Business Fund.
Other monies will be used for the broader goal to establish our province as a Learning Cape, to open access to the provincial government through the Cape Access Project and to strengthen the ability of Western Cape entrepreneurs to trade internationally.
All of these monies are meant to give life to iKapa elihlumayo, our desire to grow and share the Cape. The provincial government is committed to keeping its agreement that it signed at the Provincial Growth and Development Summit and the R32,5 million for the Human Resource Development Strategy and the R45 million for economic stimulation should now start to signal that we are indeed serious about meeting the challenges for growth, skills, jobs and equity.
OTHER ADJUSTMENTS
In the 2003 Adjusted Estimates of National Expenditure the following was included for transfer to the Western Cape Provincial Revenue Fund:
* R27,213 million for rehabilitating flood-damaged infrastructure
* R24,662 million to pay for the higher than budgeted public service salary increases in July 2003. It is worth mentioning that our departments demonstrated their willingness to absorb the pressures related to the higher than budgeted public service salary increases in July 2003 to free up funds to support health and education. These actions signal significant solidarity
* R187,194 million to meet unforeseen and unavoidable expenditure arising from the rapid take-up of disability social security grants
* R14,766 million to meet higher than budgeted costs of extending the child support grant to seven and eight year-olds this year
* R1 million Medico-legal grant to start the transfer process of the medico-legal function from the South African Police Service to the provinces.
However, given our tight fiscal envelope for the next financial year, R217,257 million of these resources will rather be taken up in Budget 2004 to deal with the budget pressures for that year.
Increased revenue through the effective management and investment of our cash resources has enabled us to cover the R126 million original funding deficit of Budget 2003. Increased own revenue collections amount to R220,570 million in 2003/04. As an incentive to further improve revenue collection, R33,240 million was committed for expenditure from over-collected revenue in the 2002/03 and R93,953 million from 2003/04 actual and projected over collections.
Against a backdrop of a tight fiscal envelope for next year an approach of minimum rollover funds, was adopted. Apart from the approved roll over of unspent national conditional grants of R100,691 million the adjustments appropriation only provides for R23,722 million approved roll-overs not spent by provincial departments in 2002/03. 90% of the approved roll-overs, 90%, will have a service delivery impact such as in education, social service delivery, social security grant benefits, the provision of low cost housing and infrastructure projects, whilst 10% will impact internally on things such as infrastructure upgrading, improved information technology systems and training.
This Adjustments Estimates therefore supports the basic architecture of provincial service delivery, but also starts giving effect to the vision of iKapa elihlumayo. Over the medium term we will take this process even further.
EXPENDITURE PRIORITIES OVER THE MEDIUM TERM
Budget deliberations between departments and the treasury were enhanced this year by a greater focus on the pursuit of the policy goals of iKapa elihlumayo. Departments were not only asked to explain the contribution of new activities to the goals of iKapa elihumayo, but of all funded activities. The second enhancement of the budget process was that departments were required to establish a measurable link between their activities and the goals of iKapa elihlumayo. In this way departmental spending plans are required to become more embedded in the development challenges of the provincial economy than was previously the case.
A different approach to budgeting is necessary in order to redirect the entire 2004/05 budget of about R18 billion to achieving the goals of iKapa elihlumayo. It will therefore not be possible to give full effect to all nationally determined provincial priorities from the augmented equitable share, with the possible exception of social security. We would also only award personnel inflation increases to health and education in order to begin making room to take over functions currently still rendered by municipalities from 2007 onwards.
The allocations that we propose today are generally in accordance with the priorities of iKapa elihlumayo. Over the medium-term expenditure framework (MTEF) period the province will therefore allocate an additional amount of R4,3 billion. This amount does take account of the possible revenue from the proposed fuel levy and financing but both of these are still being scrutinised. Our study on the fuel levy has been done and is now awaiting further details, public comment, and national approval. It appears that we should focus on a proposal to introduce a levy of 10 cents on a litre of fuel and this could generate about R250 million over a 12 month period.
The proposed financing methodology for the next three years is essentially to maximise savings in the 2003/04 financial year and to roll these over into 2004/05 as augmentation to the budget of the Transport and Public Works. At the same time we propose to cut this department's slice of the equitable source over the MTEF period in order to fund other iKapa elihlumayo priorities. Further cuts will effectively be made to the Public Works function of this department in order to raise the allocations to Transport and Roads. Returns from the strategic management of the property holdings of this department's public works branch has to be maximised, with these returns flowing back to fund construction needs in key delivery departments such as health and education.
Maintaining the basics (7.3%)
Over the MTEF period we propose to fund all provincial departments to maintain a basic level of service delivery. Except for the 0.5% personnel inflation adjustments (effective only at health and education), general inflation adjustments will therefore be made to the budgets of all departments. This implies small upward adjustments (0.7% in non-personnel expenditure, excluding social security) in 2005/06 and the usual personnel and other inflation adjustments for 2006/07.
Building Human Capital (19.19%)
The bulk of this allocation will fund the continuation and increase of the iKapa elihlumayo catalyst provision in the education. This allocation will however be contingent on clear performance targets in the rest of the education budget, access to all the information necessary for outside performance assessment, optimal schooling configuration, an assessment of the school building programme and the shifting some of its construction financing to returns to be generated from the provincial property portfolio. This allocation also includes the transfer of the Primary School Nutrition programme from Health to Education as well as compensation for the phasing out the national financial management quality enhancement grant and improvements in conditions of service.
Strengthening of micro-economic strategy (inclusive of Land Redistribution for Agricultural Development LRAD and small farmer settlement), spatial development framework and creating an enabling environment for business activity (5.8%)
This allocation will fund a number of interventions essential to the formulation and implementation of a micro-economic strategy. First it will fund a once-off provision for formulation of a micro-economic strategy by the Economic Development and Tourism in conjunction with the Agriculture and municipalities. Secondly, and more substantially, it perpetuates the iKapa elihlumayo provision over the entire MTEF and this time not from financing, but from revenue to facilitate long-run interventions or initiatives to further economic growth.
This allocation augments real annual average increases of 13.3% to Agriculture between 2000/01 and 2003/04. This translated into real growth of 81.3% to farmer settlement in the 2003/04 budget. Given the major increases to Agriculture since the 2000/01 budget, further augmentation will only be possible after further shifts within the rest of the Agriculture budget to fund LRAD and associated small farmer settlement assistance more adequately.
This allocation will also fund two programmes that play a key role in creating an enabling environment for business activity in the province. These two are the strengthening of the heritage function in the Cultural Affairs and Sport and the reconfiguration of the regulatory capacity of the Environmental Affairs and Development Planning. The allocation of the latter will also facilitate the formulation of the Spatial Development Framework that will eventually direct the infrastructure and micro-economic strategies of the province.
Strategic infrastructure investment (18.8%)
The additional allocation for the Transport and Public Works will be exclusively targeted to expenditure on Transport and Roads. Within the department a total of R230 million has to be shifted to the transport and roads programmes over the next 3 years. Shortfalls that are created in the department's budget by supporting other departments over the MTEF will be topped up from conditional grants, financing and the proposed fuel levy. Shortfalls to the public works function have to be funded by increased revenue from improved management of the property portfolio.
Building social capital (48,81%)
Almost half of all additional provincial allocations over the next three years will go to building social capital. This will include additional allocations for social security grants; increases to the conditional grants of the departments of Health, Education, Social Services and Housing; and allocations for staff with scarce skills and the deployment of health staff to rural areas. While Health will receive an allocation for improvements in conditions of service, additional allocations could however not be made to fund the free provision of medical care to people with disabilities, as these have been used to make a deposit in taking over primary health care services in 2007/08. It is further proposed that the current provision for poverty alleviation be subsumed into the overall social delivery system.
Financial governance, coordination, communication and LG oversight (1.1%)
This allocation will fund a number of interventions that will support the strengthening of financial governance, local government oversight and the improvement of communication and coordination inside and outside the province. Within the Provincial Administration of the Western Cape this allocation funds information technology restructuring and strengthening capacity in the legal services branch. In the Treasury it strengthens the internal audit function in preparation for its rollout in the province and in support of the local government, its oversight role is to be reinforced. The creation of internal audit committees in the departments of Education, Health and Social Services will also be provided for by shifts from Treasury. The Cultural Affairs and Sport will be supported with the transfer of the archive function from the national to the provincial sphere.
REVENUE
Transfers from nationally raised revenue will continue to dominate provincial budgets. Own revenue will remain at more or less 6% of total provincial revenue over the MTEF, whilst the equitable share and conditional grants will remain at approximately 80% and 15% respectively over the MTEF. Transfers in the form of the equitable share grow from R14,189 billion in 2004/05 to R16,550 billion in 2006/07 representing an average annual growth rate of 8,7% from 2003/04 to 2006/07. Conditional grants will grow at a rate of 9,6% over the same period.
Own revenue is projected to decline initially in 2004/05, but will then recover and is estimated to grow at an annual average rate of 13,9% from 2003/04 to 2006/07. The strong growth in the equitable share primarily caters for spending commitments in the eight priorities identified while the strong growth in own revenue is mainly due to the planned implementation of the fuel levy.
As will be noted, the province is again moving into deficit, albeit less than that proposed for the current MTEF. However, the previous huge deficit levels have proved to be very risky leaving little room to manoeuvre were something to go wrong, as indeed it did in 2003/04. To partially compensate for this, a more substantive contingency reserve has now been provided for at R50 million for each year in 2003 terms.
CONCLUSION
The realisation of these priorities will steer the province to the calm waters of growth, development and a better life for all. No doubt, more money would be desirable, but the revenue and financing envelope, and the very tight fiscal framework does not allow this. A positive spin-off of starting off in this manner could be greater focus and better co-ordination between all parties.
In due course we will say to those who have despaired and sought the greener pastures of other provinces that we are catching up in this province. We are catching up on the back of greater optimism and buoyancy precisely because we are focussed on confronting both the objective and subjective weaknesses in our economy. We are resetting our sail to catch the very favourable winds of a city that is the fifth most favoured destination in the world, a province that has opened a world-class convention centre, a business community that has utilised a weakening rand to showcase our products to the world as value for money fruit, fish or crafts, and increasingly we open our talents for those seeking call centre and business processing locations.
The challenges facing the province make a compelling case for us to get our act together, to shun the short cuts, to do the hard work, and to make growth and development a reality which benefits all our people.
HIGHLIGHTS OF ADJUSTMENTS BUDGET
Some 2003 Budget Adjustment Highlights
* R250 000 to the rooibos industry to do the spadework to do battle in the US courts to get the name 'rooibos' back for our industry
* R2,5 million to test all grade 8 learners in June for career path selection
* R12 million for a loan scheme for poor students
* Proposal to introduce a levy of 10 cents on a litre of fuel that could generate about R250 million over a 12 month period
* R200 000 to the Hawston Perlemoen Village to drive mari-culture as a real alternative livelihood to fishing
* R500 000 to the SACTWU-driven Cape Town Fashion Festival to create awareness among local consumers to buy Proudly South African, to celebrate the quality of the industry and to save jobs
* R2,75 million in the oil and gas industry so that entrepreneurs can prepare themselves to supply the industry once it comes on stream, but also, in a very exciting initiative, we believe we can attract a major contract to Saldanha to build off-shore oil and gas platforms in South Africa
* R1 million to help with the development of boat-building in the region, particularly luxury yachts
* R3,5 million to the film industry, including R2 million for the development or the black film sector
For more information call Thabo Mabaso @ 083 414 8144
Issued by: Department of Finance and Economic Development, Western Cape Provincial Government
27 November 2003
Source: Western Cape Provincial Government
Title: Rasool: Western Cape Adjustments Estimate Budget
THE ADJUSTMENTS ESTIMATES - DELIVERING ON GROWTH AND DEVELOPMENT
Of the R77,654 million appropriated by the province eight months ago with the aim of targeting growth and development objectives through iKapa elihlumayo, R32,5 million was shifted to the Education Vote and R45.15 million to the Economic Development and Tourism Vote.
EDUCATION
Because education has a key role to play in the fight against poverty and the expansion of the economy, Provincial Treasury and the Department of Education had entered into a strategic relationship to attain the objectives of iKapa elihlumayo.
Funds had been set aside for:
* Testing for literacy and numeracy
* FETs - the door to the economy
* Career guidance
* Investing in the future of the youth.
R32,5 million had been allocated to education (above and beyond what the Western Cape Education Department had already budgeted for) in the following manner, for rollout over the next two years.
* R0,500 million to do an analysis of assessment results in primary schools to test whether the foundation for functional literacy and numeracy has been established
* R2,5 million to test all grade 8 learners in June for career path selection
* R2,5 million has been allocated to develop a career guidance course for all schools
* R0,500 million to train 400 guidance teachers from high schools
* R14,500 million to develop and run further education and training (FET) courses and purchase equipment to introduce a curriculum in sync with the economy
* R12 million for a loan scheme for poor students.
IKAPA ELIHLUMAYO: KICK-STARTING THE STRATEGY FOR GROWTH, SKILLS, JOBS AND EMPOWERMENT
At the Provincial Growth and Development Summit on 14 November government made a commitment to its social partners that it would put down a deposit for growth, skills, jobs and empowerment in this Adjustment Estimate. Today we put down a deposit on the agreement to:
* create 100 000 jobs across sectors in the economy
* spread development across the province, especially to poor areas
* live investment to the province to the value of R5 billion
* increase the level of investment in infrastructure;
* invest in 100 historically disadvantaged enterprises and entrepreneurs, 30% of which will be women
* to put up the fight for existing jobs while stimulating other industry sectors with growth potential.
The Adjustment Estimates propose an allocation of R177 million to fund our Economic Stimulation Package over a three-year period, to leverage initiatives that will achieve the objectives of iKapa elihlumayo, starting with a first tranche of R45-million in this mid-year budget. The projects to which funds were allocated this year, encourage economic activity across the spectrum of the economy. Most of the key sectors in agriculture, manufacturing and services were targeted as well as some non-sector projects.
Allocations have been made to:
1. The Resource-Based Sectors (R10 million)
In terms of the resource-based sectors, initiatives are being funded that focus on niche production with strong export and job creation potential. These niche sectors include honey bush, rooibos, proteas and mari-culture.
The Langkloof Honey bush Tea Project as an example has significant export market potential, and through empowering local communities aims to create over 500 jobs over three years. On the other hand, government is putting R250 000 at the disposal of the rooibos industry to do the spadework for us to do battle in the United States (US) courts to get the name 'rooibos' back for our industry. Government will assist the industry further in the next financial year with this legal battle.
Similarly, mari-culture has great potential in our province, and if stimulated and set up properly could lessen the scramble for fishing rights and quotas, and, more importantly, be an alternative to the wanton poaching, which threaten species like perlemoen. Government must do more than policing, and we propose to allocate R200 000 towards the Hawston Perlemoen Village in order to drive mari-culture as a real alternative to both quotas and poaching.
2. The Manufacturing Sectors (R9,1 million)
Projects targeted in the manufacturing sectors are of a more strategic nature, and have a two-fold objective of building partnerships through the funding of industry initiatives, and funding catalytic projects aimed at enhancing competitiveness and growth. Industry initiatives to be funded include the Cape Craft and Design Institute, the Cape Town Boat Building and Technology Initiatives, the Oil and Gas Supply Initiative, the Cape Initiative with Materials and Clotex. These bodies will be our implementing agents.
On the whole we would want to intervene in the clothing and textile industry, which threatens to shed thousands of jobs because of the strengthening of the Rand:
* Our partnership with Southern African Clothing and Textile Workers Union (SACTWU) in the Fashion Festival - to which we contribute R500 000 - is aimed at creating awareness among local consumers to buy Proudly South African to save jobs and enjoy quality and to let the 80 000 workers in the clothing factories know that we stand behind them while strategising with manufacturers, retailers, labour and government in repositioning the industry, and improving our competitiveness (on which we will spend R1 million)
* The clothing and textile trading houses - to which we contribute R800 000 - is critical to marketing our products to national and international buyers so that we have increased markets throughout the world
* We also invest R1 million to ensure that CMT (cut, make and trim) operations can be upgraded and re-enter the formal market so that they are protected from the kind of exploitation they are currently experiencing.
In total we invest R2,75 million in the oil and gas industry so that entrepreneurs can prepare themselves to supply this industry once it comes on stream, but also, in a very exciting initiative, believe we can attract a major contract to Saldanha to build off-shore oil and gas platforms here in South Africa.
In the same vein, we believe that Cape Town has a major competitive advantage in boat building - particularly luxury yachts - and we invest R1 million for now to upgrade our skills and to unit and diversify the industry.
3. The Service Sectors (R14,3 million)
Again we are attempting to stimulate these sectors for grants, employment and empowerment. In Tourism, for example, we invest R4 million to develop entrepreneurs, especially those who have remained marginalized, to participate in this industry, while creating infrastructure outside Cape Town to ensure greater geographic spread of tourism revenue. In this regard we want the Presidential node of Beaufort West to become the northern gateway for tourists (and we spend R400 000 to help develop this) and a similar amount is spent on the Cape Flats Tourism Project. We are funding the feasibility study to unlock massive private sector investment for the Kleinmond Harbour and Waterfront Development to the value of R300 000.
The Film Studio Bid has been adjudicated and this exciting project will soon take its pride of place next to the Cape Town International Convention Centre (CTICC). We are, however, aware that we need to make a prior investment in the film industry and hence we are allocating R3,5 million to prepare the Western Cape for this sector. However, we are investing about R2 million hereof for the development or the black film sector so that they overcome their historical marginalisation and take up their rightful place in the growing film industry in the Western Cape.
4. Other Interventions (R11,5 million)
Most of this money will be utilised to deliver on our undertaking of developing enterprises and entrepreneurs in the Western Cape. R4 million will be utilised to unlock an almost equal amount from our provincial banker, ABSA, and we will soon launch a Small Business Fund.
Other monies will be used for the broader goal to establish our province as a Learning Cape, to open access to the provincial government through the Cape Access Project and to strengthen the ability of Western Cape entrepreneurs to trade internationally.
All of these monies are meant to give life to iKapa elihlumayo, our desire to grow and share the Cape. The provincial government is committed to keeping its agreement that it signed at the Provincial Growth and Development Summit and the R32,5 million for the Human Resource Development Strategy and the R45 million for economic stimulation should now start to signal that we are indeed serious about meeting the challenges for growth, skills, jobs and equity.
OTHER ADJUSTMENTS
In the 2003 Adjusted Estimates of National Expenditure the following was included for transfer to the Western Cape Provincial Revenue Fund:
* R27,213 million for rehabilitating flood-damaged infrastructure
* R24,662 million to pay for the higher than budgeted public service salary increases in July 2003. It is worth mentioning that our departments demonstrated their willingness to absorb the pressures related to the higher than budgeted public service salary increases in July 2003 to free up funds to support health and education. These actions signal significant solidarity
* R187,194 million to meet unforeseen and unavoidable expenditure arising from the rapid take-up of disability social security grants
* R14,766 million to meet higher than budgeted costs of extending the child support grant to seven and eight year-olds this year
* R1 million Medico-legal grant to start the transfer process of the medico-legal function from the South African Police Service to the provinces.
However, given our tight fiscal envelope for the next financial year, R217,257 million of these resources will rather be taken up in Budget 2004 to deal with the budget pressures for that year.
Increased revenue through the effective management and investment of our cash resources has enabled us to cover the R126 million original funding deficit of Budget 2003. Increased own revenue collections amount to R220,570 million in 2003/04. As an incentive to further improve revenue collection, R33,240 million was committed for expenditure from over-collected revenue in the 2002/03 and R93,953 million from 2003/04 actual and projected over collections.
Against a backdrop of a tight fiscal envelope for next year an approach of minimum rollover funds, was adopted. Apart from the approved roll over of unspent national conditional grants of R100,691 million the adjustments appropriation only provides for R23,722 million approved roll-overs not spent by provincial departments in 2002/03. 90% of the approved roll-overs, 90%, will have a service delivery impact such as in education, social service delivery, social security grant benefits, the provision of low cost housing and infrastructure projects, whilst 10% will impact internally on things such as infrastructure upgrading, improved information technology systems and training.
This Adjustments Estimates therefore supports the basic architecture of provincial service delivery, but also starts giving effect to the vision of iKapa elihlumayo. Over the medium term we will take this process even further.
EXPENDITURE PRIORITIES OVER THE MEDIUM TERM
Budget deliberations between departments and the treasury were enhanced this year by a greater focus on the pursuit of the policy goals of iKapa elihlumayo. Departments were not only asked to explain the contribution of new activities to the goals of iKapa elihumayo, but of all funded activities. The second enhancement of the budget process was that departments were required to establish a measurable link between their activities and the goals of iKapa elihlumayo. In this way departmental spending plans are required to become more embedded in the development challenges of the provincial economy than was previously the case.
A different approach to budgeting is necessary in order to redirect the entire 2004/05 budget of about R18 billion to achieving the goals of iKapa elihlumayo. It will therefore not be possible to give full effect to all nationally determined provincial priorities from the augmented equitable share, with the possible exception of social security. We would also only award personnel inflation increases to health and education in order to begin making room to take over functions currently still rendered by municipalities from 2007 onwards.
The allocations that we propose today are generally in accordance with the priorities of iKapa elihlumayo. Over the medium-term expenditure framework (MTEF) period the province will therefore allocate an additional amount of R4,3 billion. This amount does take account of the possible revenue from the proposed fuel levy and financing but both of these are still being scrutinised. Our study on the fuel levy has been done and is now awaiting further details, public comment, and national approval. It appears that we should focus on a proposal to introduce a levy of 10 cents on a litre of fuel and this could generate about R250 million over a 12 month period.
The proposed financing methodology for the next three years is essentially to maximise savings in the 2003/04 financial year and to roll these over into 2004/05 as augmentation to the budget of the Transport and Public Works. At the same time we propose to cut this department's slice of the equitable source over the MTEF period in order to fund other iKapa elihlumayo priorities. Further cuts will effectively be made to the Public Works function of this department in order to raise the allocations to Transport and Roads. Returns from the strategic management of the property holdings of this department's public works branch has to be maximised, with these returns flowing back to fund construction needs in key delivery departments such as health and education.
Maintaining the basics (7.3%)
Over the MTEF period we propose to fund all provincial departments to maintain a basic level of service delivery. Except for the 0.5% personnel inflation adjustments (effective only at health and education), general inflation adjustments will therefore be made to the budgets of all departments. This implies small upward adjustments (0.7% in non-personnel expenditure, excluding social security) in 2005/06 and the usual personnel and other inflation adjustments for 2006/07.
Building Human Capital (19.19%)
The bulk of this allocation will fund the continuation and increase of the iKapa elihlumayo catalyst provision in the education. This allocation will however be contingent on clear performance targets in the rest of the education budget, access to all the information necessary for outside performance assessment, optimal schooling configuration, an assessment of the school building programme and the shifting some of its construction financing to returns to be generated from the provincial property portfolio. This allocation also includes the transfer of the Primary School Nutrition programme from Health to Education as well as compensation for the phasing out the national financial management quality enhancement grant and improvements in conditions of service.
Strengthening of micro-economic strategy (inclusive of Land Redistribution for Agricultural Development LRAD and small farmer settlement), spatial development framework and creating an enabling environment for business activity (5.8%)
This allocation will fund a number of interventions essential to the formulation and implementation of a micro-economic strategy. First it will fund a once-off provision for formulation of a micro-economic strategy by the Economic Development and Tourism in conjunction with the Agriculture and municipalities. Secondly, and more substantially, it perpetuates the iKapa elihlumayo provision over the entire MTEF and this time not from financing, but from revenue to facilitate long-run interventions or initiatives to further economic growth.
This allocation augments real annual average increases of 13.3% to Agriculture between 2000/01 and 2003/04. This translated into real growth of 81.3% to farmer settlement in the 2003/04 budget. Given the major increases to Agriculture since the 2000/01 budget, further augmentation will only be possible after further shifts within the rest of the Agriculture budget to fund LRAD and associated small farmer settlement assistance more adequately.
This allocation will also fund two programmes that play a key role in creating an enabling environment for business activity in the province. These two are the strengthening of the heritage function in the Cultural Affairs and Sport and the reconfiguration of the regulatory capacity of the Environmental Affairs and Development Planning. The allocation of the latter will also facilitate the formulation of the Spatial Development Framework that will eventually direct the infrastructure and micro-economic strategies of the province.
Strategic infrastructure investment (18.8%)
The additional allocation for the Transport and Public Works will be exclusively targeted to expenditure on Transport and Roads. Within the department a total of R230 million has to be shifted to the transport and roads programmes over the next 3 years. Shortfalls that are created in the department's budget by supporting other departments over the MTEF will be topped up from conditional grants, financing and the proposed fuel levy. Shortfalls to the public works function have to be funded by increased revenue from improved management of the property portfolio.
Building social capital (48,81%)
Almost half of all additional provincial allocations over the next three years will go to building social capital. This will include additional allocations for social security grants; increases to the conditional grants of the departments of Health, Education, Social Services and Housing; and allocations for staff with scarce skills and the deployment of health staff to rural areas. While Health will receive an allocation for improvements in conditions of service, additional allocations could however not be made to fund the free provision of medical care to people with disabilities, as these have been used to make a deposit in taking over primary health care services in 2007/08. It is further proposed that the current provision for poverty alleviation be subsumed into the overall social delivery system.
Financial governance, coordination, communication and LG oversight (1.1%)
This allocation will fund a number of interventions that will support the strengthening of financial governance, local government oversight and the improvement of communication and coordination inside and outside the province. Within the Provincial Administration of the Western Cape this allocation funds information technology restructuring and strengthening capacity in the legal services branch. In the Treasury it strengthens the internal audit function in preparation for its rollout in the province and in support of the local government, its oversight role is to be reinforced. The creation of internal audit committees in the departments of Education, Health and Social Services will also be provided for by shifts from Treasury. The Cultural Affairs and Sport will be supported with the transfer of the archive function from the national to the provincial sphere.
REVENUE
Transfers from nationally raised revenue will continue to dominate provincial budgets. Own revenue will remain at more or less 6% of total provincial revenue over the MTEF, whilst the equitable share and conditional grants will remain at approximately 80% and 15% respectively over the MTEF. Transfers in the form of the equitable share grow from R14,189 billion in 2004/05 to R16,550 billion in 2006/07 representing an average annual growth rate of 8,7% from 2003/04 to 2006/07. Conditional grants will grow at a rate of 9,6% over the same period.
Own revenue is projected to decline initially in 2004/05, but will then recover and is estimated to grow at an annual average rate of 13,9% from 2003/04 to 2006/07. The strong growth in the equitable share primarily caters for spending commitments in the eight priorities identified while the strong growth in own revenue is mainly due to the planned implementation of the fuel levy.
As will be noted, the province is again moving into deficit, albeit less than that proposed for the current MTEF. However, the previous huge deficit levels have proved to be very risky leaving little room to manoeuvre were something to go wrong, as indeed it did in 2003/04. To partially compensate for this, a more substantive contingency reserve has now been provided for at R50 million for each year in 2003 terms.
CONCLUSION
The realisation of these priorities will steer the province to the calm waters of growth, development and a better life for all. No doubt, more money would be desirable, but the revenue and financing envelope, and the very tight fiscal framework does not allow this. A positive spin-off of starting off in this manner could be greater focus and better co-ordination between all parties.
In due course we will say to those who have despaired and sought the greener pastures of other provinces that we are catching up in this province. We are catching up on the back of greater optimism and buoyancy precisely because we are focussed on confronting both the objective and subjective weaknesses in our economy. We are resetting our sail to catch the very favourable winds of a city that is the fifth most favoured destination in the world, a province that has opened a world-class convention centre, a business community that has utilised a weakening rand to showcase our products to the world as value for money fruit, fish or crafts, and increasingly we open our talents for those seeking call centre and business processing locations.
The challenges facing the province make a compelling case for us to get our act together, to shun the short cuts, to do the hard work, and to make growth and development a reality which benefits all our people.
HIGHLIGHTS OF ADJUSTMENTS BUDGET
Some 2003 Budget Adjustment Highlights
* R250 000 to the rooibos industry to do the spadework to do battle in the US courts to get the name 'rooibos' back for our industry
* R2,5 million to test all grade 8 learners in June for career path selection
* R12 million for a loan scheme for poor students
* Proposal to introduce a levy of 10 cents on a litre of fuel that could generate about R250 million over a 12 month period
* R200 000 to the Hawston Perlemoen Village to drive mari-culture as a real alternative livelihood to fishing
* R500 000 to the SACTWU-driven Cape Town Fashion Festival to create awareness among local consumers to buy Proudly South African, to celebrate the quality of the industry and to save jobs
* R2,75 million in the oil and gas industry so that entrepreneurs can prepare themselves to supply the industry once it comes on stream, but also, in a very exciting initiative, we believe we can attract a major contract to Saldanha to build off-shore oil and gas platforms in South Africa
* R1 million to help with the development of boat-building in the region, particularly luxury yachts
* R3,5 million to the film industry, including R2 million for the development or the black film sector
For more information call Thabo Mabaso @ 083 414 8144
Issued by: Department of Finance and Economic Development, Western Cape Provincial Government
27 November 2003
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