Hounourable Speaker;
Honourable Members;
Heads of Departments;
Chief Financial Officers;
Head of Provincial Treasury and Officials Present;
Business, Academic, Religious and Community Leaders;
Members of the Media;
Ladies and gentlemen;
Comrades and friends

Introduction

We present this budget at a time when a positive mood is sweeping through our beautiful province. That mood is induced by the 6th administration’s visible energy and vigour in articulating a coherent plan for inclusive economic growth and social transformation, fighting corruption and accelerating service delivery.

Buoyed by this, as the Provincial Treasury, an institution historically tasked with being the guardians of the public purse, we are determined to play our part as a contributor to an environment conducive to investments and job creation.

More than ever as the provincial government we are determined to continue on our path of fiscal discipline and fiscal consolidation. For the past eight years this province has not deviated from its budget by more than 1% and this will continue. There is no place in our plan of action for fraud and corruption and neither is there room for failure.

Human Rights activist and Nobel Prize laureate, Rigoberta Menchú, reminds us that “Without strong watchdog institutions, impunity becomes the very foundation upon which systems of corruption are built. And if impunity is not demolished, all efforts to bring an end to corruption are in vain.”  

We are cognisant that as the Provincial Government we have to lead by example because what we do impacts directly the livelihoods of our people. As we tackle the challenges facing us we will be creative but not reckless, we will be imaginative but not overzealous, we will be ambitious but remain realistic.

Our efforts as Provincial Treasury must go beyond a bookkeeping exercise. We will focus substantially on the principle of value for money. We will want to dig deeper to look at the impact in society of the money we spend and the alignment with our priority objectives.

This budget is of course a revival of the 2019/2020 MTEF Appropriation Bill which was tabled by my predecessor on the 7th of March 2019. I will explain the precise legal framework around this revival later on. It is however new information for almost half of this House who are new members.

In reviving this Appropriation Bill we are aware of the urgency with which our people want things to be done but also cognisant of the internal and external factors that limit us.

It is in times of difficulty like this that the true character of a nation and of its leaders get tested. Unfortunately adversity also tends to breed populism whereby false Messiahs who go around promising quick-fixes to complex problems. We will not go that route. Our people have placed their trust in us, we dare not play with their emotions.

As President Ramaphosa warned in his response to the SONA debate that while the current state of affairs requires greater urgency and focus, there are no quick fixes.

In President Ramaphosa’s words “Now is the time to focus on implementation. It is time to make choices. Some of these choices may be difficult and some may not please everyone… at a time when public finances are limited, we will not be able to do everything at one time.”

In his State of the Province Address Premier Sihle Zikalala made a frank assessment of the many challenges facing KwaZulu-Natal. These include high levels of unemployment, unbearable cost of living for the employed, poor state of local government and growing social ills such as drug abuse and violence in schools.

Honourable Premier we are encouraged by your pronouncement during the State of the Province Address that more attention will be given to all municipalities in the province especially those that are struggling.

The latest report on municipalities for the year ended on June 2018 is worrying as it paints a grim picture about the financial wellbeing of our municipalities. It is a picture largely characterised by a regression in audit outcomes, a decline in accountability and poor internal controls.

The Auditor General noted that in many municipalities across KwaZulu-Natal, vital internal controls were ignored. Because local government is at the coalface of service delivery we realise its importance and therefore the Provincial Treasury we will also focus more attention on this sphere.

As directed by the Premier, working together with COGTA, we will be developing a very specific intervention programme to deal with this issue. The Premier has made it clear to us that consequence management is a fundamental part of the remedial action.

Through the Provincial Treasury’s Municipal Support Programme (MSP), we will continue assisting and providing technical support to municipalities with the primary aim of ensuring compliance with the Municipal Finance Management Act (MFMA) and other relevant legislation.

The MFMA and its associated regulations impose very specific duties and responsibilities on Provincial Treasury in this regard.

Through the Supply Chain Management (SCM) Unit, the Provincial Treasury will continue to provide hands-on support and will undertake comprehensive compliance assessments of departments, municipalities and public entities to help reduce irregular expenditure on SCM-related processes.

We will also intensify the fight against fraud and corruption related to the subversion of the SCM processes while ensuring the lawful use of SCM to advance inclusive growth.

Specific to the latter is the proper understanding and implementation of the Preferential Procurement Regulations of April 2017.  These regulations expressly authorise and empower SCM processes and institutions of government to do the following:

To negotiate with a successful bidder to reduce the price tendered to be better aligned with market related prices and if negotiations, held in good faith, are unsuccessful institutions can proceed to the next bidder and repeat the negotiation exercise. In our Monitoring & Evaluation system we should develop an indicator to demonstrate the extent to which we have been able to make effective use of this regulation.

To specifically target SMMEs as beneficiaries of the procurement process

To use geographic demarcation combined with other objective criteria, such as the deprivation index, to achieve the imperatives of economic transformation.

To use more effectively pre-qualification criteria in identified tenders to advance designated groups on the basis of B-BBEE Status of contributor, Exempted Micro Enterprise (EME) or Qualifying Small Enterprise (QSE) or on the basis of subcontracting with EMEs or QSEs which are at least 51% owned by Black youth, Black women, people with disabilities, people living in rural or underdeveloped areas or townships, cooperatives and military veterans

Provide for tenders based on a stipulated minimum threshold for  local production and content

Effective use of subcontracting as a condition of tender

Members of this august House, we will also be monitoring the implementation of the Municipal Cost Containment Regulations as gazetted by the National Treasury in June 2019.

These regulations are aimed at promoting better governance and management of finances by municipalities and municipal entities through eliminating wastage of public resources on non-service delivery items

While the primary responsibility for enforcement of these regulations lies with COGTA, we will take a keen interest in the implementation of the new regulations within the framework of cooperative governance.

Over the next five years we will be guided by the key government priorities. These are:

Economic Transformation and Job Creation

Education, Skills and Health

Consolidating the Social Wage Through Reliable and Quality Basic Services

Spatial Integration and Human Settlements

Social Cohesion and Safe Communities

A Capable, Ethical and Developmental State

A better Africa and World

Within this broad framework there are very specific priorities set out in the Premier’s State of the Province Address. These will find expression in the various budgets by the departments. All departments are currently working on this reprioritization exercise and we expect to deal with the outcomes of that exercise in the adjustment budget later this year.

We agree with Premier Zikalala when he said: “Indeed, we are faced with extreme difficulties and serious restraining socio-economic challenges. But because of our conviction with the genuine course of our liberation, democracy and development, we have no doubt that we will triumph. Definitely, light will prevail over darkness, good over evil, friendship and human solidarity will defeat greed and exploitation, just as growth and prosperity must win over underdevelopment and social decay. Because our cause is genuine and our mission entails noble goals, we have no doubt that victory is certain.”

Economic Outlook

The International Monetary Fund (IMF) and the World Bank predicted that the global economy would grow by 3.3% and 2.9%, respectively in 2019, with South Africa’s growth predictions by these institutions being lower at around the 1.2% per cent mark. In the first quarter of 2019, South Africa’s economy shrank by more than 3% compared to the last quarter, with this poor performance largely attributed to load shedding, a strike at gold mines, and weak levels of investment. The mining, manufacturing and agriculture sectors all saw concerning declines, with the export of goods from our country also falling sharply, with the latter being partly due to the effects that the global trade war between the United States (US) and China is having on global growth. The country is holding its breath, once again, to see what the second quarter will bring.

KZN is not immune from the sluggish economic performance with the provincial economy growing far below the 5% envisioned in the Provincial Growth and Development Plan. Between 2011 and 2017, the economy of KZN grew at a moderate average of 2%. The forecast for this year is that growth for the provincial economy will be at 1.8%.

KZN has a huge number of non-economically active population which is estimated at 3.5 million in the fourth quarter of 2018.

As at the fourth quarter of 2018 the province had high expanded unemployment rate (41.3%).

Furthermore, unemployment in the province is high among district municipalities that are in rural areas due to limited economic activities, lack of economic infrastructure and highly unskilled labour force, among others.

The Honourable Premier Sihle Zikalala has given us the above stated priorities precisely to respond to these challenges.

As we enter this new chapter and begin in earnest to focus on our new priorities, the Provincial Executive Council will have discussions on how new priorities will be funded. Most will have to be funded through reprioritization of existing budgets, while others, if possible, may be considered for additional funding when we prepare the Adjustments Budget in a few months’ time.

Revival of the 2019/20 MTEF Appropriation Bill

In order for this new administration to hit the ground running, we need to ensure that the budgets that were tabled in this House on 7 March 2019 are adopted and that the Appropriation Bill is revived in this 6th Legislature. Standing Rule 250 indicates that all business before the House or any Committee on the last Sitting day of the Term of the Legislature lapses at the end of the day. In other words, the Appropriation Bill tabled on 7 March 2019 lapsed in the last Term, and it is thus required that this House revives the Bill that was tabled on 7 March 2019.

When my predecessor tabled the 2019/20 MTEF budget in this House on 7 March 2019, it was prior to the elections and, as in any election year, the budget processes could not all be finalised prior to the 5th Legislature being dissolved. As this was to be expected, the provision of Section 29 of the PFMA become important in that this section allows departments to commence spending the amounts allocated to them before the Appropriation Bill for 2019 is passed. Section 29 requires provinces to pass their own Direct Charges Act, though, and this was done in 2002 when the KwaZulu-Natal Direct Charges Act No. 4 was passed. This Act, read with Section 29 of the PFMA, thus provides the legal basis for provincial departments and public entities to commence spending their allocations before the formal appropriation and voting processes have been concluded. Section 29 (2) of the PFMA states that a maximum of 45% of the budget may be spent in the first four months of the year, based on the amount appropriated in the previous annual budget, and provides for a further 10% to be spent in ensuing months, but limits this expenditure to the amount appropriated in the previous annual budget.

By reviving the Appropriation Bill today, we are taking the next step in finalizing the process that commenced on 7 March 2019, with today’s session to be followed by each Vote’s budget being tabled to the Committee of the Whole House, in line with Standing Rule 224(1)(b), followed by a debate on each Vote’s budget. This will culminate in a General Budget Debate on all 15 Votes and, finally, voting on the Appropriation Bill.

The Fiscal Framework

The budget I am tabling today is summarized in the table below and indicates that KwaZulu-Natal receives R106 billion in equitable share funding from the national fiscus in 2019/20, with a further R21.1 billion received in conditional grant funding. Provincial Own Revenue and cash resources amount to R3.7 billion. This means that a total of R130.9 billion is available for KwaZulu-Natal to implement its programmes and projects. Of the R130.9 billion, an amount of R130.5 billion is allocated to the 15 Votes, and the balance of R400 million is kept as a Contingency Reserve. While budgeting for a Contingency Reserve has become a norm for this province, the amount of the Contingency Reserve is set at R400 million, whereas this was previously set at around the R650 million mark, and I will explain why shortly.

There were two equitable share budget cuts effected against KwaZulu-Natal. The data updates of the equitable share formula resulted in budget cuts of R444.6 million, R706.6 million and R1.3 billion over the MTEF. It is worth mentioning that this is the seventh consecutive year that the province loses money as a result of these data updates. In addition, President Ramaphosa, announced that there would be minimal or no annual salary increases for public office bearers. Premiers, Members of the Executive Councils (MECs), and Speakers did not receive salary increases, while Members of Provincial Legislatures (MPLs) received a 2.5% increase. This announcement resulted in National Treasury cutting R8.8 million, R9.4 million and R9.5 million from the province’s equitable share.

These budget cuts were absorbed in a number of ways. The Contingency Reserve was lowered to R400 million, as mentioned. It was agreed that the budget cut relating to the freezing of public office bearers’ salaries would be cut from those departments who budget for such salaries. An exercise was also undertaken to ensure that Provincial Own Revenue growth was not too conservative and this resulted in increases in the Provincial Own Revenue budgets. Amounts that had previously been recalled into the Provincial Revenue Fund were assessed to see whether these funds will be needed in the near future. Where it was felt that these projects would not be immediately implemented, these funds are being used to fund the budget cuts, but with the understanding that these funds might be returned to these projects when possible. These include:

An amount of R600 million was held in the Provincial Revenue Fund as the first ear-marked amount for the Provincial Government Precinct. The current economic climate, and the constant budget cuts, have not made it possible to add any further funds to this project since the initial R600 million was ring-fenced by Provincial Treasury. Of this amount, R300 million was used to offset the budget cuts.

The KZN Sharks Board was allocated R10.5 million in 2013/14 for the purchase of land. This transaction did not materialise and the funds were recalled into the Provincial Revenue Fund. These funds are used to offset the budget cuts.

Vote 12: Transport requested that R50 million allocated to them for the construction of a cross-border crime fighting structure be suspended from their Vote and be kept in the Provincial Revenue Fund as the funds were allocated on condition that a Memorandum of Agreement be signed between the province and other national bodies responsible for border control with the aim of recouping this seed funding. This condition has not yet been met. These funds are, therefore, used to offset the budget cut.

These measures were adopted so as to protect departments from the budget cuts and to ensure continued service delivery.

Additions to KwaZulu-Natal’s provincial equitable share

Besides the budget cuts, there were also some additions made to KwaZulu-Natal’s equitable share. The additional funds amount to R85.9 million, R88.2 million and R300.8 million over the MTEF. The funds are ear-marked by National Treasury, as follows:

Social Development receives R6.6 million and R7.1 million in 2020/21 and 2021/22. This relates to contracts for Provincial Food Distribution Centres and Community Nutrition Development Centres ceded to the Provincial Departments of Social Development by the National Department of Social Development.

Social Development receives R62.5 million, R66.7 million and R70.4 million over the MTEF with respect to the Social Worker Employment grant. The Social Development sector is phasing this grant into the equitable share, and this is, thus, not new money but merely a change in the funding stream from conditional grant to equitable share funding.

Provincial Treasury receives R5 million per year over the 2019/20 MTEF to increase the technical capacity within its infrastructure unit.

Education receives R27 million in 2019/20 and these funds are added to improve access to sanitary products and sanitary dignity for female scholars.

Health receives an allocation in the outer year of the 2019/20 MTEF to assist in dealing with the Cuban Doctors’ programme. A total of R1 billion is allocated to the health sector in 2021/22, with KwaZulu-Natal’s share of this being R208 million.

COGTA receives R9.6 million with carry-through over the MTEF for provinces to strengthen their support interventions in municipalities as per Section 139 of the Constitution.

Function shifts between departments

The 2019/20 MTEF gives effect to three function shifts. The first function shift entails the movement of the Learner Transport function from Education to Transport which was already initiated when the 2018/19 Adjustments Estimate was tabled in this House.

Secondly, the Gaming and Betting function moves from Office of the Premier to the Department of Economic Development, Tourism and Environmental Affairs, Thirdly, the Heritage function (inclusive of the entity Amafa) moves from Office of the Premier to the Department of Arts and Culture.

Read more: https://www.gov.za/sites/default/files/Budget%20Speech%20by%20MEC%20Ravi...