Issued by: Gauteng Provincial Government
SPEECH BY MEC: FINANCE & ECONOMIC AFFAIRS, MR JABU MOLEKETI
ADJUSTMENTS APPROPRIATION BILL 1995/6
INTRODUCTION
Mr Speaker, Mr Premier, Honourable Members, Ladies & Gentlemen.
I thank you for this opportunity to address you again on the 1995/6 budget. I would like to begin by revisiting the situation we found ourselves in at the beginning of this financial year.
As you are all aware, in my speech on 22 March 1995 I presented a budget of R10.778 billion. That was the total of the resources we had available at that stage, and a provincial government may not run a deficit. I also indicated however that our projections showed that Gauteng government departments would spend R12.0 billion. There was therefore a gap of R1.2 billion, which we called a potential shortfall. Covering this potential shortfall was the primary challenge facing the treasury during this financial year, and I laid out a plan which would cover the gap.
At the time I was presenting the budget the treasury did not exist (my head of department took office only on April 1st, and I was operating with my personal staff and a strategic management team only).
The challenge we faced therefore was to establish the treasury and run the financial affairs of this government, all the while facing this potential shortfall of R1.2 billion, of 11% of the budget.
You will understand therefore if I take some pride in presenting to you a supplementary appropriation of R1 322 904 00 (R1.323 billion). This is more than we originally predicted we would require, and brings the total Gauteng budget of 1995/6 to R12.1 billion.
The fact that expenditure will be higher than originally projected is not due to laxity on our part: instead it is due to two substantial items which were not provided for in the original estimates, namely the local government elections, and the devolution of functions in respect of dental schools.
Despite these extra functions, as a result of the additional funds we have raised, I can report that Gauteng will finish the financial year with its books in balance.
THE SUPPLEMENTARY APPROPRIATION BILL
The Bill sets out the proposals for using the additional funds. The largest items are allocations to education, health (mainly via vote 16: Promotion of the RDP), improvements of conditions of service, and public works. The explanatory memorandum attached to the Bill gives details of these amounts.
THE SHORTFALL PLAN
When I presented the original estimates of expenditure for 1995/6 to this house, I also presented a plan to cover the potential shortfall. I would like to go through the main elements of this plan, in order to report to you which components of it were achieved, and which fell short. The reason for this is that although we managed to cover more than the R1.2 billion, not all of this achieved as indicated in that plan.
A. Debt for capital projects
The first item in the plan was the proposal to fund part of the capital budget, up to R280 million, by taking on debt. This clearly depended on the passage of the provincial Borrowing Powers Bill through national Parliament. Since this has not yet happened, this opportunity was not available to us.
B. RDP fund: special allocation for health
Secondly, we anticipated a special R300 million bridging allocation for health from the RDP fund. This was eventually received, although it took far longer to finalise than we had anticipated.
C. Carry-over funds
Although we had anticipated that R200 million would be available as roll-overs from 1994/5, in practice the amount rolled over turned out to be R126 million. However, revenues received in 1994/5 were R50 million higher than budgeted, which brought the total carried forward to R176 million.
D. Additional revenues
We had planned to raise additional revenues from various sources: user charges (R10 m), horseracing (R10 m), gambling (R50 m), interest (R20 m) and vehicle license fees (R60 m). Slower than anticipated progress at national level on the question of gambling ruled out any additional earnings from this source, but the other plans all yielded additional revenues. For example, horseracing and betting produced R28 million, and vehicles licenses R35 million. Interest earned deserves special mention: careful cash management and the immediate placing of temporarily surplus funds on deposit at the best available rates resulted in Gauteng earning an additional R113 million form interest.
I would like to take this opportunity to emphatically refute recent allegations made by the Auditor-General to the Public Accounts Standing Committee in national Parliament, to the effect that Gauteng's finances are in disarray, that we have not reconciled our bank accounts, and that we do not know the status of our cash balances. I wish to assure this House that we know the status of our accounts at any point in time: w have a live connection to our bank which permits this. We monitor our cash position closely, and can draw projections at any time. When we were still concerned about the possibility of overspending, we had developed contingency plans to limit cash disbursements should our bank balances run low. We have cash-flow analyses which permitted us to accurately predict when funds would be required: this is what permitted us to place R800 million of short-term funds at higher interest rates. We produce a monthly report for department heads showing them the state of their expenditure and comparisons with their budget. We reconcile our bank accounts on a daily basis, and when the Auditor-General was speaking the reconciliation had taken place up to 19th February 1996. Books are closed for a given month when we are satisfied that no additional postings to that month will take place: clearly only at this point is a final bank reconciliation possible for that month. The most recent month to be closed in this way is September 1995, which is completely within accepted norms. All in all the Auditor-General's comments were a most unfortunate piece of dis-information and they have done Gauteng undeserved harm.
Returning to the question of additional revenues: despite the additional revenues earned according to this plan, Gauteng suffered from a substantial decline in revenues from one specific source, namely patient fees. Here we have earned R100 million less than budgeted. This was mainly due to the free health care provided to pregnant women and to children under six years of age in terms of the Presidential Lead Project. The allocation for that project from the RDP fund totalled only R57 million, leaving the rest to be filled from our own sources.
The net position on revenue is therefore that Gauteng will earn approximately R58 million more than budgeted for the 1995/6 financial year. However, we have not felt it necessary to appropriate this amount at this stage. I am reporting this information to you because it formed part of the shortfall plan, but the net additional revenues have not been included in the amount recommended for appropriation here.
In addition, the Gauteng Health Department treats many patients who have been referred from health departments in other provinces. Although these costs are incurred by Gauteng, the corresponding budget is allocated to the referring province. There is now agreement in principle that Gauteng can charge other provinces for formally referred patients, and this will constitute an additional revenue source. However, we are obviously not in a position to appropriate these revenues at this stage.
I can therefore say that even the remaining R64 million deficit referred to by the Premier on Friday might not materialise, and that I expect Gauteng's books to balance.
E. Reprioritisation and cutbacks
There were many areas where expenditure was substantially less than expected, because of cutbacks, reprioritisation, and slower than expected establishment of new departments. Savings in some departments have allowed us to re-allocate funds to underfunded departments. In total, R136 million was reprioritised in this way. "Donor" departments included my own - Finance & Economic Affairs - as well as Corporate Services, Housing & Local Government, Public Transport & Roads, and Development Planning, Environment & Works. Beneficiaries included Health, Education, Welfare, and Sports, Recreation, Arts & Culture.
F. Waste reduction campaign
Because of the potential shortfall that we started with, we have run a very tight ship, and line departments have been very aware of the need to curtail expenditure. We did launch several exercises aimed at reducing waste, curtailing expenditure, and improving performance. Among these was a Performance Review exercise, which was a scan of line departments intended to provide a launch pad for several more intensive restructuring exercises, currently underway, which will begin to have an impact in future yeas.
G. Other sources
The rest of the funds to be appropriated here were transfers from the national exchequer. These have not come in the form of a large grant to cover the deficit, but as many relatively small components for specific purposes. Examples include funds to cover improvements in conditions of service, rationalisation and retrenchment costs, training costs, drought relief, costs of the local government elections, costs of devolved functions in health and sports & recreation, and an additional allocation for education.
Obtaining these funds has required the detailed attention of many parts of the administration, and only in the case of education could the amount be referred to as `deficit-covering'. Working with national government has therefore produced more than we anticipated.
THE BUDGET PROCESS
As many members of this House noted at the beginning of this financial year, the budget process has been a source of many of our problems, and I would like to make a few comments on this point now, although I will elaborate when I present a 1996/7 budget for your consideration in a few weeks time.
The budget process has been unsatisfactory because it essentially makes the provincial legislative process redundant, while drastically limiting our scope to manage a provincial budget. It was also unsatisfactory because the way that function committees operated threatened to leave us in the same position year after year.
The challenge is to put in place a budget process which allows for integration between national and provincial budgets, in the spirit of co-operative governance, and also permit provincial discretion over the budget to take account of provincial circumstances.
We have pressed for a substantial reform of the budget process all year, and I am happy to report that a breakthrough is imminent. We have managed to get agreement from the national Department of State Expenditure that function committees will be abolished, and that the budget process for the 1997/8 financial year will be a substantial improvement on the existing one, even prior to the passage of a national Revenue Sharing Act.
THANKS
Firstly I would like to thank my own department for all its work and achievement over the past year. Although many of them have relatively little experience of government, they have shown themselves able to rise to the challenge of administering the finances of an organisation as huge as this government.
Secondly, thanks are also due to the Director-General and the Heads of Departments for their assistance. I have found it remarkable how our administration has squarely faced the financial challenges that confronted us, and has tackled the problem squarely.
Of course the support of the Premier and my colleagues in cabinet was also essential, and I would particularly like to thank them for their assistance and support. I was often in the position of placing very difficult decisions in front of them, and was always gratified by the way that we were able to take those decisions in an atmosphere of sound and constructive debate.
Finally I would like to thank the national Minister of Finance, the Deputy Minister of Finance, and officials of the departments of Finance and of State Expenditure. Gauteng has managed to establish good working relations with our national counterparts in the field of finance, and this has been important to our success.
CONCLUSION: CHALLENGES WE STILL FACE
To conclude: We started the year with a `potential shortfall' of R1.2 billion, and we have covered that shortfall. I am proud to inform you that we are therefore finishing the year with a balanced budget. The name `potential shortfall' was therefore well chosen.
It may not be obvious, but my primary goal has not been, and is not, a balanced budget as such. My primary goal is to improve service delivery. Government must deliver more services and better services in all the relevant fields: in our case, the three main ones obviously being health, education, and welfare.
Given that fiscal resources are so limited, especially if we want to keep tax increases to a minimum, the only way to do this is to improve effectiveness and efficiency: essentially, to provide more and better services while using fewer resources. Clearly there is a long way to go on this: it is a central challenge facing this government, and in fact the entire government system, for many years to come.
Nevertheless I am pleased that we have established this benchmark of financial discipline. I would like to assert here that we will live up to this standard, and improve upon it, in years to come.
Mr Speaker, on this note I would like to present for the consideration of this house the following documents:
1. Adjustments Estimate of Expenditure for the Financial Year ending 31 March 1996;
2. The Province of Gauteng Adjustments Appropriation Bill, 1996, and Explanatory Memorandum; and,
3. A copy of the speech I have just delivered.
Thank you.