Introduction
Honourable Speaker, Honourable Premier, Honourable Members, Ladies & Gentlemen.
I am particularly pleased to table for your consideration the main appropriation for 1997/8, because this budget is the first for which Gauteng has been treated as a provincial government, rather than an administration. We come of age today.
Could I briefly remind you of the process we went through. We were given a global total allocation at the Budget Council. The executive held a budget lekgotla to provide a preliminary split of that total into departmental allocations. Each department then had a number of meetings with their portfolio committee during which the details of the departmental budgets were thrashed out. After consolidating the departmental budgets and presenting them at the Budget Council, a second lekgotla of the executive was held to reconcile departmental budgets to the final total. All budgeting was done with our medium term expenditure framework, a new tool which the rest of the country will be adopting only for 1998/9. The budget I am tabling here today is the outcome of that process.
Because the portfolio committees were involved with the departments in the details of their budgets, I expect that there is a far greater general understanding of the budgets than in previous years. At the same time, because the Executive made the final decisions on what is to be presented to you today, the Legislature’s oversight function has not been compromised. My feeling is that better understanding in fact enhances this oversight function.
There should not be too many surprises here today. One of the downsides of this new budget process is that I am deprived of the possibility of dramatic surprise in my budget speech, since most of the budget is already well known.
Economic prospects
Before going into the main features of the budget, I would like to briefly mention the broader economic circumstances facing South Africa and Gauteng.
South Africa has experienced relatively strong economic growth since the election, but it is generally agreed that this growth is beginning to slow down. National GDP growth in 1996 was approximately 3.1%, and was strongly underpinned by strong growth in the agriculture and non-gold mining sectors. As these sectors are not substantial in our province, the Gauteng growth rate for 1996 is likely to be significantly lower than the national figure.
Gauteng in fact has a problematic growth trajectory. The traditional industrial base is under threat for a number of reasons. In the context of an export-oriented growth strategy, a number of industries which have traditionally been based here in order to be near their markets, are now moving towards the coast, from where they will be better positioned for access to export markets. Also, the decline in heavy industries has meant a decline in the demand for inputs to these industries.
On the other hand, higher-value, sophisticated manufacturing, and the tertiary sector, have been growing and there remains considerable growth potential in trade, business services, financial services, and other tertiary sectors. Gauteng remains a centre for corporate head offices, for international firms wishing to do business in South Africa, and for firms wishing to access business opportunities in sub-Saharan Africa. Gauteng also has numerous advantages in respect of `smart’ industries, such as bio-technology, electronics,and other high value-added sectors.
Gauteng should not seek to resist the movement of firms to coastal locations: after all, it is in the interests of South Africa that firms be located in areas which make most business sense. Instead, we should have a growth strategy which builds on our competitive advantages. Such a strategy would position Gauteng as the smart centre of the country, a province with advanced skills, advanced infrastructure, and the ideal place from which to do high-value business. Local and foreign business are beginning to realise this and we believe that the medium- and long-term growth potential of theProvince is substantial.
This approach will ensure that renewed and substantial economic growth takes place in the province. But Gauteng must also ensure that there is sufficient social investment to act as a platform from which the `smart’ province can operate. Given our constitutional responsibilities, this is the major role of the provincial government. We are charged with the responsibility of ensuring that education and health services are provided to all who need them; and that a welfare safety net exists to support the poorest sections of our society.
What does this mean for the provincial budget? While we must put resources and effort into promoting the correct economic development growth path, we must also ensure that, within the overall fiscal constraints, sufficient resources are allocated to social services.
Main features of the budget
The national Minister of Finance last week indicated an increased focus on social spending and on infrastructure within the constraints of a slowly growing total budget. Since provinces are at the front line in much of this social spending, it is logical that Gauteng’s budget should also reflect these priorities. We applaud particularly the tax concessions for lower income earners and the poverty alleviation programme announced by the Minister, and wish to stress that Gauteng intends to make a full contribution to the national investment in social development and in social equity.
Revenue side
The budget which I present to you today provides for the Gauteng Provincial Government to spend R13.718 billion during 1997/8. 94% of this, or R12.907 billion will be transferred from the National Revenue Account, while R811 million will be derived from provincial revenue sources. The national transfer is 16% higher than the corresponding figure for 1996/7.
Equitable share of revenue
The form and content of our new system of intergovernmental fiscal relations is beginning to take shape. The Provincial Borrowing Powers Act is in place, and significant progress has been made in addressing the question of the equitable share of nationally collected revenues to which each province is entitled under the Constitution. We are expecting national legislation on this matter is due course. Much ground still needs to be covered, but there has been significant progress.
It was therefore disturbing to hear criticism of the way that budget shares were decided upon, especially coming from a province that has had more than its equitable share of revenues per capita. Let me try to put things in the correct perspective.
The new method of sharing revenues among provinces relies on part of the FFC proposals. These proposals are structured in such way that equity in per capita allocations will be achieved over a five year time period. Last years allocations, which came from the function committees, were very prejudicial to Gauteng, and resulted in a total allocation from national government of R1295 per person resident in this province. By contrast, the per capita allocation to the Western Cape was R2101, which was higher than for any other province except the Northern Cape. The allocation to the Western Cape was a full 62% higher per person than for Gauteng for 1996/7.
The FFC formula is very carefully constructed, and has treated Gauteng more generously than the function committees did. Our per capita allocation this year is R1505, an increase of 16%. But because equity will only be achieved over time, Gauteng’s allocation is still below the average for all provinces of R1755 per person, and still far below the figure for the Western Cape figure of R2197. The Western Cape figure is still higher than for any other province except the Northern Cape.
The facts on the provincial allocations are therefore very different from the perceptions. I would like to stress the point that Gauteng receives less from national government per head of population than every other province, and that the achievement of equity will involve Gauteng getting a steadily increasing share of the total transfer from national to provinces. The substantial increase for 1997/8 is a correction of the inequitably low allocations from the function committees for 1996/7.
Statements which challenge these allocations are essentially a challenge to equity in provincial allocations, and are in fact an attempt to retain the status quo we inherited from apartheid.
Expenditure side
The budget proposals before you today envisage spending R5.0 billion on Education, R4.7 billion on Health, R2.3 billion on Welfare & Population Development. The remaining R1.7 billion will be spread across the other 10 votes.
In highlighting the main features of the budget, I could compare these figures with the equivalent figures in last year’s main budget. If you look at the white book, you will see that the overall budget is 14% higher than this time last year, and that we propose to increase the budget of Health by 23%, of Education by 11% and of Welfare by 31%. But this would present a misleading picture. It is more meaningful to compare the budget proposals with actual current spending levels, and this is how I will proceed.
Normally under conditions of stringent fiscal disciple, it is the social spending and the capital spending which are the first to suffer. I am therefore pleased to announce that we have worked very hard to maintain social and capital spending at a high level. The share of the budget which has been allocated to welfare, health and education has increased from 85% to 88%, in order to make sure that the difficult fiscal circumstances do not threaten the basic social services for which we are responsible. Capital spending has also been maintained at a high level.
Welfare
The best news in this budget is for Welfare. We propose to increase the budget of the Department of Welfare & Population Development by 17% compared to current spending levels. Much of this is due to the increase in the level of social grants announced last week by the Minister of Finance, while the rest is based on the anticipated increase in the number of beneficiaries. This allocation should make a considerable contribution towards poverty alleviation and also to improving the quality of life of the recipients. We will of course continue working towards the elimination of all leakage in Welfare.
Health
The health budget that we are proposing is 3% higher than the expected full-year spending level for 1996/7. Most of the increase is geared towards addressing the maintenance backlog inherited by the provincial health department. Within this allocation, there is a further shift in the direction of primary health care.
Education
Gauteng is of course talking part in the national drive towards greater equity in education, mainly by working towards the national norms in educator-learner ratios in schools. Since we currently have more teachers than the norms, this involves reducing the number of teachers in our schools. Fewer teachers of course involves a reduced budget. Compared to actual current spending, therefore, the budget proposal for education involves a reduction of 9.5%.
Personnel
The budgeted expenditure on personnel is 11.2% below our current spending levels. This is the result of the reduction in the number of public servants employed by Gauteng: we are expecting to have to pay 6000 fewer officials than in the 1996/7 financial year.
Capital
We have endeavoured to keep capital spending at a high level despite the stringent fiscal constraints facing us, and have therefore budgeted to spend over R1 billion on capital items. The intention is to maintain the momentum of high capital spending over a 5 to 7 year period in order to address the capital and maintenance backlogs which affects many of the provinces health, education and other institutions. This clearly supports development and growth, which is geared towards reducing the high level of unemployment with the Province.
We are also shifting towards making allocations for large capital projects on a cash flow basis, rather than providing a large up-front allocation and then having to roll unused funds over.
Gauteng is fully committed to the creation of jobs via the capital projects. Our capital projects will as far as possible be conducted in a labour absorbing manner, and in a way which utilises small, medium and micro enterprises.
A difficult fiscal year
Many concerns have been expressed about the ability of provinces to keep within their allocations. There is no doubt that 1997/8 will be a difficult fiscal year and that it will be hard to keep within the very stringent fiscal limits which apply to us. However, we are determined to maintain our record of sound budgeting and sound financial management. We have developed the systems and procedures which will allow us to monitor expenditure on a continuous basis. The Legislature will also play its oversight role in this regard.
I know that I can look forward to the active support of all of my colleagues in the Executive, led by the Premier, in this effort to keep within our budget limits. I know also that I can look forward to the support of this House. I am also counting on the support of the accounting officers who will be directly responsible for ensuring that funds are spent as per the budget.
Government is after all a collective effort. The achievement of our fiscal targets will be a credit to the entire provincial government, and will stand us in good stead for many years to come.
I would also like to stress that it is very important for South Africa as a whole that Gauteng continues to set a good example on financial matters.
However, this House should rest assured that fiscal stringency will not last forever. If South Africa is able to achieve the sort of growth rates envisaged by GEAR, then within two or three years there will be sufficient funds to address our social imperatives. Obviously Treasury has adopted a cautious approach in making its projections, but nevertheless, when we achieve economic growth rates of 6%, we will have more than adequate funds.
Oversight over the finances of local government
I would like to announce to this House that as from April 1998 the province will take over from national government the responsibility for oversight of the budgets of local authorities in Gauteng. This responsibility will include setting overall growth limits on capital and current spending for local authorities.
This responsibility will fall within my portfolio. We will spend this financial year building the capacity to fulfil this important responsibility in a competent and professional manner. This will include sending a number officials to work at the national Department of Finance for much of this financial year. They will spend the time evaluating the financial situation of Gauteng’s local authorities, and analysing their budget proposals. By the time the responsibility is formally devolved to us, we will have the capacity to carry it out.
To my mind this heralds a new era in the relationship between the provincial and the local spheres. Provincial governments should be able to develop a much better appreciation of the pressures and circumstances facing local authorities than has been possible previously. I look forward to a good working relationship between myself and my colleague, MEC Sicelo Shiceka on these matters, and to an even further improved working relationship between the province and the local authorities.
Financial management of the province
I wish also to mention some of our efforts to improve upon the financial management in the provincial government.
The first point is that, given the fiscal challenges facing this province, and the difficulty of achieving our targets, it will be important to upgrade the capacity and powers of the provincial treasury. New functions to be taken on include capacity to oversee the financing of local governments, capacity for fiscal analysis, and substantial extra training capacity, both in financial administration and in financial management.
Secondly, for internal government services such as financial administration, we are developing the concept of `internal privatisation’, in terms of which a service-supplying component is funded not by an appropriation but by fees paid by departments receiving the service. Service standards will be set and agreed, and any failure to meet those standards will result in a discount on the fees charged. Departments will be free to look elsewhere for the services if there is prolonged failure to meet the standards. This approach should lead to higher quality services and greater productivity.
Presentation of budget information
The formal budget documents that I am tabling today are supplemented by two additional documents, the budget booklet and the Gauteng Fiscal Review. Both of these are intended to enhance understanding and transparency, and hence accountability for the budget, although in different ways.
The budget booklet is intended to be a popular brochure which provides essential information on the budget to the average citizen who may not go into the matter very deeply. It follows the format used last year when 20 000 copies where distributed in four languages to schools, clinics, hospitals and other government installations.
The `Gauteng Fiscal Review’ is a new step that we are taking today for the first time. The intention of this book is to provide more analytical budget information, and to present the budget data in formats which are not possible in the white book. The Review also attempts to relate the Gauteng budget to the state of the economy in general and in Gauteng in particular. Copies of the Review are being distributed to all political office bearers, to provincial government departments, and also to national government and to local authorities. Members of the public will be able to obtain a copy from my department .
I hope that both of these will enhance the quality of debate on the budget.
Conclusion
In conclusion, I would like to thank especially the members of the Executive for their sober consideration of budgetary issues under very difficult circumstances. I would also like to thank this House for its greater involvement in the budget process, and for the encouragement which has been received from all quarters. Finally, thanks are also due to the Departments who for the most part took to the new budget process and the medium term expenditure framework with enthusiasm, notwithstanding that their budgets ended up being lower than they had hoped.
I spoke at the beginning about how this province comes of age today with this budget. I also wanted to bring to your attention that administratively, the Treasury has been setting new benchmarks with each year that passes. Most of the staff who worked on this budget should be in the House today and I would like to thank them for their dedication and hard work.
Finally, Mr Speaker, I today table the following documents for the consideration of the House: