Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698140910673.pdf (South Africa)
Outline • Introduction • Background • Situational analysis • Division of revenue • Spending trends • Underspending • Budget Facility for Infrastructure • Summary 2 Introduction • The Parliamentary Budget Office is a juristic entity of Parliament and headed by a Director as an Accounting Officer.
The Office was established in terms of the Money Bills and Related Matters Act 2009 • To support the implementation of the Money Bills and Related Matters Act of 2009; in particular support to Finance and Appropriations Committees in both Houses; but other Committees and Members of Parliament subject to available capacity • The Money Bills and Related Matters Act guides the approval of money bills an related matters, including amending the budget • The Office offers independent and objective analysis and advice to Parliament on money bills and other bills presented by the Executive; and any other documentation or reports with fiscal implications • The purpose of this presentation is to provide an analysis of the Division of Revenue Bill and 2022 Second Adjustments Appropriation Bill to assist Members with their discussions on the Bill before adoption or recommendations • The presentation focuses on: • The needs of societies • How the budget is divided between the three spheres of government • Underspending trends • The purpose of the Budget Facility for Infrastructure and how these funds were allocated over the MTEF • 2022 Second Adjustments Appropriation Bill • Summary 3 Background Division of Revenue Situational analysis 4 Division of Revenue Provinces are responsible for basic education, health, roads, human settlements, social development and agriculture, while Municipalities provide basic services such as water, sanitation, electricity reticulation, roads and community services.
• Transfers to Provinces and local government are made through: • Equitable shares • Determined by formulas that take into account demographic and developmental factors • Conditional grants • Conditional grants are designed to achieve specific objectives, and provinces and municipalities must meet certain criteria to receive grants and fulfil conditions when spending them • The Explanatory Memorandum to the Division of Revenue Bill sets out the provincial and municipal allocations and details the equitable share formulas 5 Situational analysis National Provincial Local 6 National sphere of government: Social protection Average food basket against the National Minimum wage and social grants R6,000.00 R5,000.00 R4,000.00 R3,000.00 R2,000.00 R1,000.00 R0.00 • Large proportions of the South African population are subject to debilitating poverty and unemployment and institutional support is inadequate • President Cyril Ramaphosa: “African women are the face of poverty” – • The percentage of households that had limited access to food has increased from 17.8 per cent in 2019 to 20.9 per cent in 2021 • The percentage of persons with more limited access to food increased from 19.5 per cent in 2019 to 23.8 per cent in 2021 • The extensions to the COVID-19 SRD grant have provided lifelines to millions of South Africans • As of December 2022 the DSD had spent 48.2 per cent of the 2022 Budget • The new eligibility criteria for qualifying for the grant has led to the exclusion of millions of needy people who fall below the upper-bound poverty line • More than R9 billion of the estimated expenditure were not spent in 2022/23 a N Source: PMBEJD January Index, Budget 2023 r r e a c e t s o F e g A d O l D R S I 9 1 - ) h / 7 8 , 0 2 R t a n o i t p m e x e % 0 1 ( ) r h / 9 1 , 3 2 R ( e
National sphere of government: Justice & Protection Services • The increases in crime reported in crime statistics is worrying • On average, crime increased by 9.55 per cent (year-on-year) between December 2021 and December 2022 • In 2022/23, the biggest crime category (24.3%), increases were attempted murder shoplifting (23.3%) and common robbery (21.2%) • Police Minister Bheki Cele has previously expressed concern about the high levels of gender-based violence in the country • In 2020/21 there was one police officer – excluding administrative staff – for every 408 people • Budget 2023: SA crime statistiques: Q3 2021/22 vs Q3 2022/23 2021/22 vs 2022/23 Oct-Dec 2021 Oct-Dec 2022 Y-on-Y Change Contact Crimes 164 953 184 020 11.6% Contact-related Crimes 31 621 32 187 1.8% Property-related Crimes 91 450 98 004 7.2% Other Serious Crimes 101 820 112 580 10.6% • Increased the Police budget by R7.8 billion to make provision for 5 000 police trainees each year over the next 3 years Crime detected as a result of police action 54 608 60 169 10.2% • The Budget is silent on funding to implement the National Strategic Plan on GBVF (NSP on GBVF) Total 444 452 486 960 9.6% Source: 2022 Quarter 3 Crime statistics 8 Provincial sphere of government: Education • According to Stats SA, there was a decline from 36.8 per cent in 2019 to 28.5 per cent in 2021 in children aged 0 to 4 who attended Grade R and pre-school • Children from poorer households are more likely to stay at home with parents or guardians than attend ECD centers • New data published by Oxford University Press on early grade reading in South Africa report that fewer than 50 per cent of Grade 1 children learn the letters of the alphabet by the end of Grade 1 • Progress in International Reading Literacy Study (PIRLS) estimates that the number of Grade 4 children that cannot read for meaning will increase from 78 per cent pre- pandemic (2016) to an estimated 82 per cent in 2021 (final results to be
 published in May 2023) Child care arrangements for children aged 0 to 4 by income quintile 71.5 62.3 60.3 e g a t n e c e P r 54 32.1 42.7 34.7 23.1 18.1 21.4 1 2 3 Income quintile 4 5 Grade R, Pre-school, nursery school, creche, edu-care centre At home with parent or guardian Source: GHS 2021 9 Provincial sphere of government: Education • The percentage of individuals aged 18 to 24 who are still attending secondary school was higher for households in poorer income groups than households in higher income groups • 22.5 per cent of females and 15.5 per cent of males between the ages of 7 and 18 state that they are not attending an educational institution because they do not have money for fees • Youth aged 18 to 24 from the highest income households are more likely to attend university than those in lower quintile groups • Of the 7.8 million unemployed individuals in Q4 2022, 40,1 per cent had education levels below matric, 34.4 per cent had a matric, 10,6 per cent were graduates and 21 per cent had other tertiary 10 Provincial sphere of government: Health • The public healthcare system remains overstretched and underfunded • For example: According to the South African Nursing Council, the current nurse- to-patient ratio is 1:218 patients while the ideal ratio is 1:16 • In March 2022, Health Minister Joe Phaahla revealed that there were 10 831 vacancies in state hospitals citing budget cuts as a significant challenge • The Minister also highlighted that the doctor-to-patient ratio was 0.79 doctors per 1000 patients in 2019 • Primary Health Care (PHC) has deteriorated • The preliminary outcome for the number of public health facilities that qualified as ‘ideal clinics’ of 1 928 in 2021/22 was lower than the 2 035 clinics that achieved an ideal clinic status in 2019/20 • 22.1 deaths per 1 000 live births in 2019 • 24.1 deaths per 1 000 live births 2021 The Infant Mortality Rate (IMR) • 28.5 deaths per 1 000 live births in 2019 • 30.8 deaths per 1 000 live births in 2021 The
 under-5 mortality rate (U5MR): Burden of malnutrition 1994 - 2017 • Overweight worsened to 11.5 per cent • Wasting rate worsened to 3.4 per cent Source: Stats SA 11 Local government: Situation analysis • Local government (LG) plays a critical role as a first line of interaction between citizens and government • The business model for LGs is untenable for most LGs because it causes inadequate funding and means they provide inadequate levels and quality of free basic services • Frustration with service delivery is often cited as a crucial reason for the high number of service delivery protests in South Africa • According to Municipal with 193 protests recorded nationwide in 2022 IQ, service delivery protests are back to pre-Covid-19 levels, • Municipal IQ forecasts regular service delivery protests to continue in 2023 because of heightened frustration caused by load-shedding • Poor service delivery has disproportional impacts on different households (along racial, gendered and geographic lines) because it is predicated upon a set of distributive relations across different social groups • COVID-19 has highlighted the centrality of (social) reproduction and the gendered nature of household duties such as cooking, cleaning, water and fuel collection, child care and elder care • Women and girls undertake unpaid on work these vital household duties, which is not recognised in GDP calculations.
Insufficient and poor quality basic services mean that women and girls spend more time on these duties 12 Local government: Situation analysis • The Non-financial Census of Municipalities (NFCS) 2022 reports that fewer consumer units received free basic services in 2019 than 2018: Free basic service Water Sewerage and sanitation Electricity Decline in consumer units 1 000 000 645 866 132 303 • Millions of households that are eligible for free services do not get them due to a dysfunctional registration of system for indigent households • Therefore, millions of households are forced to choose between feeding their children and paying for municipal services • According to research by the Public Affairs Research Institute: • LGs have been unable to fulfil the conflicting financial viability through self objectives of financing and service delivery • Their efficacy and financial viability has suffered because of these conflicting goals Percentage of households receiving free basic services in 2018 versus 2019 35 30 25 20 15 10 5 0 t n e c r e P Water Electricity Solid waste Sewage and sanitation % share of free basic services in 2018 % share of free basic services in 2019 Source: Stats SA 13 Millions of households cannot use electricity to cook Number of households that do not use electricity for cooking and number who use gas for cooking (millions of households) 5 4 3 2 1 0 l d o h e s u o h f o s n o i l l i M 2017 2018 2019 2020 2021 Number of households that do not use electricity as their main source of cooking Number of households that use gas for cooking Source: PBO calculations using GHS 2021 • The ability to use electricity and gas for cooking makes a huge difference to household quality of life and time for other important household tasks • Most South African households suffer from load shedding, which has affected their ability to cook with electricity • Millions of households have been experiencing an even worse situation than load shedding because they are too poor (including, around 10 per cent of total households in 2021 who were not connected to mains) Challenges to service delivery • The financial and operational challenges that hinder local government from delivering basic services are often closely related • Failure to adequately address detrimentally affect social and economic development these challenges cause immense hardship and • According to literature poor performance of LGs is due to a combination of: • capacity constraints • poor planning and ineffective financial management • inadequate monitoring and evaluation in the context of poor governance, • convoluted political processes • corruption • Lack of up to date data exacerbates poor performance.
In 2021, StatsSA suspended the detailed General Household Survey due to budget cuts.

Without this critical information, data driven policy making is undermined • Performance and financial audits by the AGSA point to serious widespread problems within local government.
They reported that: • Only 28 per cent of municipalities submitted credible financial statements for audit in the 2019/20 financial year • The number of municipalities in financial distress increased from 86 in 2013/14 to 175 in 2019/20, and 123 municipalities passed unfunded budgets 15 The social wage and actual access to services • The National Development Plan 2030 aims to eliminate poverty and reduce inequality by 2030.
According to the NDP: • “Part of our approach to social protection is through a social wage, which includes no-fee schools, free basic services and subsidised public transport” (p.43) • “To promote sustainable livelihoods, irrespective of income, can access services” (p. 31) is important it that individuals or families, • One of SA’s nine primary challenges is “public services are uneven and often of poor quality” and adds that “Citizens have the right to expect government to deliver certain basic services” (p.15, Exec.
Summary) • The 2023 Budget Review claims that, even though, framework the social wage is protected it follows a fiscal consolidation • It reports that 51 per cent of the Budget over the MTEF will be on the social wage • However, the level of spending on the social wage for the entire country seems to have been quite inadequate during the past and also in this 2023 Budget because: • Unemployment poverty and inequality has increased since the NDP was published • Continued backlogs and “uneven and poor quality” of services remain primary challenges • The problem has not been “incrementalism” in budgets as claimed by the NT but that budgets provisions over many years have been insufficient for LGs to operate properly The social wage and actual access to services Service Households funded for the free service (2019/20) Households receiving the free service (2019) Difference (funded – actual recipients Total value of difference (R’billions) Electricity Water Sanitation Refuse TOTAL R8.63 R12.86 R10.42 R8.27 R40.18 Source: Tracy Ledger (2021) Access to Basic Services, PARI Working Paper • One cannot talk about access to important services, such as electricity and water, without taking into account both availability and affordability • Estimates are that as much as 80 per cent of South Africans cannot afford services like electricity and water • According to the South African Reserve Bank, there were huge increases in municipal services costs from 2010 to 2020: • Rates and taxes increased by 118 per cent • Electricity tariffs increased by 177 per cent • Water tariffs increased by 213 per cent • Free utilities available to households are insufficient to meet basic needs • An average household needs around 200 kWh of electricity – the free quota is 50 kWh.
• The 10 Kl of free water is only around two-thirds of what is required • Millions of households that are eligible for free services do not get them due to a dysfunctional system for the registration of indigent household The social wage and actual access to services • Government’s efforts to improve access to services fail because they do not provide ample free services and most households cannot afford them • Even with increased electrification, the majority of households have had much more to worry about than load shedding • They have been forced to choose between buying food and paying for water and electricity • Much services non-payment is due to poverty not unwillingness to pay • Local governments are forced to increase utility costs, even though they are aware that household can't afford services because their business model depends on raising tariffs and not increasing levels of free services • The principal sources of local government revenue are property rates, taxes, and services, such as electricity and water • These revenues are meant to fund nearly three-quarters of all operating expenditure requirements, which means that tariffs have to be increased Division of Revenue National Provincial Local 19 Object of the Division of Revenue Bill To, amongst others, provide for the equitable division of nationally raised revenue between the national, provincial and local spheres of government for the 2023/24 financial year Division of available funds 9.7% 49.1% 41.2% Provinces 18% 82% Equitable share Conditional grants Local government 9% 32% 59% National Provinces Local government Source: National Treasury Equitable share Conditional grants General fuel levy sharing with metros 20 Division of Revenue 21 R billion2019/202020/212021/222022/232023/24 2024/25 2025/26 Revisedestimate Division of available fundsNational departments749.8 790.5 823.0 854.4 828.6 835.7 877.9 0.9% of which: Indirect transfers to provinces2.9 2.9 3.7 4.6 4.2 4.4 4.8 1.1%Indirect transfers to local government5.6 4.1 5.7 7.2 8.5 8.9 9.3 8.9%Provinces613.5 628.8 660.8 694.6 695.1 720.5 754.7 2.8%Equitable share505.6 520.7 544.8 570.9 567.5 587.5 614.3 2.5%Conditional grants107.9 108.1 116.0 123.7 127.5 133.0 140.4 4.3%Local government123.0 137.1 135.6 147.8 164.0 174.4 183.3 7.4%Equitable share65.6 83.1 76.2 83.7 96.5 103.8 109.4 9.3%Conditional grants44.2 40.0 44.8 48.7 52.0 54.5 57.1 5.4%General fuel levy13.2 14.0 14.6 15.3 15.4 16.1 16.8 3.2%Non-interest allocations1 486.2 1 556.4 1 619.4 1 696.8 1 689.1 1 734.4 1 819.9 2.4%Debt-service costs204.8 232.6 268.1 307.2 340.5 362.8 397.1 8.9%Main budget expenditure1 691.0 1 789.0 1 887.5 2 004.0 2 034.6 2 137.9 2 266.5 4.2%Percentage sharesNational50.4%50.8%50.8%50.4%49.1%48.3%48.3%Provinces41.3%40.4%40.8%40.9%41.2%41.6%41.6%Local government8.3%8.8%8.4%8.7%9.7%10.1%10.1%1.
Includes amounts for Budget Facility for Infrastructure projects and other provisional allocationsSource: National TreasuryAverageannualMTEF growthOutcomeMedium-term estimates Changing shares of Division of Revenue from 2008/09 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 49.7% 42.4% 48.9% 42.2% 7.8% 8.8% 48.3% 41.6% 10.1% National departments Provinces Local government Source: National Treasury 22 Changing shares of Division of Revenue from 2008/09 – including debt-service costs 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 45.5% 38.8% 8.6% 7.2% 42.6% 38.3% 11.6% 7.9% 38.7% 33.3% 17.5% 8.1% National departments Provinces Local government Debt-service costs Source: National Treasury 23 2022 Division of Revenue – real per capita s d n a R 35,000 30,000 25,000 20,000 15,000 10,000 5,000 - Source: National Treasury, Stats SA, UN.
PBO own calculations National departments Local government Provinces Main budget expenditure Growth in real per capita expenditure 2008/09 - 2022/23 2022/23 - 2025/26 National depts.

Provinces Local government Debt service costs Main budget ex.
1.5% 1.1% 2.2% 1.4% 2,0% -3.6% -2.3% 1.0% 2.8% -1.7% 24 Amounts to be appropriated from the revenue fund to the National sphere Source: National Treasury 25 AppropriatedTransfers Percentage PaymentsPayments (including directCurrent and to be for capitalfor financial To beIncrease/charges)paymentssubsidiestransferredassetsassetsappropriatedDecrease12022/232023/243Cooperative Governance111 364 861 5 092 057 116 582 750 95.8%23 444 – 121 698 251 10 333 390 8National Treasury911 965 823 343 481 129 612 872 530 63.9%163 151 1 967 648 958 484 458 46 518 635 13Public Works and Infrastructure8 547 267 1 282 567 7 490 793 85.3%8 745 – 8 782 105 234 838 16Basic Education29 560 167 3 054 709 26 990 726 84.9%1 737 278 – 31 782 713 2 222 546 17Higher Education and Training130 134 198 11 852 217 121 651 029 90.9%305 298 – 133 808 544 3 674 346 18Health64 530 977 2 553 033 56 251 340 93.6%1 307 061 – 60 111 434 -4 419 54319Social Development257 001 361 929 497 262 085 938 99.6%13 764 – 263 029 199 6 027 838 22Correctional Services26 108 720 24 469 348 724 740 2.8%832 584 – 26 026 672 -82 04823Defence49 090 089 44 552 822 5 721 088 11.2%850 519 – 51 124 429 2 034 340 25Justice and Constitutional Dev.22 420 451 18 990 590 3 413 303 14.7%788 757 – 23 192 650 772 199 28Police100 695 315 97 135 597 1 267 160 1.2%3 734 899 – 102 137 656 1 442 341 29Agriculture, Land Reform and RD17 287 698 7 426 141 9 314 498 54.0%513 709 – 17 254 348 -33 35033Human Settlements33 024 716 954 376 33 460 598 95.8%527 427 – 34 942 401 1 917 685 37Sport, Arts and Culture6 295 128 998 953 5 072 729 79.8%286 001 – 6 357 683 62 555 40Transport69 137 929 1 664 068 77 894 899 97.9%6 044 – 79 565 011 10 427 082 41Water and Sanitation18 539 669 3 545 317 14 061 490 63.2%4 650 499 – 22 257 306 3 717 637 Total1 959 687 045 607 535 879 1 400 170 713 69.0%18 401 162 1 967 648 2 028 075 402 68 388 357 R thousand Conditional grants transferred from national departments 26 Revised estimateR million2019/202020/212021/222022/232023/242024/252025/26 Annual Average
Annual Average increase since 2019/20 3Cooperative Governance466 138 48 97 146 152 159 -16.4%13Public Works and Infrastructure868 832 835 858 861 900 940 1.3%16Basic Education19 079 19 238 21 936 23 124 25 329 26 485 28 093 6.7%18Health45 863 52 082 52 462 56 252 54 183 56 171 58 687 4.2%29Agriculture, Land Reform and Rural Development2 158 1 688 2 235 2 294 2 333 2 516 2 596 3.1%33Human Settlements19 572 15 343 17 303 19 172 19 246 19 614 20 493 0.8%37Sport, Arts and Culture2 121 1 521 2 087 2 176 2 175 2 272 2 374 1.9%40Transport17 768 17 217 19 057 19 756 23 270 24 853 27 058 7.3%Total 107 896 108 060 115 964 123 730 127 544 132 963 140 402 4.5%Audited outcomeMedium-term expenditure estimatesTo ProvincesRevised estimateR million2019/202020/212021/222022/232023/242024/252025/26 Annual Average increase since 2019/20 3Cooperative Governance15 806 15 578 16 932 20 082 19 411 19 948 20 841 4.7%8National Treasury1 584 1 482 2 366 2 380 2 580 1 802 1 883 2.9%13Public Works and Infrastructure730 748 759 778 781 816 853 2.6%33Human Settlements11 803 10 738 11 417 11 680 12 514 13 354 14 109 3.0%34Mineral Resources and Energy2 087 1 551 2 223 2 343 2 436 2 554 2 668 4.2%40Transport6 484 4 498 5 284 6 128 6 910 7 873 8 495 4.6%41Water and Sanitation5 698 5 373 5 858 5 348 7 360 8 137 8 264 6.4%Total 44 191 39 969 44 839 48 740 51 992 54 484 57 113 4.4%1.
Source: National TreasuryAudited outcomeMedium-term expenditure estimatesDetails are provided in the 2023 Division of Revenue Bill.To Municipalities Provincial Equitable Share • Total average annual MTEF increase is 2.5 per cent • The largest average annual increase is in Limpopo of 3.1 per cent • The estimated total of increases are between R10 063 million and R11 371 million mainly to provide for the carry-through effect of the 2022/23 public- service wage increase • To note is the decrease in the total allocation in 2023/24 from the 2022/23 estimate 27 R million2021/222022/232022/232023/242024/252025/26Average annual MTEF growthActualEstimate in 2022 BudgetEstimate in the 2023 BudgetMedium-term estimatesEastern Cape70 950 72 231 73 593 73 292 76 022 79 620 2.7%Free State30 342 31 107 31 727 31 380 32 369 33 735 2.1%Gauteng115 621 120 042 122 060 120 752 125 438 131 095 2.4%KwaZulu-Natal111 592 114 509 116 697 115 948 118 858 123 812 2.0%Limpopo62 556 64 056 65 241 65 349 67 974 71 502 3.1%Mpumalanga44 543 45 962 46 754 46 674 48 437 50 752 2.8%Northern Cape14 469 14 942 15 219 15 150 15 718 16 463 2.7%North West38 294 39 540 40 255 40 096 41 765 43 843 2.9%Western Cape56 467 58 367 59 322 58 886 60 920 63 448 2.3%Total544 835 560 757 570 868 567 528 587 500 614 271 2.5%2022 MTBPS560 805 556 385 576 501 602 900 Difference10 063 11 143 10 999 11 371 Source: National Treasury Conditional Grants to Provinces 2023/24 •Most of the CG increase the in in revised 2022/23 since estimates •The District health programme grant decreases by R2 157 million National tertiary •The services grant decreases by R282 million •Education infrastructure grant increases by R1 372 million •Human Development by R688 million Settlement increases •Provincial Maintenance by R3 202 million Roads increases 28 R million2021/222022/232023/242024/252025/26Revised estimateRevised estimateDirect conditional grantsDifferenceComprehensive agricultural support programme 1 558 1 599 1 626 27 1 777 1 825 Ilima/Letsema projects 597 610 620 10 648 677
 Land care programme grant: poverty relief and infrastructure development85 86 1 90 94 Early childhood development grant1 193 1 242 50 1 885 2 341 Education infrastructure11 689 12 501 13 872 1 372 13 845 14 438 HIV and AIDS (life skills education) grant242 242 -1253 264 Learners with profoundintellectual disabilities grant256 260 5 272 284 Maths, science and technology grant425 433 8 453 473 National school nutrition programme 8 115 8 508 9 279 771 9 778 10 293 Provincial disaster response grant97 146 49 152 159 District health programmes grant27 753 29 023 26 866 -2 15728 072 29 330 Health facility revitalisation 6 435 6 780 7 120 340 7 361 7 691 Human resources and training grant4 298 5 449 5 479 30 5 367 5 607 National health insurance grant694 695 1 717 749 National tertiary services 13 708 14 306 14 024 -28214 654 15 310 Human settlements development13 403 14 256 14 944 688 15 118 15 796 Informal settlements upgrading partnership3 890 4 121 4 303 182 4 496 4 697 Provincial emergency housing grant796 – -796– – Mass participation and sport development grant 604 604 0 631 659 Expanded public works programme integrated grant for provinces433 435 2 454 475 Social sector expanded public works programme incentive grant for provinces 425 426 2 446 466 Community library services 1 573 1 571 -21 641 1 715 Provincial roads maintenance 12 665 15 867 3 202 17 117 18 976 Public transport operations 7 090 7 403 313 7 735 8 082 Other direct grants4 363 Total direct conditional grants116 361 123 730 127 544 3 814 132 963 140 402 Indirect transfers3 954 4 612 4 178 -4344 447 4 763 School infrastructure backlogs 2 397 2 403 2 079 -3242 172 2 269 National health insurance indirect1 557 2 209 2 099 -1102 275 2 494 Source: National TreasuryMedium-term estimates Transfers to Local Government • In 2023/24, R164 billion is allocated as direct transfers to local government, while a further R8.5 billion is allocated national to be spent by departments on behalf of municipalities • Of
 the direct transfers, 68.3 per cent will be transferred as for unconditional municipalities to use according to the priorities determined by their councils through their budget processes funds • The remaining 31.7 per cent will be transferred through conditional grants • In 2023/24, government is funding free basic services to 11.2 million households at a cost of R70.9 billion 29 R million2021/222022/232023/242024/252025/26Adjusted BudgetAdjusted BudgetEquitable share and related77 999 87 311 96 546 103 772 109 368 General fuel levy sharing with metros14 617 15 335 15 433 16 127 16 849 Direct conditional grants44 969 51 542 51 992 54 484 57 113 Integrated urban development1 009 1 085 1 172 1 227 1 284 Municipal disaster recovery3 319 321 – – Municipal disaster response764 373 389 407 Municipal infrastructure15 593 16 842 17 545 18 331 19 150 Energy efficiency and demand-side management223 224 243 253 Integrated national electricification programme2 003 2 120 2 212 2 311 2 415 Informal settlements upgrading partnership3 945 4 273 4 365 4 561 4 765 Municipal emergency housing55 – – – Urban settlements development7 405 7 352 8 149 8 793 9 343 Infrastructure skills development159 160 167 175 Local government financial management566 569 594 621 Neighbourhood development partnership1 293 1 475 647 676 Programme and project preparation support361 377 394 411 Expanded public works programme intergrated778 781 816 853 Public transport network5 175 6 013 6 794 7 752 8 369 Rural roads asset management systems115 115 121 126 Regional bulk infrastructure2 237 2 521 3 496 4 099 4 045 Water services infrastructure3 620 3 701 3 864 4 038 4 219 Other3 982 Total direct transfers137 585 154 188 163 972 174 382 183 330 Indirect transfers7 727 8 171 8 481 8 862 9 259 Municipal systems improvement140 147 153 160 Integrated national electricification programme2 824 3 588 3 821 3 993 4 172 Neighbourhood development partnership201 101 105 110 Regional bulk infrastructure3 857 3 470 3 607 3
 769 3 938 Water services infrastructure771 805 841 879 Other indirect grants1 046 Source: National TreasuryMedium-term estimates Spending trends 2022/23 Q3 spending analysis National Provincial Local government 30 2022/23 Q3 spending analysis Fastest spending on national departments, April – Dec 2022: • Statistics South Africa spent the largest proportion (98.1%) of their total budget within the first nine months of the financial year • About 90 per cent of the budget is allocated to Current payment and they had spent 101 per cent by Dec 2022 • Census 2022 collection date was extended from 28 February to 14 May 2022 to cater for over 600 000 households in Western Cape province • Faster spending in DHET, DBE, and DWYPD was driven by Transfers and Subsidies which account for more than 80 per cent of their allocations Slowest spending on national departments, April – Dec 2022: • The Department of Public Enterprise had spent only 38.4 per cent (R12.7 billion) of its budget by the end of December 2022, due to slower than planned disbursement of funds to Eskom, as the funds are disbursed in terms of the liquidity needs of the entity • Transport and Military Veterans spent slightly more than half of their budgets 31 Vote R’000Revised estimatesYTD - April - Dec 2022% YTDStatistics South Africa2 999 4272 942 67398.1Higher Education and Training109 737 633101 060 21692.1Women,YouthandPersonswithDisabilities991 714862 59487.0Basic Education29 693 16023 795 68980.1Small Business Development2 532 8892 005 05879.2Employment and Labour4 107 7763 227 22878.6Science and Innovation9 145 2627 048 19177.1Public Works and Infrastructure8 152 7296 187 63975.9Vote R’000Revised estimatesYTD - April - Dec 2022% YTDPublic Enterprises33 145 39812 742 05138.4Transport95 134 23750 269 90452.8Military Veterans670 032383 59757.3The Presidency618 283377 66661.1Water and Sanitation18 555 01011 399 55961.4Home Affairs10 796 2326 871 87563.7Mineral Resources and Energy10 447 5376 662
 99563.8Agriculture,LandReformandRuralDevelopment17 533 64311 295 91164.4 Statement of provincial receipts and payments as at 31 December 2022 32 BudgetReceipts/Payments to DateMainBudget Adjustments AdjustedBudget1.
ActualReceipts/Payments ActualReceipts/Payments R'000R'000R'000R'000%ReceiptsTransfers from National Revenue Fund682 067 683 11 966 293 694 033 976 515 311 977 74.2% Equitable share of revenue560 756 789 10 111 417 570 868 206 420 567 597 73.7% Conditional grants121 310 894 1 854 876 123 165 770 94 744 380 76.9% Provincial own receipts21 423 085 978 683 22 401 768 17 654 660 78.8% Total receipts703 490 768 12 944 976 716 435 744 532 966 637 74.4% Payments by provincial departments- Education289 837 704 7 300 111 297 137 815 221 753 458 74.6% Health238 834 217 7 118 246 245 952 463 182 555 675 74.2% Social Development and Special Programmes20 956 158 438 952 21 395 110 15 827 653 74.0% Other148 507 170 6 467 610 154 974 780 106 494 186 68.7% Total payments698 135 248 21 324 919 719 460 167 526 630 972 73.2% Payments by economic classificationCurrent payments571 352 434 16 630 523 587 982 956 432 644 453 73.6% Compensation of employees422 485 723 9 049 642 431 535 365 321 428 459 74.5% Goods and services148 860 419 7 546 634 156 407 052 111 144 248 71.1% Transfers and subsidies88 379 358 5 072 804 93 452 162 70 063 074 75.0% Provinces and municipalities10 824 401 (1 644 204) 9 180 197 7 257 523 79.1% Departmental agencies and accounts12 073 025 1 018 062 13 091 087 10 288 258 78.6% Public corporations and private enterprises9 994 377 (25 575) 9 968 802 7 105 506 71.3% Non profit institutions36 310 580 808 363 37 118 943 30 833 123 83.1% Households19 008 366 4 937 235 23 945 601 14 494 788 60.5% Payments for capital assets38 397 904 (389 872) 38 008 032 23 880 169 62.8% Total payments698 135 248 21 324 919 719 460 167 526 630 971 73.2% Provincial Conditional Grants transferred and actual payments as at 31 December 2022 National departments administering conditional grants NationalAllocation after adjustments Provincialroll-overs TotalAvailable Transferred from National toProvince ActualPayments to date R'000 R'000 R'000 R'000 % Schedule 5, Part A Grants2.Agriculture, Land Reform and Rural Development (Vote 29)2 294
 412 110 273 2 404 685 1 978 357 60.2% (a) Comprehensive Agricultural Support Programme Grant1 599 214 81 022 1 680 236 1 381 305 56.4% (b) Ilima/Letsema Projects Grant610 278 25 946 636 224 529 112 70.1% (c) Land Care Programme Grant: Poverty Relief and Infrastructure Development84 920 3 305 88 225 67 940 62.3% Sports, Arts and Culture (Vote 37)1 572 550 68 450 1 641 000 1 238 594 65.5% Community Library Services Grant1 572 550 68 450 1 641 000 1 238 594 65.5% Basic Education (Vote 16)10 623 592 374 701 10 998 293 8 796 546 73.1% (a) Early Childhood Development Grant1 192 682 190 613 1 383 295 894 513 62.3% (b) HIV and AIDS (Life Skills Education) Grant242 275 4 897 247 172 193 823 77.2% (c) Learners with Profound Intellectual Disabilities Grant255 521 22 835 278 356 188 521 61.0% (d) Maths, Science and Technology Grant424 793 40 886 465 679 357 955 68.8% (e) National School Nutrition Programme Grant8 508 321 115 470 8 623 791 7 161 734 75.3% Health (Vote 18)41 948 513 1 080 165 43 028 678 31 582 015 67.5% (a) District Health Programmes Grant29 023 118 351 823 29 374 941 21 920 355 68.0% (b) Health Facility Revitalisation Grant6 779 546 627 178 7 406 724 5 054 641 60.6% (c) Human Resources and Training Grant5 449 066 21 305 5 470 371 4 086 720 76.3% (d) National Health Insurance Grant696 783 79 859 776 642 520 299 51.5% Human Settlements (Vote 33)18 376 699 638 211 19 014 910 13 871 983 62.9% (a) Human Settlements Development Grant14 255 610 315 138 14 570 748 10 843 835 64.1% (b) Informal Settlements Upgrading Partnership Grant: Provinces4 121 089 323 073 4 444 162 3 028 148 59.1% Provincial Conditional Grants transferred and actual payments as at 31 December 2022 (cont.)
34 National departments administering conditional grants NationalAllocation after adjustments Provincialroll-overs TotalAvailable Transferred from National toProvince ActualPayments to date R'000 R'000 R'000 R'000 % Public Works and Infrastructure (Vote 13)857 946 2 958 860 904 763 904 70.5% (a) Expanded Public Works Programme Integrated Grant for Provinces433 098 2 838 435 936 349 722 71.8% (b) Social Sector Expanded Public Works Programme Incentive Grant for Provinces424 848 120 424 968 414 182 69.1% Sports, Arts and Culture (Vote 37)603 511 3 569 607 080 482 809 79.0% Mass Participation and Sport Development Grant603 511 3 569 607 080 482 809 79.0% Sub-Total76 277 223 2 278 327 78 555 550 58 714 208 67.0% Schedule 4, Part A Grants1.- - - - Basic Education (Vote 16)12 500 851 543 290 13 044 141 10 524 131 Education Infrastructure Grant12 500 851 543 290 13 044 141 10 524 131 Health (Vote 18)14 306 059 369 588 14 675 647 10 729 503 National Tertiary Services Grant14 306 059 369 588 14 675 647 10 729 503 Transport (Vote 40)19 755 873 1 074 677 20 830 550 14 809 780 (a) Provincial Roads Maintenance Grant12 665 441 1 074 677 13 740 118 9 567 712 (b) Public Transport Operations Grant7 090 432 - 7 090 432 5 242 068 - - - - Sub-Total46 562 783 1 987 555 48 550 338 36 063 414 Total123 165 770 4 286 123 127 451 894 94 917 625 Schedule 4, Part A grants specifying allocations to provinces to supplement the funding of programmes or functions funded from provincial budgets.Schedule 5, Part A grants specifying specific-purpose allocations to provinces.Schedule 7, Part A grants specifying unallocated provisions for provinces for disaster response.Note: Numbers in red were adjusted Efficiency and effectiveness of expenditure on conditional grants • The performance of Basic Education, Health, Human Settlements, Agriculture and Transport Conditional Grants were assessed for the 2020/21 financial year • Performance data on conditional grants are not published quarterly • The PBO assessed the information available in the schedules
 to the 2020 Division of Revenue Act (DORA) • The assessments showed that: • • The information provided in the DORA schedules is neither relevant nor adequate to determine efficiency and effectiveness of expenditure There is a two-year time lag between current year and actual performance data that is reported in the schedules • The PBO evaluated the performance information reflected in government departments’ Annual Reports 35 Analysis of the information on the conditional grants assessed showed • Performance outputs/indicators were not well defined • There was duplication of indicators/outputs • There was poor or no reporting on actual non-financial information • In some instances, no targets were set for outputs • Overspending on some of the grants, has been accompanied by underperformance • Underspending that performance has been accompanied by over • Reporting on the performance was not measured against set targets • There was incomplete performance information • The lack of proper performance information on conditional grants in the Annual Reports of departments makes it difficult to determine the effectiveness of expenditure and impact of the outputs delivered by provincial departments 36 LG: revenue and expenditure trends Capital and operating revenue t n e c r e P 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 - Oprev Caprev Oprev Caprev Oprev Caprev Oprev Caprev Oprev Caprev 2018/19 2019/20 2020/21 2021/22 2022/23 (Q1) Eastern Cape Free State Gauteng Kwazulu-Natal Limpopo Mpumalanga North West Northern Cape Western Cape Capital and operating expenditure t n e c r e P 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 - Opex Capex Opex Capex Opex Capex Opex Capex Opex Capex 2018/19 2019/20 2020/21 2021/22 2022/23 (Q1) Eastern Cape Free State Gauteng Kwazulu-Natal Limpopo Mpumalanga North West Northern Cape Western Cape self-financing with • LG are operating revenue, accounting for more than 85 per cent of total budget on average • Service charges and property
 rates are the two largest sources of operating revenue • Poor revenue management and inability to efficiently raise own revenue are some of the biggest to causes of local government financial distress • A number of municipalities fail to deliver services effectively due to poor governance, financial mismanagement and insufficient capacity • Key issues in municipal budgets • Growing grant dependence • Inadequate maintenance expenditure • Outstanding consumer debts • Under-pricing of services 37 Underspending Analysis Historic spending analysis Reasons for underspending 38 Underspending: historical trends 39 YearR millionUnder/(Over) SpendingPer centUnder/(Over) SpendingPer centUnder/(Over) SpendingPer cent2011/1211 5992.3%(354)-0.1%11 2451.2%2012/137 7931.4%(1 825)-0.4%5 9680.6%2013/143 8650.7%1 9640.4%5 8300.6%2014/1510 3821.6%(1 929)-0.4%8 4530.7%2015/166 5990.9%(92)0.0%6 5070.5%2016/176 2990.9%1 1400.2%7 4400.6%2017/1812 6911.6%(77)0.0%12 6150.9%2018/1910 8741.3%(851)-0.1%10 0230.7%2019/20(3 751)-0.4%(635)-0.1%(4 387)-0.3%2020/2120 9222.0%(2 051)-0.3%18 8711.0%Total appropriation by voteTotal direct charges against the National Revenue FundTotal governmentYearR million Under/(Over) spendingPer cent Under/(Over) spendingPer cent Under/(Over) spendingPer cent Under/(Over) spendingPer cent Under/(Over) spendingPer cent2011/126 280.12.8%5 129.50.8%251.42.0%(415.9)-55.4%11 245.11.2%2012/136 261.62.5%2 440.60.3%438.93.0%(3 173.4)-218.7%5 967.80.6%2013/14(3 591.6)-1.3%9 450.01.2%277.91.9%(306.7)-8.5%5 829.50.6%2014/153 839.71.3%5 505.90.7%435.72.6%(1 328.8)-33.6%8 452.60.7%2015/162 310.90.7%5 694.20.6%(1 074.8)-6.2%(423.2)-1.4%6 507.10.5%2016/175 601.31.5%3 551.50.4%(1 051.0)-7.2%(662.2)-11.1%7 439.60.6%2017/181 550.00.4%10 221.31.0%504.93.2%338.41.7%12 614.60.9%2018/193 276.30.8%5 704.70.5%1 786.111.0%(743.6)-5.4%10 023.50.7%2019/201 935.10.4%(9 179.2)-0.8%2 634.117.9%223.20.3%(4 386.8)-0.3%2020/2117 014.23.5%584.50.0%2 875.719.4%(1 603.5)-1.8%18 870.81.0%Current
 paymentsTransfers and subsidiesPayments for capital assetsPayments for financial assetsTotal government Reasons for underspending • The phenomenon of underspending of government’s budget is not unique to South Africa • Weaknesses in budget planning and execution processes and procedures are a critical contributors to underspending of government budgets • Complex procurement processes have been cited by many government entities as reasons for underspending • Delays in payment of invoices or claims by government departments and entities, is one of the major reasons for underspending in government suppliers • Vacancies in critical posts in government departments and entities contributed to delays in expenditure • Interdepartmental systemic issues which Interdepartmental projects, particularly addressed drive in infrastructure, need to be inefficiencies • Failing to comply with conditional grant conditions, leads to underspending of the grant and funds being returned to national departments • Inadequate needs assessment and project planning, ineffective monitoring of project milestones and contractors/ implementing agents have all led to underspending in government 40 Budget Facility for Infrastructure (BFI) 41 Budget facility for Infrastructure • The Budget Facility for Infrastructure (BFI) is a multidisciplinary facility that brings together varied government expertise to provide recommendations on the technical feasibility and readiness of infrastructure projects • The purpose of this facility is to: • Support quality public investment by improving the planning, technical assessment, budgeting, and execution of large infrastructure • Assist in building a pipeline of projects through rigorous technical analysis, budgeting, and funding commitments • Six BFI windows have been established since its inception to support large infrastructure projects • The Facility considers the use of blended or hybrid financial solutions that include a combination of grants, debt, and
 equity sources from both public from multilateral and private institutions, and concessional development banks loans • R2.5 billion was approved for project funding through the BFI processes in the 2022 adjustment budget process, while R24 billion was approved in the 2023 MTEF period 42 Budget facility for Infrastructure • The Budget Facility for Infrastructure approved R21.7 billion (44.4%) of aggregated capital cost for 13 projects.
The status of human settlements, water and sanitation, and student housing infrastructure projects approved through BFI is as follows: • Three infrastructure projects are under construction • Two infrastructure projects under due diligence • Four infrastructure projects in the procurement process • Four infrastructure projects are awaiting ministerial approval • Projects approved through the BFI as per the 2023 Budget over the MTEF: • Coega SEZ: R1.8 billion over the MTEF.
Previous through DTIC now through the PES • Comprehensive Agricultural Support Programme Grant for Agri-hubs in KZN: R153 million over the MTEF • Public Transport Network Grant: R461 million over the MTEF for the City of Cape Town MyCiTi public transport network project rescheduled • George local municipality potable water security and remedial works project: R136 million over the MTEF rescheduled • New projects include: • eThekwini Metro: Avoca Node • City of Johannesburg: Lufhereng mixed use development programme • Sol Plaatjie Local Municipality: Old water supply infrastructure • Drakenstein Local Municipality: upgrade of sanitation infrastructure • Nelson Mandela Bay: Water supply crisis due to ongoing droughts 43 2022 Second Adjustments Appropriation Bill Revisions to the non-interest expenditure 44 Revisions to the non-interest expenditure • Public-service wage bill increases by R14.6 billion • Increases are between R3 million and R1.9 billion depending on the size of the national department • SAA: R1 billion outstanding historical debt • All government guarantees to SAA to assist with will be cancelled • Proof of funds equity partner to be provided for the strategic transaction needs • NT will review the SEP agreement to prevent future fiscal obligations • SAPO: R2.4 billion equity injection • Several conditions apply including the placement of the entity under administration • Land Bank: R5 billion, R3 billion for the blended finance programme and R2 billion to remedy its default position • Several conditions apply 45 R million2022/23Non-interest expenditure (2022 Budget)1 673 450Upward expenditure adjustments77 4192022 MTBPS54 117Special appropriation30 014Other allocations in the AENE24 102Second adjustments appropriation23 3022022/23 public-service wage increase14 602South African Airways1 000South African Post Office2 400Political parties fund300Land Bank section 6 provision5 000Downward expenditure adjustments-54 039Projected underspending-19 427Other downward adjustments-34 613Revised non-interest expenditure (2023 Budget)1 696 829Change in non-interest expenditure from 2022 Budget23 379 In summary • The country’ socioeconomic challenges shows that government spending on social protection is an important policy intervention.
However, given poverty- unemployment and inequality levels, government MTEF spending to address these challenges is inadequate • Crime statistics in South Africa are showing worrying increases: • On average, crime has increased by 9.55 per cent (year-on-year) between December 2021 and December 2022 • Government spending of justice and protection services has to be better aligned given that crimes continues to grow and it takes longer to resolve crime cases despite more funds allocation • Government has made slow progress in realising education outcomes set out in the 2019-2024 MTSF, with access to ECD by poorer households have seen decline of the recent years • Progress in International Reading Literacy Study (PIRLS) estimates that the number Grade 4 children that cannot read for meaning will increase from 78 per cent pre- pandemic (2016) to an estimated 82 per cent in 2021 • Of the 7.8 million unemployed individuals in Q4 2022, 40.1 per cent had education levels below matric, 34.4 per cent had a matric, 10.6 per cent were graduates and 21 per cent had other tertiary • The public healthcare system remains overstretched and underfunded • For example: According to the South African Nursing Council, the current nurse-to-patient ratio is 46 1:218 patients while the ideal ratio is 1:16 In summary • Local government plays a critical role as a first line of interaction between citizens and government • Dissatisfaction with service delivery has often been cited as the reason for the increase in service delivery protests within South Africa • Total consolidated government spending is expected to grow at an average annual rate of 4.5 per cent, from R2.17 trillion in 2022/23 to R2.48 trillion in 2025/26 • Provincial equitable share increases by 2.5 per cent on average over the 2023 MTEF • Most of the provincial CG increase in 2023/24 since the revised estimates in 2022/23 • In 2023/24, R164 billion is allocated as direct transfers to local government, while a further R8.5 billion is allocated to be spent by national departments on behalf of municipalities • Underspending is a concern for Members and several reasons have been identified over years • Despite several concern interventions to address the causes of underspending it remains a • A Budget Facility for Infrastructure has been established to improving the planning, technical assessment, budgeting, and execution of large infrastructure projects • The performance of the BFI should be monitored to determine its value-addition and improvement of outcomes 47 Thank you The provincial equitable share (PES) • The equitable share is the main source of revenue through which provinces are able to meet their expenditure responsibilities.
For each year of the 2021 MTEF, provincial equitable shares amount to: R523.7 billion, R524.1 billion and R525.3 billion • The current PES is allocated through a formula using objective data to reflect the demand for services across all nine provinces • It consists of six components that account for the relative demand for services and take into consideration the change of demographics in each of the provinces.
The formula components are: (DORB p.75-90) • An education component (48 per cent), based on the size of the school-age population (ages five to 17) and the number of learners (Grades R to 12) enrolled in public ordinary schools • A health component (27 per cent), based on each province’s risk profile and health system caseload • A basic component (16 per cent), derived from each province’s share of the national population • An institutional component (5 per cent), divided equally between the provinces.
• A poverty component (3 per cent), based on income data.
This component reinforces the redistributive bias of the formula • An economic activity component (1 per cent), based on regional GDP 49 The local government equitable share(LGES) • The local government fiscal framework responds to the constitutional assignment of powers and functions to this sphere of government • The framework refers to all resources available to municipalities to meet their expenditure responsibilities • National transfers account for a relatively small proportion of the local government fiscal framework, with the majority of local government revenues being raised by municipalities themselves through their substantial revenue- raising powers • Poor rural municipalities, however, receive most of their revenue from transfers, while urban municipalities, although not always effective, raise the majority of their own revenues • Funds raised by national government are transferred to municipalities through conditional and unconditional grants • Over the 2021 MTEF period, R432.6 billion will be transferred directly to local government and a further R23.7 billion has been allocated to indirect grants.
• Direct transfers to local government over the medium term account for 9.4 per cent of national government’s non-interest expenditure • When indirect transfers are added to this, total spending on local 50 government increases to 10 per cent of national non-interest expenditure LG: Capital and operating revenue trends Capital and operating revenue t n e c r e P 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 2017/18 % Share 2018/19 % Share 2019/20 % Share 2020/21 % Share 2021/22 % Share 2022/23 (Q1) % Share Capital and operating expenditure 2017/18 % Share 2018/19 % Share 2019/20 % Share 2020/21 % Share 2021/22 % Share 2022/23 (Q1) % Share 51 n o i l l i b ’ R 800 700 600 500 400 300 200 100 0 The provincial fiscal framework Provincial fiscal framework trajectory from 2021-Conditional grant and PES 646.8 647.2 647.2 684.4 694 525.3 538.8 525.3 556.4 567.5 121.5 121.9 121.9 128 127.5 2021 budget 2021 MTBPS 2022 budget Axis Title 2022 MTBPS 2023 budget PES Conditional grants Total 52 n o i l l i b ’ R 120 100 80 60 40 20 0 Local Government Allocation to Local Government 104 109 97 87 83 76 66 44 40 45 52 52 54 57 13 14 6 4 15 15 15 16 17 8 8 8 9 9 2019/20 2020/21 2021/22 2022/23 Axis Title 2023/24 2024/25 2025/26 Equitable share General fuel levy Conditional grants Indirect transfers 53