The 3rd quarter provincial budget report covers spending after nine months of the 2004/05 financial year, from 1 April 2004 until 31 December 2004.
Provinces have spent 70,6 per cent of their adjusted budget, or R136,7 billion of R193,6 billion, for the first nine months of the financial year. This compares with the 71,4 per cent, or R107,3 billion of R150,3 billion, spent by national government for the same period.
The greatest spending pressure facing provinces continues to be in social development departments, where in spite of the R3,3 billion increase through the adjustments budget, provinces spent 73,4 per cent or R37,2 billion of their R50,7 billion adjusted budget. This represents a massive increase of R6,4 billion or 20,9 per cent over the same period last year.
A few provinces also face some risks from their personnel expenditure in education and health. Total personnel expenditure in all nine provinces is R65,7 billion or 73,6 per cent of the R89,3 billion personnel budget.
The biggest underspending problem in provinces continues to be the slow rate of spending on capital, as provinces spent 46,4 per cent or R5,6 billion of their combined R12 billion adjusted capital budgets. This is significantly lower than the 67 per cent spent by national departments, but R2,1 billion more in absolute terms given the smaller national budget.
The projected aggregated provincial budget deficit is projected to be just below R2,5 billion. For most provinces, this deficit will be funded from last year's provincial rollovers and cash balances (R3,1 billion).
Education expenditure totalled R47,8 billion or 72,6 per cent of the R65,7 billion total adjusted budget for education. The spending pattern reflects a R4,3 billion or 9,9 per cent increase compared with spending during the same period in 2003/04. Capital spending in education is relatively slow at 42,9 per cent or R1,3 billion up to the end of December 2004. Personnel expenditure is high at 74,5 per cent.
Health expenditure totalled R28,7 billion (70,2 per cent), which is R2,5 billion higher compared with the same period last year. Capital expenditure in health is relatively slow at 45,4 per cent or R1,3 billion.
The highest share (39,3 per cent) of provincial capital budgets is for roads, transport and public works departments, which spent R2,6 billion or 54,3 per cent against it's total R4,7 billion adjusted budget.
Provincial own revenue collected is R4,4 billion or 83,9 percent of the total own revenue budget of R5,3 billion. National government transferred R123,2 billion of the equitable share, and R15,8 billion in conditional grants, after nine months of 2004/05.
The figures in this 3rd quarter report includes the additional funds totalling R4,3 billion allocated to provinces on 26 October 2004 through the adjustments budget. Provincial budget figures are also updated for their adjustments, including any roll-overs from the previous financial year.
This analysis is based on the statement of receipts and payments published by the National Treasury on 28 January 2005, and is available on the treasury website www.treasury.gov.za. The information is based on the section 40(4) PFMA reports submitted (and signed) by each head of provincial department to their provincial treasury by 15 January 2005, and submitted to the National Treasury by 21 January 2005. Queries on any spending or budget numbers should therefore, in the first instance, be referred to the relevant head of the provincial department, and in the second instance to the head of the provincial treasury. Provincial heads of department failing to sign and confirm their section 40(4) PFMA monthly reports will be in breach of the Public Financial Management Act (PFMA). Queries on conditional grants should be referred to the relevant head of the administering national department.
The information presented here is restricted to financial information only, but provincial departments should be in a position to provide complementary non-financial performance information at least up to the second quarter (as such information comes with a lag of 2 to 4 months). Such information is necessary to measure outputs and performance thus enabling managers to assess value for money. It is hoped that provincial legislatures will request performance related information from relevant provincial departments when discussing this section 32 PFMA report on the budget after nine months of the 2004/05 financial year, from 1 April 2004 to 31 December 2004. This 3rd quarterly report provides a valuable basis for identifying potential overspending and underspending by departments, and in the process highlighting budgetary and spending pressures and problems.
Table 1 below indicates that provinces have spent 70,6 per cent or R136,7 billion of their adjusted budgeted expenditure after nine months into the 2004/05 financial year. Though almost identical to the 70,9 percentage spent in 2003/04 (for the same nine month period), spending increased by 12,6 per cent or R15,3 billion compared to last year as provinces spent R121,4 billion. Between provinces, average spending ranges from the lowest share of 69,1 per cent in North West to the highest at 72,6 per cent in KwaZulu-Natal.
Total 119 178 614 62 350 674 12 035 811 193 565 099 85 621 376 45 450 372 5 589 558 136 661 307 70.
Social services adjusted budgets total R157,2 billion, and comprise 81,2 per cent of the total R193,6 billion provincial budget. Table 2 indicates that provinces spent R113,6 billion or 72,3 per cent of budgeted R157,2 billion for the three social services departments (education, health and social development). This is R13,3 billion or 13,2 per cent more than spending during the same period in 2003/04.
Education 65 744 907 47 761 323 72.6% 43 451 323 9.
Health 40 849 417 28 694 864 70.2% 26 164 799 9.
Social Development 50 652 364 37 167 639 73.4% 30 741 004 20.
Total 157 246 688 113 623 827 72.3% 100 357 126 13.
Social development adjusted budgets total R50,7 billion, increasing significantly through the adjustments budgets by R3,3 billion compared to the original 2004/05 budget of R47,3 billion. The adjusted budget comprises 26,2 per cent of the total provincial adjusted budgets.
In spite of the large social grants adjustments allocation, the third-quarter year to date spending trends (Table 3) indicate that provinces continue to face great pressure from social development budgets, which registered spending of 73,4 per cent or R37,2 billion of their R50,7 billion adjusted budget. This represents a 20,9 per cent increase of R6,4 billion over the R30,7 billion spent over the same period last year.
The pressure is derived from sharp growth in beneficiary numbers for disability and foster care grants, which is beyond budgeted projections (unlike the high growth in the child support grant, which is largely budgeted for).
Eastern Cape 9 687 860 6 660 730 68.8% 6 140 178 8.
Free State 3 632 596 2 637 104 72.6% 2 005 046 31.
Northern Cape 1 317 875 935 085 71.0% 844 896 10.
North West 4 313 458 3 201 225 74.2% 2 729 841 17.
Western Cape 4 326 504 3 110 194 71.9% 2 794 027 11.
Total 50 652 364 37 167 640 73.4% 30 741 004 20.
Given that the number of beneficiaries is highest in the last quarter of a financial year (as compared to the first quarter), provinces are still at some risk of overspending their budgets, particularly in KwaZulu-Natal (78,7 per cent), and Mpumalanga (76,6 per cent).
The risk of overspending on social grants is indicated more strongly in table 4 below, which focuses only on the social assistance grant programme (programme 2 under the social development vote). The risk of overspending their budgets appears to be in KwaZulu-Natal (80 per cent), Mpumalanga (77,5 per cent) and to a lesser extent in Gauteng (75,3 per cent), North West (74,9 per cent) and Free State (74,5 per cent).
Education adjusted budgets of R65,7 billion comprise 34 per cent of total provincial adjusted budgets. Table 5 below indicates that education expenditure at R47,8 billion is 72,6 per cent of the total adjusted education budget, an increase of R4,3 billion or 9,9 per cent compared to the R43,5 billion spent over the same period in 2003/04. Spending between provinces for education ranges from the lowest share of adjusted budget in Free State at 68,5 per cent, to the highest in Northern Cape (77,5 per cent) and Gauteng (74,8 per cent).
The bulk of education expenditure is for personnel, spending R40,1 billion or 74,5 per cent of the personnel adjusted budget of R53,9 billion. Spending on goods and services (mostly learner support material) is recorded at R3,8 billion or 62,2 per cent of its R6,1 billion adjusted budget.
Personnel expenditure in provincial education departments pose the biggest spending risk to provincial education budgets, and squeeze out spending on capital and learnersupport material in the process. The biggest risks appear to be in Northern Cape (76,7 per cent) and Limpopo (76,4 per cent), followed by Eastern Cape (75,4 per cent) and KwaZulu-Natal (75,2 per cent).
Education departments have spent relatively low on capital at 42,9 per cent or 1, 3 billion of their total adjusted capital budgets (Table 7 below). This is slightly lower (R44 million) than the spending on capital over the same period last year. Spending between provinces ranges from the lowest in KwaZulu-Natal (13,5 per cent), Western Cape (25,8 per cent), Gauteng (36,6 per cent) to the highest in Eastern Cape (76,6 per cent) and Northern Cape (72,2 per cent).
Health adjusted budgets totalling R40,8 billion comprise 21,1 per cent of the total provincial adjusted budget. Table 8 indicates that health expenditure is R28,7 billion or 70,2 per cent of the total health adjusted budget, representing an increase of R2,5 billion or 9,7 per cent compared to the spending after nine months of the 2003/04 financial year.
The Mpumalanga health department has spent the lowest share of its budget after the first nine months at 65,2 per cent with Gauteng at 65,5 per cent. The highest share spent is recorded in Eastern Cape (75,9 per cent) and Free State (73,4 per cent).
Table 9 below indicates that health personnel expenditure is at R17,4 billion or 73,4 per cent of the adjusted health personnel budget, an increase of R2,2 billion or 14,6 per cent compared to the R15,1 billion spent over the same period in 2003/04. Given the relatively large share of personnel budgets in health, there is some risk of overspending on personnel in Eastern Cape (78,2 per cent), North West (74,8 per cent), Mpumalanga (74,7 per cent), KwaZulu-Natal (74,5 per cent). Such overspending impacts negatively on non-personnel expenditure.
Capital expenditure in the health sector is relatively slow at 45,4 per cent or R1,3 billion, marginally lower than the R1,4 billion spent for the same period last year (Table 10 below). Between provinces, the lowest rate of spending is in Gauteng (14,4 per cent), Mpumalanga (15,3 per cent) and Northern Cape (29,3 per cent) with Eastern Cape and Limpopo recording the highest share at 70,9 per cent and 62,7 per cent respectively.
Provinces have spent 46,4 per cent or R5,6 billion of their R12 billion adjusted capital budgets ("payments for capital assets"). This is slightly lower than the rate of spending in both absolute and percentage terms for the same period last year.
Table 11 below provides capital spending information by province, which indicates significantly slow spending in Gauteng at 19,2 per cent, Mpumalanga (35,3 per cent) and highest in Eastern Cape at 77,2 per cent. In absolute terms, Eastern Cape has spent the most at R1,4 billion, followed by KwaZulu-Natal at R1,3 billion and Limpopo at R806,2 million.
It should be noted that reclassification changes due to the New Economic Reporting Format has lowered capital spending and budget figures. For example, the housing subsidy grant is now classified under transfers and subsidies, and not capital.
The biggest capital budgets in provinces are in roads, transport and public works departments (Table 12 above) at R4,7 billion, or 39,3 per cent of the total provincial capital budget of R12 billion. Spending for these departments is relatively faster than other sectors at 54,3 per cent or R2,6 billion of the R4,7 billion adjusted budget. This rate of spending is still lower (2,4 per cent) compared to the R2,6 billion spent last year over the same period.
The rate of spending, however, varies greatly between provinces, with Gauteng recording almost no spending at 1 per cent, Free State at 29 per cent, whilst Eastern Cape and Northern Cape record the highest at 84,8 per cent and 80,1 per cent respectively.
As noted above, housing subsidy expenditure is no longer classified as capital. Table 13 below indicates that provinces spent R3,3 billion or 73,8 per cent of their R4,5 billion Housing Subsidy conditional grant. These spending figures are a significant improvement compared to the last three financial years, though it is not clear to what extent some of the transfers reflects actual spending by municipalities and entities.
Provincial housing departments do not link actual output information on housing (e.g. complete houses built, complete foundations or serviced plots provided) to their spending figures. Such information is required to assess the extent of housing delivery.
Table 14 reflects spending on 2004/05 conditional grant allocations as at 31 December 2004 for all provinces. It excludes rollovers from conditional grants from the 2003/04 financial year. It also excludes general conditional grants like National Tertiary Services, Hospital Professions Training and Development, and the Provincial Infrastructure grants, as reporting against these grants cannot be separated from the province's health and capital budgets.
The rate of conditional grants spending is slower than total provincial expenditure with provinces having spent R8 billion or 66,1 per cent of the total adjusted budget of R12,1 billion, which excludes general conditional grants as mentioned above.
Specific grants reporting very slow spending include Food Emergency Relief (16,3 per cent), Land Care Poverty Relief (24,6 per cent), Integrated Nutrition Programme (Health) (36,9 per cent) and Human Settlement and Redevelopment (43,9 per cent).
Funds have been transferred for the Agricultural Disaster Management and Malaria and Cholera Prevention grants during the last day of the 2003/04 financial year and is included in table 14 to register spending on these two grants. Gauteng has included a new allocation of R6,3 million for the Alexandra Urban Renewal Project programme as tabled in their November 2004 adjusted estimates.
Spending of these grants is subsumed in the spending of a range of programmes across provincial departments and therefore no reporting is required on these grants.
The total available for spending on conditional grants increases by R697,5 million if provincial roll-overs are included, like Housing Subsidy (R374,8 million), Human Settlement (R116,4 million), Local Government Capacity Building Fund (R59,7 million), Child Support Extension (R31,9 million), and Food Emergency Relief (R22,8 million).
Table 15 indicates the variance in spending of selected conditional grants between provinces, particularly for the Land Care Programme (Agriculture), Integrated Nutrition Programme (Health) and Food Emergency Relief (Social Development), where at least 5 provinces have spent less than 40 per cent of these grants (including adjustments and excluding rollovers).
However, the number of provinces spending at higher levels (greater than 60 per cent of their adjusted budgets) has dramatically increased since the last quarter with eight grants namely HIV and Aids (Education), Primary School Nutrition programme, Hospital revitalisation, Housing Subsidy, Child Support Extension and HIV and Aids (Social Development) performing the best.
Personnel expenditure ("compensation of employees") is R65,7 billion or 73,6 per cent of the R89,3 billion adjusted personnel budget (Table 16). Eastern Cape (R10,8 billion or 75,6 per cent), Limpopo (R9,4 billion or 74,9 per cent) and Northern Cape (R1,5 billion or 74,9 per cent) have the highest rate of personnel expenditure, with Free State the lowest at 71,2 per cent.
The spending numbers on personnel includes the latest salary increases, which were backdated to 1 July 2004 and implemented during October 2004. Note that part of the additional adjustments allocation provides for provinces to increase their personnel budgets, particularly in education and health, which employ over 87 per cent of all provincial personnel.
Some provinces are at risk of overspending their personnel budgets, particularly in Eastern Cape (75,6 per cent), Northern Cape, (74,9 per cent), Limpopo (74,9 per cent) and KwaZulu-Natal (74,5 per cent).
Provincial Revenue includes adjusted budgeted equitable share allocations of R164,1 billion, conditional grants of R21,3 billion and own revenue of R5,3 billion.
National government transferred R123,2 billion or 75,1 per cent of the equitable share, and R15,8 billion or 74,2 per cent in conditional grants, to provinces after nine months of the current financial year.
After nine months, provinces have collected R4,4 billion or 83,9 per cent of adjusted budgeted own revenue of R5,3 billion. The total provincial revenue received and collected to date was recorded at R143,5 billion or 75,2 per cent of adjusted budgeted total revenue.
The adjusted budgeted R5,3 billion (adjusted from R5,4 billion) amount is significantly lower than the R6,6 billion collected in the previous year (2003/04). However, the R4,4 billion collected thus far is 2,2 per cent less than what was collected by the end of December for the previous financial year. The collection rate varies from 58,4 per cent in Northern Cape and 67 per cent in Mpumalanga, to a high of 92,8 per cent and 88,1 per cent in KwaZulu-Natal and North West respectively.