The mid-term provincial budget report covers spending for the first six months of the 2004/05 financial year, from 1 April 2004 until 30 September 2004.
Provinces have spent 46,8 per cent of their (unadjusted) budget, or R87,4 billion of R186,6 billion. For the same six month period, national government also spent a similar proportion of 47 per cent, or R70,7 billion of the R150,3 billion voted national budget.
Provinces have spent 29,5 per cent or R3,3 billion of their R11,3 billion capital budgets. This is lower than the percentage spent by national departments (36,9 per cent) but R1,4 billion more in absolute terms given national spending of R1,9 billion.
Personnel expenditure by provinces is R42 billion or 47,7 per cent of the R88,1 billion budget, excluding the recent public service increases which were backdated to 1 July 2004 and implemented during October 2004.
The projected aggregated provincial budget deficit is R2,2 billion if the additional national adjustments allocation of R4,3 billion is taken into account. For most provinces, this deficit will be funded from last year's provincial rollovers and cash balances, accumulated by provinces in previous years.
The greatest spending pressure is in social development departments, where provinces have spent 52 per cent or R24,6 billion of their R47,3 billion budget, an increase of R4,6 billion or 22,9 per cent over the same period last year.
Education expenditure for the first six months in 2004/05 totalled R30,1 billion or 46,7 per cent of the R64,5 billion total education budget, and is R2,2 billion or 7,9 per cent higher compared with the same period in 2003/04. Capital spending in education is relatively low at 23,2 per cent or R714,1 million for the first six months.
Health expenditure totalled R18,3 billion (45,6 per cent), which is R1,4 billion higher compared with the same period last year. Capital expenditure in health is relatively low at 27,2 per cent or R763,7 million.
The highest share (38,1%) of provincial capital budgets is for roads, transport and public works departments, which spent R1,6 billion or 36,1 per cent against its total R4,3 billion budget.
Provincial own revenue collected is R2,7 billion or 50,9 percent of the total own revenue budget of R5,4 billion. National government transferred R83,2 billion of the equitable share, and R10,1 billion in conditional grants, during the first six months of 2004/05.
Except where explicitly stated, the figures in this mid-term report excludes the additional funds totalling R4,3 billion allocated to provinces last week by the Minister of Finance in the Medium Term Budget Policy Statement on 26 October 2004. The budgeted figures for provinces are based on the 2004/05 provincial budgets tabled in February/March 2004, and includes the addendum to the budgets of KwaZulu-Natal and Mpumalanga presented after the elections to their provincial legislatures on 27 May and 24 June 2004 respectively.
This analysis is based on the statement of receipts and payments published by the National Treasury on 29 October 2004, 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 October 2004, and submitted to the National Treasury by 22 October 2004. 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 may also 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 first quarter (as such information comes with a longer lag of 2 to 4 months). Such information is necessary to measure outputs and performance, and to assess value for money - it is hoped that provincial legislatures will request such information from relevant provincial departments when discussing this section 32 PFMA report on the budget for the first six months of the 2004/05 financial year, from 1 April 2004 to 30 September 2004. This half-yearly information also provides a valuable basis for determining what overspending pressures provinces must take into account when tabling their adjustments budget during November 2004.
Table 1 indicates that provinces have spent 46,8 per cent or R87,4 billion of budgeted expenditure after six months into the financial year. Though almost identical to the 47,3 percentage spent in 2003/04 (for the same six month period), spending increased by 11,9 per cent or R9,3 billion compared to last year as provinces spent R78,1 billion. Between provinces, average spending ranges from the lowest share of 44,2 per cent in Western Cape to the highest at 49,1 per cent in Northern Cape.
Social services budgets total R151,9 billion, and comprise 81,4 per cent of the total R186,6 billion provincial budget in 2004/05. Table 2 indicates that provinces spent R73 billion or 48,1 per cent of budgeted R151,9 billion for the three social services (education, health and social development). This is R8,2 billion or 12,6 per cent more than the same period in 2003/04.
Social development budgets at R47,3 billion comprises 25,4 per cent of provincial budgets.
The mid-year spending trends indicate that provinces face their greatest spending pressure from social development budgets, which registered spending of 52 per cent or R24,6 billion of their R47,3 billion budget (Table 3). This represents a 22,9 per cent increase of R4,6 billion over the R20 billion spent for the same period last year.
The pressure is from sharp growth in beneficiary numbers for disability and foster care, which is beyond budgeted projects (unlike the high growth in the child support grant, which is largely budgeted for). It should be noted that most of the additional adjustment allocations is expected to increase social development budgets in order to ensure that provinces can deal with these pressures.
Education budgets of R64,5 billion comprise 34,5 per cent of total provincial budgets. Table 4 indicates that education expenditure at R30,1 billion is 46,7 per cent of the total education budget, an increase of R2,2 billion or 7,9 per cent compared to the R27,9 billion spent over the same period in 2003/04. Spending between provinces for education ranges from the lowest share of budget in Free State at 44,1 per cent, to the highest in Limpopo (48,2 per cent), Northern Cape (48,4 per cent) and Gauteng (48,8 per cent).
The bulk of education expenditure is for personnel budget, spending R25,6 billion or 48,1 per cent of the personnel budget of R53,2 billion. Spending on goods and services (mostly learner support material) is recorded at R2,1 billion or 37,3 per cent of its budget.
Education departments have spent relatively slowly on capital at 23, 2 per cent of their total capital budgets, spending R714,1 million (see Table 5 below). This is lower than the R735,5 million spent on capital over the same period last year. Spending between provinces ranges from the lowest in KwaZulu-Natal (1,9 per cent), Western Cape (10,9 per cent) and Gauteng (13,3 per cent), to the highest in Mpumalanga (37,1 per cent) and Limpopo (72,9 per cent).
Health budgets totalling R40,1 billion comprise 21,5 per cent of the total provincial budget. Table 6 indicates that health expenditure is R18,3 billion or 45,6 per cent of the total health budget, representing an increase of R1,4 million or 8,2 per cent compared to the first half of the 2003/04 financial year.
Gauteng health has spent the lowest share of its budget after the first six months at 41,8 per cent, with the highest share in Free State (47,4 per cent), Northern Cape (47,3 per cent), Eastern Cape (47,9 per cent) and Limpopo (48,1 per cent).
Capital expenditure in the health sector is relatively slow at 27,2 per cent or R763,7 million, significantly lower than the R829,8 million spent for the same period last year (Table 7). Between provinces, the lowest rate of spending is in Gauteng (6,4 per cent), Mpumalanga (11,9 per cent) and Northern Cape (12,3 per cent) with Free State and Limpopo recording the highest share at 48,1 per cent and 54,6 per cent respectively.
Provinces have spent 29,5 per cent or R3,3 billion of their R11,3 billion capital budgets ("payment for capital assets"). This is almost identical to the rate of spending in both absolute and percentage terms for the same period last year.
Table 8 also provides capital spending information by province, which indicates significantly slow spending in Gauteng at 9,6 per cent, and highest in Eastern Cape (40,1 per cent) and Limpopo at 60,1 per cent. In absolute terms, Eastern Cape has spent the most at R831,6 million, followed by KwaZulu-Natal at R752,4 million and Limpopo at R600,2 million.
It should be noted that reclassification changes due to the New Economic Reporting Format has lowered capital spending and budgeting 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 at R4,3 billion, or 38,1 per cent of the total provincial capital budget of R11,3 billion. Spending for these departments is relatively faster than other sectors at 36,1 per cent or R1,6 billion of the R4,3 billion budget (Table 9 below). This spending is similar to the R1,5 billion spent last year over the same period. Between provinces, the lowest rate of spending is recorded in Gauteng at 1,1 per cent and Free State at 5,1 per cent, whilst Limpopo and Eastern Cape record the highest at 51,7 per cent and 53,4 per cent respectively.
It should be noted that public works capital spending figures tend to be overstated, as they are not fully reconciled to exclude spending on education and health capital projects. For the same reason, capital spending in education and health may be understated. One province (Western Cape) also budgets for all its capital on its public works vote, and it is not clear why it does not provide breakdowns of what is actually spent on capital per section (on education, health, etc.).
Reasons for why capital spending in provinces is relatively slow in the first six months, and relatively high in the last two months of the financial year, are not provided by provincial departments. National Treasury, working with the Construction Industry Development Board (CIDB), offers assistance to provincial departments to improve their capital planning and spending capacity, and to ensure that payments are made throughout the year, rather than only in the last two months of the financial year. The objective is for all government departments to pay all accounts due within 30 days of receiving adequate billing documentation.
As noted above, housing subsidy expenditure is no longer treated as capital. Table 10 indicates that provinces spent R2,2 billion or 49,1 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 spending reflects transfers.
It is not clear whether provincial housing departments are able to link actual output information on housing (e.g. complete houses built, complete foundations or serviced plots provided) to their first or second quarter spending figures. Such information is critical in order to assess the extent to which the housing subsidy programme is succeeding in housing poor households.
Table 11 below reflects spending on all 2004/05 conditional grant allocations as at 30 September 2004 for all provinces. It excludes rollovers from conditional grants from the 2003/04 financial year, and 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. Provinces have spent R4,7 billion or 39,1 per cent of the total budget of R12,1 billion.
Specific grants reporting very slow spending include Food Emergency Relief (17,4 per cent), Comprehensive Agricultural Support grant (18,9 per cent), Mass Sport and Recreation Participation Programme (19,8 per cent), and HIV and Aids (Life Skills Education) (23,4 per cent).
Allocations 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 the table above to register spending on these two grants. Provincial roll-overs for Housing Subsidy (R226,8 million), Human Resettlement (R30,6 million), Hospital Revitalization (R28,4 million), Child Support Extension (R26,8 million), Local Government Capacity Building Fund (R13,2 million), and Comprehensive Agriculture Support Programme (R10 million) are excluded from the above table, but are available for spending for the 2004/05.
National departments administering the above conditional grants, monitor spending and outputs on the conditional grants they administer.
Table 12 below indicates the provinces that are spending very slowly on conditional grants. It indicates that more than five provinces have spent less than 20 per cent of their grant budget after six months for the following grants: Comprehensive Agriculture Support Programme, Local Government Capacity Building Fund, Food Emergency Relief and Mass Sport and Recreation Participation Programme.
The number of provinces spending at slightly higher levels, but still below average (between 20 and 40 per cent of grant budgets), are as follows for the following grants: Land Care Programme grant (5), Primary School Nutrition Programme grant (6), Comprehensive HIV and Aids grant (7), Integrated Nutrition Programme grant (5), Hospital Management and Quality Improvement grant (5) and Provincial Project Management Capacity for MIG grant (5).
It appears that some of the slower spending figures may be incorrect, resulting in understating of actual spending against grants, due to incorrect recording of such expenditure against other budget programmes.
Personnel expenditure ("compensation of employees") is R42 billion or 47,7 per cent of the R88,1 billion budget. KwaZulu-Natal (R8,6 billion or 48,8 per cent), Eastern Cape (R6,9 billion or 48,6 per cent) and Gauteng (R6,4 billion or 48,3 per cent) have the highest rate of personnel expenditure, with North West the lowest at 46,1 per cent (refer to Table 13 below).
The spending numbers on personnel in Table 13 do not include 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.
Provincial Revenue includes budgeted equitable share allocations of R160 billion, conditional grants of R21,2 billion and own revenue of R5,4 billion.
National government transferred R83,2 billion or 52 per cent of the equitable share, and R10,1 billion or 47,9 per cent in conditional grants, to provinces after six months of the current financial year.
After six months, provinces have collected R2,7 billion or 50,9 per cent of budgeted own revenue of R5,4 billion. The total provincial revenue received and collected to date was recorded at R96 billion or 51,5 per cent of budgeted total revenue.
The R5,4 billion budgeted amount is significantly less than the R6,6 billion collected in the previous year (2003/04). However, the R2,7 billion collected thus far is 8,8 per cent less than what was collected by the end of September for the previous financial year. The collection rate varies from 34,3 per cent in Eastern Cape and 40,9 per cent in Free State, to a high of 60,9 per cent and 58,8 per cent in KwaZulu-Natal and Gauteng respectively. It appears at this stage that most provinces will exceed their collection of budgeted own revenue (R5,7 billion).
Table 14 below indicates the additional resources per province after the national adjustments allocation of R4,3 billion is taken into account (excluding surplus funds or provincial roll-overs). Actual spending against such additional allocations decreases from 46,8 per cent in Table 1 to 45,8 per cent. The projected aggregate provincial budget deficit reduces to R2,2 billion if the additional adjustments allocation is taken into account. Provinces having surplus funds (including roll-overs) will be able to fund part of this deficit, but those provinces ending the 2004/05 financial year with an overdraft may have to adjust their current budgets to ensure their overdrafts do not increase. Some provinces have already instituted cost containment measures and other initiatives to ensure that their deficits are reduced to levels of available funding.