The fourth quarter provincial budget statement of revenue and expenditure published by the National Treasury on 29 April 2005 is the first estimate of spending outcomes for the 2004/05 financial year, from 1 April 2004 to 31 March 2005. These figures will be revised as national and provincial departments finalise (and reconcile) their financial statements by 31 May 2005 for submission to the Auditor-General.
The figures in this fourth quarter report includes the additional funds totalling R4,3 billion allocated to provinces on 26 October 2004 through the national adjustments budget. Provincial budget figures are also updated for their own adjustments, including any rollovers from the previous financial year.
Table 1 below indicates that provinces have spent R188,8 billion in aggregate, or 97,6 per cent of their adjusted budgets by the end of the 2004/05 financial year. This is an increase of R18,2 billion or 10,6 per cent over the R170,7 billion spent in the previous year.
Average spending per province varies significantly, ranging from the lowest share of 94,8 per cent in North West to the highest at 99,6 per cent in KwaZulu-Natal. The preliminary figures ended with an aggregated provincial surplus1 of just under R2,6 billion, compared to the deficit of R2,5 billion in 2003/04.
1 The underspending and surplus/deficit are different concepts. Both use actual total spending (R188,8 billion), but compare it to different totals. The surplus/deficit compares spending to total actual revenue (R191,4 billion) received and collected during that financial year only, whilst underspending compares spending to total adjusted budget, which includes roll-overs from the previous financial year (R193,6 billion).
Total 119 243 989 62 336 500 11 980 481 193 560 970 116 429 883 62 279 615 10 127 188 188 836 686 97,6% 170 669 485 5. Provinces have succeeded in better controlling their budgets in 2004/05, with only four of the 117 provincial departments overspending significantly (by more than one per cent) compared to the 12 in the previous 2003/04 financial year.
However, 26 provincial departments significantly underspent their adjusted budgets by more than 10 per cent. Eight provinces had at least two such underspending departments.
It should be noted that the aggregated 2,4 per cent not spent is comprised of both savings and underspending - the exact amounts saved and underspent can only be determined once all departments finalise their annual financial statements, and report on the reasons for the amounts not spent from their budgets. For purposes of this analysis we regard actual spending less adjusted budget as a saving in the case of personnel expenditure, and as an underspending in the case of capital and other non-personnel non-capital items.
The three social services departments (education, health and social development) collectively spent R155,5 billion or 98,9 per cent of the total adjusted budget of R157,3 billion, and comprises 82,3 per cent of total provincial expenditure (Table 2). This represents an increase of R16,2 billion or 11,6 per cent against the R139,3 billion spent in the 2003/04 financial year.
Social development spent R50,8 billion or 100,3 per cent of the total adjusted budget of R50,7 billion, and comprises 26,9 per cent of total provincial expenditure (Table 3). This represents an increase of R8,7 billion or 20,6 per cent against the R42,1 billion spent in the 2003/04 financial year.
Most provinces succeeded in adjusting their budgets upwards adequately from the initial budget of R47,3 billion, in order to ensure that actual spending ended within budget.
Six provinces spent R509,2 million less than their adjusted budget, with Limpopo underspending by R134,6 million, Free State R116,8 million and North West R112 million.
Net -144 000 12. Three provinces proved not to have adjusted their social development budgets sufficiently, and overspent by a combined amount of R653,2 million, particularly in KwaZulu-Natal which overspent by R504,9 million, and to a lesser extent Eastern Cape (R114,3 million) and Gauteng (R34 million). Table 4 indicates that this is due to overspending on social grants, which is even higher, indicating that they have funded social grants from other programmes (e.g. social welfare services). KwaZulu-Natal overspent on social grants by R638 million followed by Eastern Cape at R187,2 million and Gauteng by R72,9 million.
The nine provincial education departments spent R64,4 billion or 98 per cent of the combined adjusted budget of R65,7 billion, and comprises 34,1 per cent of total provincial expenditure (Table 5). This represents an increase of R4,9 billion or 8,2 per cent against the R59,6 billion spent in the 2003/04 financial year.
The average varies greatly between provinces, from the lowest in Mpumalanga at 93,5 per cent, to the highest in Northern Cape at 99,9 per cent and KwaZulu-Natal at 99,5 per cent.
Net 1 343 584 15. The bulk of education expenditure is for personnel. Provinces spent R53,4 billion or 99 per cent of the personnel adjusted budget of almost R54 billion. Adequate provision was made for pay progression and incentives targeted at school-based educators in provincial education budgets. Most of the R527,3 million not spent on personnel is probably due to delays in paying educator progression.
Net 527 257 16. Significant underspending is recorded on the capital budgets of provincial education departments, as provinces only spent 78 per cent or R2,3 billion of their total adjusted capital budgets (Table 7 below). This is marginally lower (R29,8 million) than the spending on capital in the previous financial year. Provinces with the highest underspending education departments in capital are Free State (57,8 per cent), Mpumalanga (60,1 per cent) and KwaZulu-Natal (68,3 per cent). Northern Cape (108,3 per cent) and Eastern Cape (94,1 per cent) recorded the best spending capacity for capital in education.
Net 659 199 17.
Table 8 indicates that education departments also spent 98,2 per cent or R8,6 billion of the R8,8 billion adjusted budget on non-personnel non-capital items (e.g. learner support material like textbooks and stationery, transfers to section 21 schools, school feeding) of which more specifically spending on goods and services (mostly learner support material) is recorded at R5,5 billion or 92,4 per cent of its R5,9 billion adjusted budget. This item comprises 13,4 per cent of total provincial education expenditure, and relatively small given that it is a critical input for effective education outcomes. It is a national budget priority to increase both the level and share of this item, at a far greater rate than the 3,2 per cent growth recorded against the R8,4 billion spent in 2003/04.
Spending between provinces ranges from the lowest in Free State (85,9 per cent), Limpopo and Northern Cape at 91,8 per cent and Mpumalanga (92,8 per cent) to the highest in KwaZulu-Natal (106,8 per cent) and Eastern Cape (105,6 per cent).
Net 157 128 1 The 2003/04 outcome was adjusted by some provinces to accommodate the shift in the Integrated Nutrition Programme Conditional Grant from Health to Education.
The nine provincial health departments spent R40,3 billion or 98,6 per cent of the combined adjusted budget of R40,8 billion. This comprises 21,3 per cent of total provincial expenditure. This represents an increase of R2,7 billion or 7,1 per cent against the R37,6 billion spent in the 2003/04 financial year.
Net 574 062 20.
The Mpumalanga health department has spent the lowest share of its budget at 94,5 per cent with Northern Cape at 95,1 per cent. The highest share spent is recorded in Free State (101,4 per cent) and KwaZulu-Natal (100,8 per cent).
Table 10 below indicates that health personnel expenditure is R23,4 billion or 98,4 per cent of the adjusted health personnel budget, an increase of R2,5 billion or 11,7 per cent compared to the almost R21 billion spent in 2003/04. Two provinces (Mpumalanga and North West) recorded overspending in health personnel budgets while the remaining 7 provinces recorded a total saving of R429,7 million with Gauteng and Free State the largest at R133,6 million and R128,7 million respectively.
Significant underspending is recorded on the capital budgets of provincial health departments, as provinces only spent 82,6 per cent of their adjusted budget, or R2,3 billion, which is significantly less (by R438,3 million) than the previous financial year's spending of R2,8 billion (Table 11 below). The provinces with the highest underspending health departments in capital are Mpumalanga (36,3 per cent) and Northern Cape (58,8 per cent), whilst those performing the best are in KwaZulu-Natal and Limpopo at 103,2 per cent and 101,6 per cent respectively.
Table 12 shows that spending on non-personnel non-capital items in health which includes medicines, drugs and other current expenditure is recorded at 102,1 per cent or R14,5 billion of the R14,2 billion adjusted budget.
Net 489 190 of total health expenditure. Like education, increasing the level and share of this allocation is critical for better health outcomes.
Net -303 329 1 The 2003/04 outcome was adjusted by some provinces to accommodate the shift in the Integrated Nutrition Programme Conditional Grant from Health to Education.
The biggest spending on capital in provinces is for roads and transport (which includes public works budgets) totalling R4,5 billion or 95,9 per cent of its adjusted budgets and 44,6 per cent of all capital expenditure. Spending is also significantly higher by R1,2 billion or 34,7 per cent than the R3,4 billion spent in the previous financial year.
Eight of the nine provinces recorded underspending of R219 million, with the lowest spending in North West (72,1 per cent) and Limpopo (72,8 per cent) followed by Mpumalanga (89,4 per cent).
Overall, provinces spent 84,5 per cent or R10,1 billion of their R12 billion adjusted capital budgets ("payments for capital assets"). Whilst this is an improvement of 13 per cent or R1,2 billion over the 2003/04 financial year, provinces have in aggregate underspent by a significant R1,9 billion compared to their adjusted capital budgets.
Table 14 indicates that the highest underspending provinces are Mpumalanga (66,1 per cent), North West (70,6 per cent), Northern Cape (74,8 per cent), Free State (75,9 per cent) and Gauteng (84,5 per cent). The highest spending on capital was in Eastern Cape (94,6 per cent), but in absolute terms, KwaZulu-Natal spent the most at R2,4 billion, followed by Gauteng at R1,8 billion and Eastern Cape at R1,6 billion.
The above figures assume that provincial departments are reporting on actual spending on capital. The large fluctuations in reporting on actual spending between the thirdquarter and fourth-quarter reports indicate that not all provinces are reporting consistently or accurately on capital spending. It is not clear to what extent such reporting includes or excludes transfers to entities, and whether all funds transferred have actually been spent. Though lower than previous years, a further concern is on the high proportion of spending in the last month of the financial year ("fiscal dumping"). It is hoped that the audit process and relevant portfolio committees in provincial legislatures will assess to what extent provincial departments have actually spent their capital, including the actual outputs (infrastructure) produced.
Underspending on capital appears to be a symptom of deficiencies in planning, project management, monitoring and implementation. Currently, Government is implementing an Infrastructure Investment Improvement Programme (IDIP) in all education and health departments, to improve their spending and reporting capacity on capital projects.
Housing subsidy expenditure is no longer classified as capital in terms of the New Reporting Economic Format. Table 15 indicates that provinces transferred R4,4 billion or spent 99,3 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 rather than further transfers.
Table 16 reflects spending on 2004/05 conditional grant allocations as at 31 March 2005 for all provinces. It excludes roll-overs from conditional grants from the 2003/04 financial year. It also excludes general conditional grants like National Tertiary Services, Health Professions Training and Development, and the Provincial Infrastructure grants, as spending against these grants is subsumed in a range of programmes across provincial departments and therefore no reporting is available on these grants.
The rate of conditional grants spending is slightly lower than total provincial expenditure with provinces having spent R11,3 billion or 93,7 per cent of the adjusted budget (2004 Division of Revenue Act and related Government Gazette allocations) of R12,1 billion, which excludes general conditional grants as mentioned above.
Grants reporting very low spending include Food Emergency Relief (29,9 per cent), Land Care Programme: Poverty Relief (72,5 per cent), Hospital Revitalisation (74,5 per cent) and HIV and Aids (Life Skills Education) (78 per cent), and Financial Management and Quality Enhancement (4,9 per cent). Though the Financial Management and Quality Enhancement grant ended in 2003/04, funds were rolled over from the 2003/04 to the Eastern Cape in 2004/05.
Funds have been transferred for the Malaria and Cholera Prevention grant during the last day of the 2003/04 financial year and are included in table 16 to register spending on this grant.
The total available for spending on conditional grants increases by R850 million if provincial roll-overs are included, like Housing Subsidy (R374,8 million), Human Settlement (R116,4 million), Local Government Capacity Building Fund (R58,8 million) and Child Support Extension (R52,1 million).
Table 17 indicates the variance in spending of selected conditional grants between provinces, particularly for the Agricultural Disaster Management, Malaria and Cholera Prevention, Human Settlement and Redevelopment, Local Government Capacity Building Fund and Food Emergency Relief, where at least 5 provinces have spent less than 70 per cent of these grants. Percentages represent actual expenditure of total available (gazetted amounts and provincial roll-overs).
Percentages represent actual expenditure of total available (Gazetted amounts + provincial roll-overs).
However, the number of provinces spending at higher levels (more than 90 per cent) has increased since the last quarter with seven grants (Primary School Nutrition programme, HIV and Aids (Life Skills Education), Comprehensive HIV and Aids (Health), Housing Subsidy, Child Support Extension, HIV and Aids (Community-based Care) and Mass Sport and Recreation Participation) performing well.
Personnel expenditure ("compensation of employees") is R87,8 billion or 98,2 per cent of the R89,5 billion adjusted personnel budget (Table 18). Northern Cape (R2 billion or 100,2 per cent), Limpopo (R12,5 billion or 99,9 per cent) and KwaZulu-Natal (R17,9 billion or 99,7 per cent) have the highest rate of personnel expenditure, with Free State and Mpumalanga the lowest at 95 per cent and 95,9 per cent respectively.
All provinces, except Northern Cape, recorded significant savings in personnel budgets (R1,7 billion or 1,8 per cent). The major savings are in Gauteng (R354,3 million), Free State (R325,1 million), Mpumalanga (R258,9 million) and Western Cape (R253,3 million).
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 the entire equitable share and 98,8 per cent of the conditional grants allocations to provinces for the 2004/05 financial year. Provinces have collected R6,3 billion or 118,9 per cent of adjusted budgeted own revenue of R5,3 billion.
The adjusted budgeted R5,3 billion (adjusted from R5,4 billion) amount is significantly lower than the R6,6 billion collected in the previous financial year. However, the R6,3 billion collected is 5,4 per cent less than what was collected for the 2003/04 financial year. The collection rate varies from 106,8 per cent in Mpumalanga and 109,1 per cent in Free State, to a high of 125,5 per cent and 125,1 per cent in KwaZulu-Natal and Eastern Cape respectively, against the adjusted own revenue budget.