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Select Committee on Finance Provincial Budgets and Expenditure 4 th quarter 2016/17. Ogalaletseng Gaarekwe, Intergovernmental Relations, National Treasury | 07 June 2017. Introduction. National Treasury manages fiscal risks in the provincial sphere of government in the following ways:
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Select Committee on Finance Provincial Budgets and Expenditure4th quarter 2016/17 Ogalaletseng Gaarekwe, Intergovernmental Relations, National Treasury | 07 June 2017
Introduction • National Treasury manages fiscal risks in the provincial sphere of government in the following ways: • Co-ordinating the provincial budget processes through; • Benchmarking provincial budgets, with a special focus on social services and concurrent functions • Monitoring and analysis of provincial spending including publishing expenditure reports quarterly including; • Conditional grants monitoring, reporting and rollover co-ordination • Compliance enforcement and interventions, including with holding and stopping funds in accordance with the Division of Revenue Act • Provincial visits - 1st Quarter spending and infrastructure visits • Briefing Finance Minister and MECs on fiscal risks in the provincial sphere through intergovernmental forums such as Budget Council; • Capacity building and training
Provincial aggregated budgets and expenditure as at 31 March 2017 4
Summary of observations and fiscal risks • The aggregate provincial spending of R31 billion as at 31 March 2017 is characterised by overspending on Compensation of Employees and underspending on Goods and Services and infrastructure related conditional grants in the social sector, specifically Education and Social Development. • Personnel overspending occurred mainly in Education, Office of the Premier and Department of Police, Roads and Transport totalling R296 million. Education and Office of the Premier main personnel budgets were reduced further notwithstanding the projected overspending in-year. • The provincial cash position is not ideal with a negative balance of R212 million at the end of the financial year. A concerning trend is that the average monthly cash balance has declined over the past three years from R593 million to negative R44 million at the end of 2016/17. • Education • The department overspent R213 million on Compensation of Employees. The department has significantly under budgeted for the item and also reduced the budget further during the budget adjustment. Although headcounts show a decline of over 700 for the period, these relate mainly to temporary Educators. The department has however managed to reduce the overspending on salaries through natural attrition and limiting the filling of posts. • The Goods and Services budget was underspent by R196 million mainly on Learner Teacher Support Material and Property Payments. All stationery was delivered to schools but there were delays in receipt of top-up textbooks from publishers which resulted in delayed delivery to schools. • Infrastructure delivery is a serious challenge with more than 34 per cent underspending on the programme. • Expenditure challenges are largely related to the cash shortage in the department. The department ended the 2015/16 financial year with a bank overdraft of R202 million which has increased to an overdraft of R428 million as at the 31 March 2017. • Health • The department underspent R22 million on Compensation of Employees but still has a very high vacancy rate especially on critical posts (About 2 708 critical vacant posts need to be filled urgently). The inability to fill posts has resulted in increase in overtime and outsourcing of nursing services.
Summary of observations and fiscal risks • Health (continued) • Lack of adequate human resource capacity has also contributed to poor service delivery, high medico-legal claims and slow processing of claims in the medical depot, amongst other challenges. • The department has previously commissioned capital projects without proper budget and operational plans. Consequently, a number of facilities are either not completed or fully operational due to a shortfall in resources. Where projects are completed, the facilities are not fully operationalised, i.e. Senorita Nhlabita Hospital (Ladybrand), Boitumelo Hospital (Kroonstad) and Albert Nzula Hospital (Trompsburg) which is only expected to open 15 June 2017. • Social Development • Very poor performance on capital projects, especially the Substance Abuse Treatment Facility (Botshabelo) that is funded through a Conditional Grant. Delays in appointment of the contractor as well as subsequent construction delays resulted in only 27 per cent of the Conditional Grant being spent. • Public Works and Infrastructure • Rates and taxes and property payments budget increases are creating budget pressures in the department. Municipal tax and rates increases are determined outside the budget process and often not affordable. • Police, Roads and Transport • The department overspent its Compensation of Employees budget in 2016/17 due to absorption of security staff from Public Works as well as traffic officials. The movement of staff between departments has negatively affected the department’s budget planning for personnel. • Human Settlements • The department has very fast HSDG expenditure trend but poor progress in achieving targets, although this appears to be a trend for the entire sector. The department also contributed over 50% of the provincial accruals in 2015/16.
Summary of key conclusions and Fiscal Risks over the 2017 MTEF • Social sector services are as far as possible protected from the cuts: • Key risk Education is the under budgeting of compensation of employees. The budget only grows by 5 per cent for 2017/18. LTSM and Transfers to schools show sufficient growth. • Health’s growth of 7.7 per cent is above inflation and appears to be adequate. However, compensation of employees may need to be augmented to fill more critical posts. The department still has a challenge budgeting correctly for medicine and medical supplies respectively and there may be scope for savings on payments for Laboratory Services considering the Gatekeeping system in place. • Cost cutting measures: • The province has centralised PERSAL appointments with the Provincial Treasury and only critical position are being filled. • Commodities that are commonly procured by the province on transversal contracts have thresholds to curb the potential risk of wastage. • Public entities have been rationalised to gain efficiencies, the province currently only has two public entities namely, Free State Development Corporation (FDC) and Free State Gambling, Liquorand Tourism and Authority (FSGLTA). Free State Tourism Authority has been incorporated into the Free State Gambling and Liquor Authority as of 2017/18. • Own Revenue Generation • Various revenue enhancement projects have been implemented and funded through earmarked Revenue Enhancement Allocations to various departments. Own revenue is expected to grow moderately by 5.4 percent year on year and 5.5 percent over the MTEF. The main issue is the low growth forecasted for ‘Motor Vehicle License Fees’ of 3.5 per cent for 2017/18 and improving to 5 per cent over the MTEF.
Summary of key conclusions and Fiscal Risks over the 2017 MTEF • The 2017/18 public service salary increases will continue to put pressures on the budget, notwithstanding the measures imposed by the province on containment of compensation of employees. • Funding can be shifted from provincial priorities to fund social sector budget shortfalls. The province has moved the external bursary funds from Education to the Office of the Premier in 2017/18 financial year to facilitate the establishment of the Science, Technology, Engineering and Mathematics Academy (STEM). The bursaries are allocated mainly for studies at Higher Education Institutions overseas. • Public Works and Infrastructure has a continual shortfall on Rates and Taxes and Property Payments to Municipalities, which could affect delivery at Local Government level.
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