Transcript summary of provincial expenditure by vote (cont`d)

2014/15 EC BUDGET OUTCOME
PRESENTATION TO SELECT COMMITTEE ON FINANCE
19 JUNE 2015
PRESENTATION OUTLINE

EC
Regional
Economic
Development
Indicators
and Growth Strategy

Fiscal Sustainability

Budget Strategy to mitigate the risks to ensure Fiscal
Sustainability

2014/15 Expenditure and Revenue Preliminary Outcome

Recommendations
2
EC REGIONAL ECONOMIC DEVELOPMENT
INDICATORS
AND GROWTH STRATEGY
3
ECONOMIC GROWTH AND EMPLOYMENT
Cumulative Economic Growth (Index 1995 =100)
Net employment (index 2008 = 100)
110
200
180
105
160
140
EC_GDPRegional
120
100
SA_GDP
(Excl. EC)
80
60
40
100
95
90
EC_ Employed
SA_ Employed
(Exl. EC)
85
20
Jan-Mar Jul-Sep Jan-Mar Jul-Sep Jan-Mar
2008
2009
2011
2012
2014
0
Source: Stats SA QLFS 2015 Q1
Source: Stats SA GDP figures
•
Economic growth and employment in the province have consistently been lower
when compared to national averages.
•
Consequently, at 29.6%, Eastern Cape economy records some of the highest
unemployment rates in the country (mostly affecting youth, rural, or female groups
of the population).
4
ECONOMIC GROWTH AND EMPLOYMENT (CONT)
• Unemployment in the province is widely linked to a wide array of
socio-economic challenges. Levels of poverty, literacy and total
household income are significantly lower in the EC when compared to
neighbouring provinces.
• EC has also seen continued out-migration as a result of a lack of local
job opportunities. There is a need for upgrading the population’s skills
profile.
• Moreover, challenge of socio-economic development is very unevenly
distributed within the province; with the burden of unemployment and
poverty most prevalent in the former homelands.
• This requires an emphasis on addressing both spatial and structural
inequalities in the provincial economy.
5
COMPOSITION OF REGIONAL GROSS VALUE ADDED (% of Total GVA)
•
A breakdown of the sectoral composition of the EC economy is revealing the health of the
local economy.
•
Community services (which is largely government services) is the largest sector,
followed by finance and lastly retail trade.
•
Fact that government is the largest driver in the economy is testimony to underdevelopment of local industry.
•
All three of the largest economic sectors in the province fall within the tertiary service
sectors which means that they depend on servicing households or industry.
•
Primary sector of agriculture, despite our latent comparative advantage therein, remains
largely under-developed.
•
Historically, province boasted of a significant manufacturing base which continues to be
dominated by automotive sector. Over the years, share of manufacturing in the regional
economy has been declining (possibly as a consequence of some form of deindustrialisation).
6
EC MANUFACTURED EXPORTS (R MILLIONS)
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
1996
1997
1998
Source: Quantec Data 2013
1999
2000
Agr Proc
2001
2002
2003
2004
2005
2006
Machinery, mechanical and electrical appliances
2007
2008
2009
2010
2011
2012
Transport equipment
•
Manufacturing activity in the province is highly dominated by the automotive sector –
which has always been highly subsidized.
•
There remains a need to diversify the industrial base whose production and exports
are highly vulnerable to or influenced by global economic events.
•
There is a need to assess the impact of the two provincial IDZ’s (or any new SEZ) in
terms of enhancing regional exporting capacity – moving beyond the auto sector.
•
Also examining the role and impact of past provincial industrial development and
jobs strategies in terms of scale and impact.
7
FIXED INVESTMENT
Real Private Fixed Investment 2013, R millions at 2005
prices
Public Investment 2013 (Rm, 2005 prices)
45 000
100 000
40 000
90 000
35 000
80 000
Finance
30 000
70 000
Trans
25 000
60 000
Trade
20 000
50 000
Constr
15 000
40 000
Manufac
10 000
30 000
Agric
Utilities (Electricity, gas and
water)
General government and
social services
5 000
20 000
EC
10 000
EC
WC
NC
FS
KZN
NW
GP
Mp
WC
NC
FS
KZN
NW
GP
Mp
Lim
Lim
• Fixed investment, both private and public, highly concentrated in the country –
Gauteng, Kwa-Zulu Natal and Western Cape.
• Businesses services (Finance, Transport and Trade) sector dominate in terms of
private fixed investment possibly crowding out investment in country’s manufacturing
capacity.
• Investment by public utilities (mainly SOEs) remains concentrated in Gauteng, KwaZulu Natal, Mpumalanga and Western Cape.
8
8
PROVINCIAL GROWTH AND DEVELOPMENT STRATEGY
•
Ensuring fiscal sustainability through finding efficiencies in baselines and eliminating
wasteful and consumption expenditure.
•
Improved institutional capability through better monitoring and accountability.
•
Improvements in basic location factors such as water, sanitation, electricity – these add to
competitiveness of a region.
•
Infrastructure expenditure used to enhance the competitiveness and capacity of local
economy and more specifically, the construction industry.
•
Addressing structural constraints to growth, by improving labour productivity through
improved educational outcomes and skills training, and improving functionality of local
government to ensure service delivery.
•
Export led growth by capitalising on the two provincial SEZs and the two metros – Buffalo
City and Nelson Mandela Bay – as centres of growth.
•
Increasing targeted support to small-holder farmers as a way of creating competitive
agricultural enterprises.
•
Develop the regional tourism potential sector through improved access roads
infrastructure.
9
PROVINCIAL GROWTH AND DEVELOPMENT STRATEGY (CONT.)
•
Minimizing cost of doing business in the region through addressing issues such as broadband,
telecommunications, port charges, access roads infrastructure, rail infrastructure (logistics costs).
•
Addressing historical spatial inequalities in infrastructure development.
•
Promotion of green economy through EPWP-led initiatives (erosion combating, re-forestation,
aquatic systems management, thicket rehabilitation, waste management, recycling, etc.).
•
Promoting re-industrialisation by:
o increasing support to municipalities;
o leveraging government procurement to increase and maintain industrialisation (50% local
content);
o funding research to establish baseline environmental data prior to shale gas fracking (NMMU);
o capitalising on regional comparative advantages in agriculture including agroprocessing; and
o encouraging entrepreneurship by supporting SMME’s and cooperatives.
10
FISCAL SUSTAINABILITY
11
IMPACT OF FISCAL POSITION ON EC PROVINCE
• R 7.9 billion lost due to 2011 Census results and learner numbers decrease
amongst others (2013/14 and 2014/15 MTEFs).
• R2.2 billion in 2015/16 MTEF top-slicing and function shift in Health and
Education.
• No ICS adjustment now and 5.8% salary adjustment increase in 2015/16 for
only existing warm bodies (final settlement is 7%, housing R1 200 per month
(R900) and medical aid is 28.5% (16.5%), coupled with the new LRA
amendments regarding contract workers. Impact of these is conservatively
estimated at R1.5 billion). This estimate is very conservative as it does not
include attrition and new appointments.
12
IMPACT OF FISCAL POSITION ON EC PROVINCE (CONT)
•
Contingent liabilities R8.5 billion up from R4.9 billion in 2013/14 till now (health
litigation). Education litigations @ R110 million and Infrastructure depts. @
R400m.
•
Employee benefits is R6.72 billion of which capped leave is R4.3 billion.
•
Lease commitments (office space) of R266 million.
•
Accruals of R1.7 billion for 2014/15 payable in 2015/16.
•
2017/18 fiscal cliff, as National Treasury cushioning for Census 2011 data impact
will cease .
•
Section 139 interventions (Makana, KSD & Inkwanca municipalities) have to be
budgeted for.
DO MORE WITH THE LITTLE WE HAVE’
13
13
BUDGET STRATEGY TO MITIGATE
THE RISKS TO ENSURE FISCAL
SUSTAINABILITY
14
REVIEW WITH INTENTION TO RIGHTSIZE PUBLIC ENTIITIES
• Public Entities play important roles in realizising government’s
economic and social mandate.
• Review has started and the first phase status quo report is being
processed through EXCO.
• Second phase is dealing with:
o comprehensive review on 3 entities and IDZ’s;
o regularizing some irregular practices in some entities; and
o putting in place a governance framework for all.
15
EFFORTS TO MITIGATE FISCAL CONTRAINTS
• Key Service delivery areas and Non-negotiable items in Education
and Health are protected.
• Rigorous implementation of austerity measures, belt tightening and
fiscal discipline to mitigate the risk of fiscal instability.
• Non-core items have been kept at the 2014/15 expenditure level
excluding conditional grant allocations.
• Baseline of transfers to 3C and 3D Public Entities was reduced as
(3D entities operational cost will not be funded).
16
FISCAL OUTLOOK
Provincial Receipts
Main
Adjusted
Appropriation Appropriation
Audited Outcome
2011/12
2012/13
2013/14
Revised
Estimates
2014/15
Medium Term Estimates
2015/16
2016/17
2017/18
Transfers from national
53 485 911
57 256 953
59 908 794
62 000 452
62 000 452
62 000 452
64 372 141
67 687 193
70 934 641
Equitable share
44 644 170
47 559 888
50 256 614
52 154 185
52 154 185
52 154 185
54 311 819
57 367 961
60 069 069
8 841 741
9 697 065
9 652 180
9 846 267
9 846 267
9 846 267
10 060 322
10 319 232
10 865 572
Total receipts from National
53 485 911
57 256 953
59 908 794
62 000 452
62 000 452
62 000 452
64 372 141
67 687 193
70 934 641
Total provincial payments
53 417 085
55 809 401
60 366 261
61 747 237
61 747 237
61 296 092
64 994 777
67 688 798
71 207 744
68 826
1 447 552
(457 467)
253 215
253 215
704 360
(622 636)
(1 605)
(273 103)
845 876
1 100 679
1 281 188
919 640
965 674
1 290 162
1 090 615
1 175 222
1 266 555
(4 784)
(1 583)
(696)
(351)
(351)
(1 096)
(367)
(386)
(405)
909 918
2 546 648
823 025
1 172 505
1 218 538
1 993 426
467 612
1 173 231
993 047
1 027 424
557 841
1 785 030
(100 598)
367 019
367 019
763 347
781 100
872 155
Provincial Roll Overs
71 426
44 491
38 310
58 366
58 366
National Roll-Overs
823 050
217 744
104 891
19 073
19 073
Other
132 948
295 606
1 641 829
(100 598)
289 580
289 580
763 347
781 100
872 155
1 937 342
3 104 489
2 608 055
1 071 907
1 585 557
2 360 445
1 230 959
1 954 331
1 865 202
Conditional grants
Surplus/(deficit)
Provincial own receipts
Less: Legislature receipts
Surplus/(deficit) before financing
Financing
17
FISCAL OUTLOOK (CONT’D)
• National transfers are insufficient to cover the total provincial budgeted
expenditure resulting in a deficit.
• Provincial own sourced revenue supplements the fiscus which results
in surplus.
• Surplus is guaranteed only in 2015/16.
• 2015/16 surplus is already over committed due to accruals, litigation,
etc.
• Contingency reserve as well as surplus fund (cash position) are
definitely not sufficient to mitigate the risk of the budget exposure.
18
NON – VOTED FUNDS 2015/16
19
19
2014/15 Expenditure and Revenue
Preliminary Outcome
20
SUMMARY OF YEAR END REVENUE OUTCOMES
(R'000)
Adjusted
Actual
Over (-) /
Actual as
Provincial
Total
Adjustm ent
budget
Receipts to
% of
Reciepts
2014/15
date
Under +
Collected
2014/15
Equitable Share
Conditional Grants
Ow n Source Receipts
TOTAL
52 154 185
Adjusted
Budget
-
52 154 185
52 154 185
-
100.0%
368
100.0%
9 846 267
233 500
10 079 767
10 079 399
919 641
46 035
965 676
1 451 441
(485 765)
150.3%
62 920 093
279 535
63 199 628
63 685 025
(485 397)
101.2%
• Province received its entire equitable share transfers from National Treasury.
• Only R368 thousand CG funding was not received for the Social Development
Substance Abuse Treatment grant due to non submission of invoices.
• Over collection on own receipts amounts to R485.7 million and is mainly due to:
o R221.1 million mainly generated from positive balances in PRF;
o R74.8 million surrender by the Trading Entity to DoT (sale of Kei Rail carriages);
o Education over collected by R32.3 million due to recoveries on staff debt ;
o Health over collected by R27.5 million due to patient fees payment from RAF;
o DEDEAT over collected by R113.03 million mainly due to surrender of the social
infrastructure funding from ECDC.
21
OWN REVENUE CHALLENGES
• Transport (assisted by PT) is liaising with the Kouga municipality to recover
the outstanding R21 million owed from licence fees collections dating back
from 2010/11. Municipality has agreed to pay the outstanding amount back in
instalments.
• Health is targeting insured patient population and reconciliations are under
way to recover outstanding medical hospital fees from POMED and Road
Accident Fund. Discussions are under way with GEMS to reconcile the
outstanding medical hospital fees for recovery.
• Departments do not benchmark tariffs with the annual tariff reviews which
impact on revenue maximisation.
• Capacity in departments to manage revenue collection is lacking as these
posts are not prioritised to be filled.
22
SUMMARY OF PROVINCIAL EXPENDITURE BY VOTE
Department (R'000)
Original
budget
2014/15
Adjustment
Adjusted
budget
2014/15
Actual
Over (-) /
Spending to Under +
date
Spending
Actual as
% of
Adjusted
Budget
EDUCATION
27 934 965
348 439
28 283 404
27 591 856
691 548
97.6%
HEALTH
17 509 011
170 031
17 679 042
17 500 194
178 848
99.0%
2 156 718
2 134 395
22 323
99.0%
SOCIAL DEVELOPMENT
2 158 958
(2 240)
OFFICE OF THE PREMIER
467 203
18 630
485 833
451 747
34 086
93.0%
PROVINCIAL LEGISLATURE
435 627
29 093
464 720
443 083
21 637
95.3%
4 025 444
3 822 550
202 893
95.0%
ROADS AND PUBLIC WORKS
CO-OPERATIVE GOVERNANCE AND
TRADITIONAL AFFAIRS
RURAL DEVELOPMENT AND AGRARIAN
REFORM
ECONOMIC DEVELOPMENT AND
ENVIRONMENTAL AFFAIRS
4 025 444
876 196
11 143
887 339
871 653
15 686
98.2%
1 867 163
3 315
1 870 478
1 853 191
17 287
99.1%
1 444 359
(111 000)
1 333 359
1 229 112
104 247
92.2%
TRANSPORT
1 708 027
35 571
1 743 598
1 688 666
54 932
96.8%
HUMAN SETTLEMENTS
2 487 602
233 500
2 721 102
2 719 831
1 271
100.0%
PROVINCIAL TREASURY
SPORTS, RECREATION, ARTS AND
377 779
(45 550)
332 229
323 091
9 138
97.2%
CULTURE
769 929
5 190
775 119
755 791
19 328
97.5%
78 941
4 995
83 936
82 995
942
98.9%
62 141 204
701 117
62 842 321
61 468 155
1 374 167
97.8%
SAFETY AND LIAISON
T OT AL
23
SUMMARY OF PROVINCIAL EXPENDITURE BY VOTE (CONT’D)
• Province spent R61.4 billion or 97.8 per cent of its adjusted budget of R62.8 billion
resulting in an under expenditure of R1.3 billion.
• Education under spent by R691.5 million due to:
o Compensation of Employees under expenditure of R153.3 million;
o Goods and Services under expenditure of R355.8 million:
 Learner Teacher Support Material (LTSM) - R21.5 million;
 Contractors - R57.7 million;
 Training and Development - R97.014 million; and
 Inventory other supplies - R72.8 million.
o Payments for Capital Assets - R182.4 million.
•
Health under spent by R178.8 million due to:
o Compensation of Employees under expenditure of R69.8 million; and
o Payments for Capital Assets under expenditure of R179.9 million.
24
SUMMARY OF PROVINCIAL EXPENDITURE BY VOTE (CONT’D)
•
DEDEAT under spent by R104.2 million due to transfers not made to Coega.
•
Roads and Public Works under spent by R202.8 million due to:
o Goods and Services under expenditure of R112.8 million; and
o Payments for Capital Assets under expenditure of R69.7 million.
•
Transport under spent by R54.9 million due to:
o Goods and Services under expenditure of R34.8 million; and
o Payments for Capital Assets under expenditure of R17.1 million.
•
Office of the Premier under spent by R34.1 million mainly due to a delay in
finalisation of the procurement of LAN and WAN maintenance.
•
Departments have applied for a roll-over of unspent fund that are committed with the
remaining funds to be surrendered to the PRF.
25
CONDITIONAL GRANTS
Or i g i n al
C o n d i ti o n al g r an t (R '000)
b u d g et
A d j u sted
A d j u stm en t
2014/ 15
B u d g et
2014/ 15
A ctu al
Over (-) /
A ctu al as %
Sp en d i n g
U n d er +
o f A d j u sted
to d ate
Sp en d i n g
B u d g et
Agric ulture: C om prehens iv e Agric ultural Support
Program m e grant
228 810
232 125
217 246
14 879
93. 6%
46 062
-
46 062
45 601
461
99. 0%
R elief and Infras truc ture Dev elopm ent
10 853
-
10 853
10 186
667
93. 9%
Bas ic Educ ation: Dinaledi Sc hools grant
13 342
-
13 342
13 001
341
97. 4%
1 177 914
-
1 177 914
904 590
273 324
76. 8%
37 023
-
37 023
35 807
1 216
96. 7%
984 548
-
984 548
976 787
7 761
99. 2%
Agric ulture: Ilim a/ Lets em a Projec ts grant
3 315
Agric ulture: Land C are Program m e grant: Pov erty
Bas ic Educ ation: Educ ation Infras truc ture grant
Bas ic Educ ation: HIV and Aids (Life Sk ills
Educ ation) grant
Bas ic Educ ation: N ational Sc hool N utrition
Program m e grant
Bas ic Educ ation: T ec hnic al Sec ondary
Sc hools
R ec apitalis ation grant
Health: C om prehes iv e HIV and AIDS grant
Health F ac ility
R ev italis ation Grant
32 928
-
32 928
24 359
8 569
74. 0%
1 449 237
-
1 449 237
1 347 670
101 567
93. 0%
599 231
-
599 231
594 622
4 609
0. 0%
199 874
1 386
201 260
206 757
(5 497)
102. 7%
7 000
1 049
8 049
1 602
6 447
19. 9%
786 007
10 334
796 341
767 774
28 567
96. 4%
319 517
311 464
8 053
97. 5%
2 392 718
2 392 718
-
100. 0%
-
0. 0%
Health: Health Profes s ions T raining and
Dev elopm ent grant
Health: N ational Health Ins uranc e grant
Health: N ational T ertiary
Serv ic es grant
Higher Educ ation and T raining: F urther Educ ation
and T raining C olleges grant
319 517
-
Hum an Settlem ents : Hum an Settlem ents
Dev elopm ent grant
2 159 218
233 500
Hum an Settlem ents : Hous ing Dis as ter R elief grant
Arts and C ulture: C om m unity
Library
-
Serv ic es
grant
109 418
1 898
64 895
1 091
111 316
84 443
26 873
75. 9%
97. 9%
Sport and R ec reation SA: M as s Sport and
R ec reation Partic ipation Program m e grant
Public Work s : Prov inc ial R oads M aintenanc e grant
T rans port: Public T rans port Operations grant
Exp an d ed Pu b l i c W o r ks Pr o g r am m e
I n teg r ated g r an t fo r Pr o vi n ces
65 986
64 602
1 384
1 294 279
-
1 294 279
1 175 291
118 988
195 282
-
195 282
195 277
5
69 544
-
69 544
68 230
1 314
Educ at ion
3 115
3 115
2 812
H ealt h
2 000
2 000
3 026
Soc ial D ev elopm ent and Spec ial Program m es
303
(1 026)
90. 8%
100. 0%
98. 1%
90. 3%
151. 3%
2 000
2 000
952
1 048
46 791
46 791
46 791
0
Loc al Gov ernm ent and Tradit ional Af f airs
2 000
2 000
1 933
67
96. 7%
R ural D ev elopm ent and Agrarian R ef orm
Ec onom ic D ev elopm ent , Env irom ent al Af f airs
2 681
2 681
2 486
195
92. 7%
and Touris m
Trans port
H um an Set t lem ent s
2 102
4 099
2 654
2 102
4 099
2 654
1 472
3 141
1 257
630
958
1 398
70. 0%
76. 6%
47. 3%
Sport , R ec reat ion, Art s and C ult ure
2 102
2 102
2 170
R oads and Public W ork s
(68)
26
47. 6%
100. 0%
103. 2%
CONDITIONAL GRANTS (CONT’D)
Original
Conditional grant (R'000)
budget
Adjustm ent
2014/15
Social Sector Expanded Public Works
Program m e Incentive grant for Provinces
Education
Health
Social Development and Special Programmes
41 714
-
Adjusted
Actual
Over (-) /
Actual as %
Budget
Spending
Under +
of Adjusted
2014/15
to date
Spending
Budget
41 714
38 729
2 985
92.8%
2 580
2 580
2 127
453
82.4%
31 242
31 242
31 079
163
99.5%
2 580
2 580
2 654
(74)
102.9%
105.0%
84.9%
Sport, Recreation, Arts and Culture
2 732
2 732
2 869
(137)
Safety and Liason
2 580
2 580
2 191
389
6 571
6 562
13 000
13 000
10 098 840
9 496 318
Occupational Specific Dispensation for Education
Sector Therapists Grant
Substance Abuse Treatment Grant
TOTAL
•
6 571
-
13 000
9 846 267
252 573
9
99.9%
-
100.0%
602 522
94.0%
Province spent R9.4 billion or 94 per cent of its R10.09 billion adjusted budget resulting in an
under expenditure of R602.5 million. Conditional grants contributing to under expenditure for
which roll over was requested for committed funds are:
o Comprehensive Agricultural Support Programme grant under expenditure of R14.8 million is
due to delays in construction of the Tsolo Veterinary Clinic, delivery of kitchen equipment at
Fort Cox College and the implementation of training programme resulting from poor planning
and response on tenders by service providers;
o Education Infrastructure grant under expenditure of R273.3 million is due to challenge of
availability of land for projects relating to Special Schools and Environmental Assessments
which delays the rolling out of projects;
27
CONDITIONAL GRANTS (CONT’D)
o Comprehensive HIV and AIDS grant under expenditure of R101.5 million is due to new NPO
individual contracts not complying with SARS requirements, shortage in supply of condoms
and misallocations where grant expenditure was paid from equitable share;
o National Tertiary Services Grant under expenditure of R28.5 million is due to long
procurement processes for medical equipment centralised at head office for items over
R1 million;
o Community Library Services Grant under expenditure of R26.8 million is due to library books
delayed as they are overseas publication, modular libraries whose tender had to be
advertised more than thrice since it was non-responsive and procurement of furniture for
Mdantsane Library which was not delivered timeously; and
o Provincial Roads Maintenance grant under expenditure of R118.9 million is due to late
awarding of disaster projects.
•
•
Over expenditure on Health Professions Training and Development grant amounting to
R5.4 million is due to 11 medical officers appointed against registrar posts funded by this grant
at Frere hospital and replacement of 6 old registrars at Livingstone and Dora Nginza hospitals
that were supposed to be funded against Programme 4.
From the R602.5 million underspending R271.9 million is expected to be rolled over from the
national processes.
28
RECOMMENDATIONS
• It is recommended that Select Committee on Finance:
o Note and support the proposal of agriculture as the game changer
for the provincial economy;
o Consider the tight fiscal envelope;
o Consider the further likely tightening of the envelope going forward;
o Consider the impact of the wage settlement as well as the LRA
amendments which have to be funded from within (conservatively
estimated to be R1.5 billion); and
o Consider the insufficient mitigation of the risk of the provincial budget
exposure.
29