Amanda Fitschen
The recent announcement by KwaZulu-Natal’s MEC for Finance Peter Miller that his province had managed to turn its financial situation around to register a surplus for the current financial year, compared to a deficit for the previous year, must have startled even the least cynical individual.
Some may even have asked why all provinces had not adopted KwaZulu-Natal financial management practices to avert current financial nightmares.
The Free State is negotiating a R200-million bail-out with the national Department of Finance to rescue it from financial ruin and evidence from the Eastern Cape suggests that health services are under pressure as a result of the lack of finance and poor financial management.
Unfortunately, closer scrutiny will indicate that Miller’s claims are not cause for unbridled celebration. One issue is relevant: what is the nature of the ”surplus” which Miller is referring to?
Each province is allocated its share of revenue. The budgeting process occurs with provincial policy objectives in mind and within the constraints of allocated revenues and national policies.
The 1997/98 financial year also saw the introduction of three-year budgeting. Multi- year budgeting is seen to enhance the achievement of policy goals, especially where policies have medium-term financing implications.
In addition to budgets for a subsequent financial year, when drawing up budgets, government entities are now required to set out revenue and expenditure projections for two additional years.
During the 1997/98 financial year, KwaZulu- Natal recorded an approximate R1,9-billion deficit on the provincial books. The national Department of Finance provided a R900-million lifeline to the province to ease its financial burden and invoked Section 100 of the Constitution. This section allows the department take the steps appropriate to ensure the fulfilment of legislative and constitutional duties by the province.
The province was, however, left with a debt of about R1-billion, which the department agreed could be redeemed over three years, starting in the 1998/99 financial year.
Therefore when Miller announces that his province has a surplus, one has to look at the nature of the ”surplus”. Provinces have not all dealt with their debt redemption in identical means on their budgets.
The Western Cape elected to ”top slice” the amount required to redeem debt in the current financial year from allocated revenues before budgeting for the current year; KwaZulu-Natal did not. KwaZulu-Natal included in its budget an amount of R400-million to redeem debt. Unfortunately the surplus Miller spoke of is not money in the provincial pocket, it has effectively already been spent. It will be used to redeem debt and in so doing conform to budget.
Statements of this nature made by the KwaZulu-Natal MEC should be understood in the context of the specific province’s budget.
Citizens of KwaZulu-Natal could justifiably ask ”why so?” when health or education service deliveries are cut after the provincial leader has announced a surplus. The announcement may have been interpreted as money in the bank, when in effect it is money to pay creditors who are awaiting repayment.
Amanda Fitschen is a lecturer at the University of Cape Town’s school of economics