This year’s Intergovernmental Fiscal Review is in key respects a good news story. It throws into relief the significant progress in budgeting, spending and financial management by our nine provinces, a vital agency of poverty alleviation, in the past four years.
At the same time, the review identifies problems and areas for further improvements to enable more effective delivery.
The review, tabled in Parliament this week, shows that the provinces are succeeding in delivering services by containing growth in personnel expenditure — wages and benefits. Following its rise to more than 65% of total provincial expenditure in 1997 to 2000, personnel spending will fall to 46,5% by 2005/06, making available more resources for social grants, textbooks, medicines and capital expenditure.
Provinces and local government are key instruments in the war on poverty, as they deliver “pro-poor” social services like education, health, social security grants, welfare services and free basic water and power.
Not only have provinces stabilised their finances in a sustained way, but they are also progressively improving their ability to spend. This is underlined by the more than doubling of capital expenditure since 1999/2000 and 2002/03, from R6,3-billion to an estimated R13,8-billion.
They are also changing their spending mix, allocating increasing amounts to non-personnel items.
Initially, the emphasis tended to be on much-needed capital projects, like clinics and school buildings, but this year’s budgets show that more and more resources are being allocated to non-personnel, non-capital expenditure, including services.
Spending of this kind rose by about R9,1-billion in 2003/04.
Coupled with better management, spending increases and the changing character of provincial spending should have a significant impact on service delivery and the quality of services.
This year’s Budget allocated national transfers amounting to R171-billion, or 61% of total non-interest expenditure, to provincial and local governments.
Provincial budgets reflect strong real growth in spending of 7,5% in 2003/04 and a real average growth rate of 5,3% over the Medium-Term Expenditure Framework. The budgets reflect both national transfers and own provincial revenue.
National transfers are rising rapidly, by just under 10% a year over the next three years, and are projected to grow further. This lays a basis for sustained, accelerated delivery of vital social services for the betterment of lives of poor and vulnerable South Africans.
The review also notes the remarkable progress in transforming education since 1994. Access has improved; expenditure per learner has risen from R3 234 in 1999/2000 to R4 437 in 2002/03; the efficiency of the system has been enhanced by curtailing out-of-age student enrolment; and the learner-educator ratio has fallen from about 40 in 1996 to 32 in 2002.
With the containment of growth in personnel spending, the share of personnel in total education expenditure has started falling, from 90,9% in 1999/2000 to 86,7 % in 2002/03. This has created space for complementary inputs such as textbooks, stationery and science equipment.
This year’s provincial education budgets, which provide for growth of 8,3% a year over the medium term, provide for strong growth of 30,9% in non-personnel, non-capital spending. National and provincial governments agreed to give this priority, to support better teaching and learning in state schools.
However, the review indicates that more needs to be done to improve equity in the education system. Revisions to school funding norms seek to do this.
Direct income support is also critical for the poor, and this year’s provincial budgets provide for a phased extension of the grant to children until their fourteenth birthday. Including the R1,1-billion child support extension grant, budgeted spending for social security transfers increases by about R5,6-billion this year.
Social security transfers are budgeted to rise further to R39-billion in 2004/05 and R46,2-billion the year after. By 2006 we expect social security grants to reach 3-million more beneficiaries. This will raise the share of social development spending from 19,4% of total in 1999/2000 to 25,8% in 2005/06.
Provincial variations in this area are significant. A predominantly rural province like Northern Cape spends just over a quarter of its budget on social development, while an affluent, predominantly urban province like Gauteng spends 16,5%.
This year’s provincial social development budgets also strengthen social welfare services in general, including support for non-governmental and faith-based organisations. This recognises the critical role they play in providing safe havens for children, including those affected and infected by HIV/Aids.
At the same time, spending on school nutrition will nearly double over the medium term, rising from R592-million in 2002/03 to more than R1-billion in 2005/06.
Provinces will now be able to deliver standard meals to more pupils for more days.
In the health sector, the review highlights a number of programmes given priority in this year’s budgets, including a two-pronged human resource strategy aimed at ensuring appropriate levels and geographic distribution of health professionals in the public sector. Existing rural allowances for doctors are to be raised, and allowances extended to other professionals like pharmacists and nurses, to attract health personnel to rural areas.
The second element is a scarce skills strategy, which aims to lure a range of health professionals to the public service, and retain them. With an additional allocation of R2,3-billion to the equitable share, provinces have increased their health personnel budgets to fund this strategy.
Other priority areas are stepping up spending on medicines, drugs and other supplies, and substantial investment in health infrastructure and equipment. This is funded partly through a much-increased hospital revitalisation grant of R2,7-billion, to be spent over the next three years.
Health budgets grow by 10,9% on average, with the highest growth in historically poor provinces, to help strengthen the sector and narrow the gap in per capita spending across provinces.
The challenge going forward will be to ensure that increasing budgets translate into stepped-up service delivery and improvements in the quality of public services. And this requires good management.
Momoniat is deputy director general, intergovernmental relations, in the National Treasury.
The IGFR is available on the Treasury website