Minister of Finance Trevor Manuel has allocated the largest tranche of the Budget to the provinces — but National Treasury is to exert a much firmer grip on how provincial and local governments spend their money.
Manuel’s speech and budget review are threaded with warnings to provinces and local councils that implementation of the national budget will only be achieved by “improving the quality of their … spending [and] increasing the proportion of spending on infrastructure and basic services relative to personnel and administration, [which] remains a key challenge.”
A key reform introduced in this year’s budget is a change in the way social grants are funded. Grants have historically been disbursed at provincial level, but billions of rands have been squandered through corruption and mismanagement.
Grant money will now be consolidated under a single national agency, the Social Security Agency, which will report to the minister of social development. As a result, provinces’ unconditional grants will shrink from 88,5% of the total transfer to 64,4%.
The share of conditional grant allocations to the provincial governments — calculated according to the fiscal capacity and efficiency, developmental needs, poverty and backlogs in each province — will correspondingly increase from 11,5% to 35,6%.
Other control mechanisms in the hands of national government are the Municipal Finance Management Act, enacted in June last year, which gives the Treasury the power to monitor municipalities and intervene if necessary, and the National Health Act, which shifts primary health care from municipalities to the provinces and is due to kick in this year.
The local government fiscal framework is being reviewed at the national level to ensure that the expenditure of the conditional grants matches national priorities.
This year local government will receive the largest “relative” increase in its allocation for basic service delivery and infrastructure investment, while the provinces receive the largest “absolute” increase to cater for rising social grants, teacher remuneration and social infrastructure.
Manuel has allocated an additional R48,8-billion to provincial and local governments in the medium term. The national transfer to the provinces has increased by 12,9% since the last financial year, to R209-billion this year. The provinces received R136-billion and local government R17-billion.
In percentage terms national departments account for 37% of the budget and provinces almost 58%. Grants to municipalities total 5% of the available resources, but local government is also the fastest growing tier, as it is seen as spearheading the service delivery programme. Its component of the budget will grow by 13,3% a year in the medium term, while the provincial budget will grow by 10,2%.
The largest chunk of the provincial allocation — R22,3-billion — is for welfare grants, while R6,9-billion has been set aside for provinces to spend on teachers’ increases, R2-billion to speed up sustainable housing delivery, R1-billion to recapitalise further education and training colleges, and R1-billion to increase the pace of social infrastructure delivery, particularly classrooms, health facilities and water and sanitation.
The municipal infrastructure grant, traditionally a headache because of inability to spend, has been boosted by another R1,7-billion in the medium term, mainly to eradicate the bucket sanitation system.