2024 Western Cape Appropriation; Provincial Treasury Q3 2023/24 Performance

Meeting report

2023/24 Budget Presentation

Ms Julinda Gantana, Head of Department (HOD), Provincial Treasury, Western Cape, took Members through the budget for the current financial year. It was said phase one of the budget focused on fiscal uncertainty by applying a scenario-based and risk-led approach.

There was some certainty in phase two as the 2023 adjustment budget aimed to achieve fiscal sustainability within the financial year while phase three focused on the Western Cape Government’s (WCG’s) reply to the reduced fiscal envelope and related pressures over the 2024 Medium Term Expenditure Framework (MTEF).

These statistics were drawn from the June to September 2023 budget but it was expected the final budget and the Annual Performance Plans (APPs), which were currently being drafted, would be submitted soon. South Africa’s Gross Domestic Product (GDP) growth was estimated at 1.7% in 2024, making it 3.9% lower than emerging and developing countries.

The Western Cape economy would see a 2.1% boost in 2024 and pre-pandemic employment levels in the fourth quarter of 2024 would be surpassed by 10.2%. These were positive socio-economic trends but the challenges of unemployment, crime, and population growth in the province were still prevalent.   

Ms Taryn van der Rheede, Chief Director: Provincial Government Budget Office, Provincial Treasury, said the 2024 budget principles were set on a value-based approach which encompassed:

• Responding to fiscal consolidation
• Enabling long-run fiscal sustainability
• Unlocking allocative efficiency
• Enhancing productive efficiency

The budget responds to policy needs and this created service delivery risks which affected wellbeing in the areas of mental health, constrained healthcare budget, the provision of educational programmes, innovation, culture, and governance. Budget constraints also created software licence cost risks, fiscal sustainability concerns, and vacancy rates which affected service delivery. Ms Rheede said this list was not exhaustive and there should be compensation for employee strategy, transfers, infrastructure investment, and development to enhance productivity and efficiency.

She discussed budget policy priorities and spending plans in the 2024 MTEF allocations by highlighting these statistics:

• Safety and security (R5.08 billion)
• Growth for jobs (R45.35 billion)
• Wellbeing (R182.3 billion)
• Innovation, culture, and governance (R21.87 billion)

The net revenue was expected to be R2.9 billion, said Ms Analiese Pick, Acting Deputy Director-General (DDG): Fiscal and Economic Services, Provincial Treasury. She said there would be a budget deficit of R4.1 billion which would be financed by the Provincial Revenue Fund and the Asset Finance Reserve.

When the 2023 and 2024 allocation letters were compared, there was an increase of R3.7 billion in net equitable shares and conditional grants were cut by R1.13 billion over the 2024 MTEF period affecting available funds from National in the Health, Education, Infrastructure, Agricultural, Cultural Affairs, and Sports sectors. The province held reserves to stabilise the fiscal framework against volatility in the Presidential Employment Stimulus (PES) and conditional grant allocations which funded service delivery where there was additional pressure because of foreseen and unavoidable payments.

See attached for full presentation

Third Quarter Performance and Financial Outcomes for 2023/24

Ms Gantana said she would address the position the Department was in, performance, public entity performance, and the APP for the period as at the end of December. There had been uncertainties around not knowing when the Department would get funding from the Compensation of Employees (COE) but in November, an adjustments budget was passed to forecast the current fiscal year and this had impacted performance for the first three quarters.

The Western Cape GDP dropped by 0.36% in the third quarter of 2023 while unemployment went down by 0.7%, said Ms Zeenat Ishmail, Chief Director: Strategic Management Information, Department of the Premier.

Other statistics reflected there was an increase of 8% in crime and homicide, a 4% increase in the number of sexual assault admissions to public hospitals, and a 16% increase in childbirth in government hospitals. On average, nine departments achieved more than or equivalent to the Western Cape Province (WCP) average of 87% and four did not make the average at all; seven public entities achieved more than or equivalent to the WCP average of 80% and three did not make the average; on 31 December 2023 73.5% of the budget was spent but again there were departments which spent slightly below the average. Post the adjustment period, the province seemed to be leaving a time of uncertainty and saw an improvement in January 2024.

The Department of Health was building fiscal sustainability in areas where the baseline did not exceed inflation on the expenditure expected and incurred an overexpenditure of R94 million. There were over 900 permanent and temporary teachers in the Western Cape who moved out of a total of 1266 staff members, with a R117 million net increase in the appointment of nursing staff and an increase in staff appointed in the Mobility sector. While infrastructure remained impacted by uncertainty public entities spent 68% of its budgets and there had been a 1.5% recordal of underspending.

Human Settlements spent 46.8% of budget with no risk of undercollecting its own revenue.

See attached for full presentation

Discussion

Mr L Mvimbi (ANC) called the budget process bureaucratic because it did not include public consultation but instead operated as a top-down approach which was not grassroots. He asked about engaging in collaborative decision-making marked by stakeholder engagement as could be seen with the example of the Department of Health. He wanted to know if there was any intention of sending a South African delegation to developing countries to find out how these countries developed the GDP and he brought up Cabinet issues which reflected in the budget.

On another note, he asked why an increase in violent crime was classified positively.

Ms N Nkondlo (ANC) wanted to know how it was deduced that province passed its pre-pandemic economy; asked if provincial interventions could be correlated to the national economy’s initiatives; asked by what degree Small, Medium, and Micro Enterprises (SMMEs) benefited from the 53.1% growth in tourism in the Western Cape; asked what drove the increase in employment in the Indian community from 1.5% to 15% from 2019 to 2023; and asked if these were good jobs.

Mr G Brinkhuis (Al Jama-ah) asked if funds from the 2024 budget were allocated to the high school designated for construction in Darling.

The Chairperson considered finding alternatives to claiming gold and reserves, especially in light of how frequently entities were bailed out every year. She asked by what amount public wages were short (if it was still R1.1 billion); asked what was paid back; and asked where the funds came from. Money that could have been used for wages in the public sector was kept in the stabilisation fund, and she wanted to know where the money that was saved here came from.

Responses by Provincial Treasury

Residents from areas such as Brooklyn, Khayelitsha, Diep River, and Kuilsriver were asked for suggestions on what to include in the budget, making the responses part of the process. Stakeholder engagements with the Children’s Commissioner and Provincial Treasury were held to discuss the MTEF and to address major risks across the system by collaborating with Cabinet. The idea was to ensure a risk-based approach to push budget issues forward. There was an analysis concluded with peer countries and seven priority focus areas such as GDP and spend on research were identified to assess how the countries perform comparatively. South Africa was not growing at the same level as peer countries calling for research on strategy for job creationb. Tourism was amplified by the Air Access Programme which contributed to growth.

Ms Gantana said that the Children’s Commissioner was involved in analysing the Provincial Economic Review and Outlook (PERO) document to determine if it addressed children’s needs. Public participation took place through local government while the provincial budget was allocated to Education, with 74% spent on public schools.

It was important to continue stabilisation to heighten employment opportunities.

Ms Shirley Robinson, Chief Director: Public Policy Service, Provincial Treasury, said the PERO graph which Stats SA compiled was informed by court labour statistics and reflected the Indian population was indeed small.

The Health and Education administrative data source in the Western Cape which was utilised to mine data was robust. The province was working with municipalities in social services to put together a response which included lifting binding constraints, decoupling from national growth into breakout growth and decoupling from current energy into renewable energy.

On page 127 of the ‘Overview of Provincial and Municipal Infrastructure Investment’ document the high school in Darling was said to be in the project pipeline with R46.5 million allocated for the 2024/25 period and R46.5 million allocated for the 2025/26 period.

Ms Ishmail said violent crimes were classified as positive because it fell under positive and negative signs moving towards positive.

Further discussion

Mr Mvimbi referred to the Minister saying South Africa was spending R1.06 billion a day on servicing its debt and asked what the norm was for similar-sized markets in other countries.

South Africa’s debt to GDP ratio is about 16% higher than an average emerging economy and for the first time in a long time 25 developing economies spent over 20% of its revenue on debt servicing costs.

Western Cape Minister of Finance and Economic Opportunities, Ms Mireille Wenger, said in the deliberations on the national budget process that budget choices and trade-offs had to be made causing gold and foreign exchange contingency reserves.

Ms Robinson said the fiscal context was at the same point it was when Growth, Employment, and Redistribution (GEAR) was announced over 20 years ago, the debt to GDP ratio was rising on a trajectory of near 80% which created a fiscal cliff where other emerging economies ended up in an International Monetary Fund (IMF) rescue package.

21% of the budget then was interest payments and this had not changed so there was the threat of a debt trajectory which could put the country into a sovereign default. National Treasury worked closely with the IMF and other international consultants to ensure the settlement mechanism on [unclear] was carefully structured to minimise the cost linked to the introduction of the fiscal anchor.

Eskom payments were excluded from Michael Sachs’ Public Economy Project and Budget notes, meaning members have to review and monitor them carefully in the future. South Africa has productively utilised resources in the public sector and looks at alternative financial sources.

Replenishing reserves would give the province greater fiscal sustainability over time as reserves were necessary to deal with disasters and fiscal consolidation, Ms Gantana said.

Ms Pick said the majority of the R1.1 billion was allotted to infrastructure. Fewer schools were built, and if the plans to build schools continued, the cost of building would be higher than the current cost. The stabilisation fund resulted from the cash management policy where money which was not being used by departments on a day-to-day basis was swept from accounts to be invested elsewhere. In November, R702 million of the R1.1 billion could be accessed for fiscal consolidation, and the remaining funds that accrued from interest would be put into the stabilisation reserve.

Committee Minutes

Minutes of the meeting dated 1 December 2023 were adopted with no amendments.

The Chairperson thanked the Department for its remarkable work over a period of five years, and for its investment in innovative ways of reporting and educating.

The meeting was adjourned.