Hon Chairperson, members of the NCOP, let me start by saying that, as a province, we are generally in support of the fiscal framework and the revenue proposals. Hon members of the NCOP, the basis of any fiscal architecture involves taxation, borrowing and public spending. In the case of South Africa, we have centralised taxation to Sars, which is working quite effectively and efficiently. We have centralised borrowing to Treasury, which is also working efficiently and effectively.
Our public spending is, on the other hand, decentralised. We must accept that it is decentralised to organs of the state, which in some instances lack capacity. To correct this, we need delivery capacity and budgetary controls working in tandem and effected at points of delivery.
As the provincial government of the Eastern Cape, our approach to constrained fiscal context, which was outlined in the Minister's speech, has been fourfold: Firstly, we believe that we are tightening fiscal controls and ensuring greater efficiency in our spend. Secondly, we are aggressively addressing underspending on grants and infrastructure. Thirdly, we are reprioritising our departmental baselines to ensure that a higher proportion of spend is on investment and service delivery. Fourthly, we are undertaking the serious process of ensuring that there is greater capital investment by national state-owned enterprises in the province, in order to improve our logistics platform and therefore grow the economy.
I want to make two comments about the fiscal formula, because I think it is important for us to raise some of the issues. The first question is: Is the equitable share really equitable? I would not want to get into a long discussion on the matter. Suffice it to say the following: The fact that the equitable share formula is almost wholly demographically based reinforces patterns of uneven development. The costs of service delivery are higher in poor provinces and municipalities while their ability to generate revenue is negligible.
We believe that the equitable formula should be more redistributive and developmental. Per capita income should comprise a much higher proportion of the fiscal formula. Currently, the socioeconomic status only comprises 4% of the weighting. We think that we must look at the matter, moving forward. If it is addressed, we think that we will have greater equity.
The second issue we want to raise, and probably the last in this regard, is whether the vertical split of the equitable share in the three spheres of government is appropriate. Our view as the provincial government is that municipalities in the province are underfunded and this issue needs to be addressed. Again, we think that municipalities should carry out a greater share of service delivery.
We agree that the levels of capacity and value for money are suboptimal at the moment, but this should not, over the medium term, detract from the need to develop this sphere as the key point of service delivery. We need to rethink our local government model, the two-tier system and number of municipalities. We think that at some point we will have to revisit the number of municipalities to ensure sustainable development and aggressive service delivery.
We are of the opinion that there is too much delivery capacity and resources at the national level, which should be more effectively and evenly distributed across the three spheres, in line with service delivery needs. We also need a rethink on bulk infrastructure funding for municipalities given the inadequacy of the municipal infrastructure grant, MIG, to finance bulk infrastructure and the limited borrowing power of poor municipalities.
Therefore, we must acknowledge that a fiscal space has been created. As a province, we have adopted a fiscal strategy that is comprised of the following points in summary. The first is strengthening fiscal discipline. The key here is rooting out financial mismanagement in the province, addressing overspending on cost of equity, and addressing underspending on infrastructure and conditional grants. To improve delivery capacity, we have set up a new infrastructure delivery unit to improve monitoring and control systems. We are also ensuring a close correlation between planned and real expenditure, initiating a chief finance officer support programme in education and health, supporting section 100(b) as has been adopted by the national Department of Basic Education, and implementing a fiscal recovery plan.
The whole strategic objective is to incrementally redirect the budget towards investment spending to fight poverty, create jobs, and transform our economy. In this regard, some of the following are issues that we are dealing with. We are halting the encroachment of cost of equity on other forms of expenditure; revisiting budget baselines; revisiting organisational structures to deploy human resources to points of delivery; and using procurement to drive opportunities in government and to ensure economic development in general.
The last point relates to the importance of managing the behaviour of state- owned enterprises. In this regard, we believe that we should be more aggressive as a province to leverage more spending on capital expenditure by most of the state-owned enterprises. In general, I must say that we support the spirit and content of the fiscal framework as well as the revenue proposals. I thank you. [Applause.]