Remarks by Gauteng MEC for Finance Mr Mandla Nkomfe, at the 2011/12 Budget Roundtable discussion, University Of Pretoria
3 Mar 2011
I am indeed honoured and humbled to be here today. It is not always that we meet academics farom our prestigious institutions of higher learning such as the University of Pretoria, to discuss government budgets.
But there is always a first time for everything, so here we are today. We meet with you as members of the academic community and students, because we recognise you as key stakeholders of government.
Going forward, we want to phase in into the provincial budgeting timetable, a participatory process. This will see us engaging a wide range of stakeholders including the academic community and the youth to debate, analyse, monitor and evaluate decisions on public expenditure and investments.
As government, we are committed to transparency. Therefore, we believe that participatory budgeting, within certain limits, will move the central point of decision-making on resources from offices of politicians like me and senior government officials to public forums, fostering the key principle of transparency that our government values so much.
I certainly long for a day when ordinary people of this country will be provided with an opportunity to negotiate, amongst themselves and with government, the distribution of scares resources at provincial and national level.
I know that to some extent, our municipalities do offer this opportunity but we need to entrench it across government simply because economic and fiscal policies are a national competence. Provinces and municipalities work to deliver on major priorities set at national level.
When we tabled the budget to the Legislature yesterday, we did so conscious of the fact that the global economic outlook is still characterised by many uncertainties. Following the deepest recession in more than 30 years, the recovery of the global economy can best be described as sluggish, hesitant and fragile depending, of course, on which part of the world you are looking at.
Developed economies have reported weak economic growth, with the Euro zone experiencing sovereign debt problems. In fact, Germany is the only member of this bloc that has been able to sustain economic growth. At the same time the emerging markets have been more resilient largely as a result of superior performance by China and India.
Looking ahead, the International Monetary Fund tells us that developed economies are expected to reach positive growth in 2010. But this growth will be outperformed by that of emerging and developing economies, which is expected to be 6.5% in 2011 and 2012.
As we stated yesterday, boosted by low interest rates, low inflation and high household consumption, the growth of the South African economy is expected to increase from 2.7 in 2010 to 3.6% in 2011/12, 4.2% in 2012/13, and 4.4% in 2013/14
In line with this, Gauteng Gross Domestic Product per Region (GDP-R), which fell by R11 billion as a result of the recession in 2009 is expected to have reached R645.2 billion in 2010. Economic consultancy firm, Global Insight forecasts the GDP-R to reach R754.3 billion in 2014.
Impact of recession on provincial finances
There is no doubt that the recovery of the economy will have an impact on the financial position of the province. But as we know, the demand for quality public services in particular in Gauteng is increasing. This is happening at the time when growth in revenues, both from national and the province, is not equivalent to the expected increase in sustaining the delivery of public services. There is a mismatch; the increase in revenues is still low as compared to increases in service demands.
As indicated in the budget, as the province, we will take steps to enhance our revenue streams. But due to our intergovernmental fiscal system, our scope in this regard is very limited. Administration of all major tax instruments – income, corporate and value added taxes – is a national competence.
Provinces are funded through transfers from national government in the form of Provincial Equitable Share, Conditional Grants and Own Generated Revenue. The Provincial Equitable Share accounts for a bigger proportion, followed by Conditional Grants. Own Revenue Generated contribute the smallest amount to the total provincial funding envelope.
Our projections show a decline in the Provincial Equitable Share to fund provincial priorities in the years ahead, as transfers to provinces are revised downwards in line with the declining tax base due to the economic downturn.
As the Gauteng Provincial Government we took a decision to respond to these challenges and this is what we did.
Gauteng Provincial Government response to downturn
In the 2009/10 financial year, the provincial government experienced major cash flow challenges. I must point out that this was largely as a result of the economic downturn, which reduced the ability of in particular national government to collect the expected revenue. The outcome of this was a decline in equitable share that we’ve spoken about.
Responding to a direct instruction of the Executive Council, which is the provincial cabinet, the Gauteng Department of Finance undertook a comprehensive re-prioritisation process. This involved shifting limited financial resources from non-core to key and critical expenditure items, as per the priorities of the new administration. At the same time, a cost-saving exercise was undertaken with the view to save in excess of R2 billion.
We also reviewed provincial contracts and cancelled those that were either not providing value for money to government; or not in line with our priorities. Although there were penalties involved in some of these contracts, but we can say without any fear of contradiction that over a long run the province will certainly benefit from this process.
For the first time, the Gauteng Provincial Government tabled an outcomes based budget. This approach entails funding outcomes rather than departments or programmes. These outcomes were based the Gauteng Provincial Government’s Medium Term Strategic Framework. This is the document that reflects the mandate given to the government by the electorate in the 2009 general elections.
Perhaps I need to repeat these outcomes for the benefit of everyone present here:
1. Quality education
2. A long and healthy life for all South Africans
3. Decent employment through inclusive growth
4. Ensuring all people in South Africa are and feel safe
5. Vibrant, equitable and sustainable rural communities contributing towards food security for all
6. Sustainable human settlements and improved quality of household life
7. A responsive, accountable, efficient and effective local government system
8. An efficient, effective and development-oriented public service, and an empowered, fair and inclusive citizenship
The 2011/12 Provincial Budget is also based on the principle of outcomes-based approach that was adopted in the previous financial year. We believe that our outcomes approach to budgeting encourages interdepartmental cooperation and collaboration in the delivery of services to citizens.
In this financial year, we will continue with our austerity measures of reprioritisation, cost-containment and redirecting of funds away from non-core to key and critical expenditure items.
All departments are expected to efficiently manage the human capital and maximise production; ensure adherence to approved and funded spending plans; improve efficiencies in the process of procuring goods and services, and strengthen financial controls in our quest to stabilise provincial finances.
We are certain that over time, these austerity measures would improve the financial position of the province, enabling us to allocate more resources to key outcomes in order to enhance the quality of life of our people.
Once again I must express my sincerest gratitude to the leadership of the University of Pretoria for meeting with us here today. We will certainly meet again in the not so distant future to discuss this important issue of budgetary allocations.
Lasting partnerships between government and various stakeholders in the budgeting process, if properly managed, could lead to greater societal consensus on key decisions and help us move our country’s development forward with the required speed to improve the life of our people.
Source: Gauteng Finance
Issued by: Gauteng Finance
3 Mar 2011
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