M Mabuyakhulu: KwaZulu-Natal Appropriation Bill 2004/2005

Budget address by Mr M Mabuyakhulu on tabling of the Provincial Budget in the Provincial Legislature
27 May 2004

Mr Speaker
Honourable Premier JS Ndebele
Deputy Speaker
MECs
Honourable Members
Distinguished business leaders
Ladies and Gentlemen

Introduction

The past is like a river flowing out of sight. The future is an ocean filled with opportunity and delight. These are the words of Anna Hoxie one of the greatest intellectuals of our time. As we begin our journey of leading this new government, we are reminded of these words and that which they represent. We can do nothing about the past, save that the legacy of the past continues to haunt us into the future; however, as we take the mantle, we must accept that the responsibility of shaping the future lies in our hands. Mr Speaker, we live in interesting times, although the challenges that lie ahead are daunting, we however, believe we are equal to the task.

We therefore need to arm ourselves with the appropriate tools that will ensure that as we confront our past, we are adequately prepared to shape the future. We have chosen to represent the future. The tool in your bag represents the emphasis of our rallying call of creating work and fighting poverty.
Our people have given us a mandate to create better conditions for all people of this province. As I present my first budget as the ANC MEC for Finance and Economic Development, I am fully aware of the levels of poverty, disease, malnutrition and hunger, the need for roads, bridges, dams, clinics, hospitals, schools and many other basic necessities that our people would like to have as of yesterday.

We are tabling an entirely new budget today, as in terms of parliamentary procedure the budget tabled before the elections by my predecessor, Mr Miller, has elapsed. As we table the provincial budget before this house we lay a foundation to giving meaning to the contract that this government has with the people of KwaZulu-Natal. We have opted to give recognition to two new portfolios announced by the Premier in his acceptance speech to this House.

In the state of the Province, the Honourable Premier raised a number of significant priorities, which, as we transform the bureaucracy and this government, we should be attending to. These include the following:

Support for the establishment of a provincial desk for the promotion and protection of the rights of cultural, religious and linguistic communities;
Support for the Office of the Youth Commission;
Support for the Office of the status of women in KZN;
Support for the establishment of a Sports Council;
Rolling out a concrete programme around Good Governance and the Provincial Citizen's Charter;
Support for municipalities that lack capacity to meet their basic constitutional functions;
Support for developing a mutually beneficial and value adding bilateral development partnership with the State of Lagos, to give meaning to our commitment to NEPAD;
More support for our programme to get more international airlines flying directly to eThekwini, KZN's very own NEPAD city;
Greater support to our heritage tourism offering, including the construction of the Zulu Heritage amphitheatre including a library and museum in KwaDukuza.

2003/04 fiscal outcomes

One benefit of tabling the budget this late in the calendar year is that the fiscal outcome of the previous year is already known. And because multi-year budgeting is becoming a more and more seamless and integrated process, the province's fiscal performance in any given year has important implications for the new MTEF.

Preliminary figures indicate that the province ended the 2003/04 financial year with a deficit of approximately R265 million. Most departments ended the year with a small surplus, but this was offset by massive over-expenditure in the Department of Social Welfare, which overspent its budget by approximately R620 million.

If however one strips out under-expenditure on conditional grants by departments, bearing in mind that any unspent conditional grant funds have to be rolled over to the following year, the actual deficit recorded by the province in 2003/04 rises to R588 million. In spite of substantial over-collection of own revenue, amounting to approximately R420 million, this is for once not sufficient to balance out the over-expenditure against budget. The net result is that the province ended the year with a real deficit of R168 million.

The previous financial years saw persistent over-expenditure in the social sector. The cumulative effect of persistent over-expenditure by these large votes will, if unchecked leads us to the bad situation that we faced in 1997/98. To remind this Honourable House, in 2001/02 financial year the Health Department overspent by R286, 572m and by R75, 866m in 2002/03 while the Welfare Department overspent by R146, 444m in 2001/02 and R90, 146m in 2002/03 and Education and Culture overspent by R247, 190m in 2002/03. In sum, the total over-expenditure that remains in our books totals R846, 218m. These amounts will be dealt with by the Public Accounts Committee and will be finalised by this House in due course.

Fiscal and budgetary realities in the 2004/05 MTEF

The preliminary outcome of the province is financial performance in 2003/04 is already signalling the need for us to proceed with caution in the manner we manage the provincial budget in the years ahead. The relatively "tight" fiscal outcome, with serious over-expenditure yet again in the social welfare sector, should jolt us into the realisation that from a fiscal perspective we are not out of the woods yet.

We must emphasise that the proposed budget allocations had been formulated within the limitations of an increasingly constrained national fiscal framework. In the 2004/05 MTEF allocations to provinces from the national fiscus, very little additional new funding over and above the baseline MTEF was made available. This was because of a much tighter macro-fiscal framework, caused primarily by reduced levels of revenue owing to slow economic growth and lower tax collection. Although the first quarter estimates of both economic performance and revenue collection have not been made, it seems that the macro-economic outlook has not improved. The world economy is constrained by geopolitical factors such as in the Middle East, and rapidly rising oil prices are threatening to ignite a new cycle of inflationary pressures, rising interest rates and economic slowdowns in key economies across the world, with negative implications for our own economy in the medium term.

What we are saying is simply this. The national fiscal framework is likely to remain constrained for the foreseeable future, with significant downside risk. The implications for the province are that we are going to have to manage our finances within the existing limited funding envelope over the forthcoming MTEF.

Mr Speaker, Honourable Members, it is this context that the current strategic planning exercise initiated by the Premier and referred to in his State of the Province address should be viewed. It has become imperative to reengineer government processes and structures from top to bottom, so that we can deliver services more cost-effectively and efficiently to the people of this province who have just given us a mandate to serve them for the next five years. It is essential that we become smarter in the use of our limited resources in future.

This is going to require the rationalisation, integration and streamlining of our mandates, processes and structures throughout government.

From a budgetary perspective, the challenge, which will take more form and content during the tabling of the Adjustments Estimate in November, will be to shape the provincial budget to support the achievement of the long-term strategic goals of this Provincial Government. In his address the Honourable Premier has referred to this and the details will emerge in the coming months. We therefore call upon all officials in our government, as well as Honourable Members of this House, to view this process of change and renewal positively and enthusiastically, befitting our hard-won reputation as a winning province. Ultimately, we expect the rationalisation and reengineering process underway in the provincial government to free up significant savings for new development through the elimination of duplication and more efficient and productive utilisation of our resources and assets.

" CREATING WORK AND FIGHTING POVERTY"

It is common cause that the economy has been placed on a stable and solid growth path through a very sound macro-economic policy which the ANC led Government has implemented at national level. But it has also been agreed by all social partners that more needs to be done to address market failures and in particular, to stimulate much higher levels of employment across the country. Job creation, in all its forms will thus continue to be a central feature of our strategy and programme of action for the forthcoming term of Government. This job creation focus needs to be pursued in all three spheres of Government, and more effective and structured partnerships with all key stakeholders will be critical to the success of this drive. This gives meaning to our commitment to a "Peoples Contract to create work and fight poverty". Creating work and eradicating poverty of necessity requires a contact with everyone who can make a contribution to this co-ordinated job creation programme.

At provincial level, we recognise that we seek to stimulate job creation in the context of a dual economy, that is a wealthy, regulated, first world and modern economy, and on the other hand, a poor, marginalized, unregulated informal economy which is characterised by high unemployment levels and is "survivalist" economic activity. The heart of our strategy to create jobs is about more effectively bridging the gap between these two economies. In short, this gap needs to be bridged by Government playing a more active role in supporting the "mainstreaming" of the informal economy and stimulating labour-intensive economic activity and especially new small business development. What this means is implementing more substantial programmes at provincial and local levels to invest in infrastructure, drive and co-fund catalytic economic projects, implement a coherent human resource development strategy which talks to the labour market needs, address the HIV/AIDS pandemic and provide business growth support so that entrepreneurs, organised communities, women's groups and co-operatives and youth in both urban and rural areas can move from the level of survivalist activity to real competitive and sustainable business.

A new "KZN PLATFORM FOR GROWTH"

The provincial government has approved that a new forum for partnership between Government and its social partners at the provincial level be established. This forum gives meaning to the "people's contract" and ensures that Government plans take into account the value-add of business, labour and civil society.

It is proposed that this Platform be chaired and led by the Premier, who will appoint the other constituent members of this Platform. In broad terms the Platform will:

allow for consultation on strategy � be a think-tank on priorities and opportunities for development
allow the Premier and Government to solicit support, resources and partnerships with social partners
around development priorities and flagship initiatives
be a body, which monitors progress in implementation of the plan and ensures that obstacles are addressed timorously.

Within the next three months the platform for growth and development will be up and running. The economic development component of my portfolio will provide the support necessary for the establishment and the running of this very significant structure in our Province.

Strategic priority programmes and projects

Within the context of one country, the national government sets broad national priorities, which should form the basis of the delivery machinery at national, provincial and local levels of government. In the province the Cabinet has approved eight priority programmes and projects which should give meaning to the tone set by the President both in the February address and the May address. This means that each Provincial Government department and state-funded agency will plan for their own strategic plans to pursue the achievement of the priority programmes and projects. These would also form the basis for the decisions on resource allocation that will have to be made by Government and its partners/agencies over the MTEF period.

Priority programme Number One: Accelerated Local Economic Development Programme

The Province needs a new and more effective way to drive an integrated job creation strategy at the local level. Although there are a million different ways to stimulate the creation of new jobs, to be sustainable, some key programmes and projects need to find synergy and be integrated at the local level. Thus an "Accelerated Local Economic Development Programme" brings together key responses to the local job creation need, ensuring that they are implemented in a way which is sustainable and which empowers communities at the local level.

Local Economic Development, which is a component of this programme, is about stimulating integrated economic growth and development within localised target areas. Thus LED has both short and long term objectives. In the short term an LED programme seeks to create employment opportunities though linking community needs with economic project opportunities. Communities identify their development backlogs and areas of infrastructural need, including roads, schools, clinics, training colleges, community halls/facilities, houses, police stations, etc. The construction, upgrade or maintenance of these facilities are packaged and managed as opportunities for employment, skills development and empowerment of members of local communities.

This is what is envisaged in the Expanded Public Works Programme (EPWP), which is the second component of this programme. The EPWP is not just about creating short-term work, but empowering members of communities with skills and opportunities for the long term. It is about delivering much-needed infrastructure while the community participants in the projects acquire both hard skills (e.g. in fields of construction) as well as in so-called "soft" skills (e.g. project management, basic financial management, business skills, etc.). Within the auspices of the EPWP, we are committed to putting water and sanitation to all the remaining 333 schools within a period of two years. This will contribute directly to the creation of sustainable communities in our Province.

The implementation framework is built on best practice, whereby the participants in the process are made ready to take up other emerging business opportunities in the open market after the EPWP projects are completed, and are given "hands-on" assistance in identifying the opportunities in the local market and accessing support for exploiting these opportunities.

The Small Towns Regeneration Initiative, which is the third component of this programme, is based on a new partnership between all three spheres of Government, the private sector and organs of civil society at the local town level. The past 20 years have seen a dramatic economic decline in many of the province's smaller towns as Apartheid planning and protective border industry programmes led to exploitative and unsustainable developments. The initiative presents a new opportunity for all Government departments, the local municipalities, all utilities and service providers to identify and jointly plan for co-ordinated delivery of social and economic infrastructure within the locality, based on the principle of "maximum impact" for economic growth and job creation within that locality. In other words, this initiative encourages and compels all agents of delivery to gather around a planning table with local stakeholders and prioritise delivery needs and plans on the basis of which are going to result in maximum impact in terms of sustainable economic growth and employment generation. This initiative is planned to dovetail with the local town's IDP processes, but with specific focus on fast-tracking the economic component and job creation impact of the IDP.

Two mechanisms are being set to give teeth to this initiative:

1. all provincial departments and state-funded service providers will be compelled to participate in the local town planning and their performance in the local initiative will be measured � they will have to account to the Provincial Executive for value-added to each town's economic regeneration;
2. the Province will set aside specific funds to support the pilot towns championing this initiative's which will serve as an incentive for towns (municipality and community leadership) to take the regeneration initiative seriously. The flow of funds to the local level will be carefully linked to performance.

The Provincial Executive will need to select a specific number of pilot towns for the MTEF period (2004-2007) so that resources are targeted and noteworthy economic development successes are recorded. It is suggested that no more than 10 such towns be identified.

Implementation of the Urban Renewal Programme and the Integrated Sustainable Rural Development Strategy is the fourth component of this programme. Although these have been talked about for some time now, there has not been adequate implementation. This sub-programme is about fast tracking and unblocking any blockages to facilitate improved delivery.

The fifth component is the 3-cities Growth Support Plan, which is based on the economic fact that major cities are the key drivers of economic growth and development within regions. eThekweni is the province's lead manufacturing and logistics hub and the gateway for trade and tourism. Msunduzi is the centre for government and administration and a gateway to the Midlands. UMhlatuze is the mineral beneficiation hub and gateway to northern KZN with all its tourism assets. The 3-cities Growth Support Plan is an initiative to ensure that the Province gives direct and targeted support around the catalytic economic initiatives, which are identified with the respective municipalities.

The EU Funded LED Programme focused on 4 pilot district municipalities (Ugu, uMgungundlovu, uThungulu and uMkhanyakude) gets under way this year and runs for a five-year period. The programme will develop long terms strategic models for promoting successful LED while real economic projects are packaged and implemented within these areas. The programme also emphasises an integrated, locally-driven economic growth approach, and through the programme provincial and municipal stakeholders will build their capacity to manage sustainable LED strategies for the long-term. The Province will add further resources to the 37 million Euros, which is to be invested through the programme.

Priority Programme Number 2: A Centralised Provincial Poverty Alleviation Fund

At least 7 provincial departments and a host of other agencies are running separate and often conflicting "anti-poverty" or poverty alleviation programmes and projects. These range from small arts and crafts co-operatives, to poultry projects, piggeries, sewing projects, small market stalls, etc. It is estimated that the total provincial funding of these runs into hundreds of millions of rands per annum. There is no effective co-ordination amongst the many funders of these initiatives even where they work within the same local areas.

Many, if not most of these poverty alleviation projects prove to be "unsustainable", that is, the projects are not effectively planned, and management support is often completely absent, resulting in the projects remaining completely dependent on continuous annual funding from the departments and agencies. Once the funders decide to cease funding, the projects tend to collapse and the beneficiary communities are often left worse-off than they were before the projects.

Due to the lack of coordination, monitoring and management of the funding of poverty alleviation projects, the Province is exposed to enormous risks in terms of fraudulent practices and wasteful expenditure. The mistakes made and lessons learnt by one funding department or one beneficiary community are not transferred on to others, resulting in continuing bad decisions and practices. This vicious cycle must be broken. A single provincial fund firstly brings clarity to all communities and stakeholders as to where to go in terms of accessing provincial financial support for poverty alleviation projects.

A single fund, with a single authority will be able to be a "one-stop-shop" by clearly defining what will be funded in terms of poverty alleviation and where other forms of initiatives and anti-poverty delivery products will be housed.

The fund can thus draw on best practice in terms of funding criteria, leveraging of funding, project management, promotion of economic sustainability and long-term community empowerment. Therefore the budgets of all provincial departments and provincial public entities will be carefully studied and the respective departmental funds, which have been budgeted for poverty alleviation activities, will be pooled and managed centrally.

In the next two months we will establish a framework for accessing the budget by departments. This will include targeting mechanisms (geographic and beneficiary) and formats of business plans. A clear monitoring, reporting and evaluating system will also be established. The intention is to simplify the system, discourage duplication and competition between departments. The effect of this will be to improve the pace of delivery, and improve accountability and transparency in the allocation of resources. Therefore, all departments will have to comply with the set criteria.

The support and decision-making structures for this Fund can allow for a new partnership between the different spheres of Government, communities and traditional authorities, so that the province moves more quickly away from a "top-down" hand-out approach to assisting communities in need, and moves towards a sustainable empowering approach.

Priority Programme Number 3: Establishing a Provincial Economic Financing Strategy

There is an urgent need for a dedicated provincial project finance mechanism. The province is not short of potential economic projects, which, if implemented, would have many positive spin-offs for job creation and empowerment. Many catalytic economic projects also have the potential to unlock a much more significant number of further developments. The Dube Tradeport, incorporating King Shaka International Airport is an example of this type of project, where the initial investment by Government into such a public-private partnership, in turn can unlock much greater levels of private investment. The uShaka Marine Park is similarly an example of how public investment into a project is aimed at unlocking greater levels of private investment. The issue though, is how to make it easier for Provincial Government to practically make such an investment into a catalytic economic project.

Gauteng Province has led the way on this question by setting funds aside over its MTEF cycle for dedicated project investment purposes. It was this decision, which allowed Gauteng Province to develop and roll out what is now known as Blue IQ � a brand and a set of projects built on a strategic vision for the economic development of the province.

The "KZN Growth Fund" will be established beginning with the current financial year. Funds from the Province will be ring-fenced for the specific set of projects which the Province believes is able to leverage much higher levels of private sector investment and provide the necessary injection into the provincial economy. In most cases the investment would be into an infrastructural projects � but Government would seek security in terms of the investment through feasibility assessments and confirmed support from the private sector role-players who would invest on the back of the infrastructure.

For this to be significant this province will set aside an amount of R440m during the current financial year with this amount growing to R1bn in each of the subsequent years of the MTEF.

At national levels, significant resources have been dedicated to support greater Black Economic Empowerment in the economy. The Province will in the immediate term need to develop clear strategies for co-operation with the institutional vehicles through which national Government funds will flow, such as the National Empowerment Fund, Khula Enterprise and others.

But in addition, the Province must resolve the question of the restructuring of the ownership and mandate of Ithala Development Finance Corporation. The options for Ithala include using its resource base to unlock much higher levels of finance specifically for BEE. Ultimately Provincial Government will want to ensure that through the restructuring of Ithala, much greater numbers of black men and women entrepreneurs find easier access to capital than is presently the case. This process however, requires careful investigation and assessment of the options by Government as the shareholder.

Priority programme Number 4: Implementing an accelerated Trade Gateway Programme

A clear and convincing argument has been accepted for the Province building on its comparative strength in the area of being southern Africa's trade gateway to the world. As world trade grows exponentially, and transport and logistics become the key areas of competition between regions, so the importance of the Province' two ports, its air platforms, its road and rail infrastructure, becomes more critical. The Accelerated Trade Gateway Programme is therefore about having a coherent and well-resourced action plan for strengthening the region's economic position. The elements of this action plan include:

immediate implementation of the Dube Tradeport
encouraging the fast-tracking of the concessioning of the Durban Container Terminal to the benefit of Durban and the Province
accelerating the implementation of the Richards Bay Industrial Development Zone
pursuing the implementation of the integrated freight rail link strategy with Gauteng, including the issue of a dry port between Durban and City Deep in Gauteng
implementing an effective export promotion programme with leading local sectors and companies.

Priority Programme Number 5: Implementing a sector development programme

The Province has now developed a draft Industrial Development Strategy that clearly points to those industries in the KZN, which need to be supported in their growth and in the development of their job creation capacity through a structured sector development programme. This sector development programme is aimed at facilitating the process of the targeted industries becoming globally competitive and growing through new investment. The programme looks at all aspects of competitiveness, and builds a set of partnerships between the leadership of industries and Government. One of the issues that will also be dealt with in the sector programme is the advancement of BEE and women's empowerment in the leading industrial sectors in KZN.

The following sectors have been identified as priorities for the MTEF period:

agriculture and agro-processing
tourism
clothing/textile
wood & wood products
arts, crafts and cultural industries
information and communications technology (ICT)

Linked to this sector development programme, the province will need to set targets for and support a focused investment promotion strategy. Most importantly, the province through its procurement for goods and services has to take a conscious decision to procure in a manner that contributes directly to sector development strategies. Fundamentally the province has the capacity to produce. What is lacking is access to finance on the one hand, and access to markets. This programme therefore attempts to provide that essential market access for local production.

Priority Programme Number 6: Implementing an Integrated Business Support Programme

As much as we recognise that SMME formation is a critical feature of the Governments strategy to promote job creation, clearly not enough has been done to ensure that entrepreneurs or aspirant business people, most especially from Black communities, have access to the types of support services which will increase the rate of take-up of business opportunities and the rate of success of start-up ventures. In the rural areas in particular, there is a need to have facilities available for new business development.

At the moment we have a number of agencies operating in the business support services area within KZN, including the Manufacturing Advisory Centres, the Local Business Service Centres, Tender Advice Centres, and Ntsika-funded agencies. However their service is at a very basic level, resulting in a low rate of conversion, of opportunities into jobs and businesses. We thus need to find a new framework and resource pool, to allow communities and entrepreneurs to have access to information, advice, business planning support, assistance with accessing finance, etc.

Priority Programme Number 7: Implementing an Integrated KZN Human Resource Development Strategy

The need for an integrated strategy for aligning more effectively the demand and supply of meaningful skills in the local economy cannot be over-emphasised. The tertiary and FET sector needs to be able to develop their skills development plans in line with the emerging economic development strategy of the Province, whilst still ensuring that we provide learning which stimulates innovation and critical thought. In particular this strategy needs to formulate a targeted "Youth Empowerment Programme" whereby young school-leavers and graduates are given access to specialised support to both enter the job-market with more than academic skills, and support for entrepreneurship and small business opportunities. We are making an urgent and very serious challenge to the private sector in the province, to take up the opportunity to set specific and significant targets for youth participating in the learnership programmes. I am calling for us meeting the target of 100 000 learnerships per year for a five year period. The resources are available through the SETAs for this, so there is no reason why we cannot meet this target. We will be engaging directly with business on this challenge.

Priority Programme Number 8: Creating a culture of Good Governance

There is consensus now that development is made possible and enhanced by a culture of good governance. In his address to this Legislature the Honourable Premier said "most of the principles of the Citizen's charter, such as accountability, transparency and citizen empowerment are incorporated into our Batho Pele programme. Using international best practise and our Batho Pele as a basis, the province must, within three months, develop a Provincial Citizen's Charter which is the provincial government's contract of delivery to the people" We should therefore bring this culture into our affairs as an imperative underpinning all that we do.

Setting the Budget Structure

To ensure sound fiscal management, it is of paramount importance that we have an exemplary underlying budget structure. This means that every departmental budget should have a credible baseline that informs the MTEF. When the MTEF projections are unreliable or subject to wild fluctuations they undermine departments' ability to plan their service delivery programmes. It is apt for us to remind ourselves that a credible MTEF is critical for the ability of the province to plan for and deliver services.

In the immediate few weeks, we are going to engage all provincial departments to examine the baseline budgets and make amendments if necessary and reset the MTEF projections. This will be a collaborative and a constructive engagement from the side of the Provincial Treasury with the budget teams of all departments.

This process will begin with a joint Cabinet Cluster workshop that will be held before the end of June 2004. In the process of examining the budget structures and baselines, we will examine the cost drivers of each budget; explore the key factors that lead to deviations from budgets and eventuate in under or over expenditure in various votes. Armed with a better understanding of the underlying cost drivers, we will then re-examine the MTEF projections and make alterations as it may be needed.

Performance Budgeting

Apart from reviewing our mandates, structures and processes from top to bottom, we will need to place renewed emphasis on the principles of performance budgeting which is key to ensuring we achieve maximum value for money for the funds that we expend and the services we provide. Honourable Members will know that performance budgeting, which links and integrates the processes of strategic planning, financial planning and performance measurement, was formally implemented in the provincial administration some three years ago as part of the package of financial management reforms which accompanied the Public Finance Management Act.

But Mr Speaker Sir, I submit that we have not really taken performance budgeting seriously enough in recent times. We just go through the motions of compliance with the technicalities of performance budgeting, without really using it as an integrated performance management system, which aligns departmental budgets to, improved service delivery. Let me remind Honourable Members what performance budgeting is all about.

In performance budgeting systems, resources are analysed and allocated in terms of purposes to be served or objectives to be achieved, with a view to relating resources to results or performances. In short, the aim is to relate inputs to outputs and outcomes. And to analyse the relation between inputs, outputs and outcomes requires performance measures or service delivery indicators, as they are commonly known.

In the last three financial years, we have indeed made progress in introducing service delivery information into our financial management systems and budgeting documentation. But we have not nearly gone far enough.

When true performance budgeting is in place, we will be able to see progressive developments of communities.

We should be able to visibly see an improvement in the availability of basic needs of a given community once government departments have delivered in that community. The provincial profile gives us a benchmark of the province we are taking over and we should be able to measure in a year to three years visible changes within the communities.

We want to serve notice to Accounting Officers therefore that from now on, the Executive Council, with the support of this House and its portfolio committees, will be placing much more emphasis on performance budgeting and performance management in every aspect of the financial and budgeting cycle. This will begin with the budget planning and allocation processes. Departments wanting to start new projects, or wanting additional funding, will have to demonstrate exactly what outputs they will achieve for the funds to be expended.

They will have to show exactly what the money will buy, in terms of services delivered, jobs created, outputs Province of KwaZulu-Natal, achieved - failing which their budget proposals will not even be considered. And when they have been allocated the money, they will have to report on and be held accountable for service delivery performance on a regular basis. Departments which do not comply with these requirements, and which do not deliver on their stated performance targets and objectives, are likely to have their budgets cut. Simply put, what I am saying is that we should ensure that government spends the funds allocated in the budget, no more and no less. In the case of Departments, they must ensure that they spend funds allocated in the budget, no more and no less!

Mr Speaker, Honourable Members, let me remind you that we are all accountable to the tax-paying public and communities of this province for how we manage and spend the public monies with which we are entrusted. We therefore owe it to the public to ensure that we do indeed achieve value for money, and deliver services efficiently and cost-effectively, with the limited resources at our disposal � anything less is simply not good enough!

Improving Financial Management and Accounting

Closely linked to sound budget estimates is the institutional capacity for financial management. The prerequisite for sound financial management is the presence of capable managers. Capable managers will need to be systemic and be able to translate budget estimates into service delivery and effective interventions in the socio-economic arena. Where weaknesses exist, appropriate interventions have to be made to ensure sustainable institutional capacity. The Provincial Treasury will put a programme in the next three months to analyse the capacity needs of each department. This will be done in cooperative manner. We should avoid the temptation of short-lived interventions that have no lasting impact on departmental capability.

We are ten years in our democracy. During this time Departments have faced enormous challenges related to amalgamating departments that were from previous administrations, developing capacity and putting management systems in place, while at this same time extending and improving service delivery. The enormous strides departments have made have not gone unnoticed. Our aim this year, and in the coming years is to ensure that every single department and public entity in KwaZulu-Natal gets a clean bill of health from the Auditor-General.

To this end the provincial treasury will work with departments and public entities to address the issues raised by the Auditor-General in his reports. Also, we are exploring the possibility of linking the Accounting Officers bonuses to the Auditor-General's outcomes of the audit of their respective entities.

2004/05 REVENUE AND EXPENDITURE PROPOSALS

Mr Speaker, I turn now to the provincial budget proposals for the 2004/05 MTEF.
Available funding

As mentioned earlier, in aggregate the revenue available to the province from the MTEF as was published in 2003/04 has not significantly changed. Details are contained in the Appropriation Bill and Budget Statements, which I will table shortly. The quantum of additional funding received by the province in the form of national transfers in this MTEF is considerably less than in the previous two years. Total additional funding available for distribution (including the MTEF Balance and excluding conditional grants) this year amounts to just R1, 206 billion, compared to R3, 339 billion last year.

Apart from the additional R1, 121 billion received from the national government in the form of additional equitable share funding, the province has contributed an additional R84, 8 million of its own money to the budget for 2004/05. This is made up of an increased estimate for provincial own revenue collection in the amount of R60, 4 million, and R24, 4 million, being the MTEF balance which was held on Provincial Treasury's vote.
10 Province of KwaZulu-Natal, SOUTH AFRICA

Table 1 in the printed speech provides details of the source of this additional funding:

TABLE 1: Additional funding available for distribution � 2004/05
'(R000) '2004/05
2004/05 Baseline revenue estimates

National transfers: 35,593,099
Equitable share: 31,937,519
Conditional grants: 3,655,580
Provincial own revenue: 840,784
Total revenue allocated (as per 2003/04 Budget Statements): 36,433,883

2004/05 Revised revenue estimates

National transfers: 36,905,750
Equitable share: 33,058,939
Conditional grants: 3,846,811
Provincial own revenue: 901,175
Total revenue available for 2004/05: 37,806,925

Total additional funding - 2004/05

National transfers: 1,312,651
Equitable share: 1,121,420
Conditional grants: 191,231
Provincial own revenue: 60,391
Total additional funding - 2004/05: 1,373,042

Funding available for allocation - 2004/05

Increase in equitable share (new funding): 1,121,420
Increase in provincial own revenue (new funding): 60,391
MTEF Balance (existing funding): 574,379
MTEF Balance (New Provincial Reserve): (550,000)
Funding available for allocation- 2004/05: 1,206,190

Revenue

For the 2004/05 financial year, the province is budgeting for total revenue of R37, 807 billion. This represents an increase of R4, 899 billion over the original budget for 2003/04, or 14,9 per cent. The 2004/05 budgeted revenue is an increase of R4, 414 million over the adjusted revenue budget for 2003/04, or 13,2 per cent.

The budgeted revenue for 2004/05 is made up as follows:

Equitable Share: 33,058,939
Conditional Grants: 3,846,811
Provincial Own Source Revenue: 901,175
Total Revenue: 37,806,925

Expenditure

Turning now to the expenditure proposals, the province is aiming at a balanced budget for the 2004/05 financial year and outer two years of the MTEF period. The full amount of revenue available to the province for the 2004/05 financial year, namely R37, 807 billion, is allocated to the various provincial departments and for the purposes of establishing a provincial reserve, which will be held on Treasury's budget. I reiterate that this reserve fund will not be used for debt redemption or repayment of the actual over-expenditure incurred in the 2003/04 financial year, which as I have mentioned totals approximately R168 million according to the preliminary figures, which have just become available. Departments, which have overspent, will effectively start the new financial year with a deficit, which will have to be funded from their own budget allocation.

The budget allocations make provision for the two new departments of Arts, Culture and Tourism, and Sport and Recreation. The creation of these two new departments from a practical point of view is made possible from the shifting of functions from the departments that rendered these services prior to the change. The departments that will be affected will be Education and Economic Development. Table 2 in the printed speech summarises the transfer of funds from the former parent departments to the new departments. I should emphasise that only funds for the operational expenditure of the new departments, including the MECs salary and costs of the MECs office, have been transferred at this stage. With regard to other funding such as the sport and recreation and arts and culture, we have transferred the entire programme as it stood in the relinquishing department. The Hon. Premier has indicated that further details are worked out in the area of policy regarding in school and out of school sports, arts and culture.

Once this decision has been made they will be effected in the Adjustments Estimate to be tabled later in the year.

The establishment of the provincial reserve fund in the amount of R550 million has necessitated that we reduce the amount of additional funding allocated to certain departments. I have mentioned that the province had available an additional R1, 756 billion to allocate to departments in the 2003/04 financial year, which included R574 million of its own saved reserves. It is effectively this latter amount, which will now be used to re-establish the provincial reserve fund. The main departments, which received substantial additional funding over the existing MTEF baseline prior to the change in policy, were the departments of Agriculture and Environmental Affairs, Education, Health, Transport and Social Welfare, which together were allocated no less than R1, 747
billion of the R1, 756 billion available. Accordingly, it as been decided to reduce the additional funding allocated to these departments in the following amounts for the purposes of creating a provincial reserve fund:

Agriculture: R25m
Education: R102, 400m
Health: R269, 190m
Transport: R49, 553m
Social Welfare: R103, 857m
Total: R550 million

I have already explained how the provincial reserve of R550 million will be funded. Allow me to explain the function shifts and accompanying transfer of funds involved in these revised allocations in a little more detail for the information of honourable members.

The amounts presented under the "portfolio shifts" column represent the transfer of funds between departments for the purpose of creating the newly announced portfolios of Arts, Culture & Tourism and Sport and Recreation.

These amounts were reflected as either programmes or sub-programmes within the Departments from which they have been re-allocated. Amounts to fund the MECs salaries in the new portfolios were also re-allocated from those Departments that now report to one MEC, resulting in the budget no longer being required in both the Departments.

In addition, funds are transferred to the new departments to meet the costs of the new Ministries.

In summary, the following departments are affected by the transfer of funds resulting from the portfolio shifts:

Economic Development and Tourism

Funding for the Tourism function, amounting to R69, 952 million, is moved to the new portfolio of Arts, Culture and Tourism. An amount of R579 000 for the MECs salary is transferred to Arts, Culture and Tourism as the MEC in charge of the Finance and Economic Development portfolio will be remunerated out of the Provincial Treasury's vote. In addition, an amount of R4, 384, representing the estimated costs of running the Ministry, is surrendered to the Arts, Culture & Tourism portfolio.

Education and Culture

This department releases the functions of Sports and Recreation, and Arts and Culture. These functions, together with the accompanying budgets, will move to the newly established departments, namely, Sports and Recreation, and Arts, Culture and Tourism. Sports and Recreation is a programme with two sub-programmes (In-School Sport and Out-of School Sport) in the Department of Education and Culture. For the purpose of these revised allocations both sub-programmes have been included under Sport and Recreation, pending a final decision in this regard. This results in the transfer of a total amount of R23, 534 million out of Education and Culture to the newly established department.

Similarly, Arts and Culture is a programme of the Department of Education and Culture. The budget for the sub-programme (R34, 191m in 2004/05) will move out of Education and Culture to the newly established department.

Hence the total amount moving out of the existing Department of Education and Culture is R57, 725m.

Housing

An amount of R6, 899 million is re-allocated to Sport & Recreation (R6, 679 million) and Arts, Culture and Tourism (R0, 220 million), to fund the establishment of the Ministries of these respective departments.

Safety & Security An amount of R1, 496 million is re-allocated to the Department of Arts, Culture & Tourism, to fund the establishment of the Ministry in this Department.

Sports and Recreation

As explained, R23, 534m will be moved from Education and Culture to this new department. This includes a national conditional grant of R1 million for the Mass Sport and Recreation Programme. An additional amount of R6, 1 million is also allocated to this Department for the establishment of the Ministry. The MECs salary of R579, 000 will be added to the department's budget, resulting in a total budget of R30, 213m. Note that the budgets for both in school and out of school sports are included in the same programme and have moved to the new department. Any further changes will be taken up in the Adjustments Estimates Budget.

Arts, Culture and Tourism

This department's budget is the sum of the budgets for Tourism (R69, 952m) and Arts and Culture (R34, 191m), i.e., R104, 143m. An amount of R6, 1 million, for the establishment of the Ministry, will also be added to the budget of this Department. Finally, the MECs salary of R579, 000 will be added, resulting in a total budget of R110, 822m.

Additional allocations for administrative costs will be made during the Adjustments Estimates Budget.

Details of the revised allocations to Departments for the 2004/05 financial year are contained in Table 3 of the printed speech. It is always important for us for the budget to be viewed from an MTEF perspective so that proper analysis and engagement with the budget is had. However, the importance of the decisions made in the 2004/05 budget necessitates that we separate this year in this presentation. We do publish in the budget statements the effect of the carry through of these decisions over the MTEF period.

Significant features of the revised 2004/05 MTEF budget proposals

Mr Speaker, the full details of the budget proposals we are placing before this House will be found in the Budget Statements, which themselves are being revised to reflect the changes in portfolios, creation of the two new departments and establishment of the provincial reserve fund.

The creation of the two new departments of Arts, Culture and Tourism and Sport and Recreation, is surely a tribute to the foresight of the Premier, who announced these new portfolios long before the Soccer World Cup bid victory was confirmed! The two new portfolios reflect the growing importance of Arts, Culture, Tourism and Sport in the strategic positioning and marketing of this province on the national and international stage. They also anticipate the prominent role we have been assigned to play in hosting the World Cup. We have already proved our ability as a province to host major sporting, business and tourist events and conferences, the most recent example being the exceptionally successful tourism indaba held in Durban. Our new Growth and Development Strategy will reflect the competitive advantage, which we are building in these areas, and the elevation of tourism culture, and sport to separate portfolios is a long overdue recognition of the important role that these functions play in growing our economy and developing our people.

There has already been speculation that the awarding of the rights to host the World Cup will boost mega development projects across the country, including the Dube Trade Port and King Shaka International Airport. I am not going to be the one to deny this rumours- my long association with the KSIA is too well known! It is also no coincidence that this project received a special mention in the President's State of the Nation address, an indication of just how important this flagship project is to both the national and provincial government. Let me remind Honourable Members that we have budgeted a total of R250 million to the King Shaka project in the outer two years of the current MTEF- we are not going to renege on this commitment. In fact we are going to improve the pace of delivering this important project.

These exciting developments aside, I wish to remind Honourable Members that the basic developmental challenges, which confronted us during the initial tabling of the budget, still remain - indeed they will remain with us for longer than the lifespan of this parliament. Poverty, inequality, unemployment, HIV/AIDS and associated diseases of poverty and underdevelopment � these remain our most serious longer term challenges, as emphasised by our Premier in his address earlier in the week.

It is for this reason that the fundamentals of the budget I table before this House is a strongly redistributive and developmental budget specifically designed to address the scourges of poverty, unemployment and inequality.

With over 86% of the budget allocated to the social sector, the budget focuses on poverty reduction strategies, health improvements and job creation in line with the province's long-term strategic goals. Special allocations have been made for labour intensive infrastructure projects under the auspices of the Expanded Public Works Programme (EPWP).

Conclusion

Mr Speaker, in conclusion, the budget I am about to table can be described as a holding exercise. I have indicated that further adjustments will be made to the structure of the budget in the Adjustments Estimate when the strategic planning processes in government have been concluded.

Mr Speaker I wish to thank the officials in my departments who have assisted me to have this presentation today. My thanks go to my team led by Mr Vishnu Naicker in the budget office, to Mr Mel Clark in Economic Development, to Mr S�bu Myeza and the team he leads in my Ministry as well as Sipho Shabalala in the Provincial Treasury.

In the meantime, we have an Appropriation Bill, which, with the indulgence and approval of this House, will provide the wherewithal for all departments in the provincial government to get down to serious work. Let us get to it- there is much to do!

It is now my privilege to formally table the Appropriation Bill, 2004, for the Province of KwaZulu-Natal for the 2004/05 MTEF period as well as the Budget Statements for the same period.

NB: Tables for this speech can be found on the website http://www.kzntreasury.gov.za.

Issued by: Department of Treasury, KwaZulu-Natal Provincial Government
27 May 2004

Source: Department of Treasury (http://www.kzntreasury.gov.za)