GAUTENG BUDGET ADJUSTMENT IS FLAWED

The Gauteng Provincial Legislature has approved an adjustment to this year's budget in terms of the Medium Term Budget Policy Statement. The effect of the budget adjustment is to increase both the revenue and expenditure by R1,2bn. The budgeted expenditure for 2011/2012 now stands at R69bn.

In reality, what has happened is that the National Treasury has given the province R627 million, most of which is for what the department of finance calls "Improvement to Conditions of Services". Essentially, money is being given to fund increases for employees that emanated from a protracted negotiation that was concluded after the original budget. The original anticipated increase was 5.3%, but the final negotiated increase was 6.8%, so money is coming in for a specific purpose and it is expended for that specific purpose.

However, the point of concerns are the increase in "own revenue", i.e. money earned directly from the provincial operations and not just transferred from National Treasury, and the payment of some R400m worth of goods and services that should have been paid last year.

In the first instance, the province will earn an additional R88m that wasn't anticipated. While this windfall is certainly welcome, the source of it is a problem. Of the total amount, some R70m is additional interest earned on cash balances. These cash balances arise from grant monies that have not yet been spent on infrastructure such as roads, schools and hospitals. At current interest rates it is estimated that there is about R1000m in our bank accounts that is not being used for the purpose it was given. In other words the people of Gauteng are being denied service delivery improvements.

Secondly, about R500m is being removed from the infrastructure upgrade and maintenance budgets because the province will not have the capacity to spend it before the end of the year. Instead, the provincial government will use this money to ease cash flow problems and pay off some of the suppliers who have been waiting for payment, some of them for years.

We have been told that R400m will be used to pay the invoices of these suppliers and R100m will be held back as an incentive for the departments to prove that they can increase their rate of spend on capital infrastructure projects. If they demonstrate capability then they will be given the R100m back, which shows a degree of ingenuity and should be commended.

However, the department admits that infrastructure maintenance money is being used to pay for goods and services. Hence we are critical of the conversion of R400m of capital investment into operating expenditure, which is wrong. The amount of accrual payments, i.e. goods and services unpaid since last year, amounts to R2,5bn. So even after this the problem still won't go away.

Examples of re-allocation of monies are as follows:

1. Page 29 of the budget document shows a decrease in Payments for Capital Assets in the Legislature of R24m. On the other hand the so called "Current payments" rise by R26m.

2. On page 70 the Health Facilities Management budget is reduced by R368m. Moreover on page 95 the explanations is given as follows, "Funds have been shifted to other Programmes within goods and services and to transfers to municipalities for the payment of accruals (my emphasis). The departments anticipate under-spending (sic) on maintenance budget."

3. On page 117 the Capital assets budget for Education is reduced by R74m. This is presumed to be a net figure because on page 122 the money budgeted for Buildings and other fixed structures is reduced by R83m.

4. On page 151 the Housing Development budget is reduced by R15m.

5. On page 182 the Transport Infrastructure budget is reduced by R122m.

All of these budget amendments have been cast within the ambit of the so-called Medium-Term Budget Policy Statement (MTBPS). This directs the provincial government to budget on the basis of 8 outcomes, namely: Quality Basic Education, a long and healthy life for all South Africans, safety, decent employment through inclusive economic growth, vibrant equitable and sustainable rural communities contributing towards food security for all, sustainable human settlements and improved quality of life, responsive accountable efficient and effective local government, an efficient effective and development-oriented public service and an empowered, fair and inclusive citizenship.

It is arguable whether the budget has truly been shaped by these outcomes. No doubt the provincial government will say that such outcome-based budgeting has only recently been applied and it takes time to work the new approach into the ethos of the organisation.

The various re-allocations from capital to operating budgets have become necessary because of a lack of financial discipline. The racking up of billions of rand of accruals has occurred year after year. Each year the accruals of the previous year bite into the budget of the following year and the residents of Gauteng are deprived of billions of rand worth of services, particularly impacting the poor and the vulnerable.

To fix this problem, the department of finance has ordered what it calls, "Top slicing". I.e. it has ordered that every department's budget must be cut by about 5% across the board. The money saved by doing this would then be used to pay the outstanding bills. This is like "pruning twigs" off a bush and as any gardener will tell you, when you prune off twigs they grow back with a vengeance. In the same way, what happens in a government environment is that you can cut back a budget but the staff and administration capacity remains and is capable of generating costs. The demands for service and political pressure will result in them spending money that is not intended to be spent.

In the late nineties the City of Johannesburg was in deep financial crisis. It dug itself out of the crisis not by pruning twigs but by "lopping off branches", departments and programmes that were not core to local government service delivery were closed down or sold off. Accordingly, various departments were terminated, and the Rand Airport and the gasworks were sold off.  

The provincial government needs to do the same. It needs to stop things like lavish parties, glitzy communications events and even overseas trips. Every department's activities must be examined. Any programme that is not core to the province's service delivery mandate must be closed down. In fact, if the MTBPS outcomes-based budgeting approach was truly being applied then the provincial government could safely motivate the elimination of anything that fails to contribute towards the 8 outcomes.

Moreover, people who fail to keep to a budget need to be disciplined. Those who fail to submit documents for payment on time must be held to account. In short, those unwilling to work for their salary must be fired. Those incapable of doing so must be trained or relocated to positions more suitable to their skills.

Statement issued by Mike Moriarty, DA member of the Gauteng legislature, November 29 2011

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