1. Trends in Intergovernmental Finances: 2000/01 – 2006/07 01 September 2004

2. Trends in Intergovt Finances Trends in Intergovt Finances is an update on 2003 Intergovt Fiscal Review –Mini-IGFR Prov revenue and spending trends from 2000/01 to 2006/07 and municipal budgets in 2003-04 Past and future budgets (7 years) Provides consolidated info of municipalities and provinces –Allows comparison between provinces and municipalities Covers 8 sectors

3. 11 Chapter in the document: –Chapter 1: Introduction –Chapter 2: Trends in provincial budgets –Chapter 3: Local government finances –Chapter 4: Education –Chapter 5: Health –Chapter 6: Social development –Chapter 7: Agriculture and land –Chapter 8: Roads and Transport –Chapter 9: Housing –Chapter 10: Water and Sanitation –Chapter 11: Electricity Document covers

4. Intergovernmental Fiscal System 3 spheres of govt, all with different functions Biggest budgets at provincial level –2004 budgeted non-interest revenue R318,5bn in 2004/05 National – R120,6 bn or 38,2 % Provinces – R181,1bn or 57,3 % Local government – R14,3 bn or 4,5% provincial share grows to 58,0 per cent in 2006/07 –Provinces draw up their own budgets after national budget allocate national transfers (97,1%) plus own revenue (2,9%) national transfers grows to 97,3% in 2006/07

5. Provincial budgets 2004 Budget consolidated and made comparable by function 2004/05 budget R186,7 bn outer years R204,9 bn and R221,4 bn –biggest budget KZN R37,8 bn, smallest NC (R4,4 bn) –social services 81,9% –Compensation of employees 47,3% –Capital 6,1% at R11,3bn, to R13,7 bn in 2006/07 –Non-compensation non-capex R87,1 bn or 46,6%

6. Housing, provincial roads, agriculture, economic affairs, tourism and other admin functions) –R107,8 billion over next three years –positive economic spin offs for provinces –improve the quality of provincial infrastructure and contribution to EPWP –efficient delivery of other services –contribute to economic growth and job creation Non-Social Services Spending

7. Provinces are budgeting for a deficits of R215m in 2004/05 and surplus budgets in the outer years (R499m and R914m) Capital spending growing strongly between 2000/01 and 2006/07 –Total prov capital spending (R4,1 bn to R13,7 bn) –Share in total spending also increase from 3,7% to 6,2% –Education from R553m to R3,5 bn –Health from R1,0 bn to R3,8 bn Key trends

8. Provincial Spending

9. Social services share

10. Provincial spending

11. Provincial capital spending

12. Provincial revenue

13. Chapter 3: Local government finances

14. Overview Covers 2003-04 Budgets & growth since 2002-03: –Total municipal budgets - R86bn, up by 15,3% –R16,7bn budgeted for capital expenditure, up by 27,5% –3 largest municipalities – Joburg (R12,2bn), Cape Town (R10,3bn) & eThekwini [Durban] (R9,8bn) –Continued real increase in national transfers, up by 39% –Municipalities displaying varying dependence on transfers from 3% to 92% of budgets

15. Key Challenges faced Personnel costs –Up by 15,2% since 02-03 Revenue Collection –Outstanding consumer debtors up to R28bn Pro-poor policies: –Adequate infrastructure –Appropriate targeting mechanisms –Affordability

16. Reforms within LG sphere Municipal Property Rating Act –Broaden rates base –Harmonise valuation methods to land + improvements –Municipalities to monitor impact of new system Municipal Finance Management Act –Primary legislation governing municipal finances Review of LG fiscal framework –inc. equitable share formula & RSC levies

17. EDUCATION SPENDING

18. Education spending trends Largest share at 34,7% of total budget Highest share in Mpumalanga (38,9%) and Limpopo (38,2%) 11,9 million learners and 364 000 teachers (86% of staff) 27 000 schools Total budget - R64,8 bn (2004/05) R73,7 bn (2006/07) –R53,2 billion personnel or 81,6% Highest in North West at 86,3%, lowest on Gauteng at 77,2% –Capital rises to R3,0 bn in 2004/0 to R3,5 bn in 2006/07 –Public ordinary schools R53,9 billion (83,3%) Non-compensation recurrent spending (eg textbooks, LSM) –Rises from R3,8 bn in 2000/01 to R11,3 bn in 2006/07 –Per capita spending averaged R5 011 per learner in 2003/04 –highest in NC at R6 455, lowest KZN R4 359

19. Education spending

20. Education spending by economic classification

21. Provincial Education spending by programme

22. Provincial Education spending by programme (percentages)

23. Matric learners and pass rates in Mathematics

24. Matric learners and pass rates in Physical Science

25. Chapter 5: HEALTH SPENDING

26. Health services Strong spending in 2003/04 outcome Stabilisation of health budgets – real annualised growth 4.9% over 7 year period Stabilisation and improvement in health personnel numbers Substantial recovery in NPNC expenditure, including medicines Strengthening of capital spending and hospital revitilisation (27 projects)

27. Inter-provincial equity improving Significant increases in spending on primary health care, emergency medical services Scarce skills and rural allowances implemented and backdated to July 2003 HIV/AIDS spending significantly increasing with implementation of comprehensive programme Other pressures: Health inflation; hospitals; PHC function shift Health services

28. Health spending trends Health 21,7% of total budget declining to 21,4% in 2006/07 Two types of provinces –those with central hospitals have v high share –those without central hospitals Capital R1,0 bn in 2000/01 to R3,8bn in 2006/07 Primary health care (R7,1 bn) HIV and Aids spending – R60 m in 2000/01 to R2,2 bn 2006/07 EMS spending – R719 m in 2000/01 to R1,6 bn in 06/07

29. Health spending by programme

30. Health spending by economic classification

31. Health spending per capita

32. Public health expenditure trends in 2004 prices, Figure 5.1 Public health expenditure trends in 2004 prices, 1992/93 to 2006/07

33. Health personnel numbers by category

34. Chapter 6: Social Development

35. Overall Expenditure and Budget Trends Provincial spending growing strongly from R21 billion in 2000/01 to R42,4 billion in 2003/04 An annual average growth of 26,6 per cent Further accelerated growth over the period from R42,4 billion in 2003/04 to R61,2 billion in 2006/07 An annual average growth rate of 13,4 per cent Overtaken health as second biggest expenditure item after education

36. Dominance of Social Grants in Budgets

37. Social Grants Spending Continued dominance of social grants within social development budgets as a result of the continuing expansion of the social grants and welfare services for the poor Social grants spending is at an annual average of around 87 per cent within all provinces Proportions are particularly high in a poor provinces such as EC and MP at around 90 per cent over MTEF Especially extension of the child support grant to children up to their 14 th birthday, an average annual growth of 87 per cent Strong overall growth in grants spending from more than R18 billion to R37,1 billion expenditure between 2000/01 to 2003/04 This spending grows to R54,4 billion in 2006/07

38. Social Grants Spending by Province

39. Social Grants Beneficiaries Rapid growth in beneficiary numbers 2000 beneficiary numbers were more than 2.9 million By April 2004 beneficiary number more than 7.9 million An increase of more than 5 million over 5 years Highest growth in child support and disability grant beneficiary numbers – more than 4.3 million children by end of April 2004

40. Social Grants Beneficiaries

41. Prov Social grants spending

42. Percentage of total social development spending

43. Social grants beneficiary numbers by grant type

44. Chapter 7: AGRICULTURE AND LAND

45. Agriculture Spending on Agriculture rises from R3 billion in 00/01 to R5,5 b in 06/07 – growth of 10,6% Provinces account for just under 80% of total sector spending Provincial budget grows by 16,9% from R3,2b in 03/04 to R3,8b in 04/05, rising to R4,2 b in 06/07 –spending on personnel account for largest share but declined from 71,9% in 00/01to 60,4% in 02/03, will further fall to 56,7% in 06/07 –Non personnel spending increases to enhance farmer support programmes including infrastructure –Additional funds through conditional grant (R750m over 2004 MTEF) to implement a new framework for farmer support – Comprehensive Agricultural Support Programme

46. Land Spending on land reform programme increase from R518 m in 00/01 to R1,3 b in 2003/04, further rising to R2,2 b in 06/07 –Restitution programme account for the largest increase in spending from R265m in 00/01 to R839m in 03/04, budget to rise to R1,4 b in 06/07 –60,8% (48,463) claims settled at cost of R3,7 b benefiting 616,429 beneficiaries –64% of unsettled claims are urban, mostly in metros –By 06/07 settlement of restitution claims will be completed

47. Key Challenges & Initiatives Increasing access to farmer support services to enable effective land use –Linking land reform programme with post transfer farmer support –High spending on personnel but shortage of appropriate skills mix –Newly settled farmers need access to capital but difficult to access financial markets –Need to support research on appropriate technology for small scale farmers Comprehensive Agriculture Support Programme provides a new framework to increase farmer support services targeting small scale farmers and land reform beneficiaries

48. Chapter 8: TRANSPORT AND ROADS

49. Overview All spheres have some responsibility for –Roads –Public Transport and –Traffic management and safety Government spending on roads amount to R9,8 bn in 03/04 –municipalities account for 34,1% (R3 bn) of which 51% is spent by metros –National (SANRAL) 13,1% or R1,3 bn rising to R1,7 bn in 06/07 –Provinces account for 65,5% or R5,6 bn –Provincial spending rises to R7,6 bn in 06/07 –Maintenance account for 52,3% of prov road spending

50. Public Transport & Traffic National government spending on transport subsidies increase from R3,2 bn in 00/01 to R5,3b in 06/7 –Bus subsidies account for about 45%, and rail 53% Provincial spending on public transport rises from R308 m in 00/01 to R771 m in 03/04, budget to increase to R1,4 bn in 06/07 National and provinces spent R1,1bn on traffic & safety, with province accounting for 84% or R960m

51. Key Challenges and Initiatives Sector is complex & presents challenge for coordination between spheres –Developing new framework for road sector to facilitate inter-sphere coordination in planning and prioritisation –Reforming the current subsidy system which is fragmented and inequitable –Improve effectiveness of traffic control and management –NaTIS being upgraded to improve on its current weaknesses

52. Chapter 9: Housing

53. Delivery trends Delivery to March 2004 – 1,6 million housing opportunities Audit and clean up of HSS data – issues of reconciliation between DOH and provincial figures

54. Expenditure trends Conditional grant expenditure up by 13,5 per cent from R3,9 billion in 2002/03 to R4,5 billion in 2003/04. Success of national intervention to unblock constraints to delivery and expenditure.

55. Understanding the impact of the housing programme A Housing beneficiary survey showed: – a notable sense of security, independence and pride in home-ownership. –Beneficiaries are not satisfied with the quality of houses or the access to social services and amenities provided in new residential areas. Census 2001 showed that while a greater proportion of households now live in formal housing, –the housing backlog has grown and; –more households are also living in inadequate housing in informal settlements.

56. Understanding the impact of the housing programme The Township Residential Property Markets Study showed that: – 60 to 90% of households living in townships are not willing to sell their property and –the values of township residential properties have not increased at the same rate as property values in suburbs. This means that the asset value of subsidised houses is limited by the absence of a functioning secondary residential property market.

57. Policy developments and future challenges The Second National Housing Summit in November 2003 confirmed the need for partnerships in providing sustainable housing solutions. New policy priorities in the housing sector include: – Informal settlement upgrading, –integrated human settlement development, –strengthening partnerships in housing delivery, –extending social housing and rental options and; –greater support for municipalities. Housing delivery capacity (particularly municipal capacity) and the institutional arrangements for housing delivery remain a challenge.

58. Chapter 10: Water and Sanitation

59. Overview Crucial for improving health, alleviating poverty and facilitating economic development Substantial backlogs in water and sanitation Represents a significant commitment of resources –National budget allocation is R3,9 billion –Municipal budgets contribution is R6,8 billion –Water boards - approximately R3 billion –Staff complement : 4 200, 19 100 and 6 700 respectively for national, municipalities water boards’, about 30 000 personnel

60. Institutional & Legal Framework Complex sector involving a wide range of organisations –Primary responsibility for water services rests with municipalities as water services authority (WSA) –DWAF performs functions in both water resources and water services –Water boards’ are mainly responsible for bulk water provision Complexities has implications for coordination and accountability and capital investment for new infrastructure and rehabilitation Institutional reforms are still in early stages and are likely to take several years to complete

61. Trends in expenditure Authorisation of district municipalities as WSA resulted in a substantial increase in their budgeted expenditure Transfers by DWAF to municipalities decline by 51,6% as MIG is created on the vote of DPLG However, R8,1 billion for water and sanitation available through MIG over the MTEF Water boards revenue increase by 5,8% –Operating expenditure increase by 7,2% –Capital expenditure decrease marginally

62. Chapter 11: Electricity

63. Overview Electricity, gas and water sectors contribute around 2% of the country’s GDP 68% of South Africans had access to electricity by end 2002, compared to 50% in 1995 –Largest backlogs remain in rural areas –Progress made in the roll out of free basic electricity in municipal and Eskom areas South Africa rated among cheapest coal and electricity producers and suppliers in the world Eskom is projected to run out of excess capacity by 2007 –first station to be built in more than 20 years

64. Reform of generation and transmission industries Electricity consists of generation, transmission and distribution Reform of the electricity supply industry (generation and transmission) will introduce –Competition by separating transmission from generation –Private sector participation of up to 30% in the generation market (10% to BEE) –Original timeframe of 2003 shifted so that necessary regulatory and governance framework can be put in place

65. Reform of electricity distribution industry (EDI) Arrangements result of historical developments –Both municipalities and Eskom distribute electricity Proposed reforms to EDI –6 regional electricity distributors (REDs) consisting of Eskom and municipal electricity distribution businesses –1 st RED to be established by 2005 and process to be completed by 2007 Local government authorised i.t.o Constitution to reticulate electricity –Municipal buy-in critical to process –Restructuring should not adversely affect municipal finances

66. Conclusion Building sustainable communities remain a major issue Budget choices must balance effective subsidisation of the poor and on one hand creating an enabling environment for growth and development There remains a need to assess performance of critical sectors in the provision of public services Both local and provincial govts require dedicated capacity building support Lack of non-financial information and common methodologies for comparisons in the whole of government remains a concern