Pretoria - Provinces and municipalities are some of the biggest losers in this year’s budget, with funds allocated to it now moved to other priorities, mainly funding free higher education in South Africa.
National Treasury said South Africa’s challenging fiscal position and large new spending commitments forced its hand to cut previously announced transfers to provinces and municipalities.
It said the extent of the adjustment will delay delivery of some planned infrastructure and requires departments responsible for frontline services to ensure exceptional care in allocating public funds to maintain core services.
“The planned spending for 2018/19 has been affected by reprioritisation and reductions undertaken since last year’s mini-budget,” it said.
Transfers to provinces were reduced by R5.2bn, and local government faces a reduction of R3.2bn.
Over the next three years 48% of nationally raised funds are allocated to national government, 43% to provincial government and 9% to local government.
Provincial direct and indirect allocations will absorb 26% of the reductions, while local government direct and indirect transfers absorb 18.8 %, Treasury stated.
The newly announced cuts focus will be on infrastructure conditional grants.
But the reductions were not applied to personnel costs and the impact of spending cuts will fall mostly on capital programmes.
Treasury said the share of the reductions borne by provinces is somewhat lower than their share of the division of revenue, because the majority of provincial budgets are spent on wages.
In contrast, local government’s share of the reductions is higher than their share of the division of revenue, given the large number of infrastructure grants to municipalities.
Provinces will also have to intensify efforts to contain costs in the face of rising pressures, particularly in public health, it said.
“Provinces, which depend on transfers from national government for over 95% of their budgets, face substantial spending pressures to provide health, education and other services to growing populations,” Treasury said. “In this context, most of the reductions in transfers to provinces have been made on infrastructure grants.”
National Treasury also voiced concern that municipalities continue to grapple with weaknesses in financial management with a significant number still not adopting funded budgets.
Thus the national government will have to introduce new mechanisms to assist the turnaround of troubled municipalities over the medium term.
In his Budget Speech Finance Minister Gigaba said that local governments face significant financial management and governance challenges.
“Too many municipalities do not charge tariffs that reflect the full cost of the services they deliver, in particular for water services,” he admonished, adding that they did not adopt credible budgets.
While national government already provides extensive capacity support to municipalities, Treasury would review the effectiveness of these different support measures and introduce a new instrument designed to assist the turnaround of some of the most troubled municipalities, Gigaba said.
The government was also working with municipalities to secure investment that can help reshape South Africa’s cities and accelerate economic growth.
“Reforms to facilitate municipal borrowing are under consideration.”
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