Debate On The Challenges Of The South African Economy
As Presented By Finance Minister Pravin Gordhan
 By Dr LPHM Mtshali MPL



Kwazulu-Natal Legislature Pietermaritzburg: Thursday, 5 August 2010



Mr Chairperson


By definition, the National Treasury must ensure transparency, accountability and sound financial controls in the management of the country's public finances. In doing so, the National Treasury must act as a bulwark against institutional corruption, which is behind a great deal of underdevelopment in our country.


Corruption causes, among other things, poor quality goods and services, lack of efficiency, excessive costs, and ineffective public programmes. It is widely accepted that that the poor are the ultimate victims of corruption. It is they who suffer the most from poor quality services or goods or non-delivery of goods and services often resulting from corruption.


Political will is undoubtedly a critical factor in the fight against corruption and the promotion of good governance. Of course political will transcends grand speeches of which there has been no shortage, not least in this House. Political will incorporates leading by example and ensuring that corruption does not take root or, when it does, taking prompt and firm action where it is detected and supporting various law enforcement agencies when they do their work in this regard.


One form of institutionalised corruption has to do with the supply chain management processes given the vast proportion of budgets – national, provincial and municipal - spent on procurement of goods and services through the tender process. The National Treasury does not have this problem under control. The database for tenders awarded is not maintained, nor is it audited. The register for tender defaulters remains empty six years since its inception as part of the provisions of the Prevention and Combating of Corrupt Activities Act.


In addition to the rampant corruption, we are experiencing massive overspending in some of the key service delivery departments, mostly notably in the public health care system in all provinces, including ours, at present. Some of it might be due to bad and inefficient financial management. But there are cost drivers that need to be addressed not only in relation to assessing the past overdrafts, but with an eye on preventing overspending in the future.


Unless we begin to understand what those drivers are, we are not going to be able to fund our system adequately. We all know that the annual Division of Revenue Bills provide for a substantial share of nationally collected revenue to go to provinces with the aim of advancing economic development and strengthening social services programmes that have a high impact on the quality of life and social transformation. Problems with this model arise when the funds allocated by the National Treasury to the provincial governments and municipalities are insufficient or the mandates carried out by these entities transcend the original budget allocations.


A common intergovernmental challenge relates to the issue of unfunded mandates. Unfunded mandates arise when policies are developed by national government and the responsibility for implementation is allocated to provincial or local governments. So far, the lower tiers of government have put up with such unfunded mandates with a degree of resignation, but the cumulative nature of these mandates means that they may prove unsustainable in the long run. Unless the national government takes up its financial responsibilities, the provincial governments may have to consider their options in terms of the Intergovernmental Relations Framework Act. This may include declaring an intergovernmental dispute.


All of us are aware of the pressure that wage agreements in 2009 have placed on provincial spending over the MTEF starting with the current financial year. Of the R33.9 billion added to the provincial equitable share in 2010/2011, R30.9 billion was to cover the cost of general wage agreements and occupation agreements in health and education. While these additions should attract and retain experience and skills in the public sector, it is a substantial sum of money that does not necessarily translate into additional service delivery outputs. We cannot afford to continue expanding personnel expenditure, especially if we do not see substantially improved quality of services from the public sector.


The management of our human resources is equally critical. At the moment, for example, we do not have a national human resource strategy which indicates specific targets for the provision of health care workers, according to numbers of our population. How can we plan ahead at provincial level if we do not know what the basic package of care should be? This package of care is going to be a very important focus. We have to start specifying.


I imagine the National Treasury will not appreciate additional norms and standards because once these are adopted then Treasury is held to account in terms of what the norms are going to cost. But we need to know because there are far too many critical vacancies and far too many people who are inappropriately allocated in our health systems for us to be able to take a good view of how well we are delivering.


Related to unfunded mandates is the issue of intergovernmental debt, which, at least at provincial level, is being currently addressed by our Provincial Treasury. One area where we would like to appeal to the National Treasury for intervention concerns debt owed by the lower tiers of government, such as municipalities to state-owned enterprises, such as Eskom, where the national government is a shareholder. 


As the intergovernmental system evolves, we may need to reconsider the appropriateness of current financing mechanisms as well as the level of financing to provinces. A growing developmental role of provinces demands a range of more sophisticated and targeted financing mechanisms and a systematic review of the level of financing for provinces, particularly in respect of the vertical division of nationally collected revenue.


Provinces are no longer mere administrators of health, education and social welfare services conceived at national level. Provinces are increasingly moving towards enhancing regional economic growth as they boost investment in key areas such as infrastructure development and stimulate activity and participation in the labour markets.


Such developmental engagement may in time require a radical rehashing of financing mechanisms – namely unconditional transfers - that is provincial equitable share; conditional transfers - that is grants; provincial taxation powers; and provincial borrowing powers – that are directed towards financing specific yet complementary responsibilities.


It is critical that intergovernmental grants are designed in such a manner that they support optimal outcomes. It has become evident that there is a need to reform the municipal infrastructure grant to appropriately respond to the different demographic, economic, infrastructural and institutional challenges faced by the 283 municipalities in the country, of which 61 are in this province.


Our vision in this respect is simple: Let national government establish frameworks and minimum standards. Let provincial and local governments control funds and choose priorities. Then hold them accountable. Let discipline be meted out close to where government officials work and improve co-ordination between different tiers of government by way of integrated information systems. In addition, let us remove all remaining constraints that prevent lower tiers of government from negotiating partnerships with the private sector or working with NGOs and international donors.


I thank you.


Contact: Dr Lionel Mtshali, 078 302 0929