Debate On The 2010/2011 KZN Finance Close-Out Budget Report
By Roman Liptak MPL
Shadow KZN MEC For Finance


 Kwazulu-Natal Legislature Pietermaritzburg: Thursday, 8 September 2011



Firstly, I would like to say that we in the Official Opposition are very pleased that the reckless overspending by provincial departments from previous years is now a thing of the past. It is clear from this close-out report that during the past financial year overspending has given way to underspending.


The Honourable MEC for Finance has repeatedly stated in this House that underspending of budget allocations by departments is as contentious as overspending because it impacts negatively on service delivery. We totally endorse that view and we share Treasury’s concern about underspending by government departments on unfilled critical posts, infrastructure projects and some key service delivery programmes which coincide with the national priorities and for which this province receives conditional grants. The general absence of overspending in this close-out report proves that Treasury’s cost-cutting measures are working and that they have largely contained runaway expenditure on items which are not critical to service delivery.


But there is a downside to the implementation of these cost-cutting measures, particularly the freeze on the filling of non-critical vacancies in the public service. Much of the underspending in departments is found under Compensation of Employees and this arises from the failure of departments to fill funded posts. It appears that departments have simply stopped hiring people who – in their opinion - are not critical to service delivery, but they are still failing to attract skills to fill critical vacancies, especially in management and in frontline services.


We are happy with the concerted effort that has gone into addressing the procedural delays in the filling of vacancies in the current financial year in some departments, namely COGTA, and we hope to see a progress report on this very soon. From other departments, such as Economic Development and Tourism, Human Settlements, and Social Development, we expect to see more realistic targets for the filling of vacant managers’ posts to improve their capacity for service delivery.


Many departments are grappling with the general lack of skills in the country and some serious structural challenges which are beyond their control, such as the numbers of graduates our medical schools and nursing colleges are turning out at present. It is encouraging to see certain departments such as Health and Social Development offering bursaries for their future employees, but if we are currently battling to fill the current vacancies in the Department of Health, how much more likely are we to attract thousands more doctors and nurses to meet the targets for the National Health Insurance which is to be implemented in a few years’ time?


Honourable MEC, from you we need clarity on the staffing situation in the Department of Education, specifically if the headcount of existing teachers has been completed, and whether or not the department can proceed with the hiring of new teachers and, even more importantly, new subject advisors. Some of these posts, especially subject advisors for mathematics and physical sciences, have been vacant for several years, leaving entire districts without the necessary capacity to help improve matric pass rates in these critical subjects.  


I would like to mention that the staffing challenges in our province go hand in hand with significant underspending by the national Department of Basic Education during the period covered by this close-out report. The national department has reported major shortfalls in spending on Curriculum Policy, Workbooks, and National Assessments, all of which threaten the viability of its plans to improve the provision of basic education in our country.


The extent of underspending on curriculum delivery, if it continues, will have a particularly negative effect on learner outcomes. The national departmen.....enditure on National Assessments is a deeply troubling sign because regular assessments in grades 3, 6 and 9 are essential to monitor the progress of learners and the performance of our education system as a whole. 

Other issues in the close-out report that deserve mention are also ongoing concerns. Under-collection of revenue by the Department of Health reveals that administration behind the collection of patient fees remains sketchy. This points to broader challenges within the financial management of clinics and hospitals and we need an assurance from the line function MEC that this is being addressed more effectively than in previous years.


The under-collection of revenue against liquor licenses is to be blamed on the tardiness of this Legislature in the promulgation of the KZN Liquor Bill. Considering that we pass so few laws in this House, the reasons for this delay are unclear and unacceptable. And in retrospect, our attempt to hold the Department of Royal Household accountable for past overspending by not approving its unauthorised expenditure was wildly optimistic as Royal Household has to date paid back only a small portion of the overspent budget.

Underspending on conditional grant allocations which are paid to various departments for special projects by National Treasury is all the more serious because it is a recurring problem. Indeed, some conditional grants have gone unspent during every financial year since they were introduced into our budget.


Unless rolled over, unspent conditional grants have to be paid back to National Treasury. This was the case last year with the R80-million our Department of Human Settlements had to surrender for redistribution in other provinces and this is the case now as the Department of Health faces a similar situation which involves far more money. Endless rollovers of unspent conditional grants call into question our argument that provincial departments remain vastly under-funded. Underspending on conditional grants also raises questions about alignment of service delivery programmes in the provinces with the national priorities.


The level of underspending on conditional grants, especially the Hospital Revitalisation Grant and the National School Nutrition Programme, threatens to undo much of the work that has gone into these flagship government projects. It can be argued that failure to upgrade hospitals will delay the introduction of the National Health Insurance and that failure to roll out school nutrition will further discourage underprivileged children from coming to school and remaining in school. And one could also argue that the lack of guidelines for the spending of EPWP grants by departments threatens provincial government’s most prominent job creation initiative at a time when jobs are being lost rather than created.


The four provinces with the poorest conditional grant spending record to date, which includes KwaZulu-Natal, are also the four provinces with some of the biggest challenges which these grants are meant to address. We really need to ask the line function MECs how such levels of underspending can be reoccurring year after year. Every year we are assured that spending projections will be met but it is clear that departments are doing little more than hope that their spending will somehow improve in the next financial year.


Spending of conditional grants is highly decentralised and budgets for conditional grants are split into installments, usually on a quarterly basis. Sometimes the amounts are very large, especially for the infrastructure conditional grants. The expenditure is monitored on the basis of previous transfers. The biggest issue seems to be that the spending is lagging behind the availability of funds. Departments request money at a certain rate, but they do not actually spend money at the same rate as they request it. They consistently give projections which they are going to break even, or even overspend, but in fact their figures for spending do not support those projections.


On the practical side, ro.......ject management and procurement: preparing and following businesses plans, getting the tenders out, obtaining service providers to actually provide the required services, and meeting deadlines from start to finish. Problems of performance with the conditional grants are therefore symptoms of deeper challenges with regards to management and performance. Lack of capacity and knowledge of the PFMA confuses and slows spending while money transfer and payment procedures are time-consuming and not well understood at the provincial level.


Rather than keep throwing more money at the problem, we need to be asking what can be done to strengthen provincial capacity more rapidly. Departments that underspend their conditional grants need to speed up filling of coordinator posts and training their programme coordinators. Treasury needs to beef up its support structure, intensify workshops and, where underspending occurs repeatedly, even directly oversee some pilot projects. It could also assist with procuring technical specialists and service providers who have delivered in other projects and I would like to hear from the Honourable MEC if this could be done.


We realise that building these foundations is slow and does not immediately translate into service delivery on the ground but it is probably worth the effort. It is also time to hold poorly performing officials responsible for the administration of conditional grants accountable for their actions.



Contact: Roman Liptak, 078 302 0929