More for rural municipalities

Gordhan’s ‘highly redistributive’ budget takes from the rich and gives to poor households in rural as well as urban areas. But, say experts, this puts Gauteng and the Western Cape at a disadvantage

Provinces and municipalities are getting a bigger slice of the pie each year with more than half of the national budget heading their way.

This year treasury allocated R538.2bn to provinces, up from a revised estimate of R500.4bn the year before. A further R112.5bn went to local government, which received R103.3bn last year.

This means that 43.4% of the budget is going to the provinces and 9.1% to local government.

Finance minister Pravin Gordhan said this year’s budget was “highly redistributive”.

He said the budget redistributed resources from urban economic areas to fund services in rural areas.

In the Budget Review, treasury says that while metropolitan municipalities account for 70% of personal income tax revenue they receive only 31% of local government transfers.

Similarly, the 61 mostly rural local municipalities also receive 31% of the transfers to local government, but account for only 5% of personal income tax revenues.

But this puts some provinces at a disadvantage — particularly Gauteng and the Western Cape, which deal with more domestic migration as people move to the county’s economic powerhouses looking for jobs, says Roelof Botha, economic adviser to PwC.

Botha says the equitable distribution puts more pressure on Gauteng and the Western Cape.

The Western Cape and Gauteng receive far less per capita from the budget compared to provinces such as the Eastern Cape and KwaZulu Natal.

Treasury says in the Budget Review that the allocations to provinces are based primarily on demand for services.

“The division of revenue system is highly effective at redistributing resources from a largely urban tax base to programmes that benefit poor households in both rural and urban areas,” it says. “The impact of these allocations depends, however, on the choices made by provinces and municipalities in allocating and executing their own budgets.” Of the equitable share allocated to the provincial governments — an amount of R441.3bn — R93.7bn went to KwaZulu Natal, R86bn to Gauteng and R61bn to the Eastern Cape. Six provincial governments around the country have started to either merge or incorporate some entities into other provincial departments to reduce costs. Treasury says the planned merger of gambling and liquor boards in several provinces into one board is expected to result in annual savings of about R3m per merger. Underspending has stabilised across national, provincial and local government, it says. Provinces have made progress in implementing the cost-containment measures announced in 2013. Spending on nonessential goods and services fell in real terms by 6.1% last year and was expected to drop by 4.5% annually over the medium term. Treasury says municipalities are also taking steps to reduce expenditure on consultants, travel and subsistence, credit cards, catering, events, advertising and conferences. The proportion of provincial spending on personnel has also declined slightly, from 60.4% in 2015 to 59.8% last year. Treasury says the number of people employed by provincial departments is expected to grow by about 1% as more teachers and healthcare professionals are hired. Conditional grants overseen by national departments which are used to fund specific programmes make up 18.3% of provincial transfers. But municipalities needed to balance their plans to extend and improve services with available resources. “Unlike provinces, municipalities can raise substantial own revenues through property rates and service charges,” treasury says.