KZN treasury battling to fund public works and education departments

KwaZulu-Natal's treasury will have to dig deep to offset the budgetary pressure brought by the controversial 2024 public sector wage agreement and the fiscus consolidation.

This emerged during the provincial midterm adjustment budget speech presented by treasury MEC Francois Rodgers at the provincial legislature on Tuesday.

Rodgers said finance minister Enoch Godongwana’s position that the National Treasury would not be making any amendments to provincial budgets for the first time in years highlighted “the amount of fiscal pressure at the national level”.

However, he also pointed out that the National Treasury had indicated that departments should budget for a 4.4% cost of living adjustment in the main budget, before going on to implement a 4.7% wage increase.

“The wage agreement, which is 0.3% above what was budgeted for, is therefore exerting a significant pressure on the provincial budget as not all departments could budget for the 4.4% prescribed increase, let alone the 4.7%,” he said

The budget pressure from the wage agreement was calculated at R4.5bn for the province.

“KZN's treasury raised the difficulty of absorbing this cost from the provincial budget at various forums with the National Treasury. Despite this, no additional funds have been allocated to the province for this purpose.”

That has had a crippling effect, he said, especially on the departments of health, education and social development and has been source of conflict between the treasury departments.

Rodgers said this was made worse by the fact that the country is expected to make an under-collection of R22bn in tax revenue from what was estimated when the main budget was delivered at the start of the financial year. “As a result of these lower revenue projections, it is not possible to accommodate all the demands on the fiscus.”

Despite the National Treasury indicating that it would not allocate additional funding to provinces, it did make an exception of rollover on unspent conditional grants.

Having recorded an audited underspending of R263.7m at the end of the 2023/24 financial year against the R25.6bn budget, and having spent 99% of the conditional grants budget by year-end, KZN was able to request and be approved a rollover of that amount.

“The province was able to prove that the full amount of unspent funds was committed and an approval was thus given by the National Treasury for these funds to be rolled over,” said Rodgers. “The department that requested their rollover to treasury must be congratulated because we lost no money back to National Treasury.”

The rollover is from the human settlements and infrastructure development grant.

Rodgers commended the provincial government for always spending the conditional grant and ensuring it returned no money to the national fiscus. He said KZN has since allocated a total of R729.3m from the provincial cash reserves from three sources in this adjustment budget. The funds are from:

• the rollover of the unspent grant and revenue over-collection from the previous year;
• the contingency reserve budget; as well as
• unbudgeted revenue collected by some departments this year, which they have requested be allocated back to them.

“There were several competing needs and the allocations made fall in line with the available resource envelope,” said Rodgers.

The biggest benefactors are the departments of public works (R345.8m) and education (R95m), as well as the office of the premier (R85m). Other departments that were allocated funds include:

• the provincial legislature (R70.6m),
• cooperative governance & traditional affairs (R69.3m);
• human settlements (R25.9m);
• community safety & liaison (R24m);
• economic development, tourism & environmental affairs (R13.2m); and
• sport, arts & culture (R355,000).

Given the current fiscal constraints, Rodgers said, his office would continue managing the provincial cash balances “extremely tightly” to avoid a bank overdraft.

“Cash blocking has to remain as a crucial control to eliminate any payments being processed without the requisite cash being available to the bank account of the department and should not be interpreted as the treasury controlling who receives what payment.”

He acknowledged that these were tough times that allowed no room for complacency. With the sluggish economy, years of financial mismanagement and unemployment at 31.2% in KZN, Rodgers called on the departments to “earnestly commit” to eliminating luxuries.

“We emphasise that spending on subsistence and travel, international travel, vehicle rentals, functions and catering must be substantially reduced to create relief in areas of greater need such as our social services, health care, safety and security, and education.

“The available resources do not allow us to meet all the needs and expectations of provincial departments.”

Despite all the gloom, however, Rodgers said there was a silver lining.

“The economic outlook for South Africa and KZN is expected to improve, supported by a stable electricity supply, increased investor and consumer confidence and the resolution of operational issues at commercial ports. So national economic growth is expected to increase marginally to 1.1% this year, with further growth to 1.6% in 2025 and 1.8% in 2026.”

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