Premier
With regard to comments made during an interview on 13 August 2024:
- (a) How much more should be paid to the Province over the next three years (2024–2027) and (b) from which part of the National Treasury’s budget should it be financed;
- what (a) about the method of calculation of the equitable share of the Province’s budget is wrong and unfair and (b) other components should have been considered (excluding education, health, the poverty rate, the population size and economic activity)?
The Provincial Treasury informs me that:
(1)(a) Refer to response under (1)(b) below.
(b) Compiling the national budget involves complex trade-offs and we would not want to reduce that complexity by saying there is one number we are asking for.
Our aim is to get the best possible deal for residents of the Western Cape.
In the National Treasury’s own numbers they show they allocate less per person (including the PES and conditional grants) to residents of our province than almost any other province. In a graph published in the Explanatory Memorandum to the Division of Revenue Bill for 2024[1], the National Treasury shows that the DORA allocates:
- R10 700 per resident of the Western Cape,
Whereas other provinces receive much larger amounts:
- the Northern Cape receive R16 300 per resident,
- the Free State receives R14 600 per resident and
- the Eastern Cape receives R14 000 per resident[2].
We want to narrow this gap so that we receive more to spend on quality public services for each of our citizens.
We are also not just asking for a fair share of national transfers to the provincial government. We are asking for a fair share of national spending on national functions within this province, that is why, for an example, we engage national government on ensuring more police are deployed in the Western Cape
This is what we mean when we argue for a fair share for the citizens of the Western Cape.
Although we are not fixed on a particular number in our engagements with the national budget process, one can get a sense of the scale of what we are asking for, if you look at the reductions we are asking to be reversed, and the pressures these have created on our budgets. At a minimum, we would want to see National Government reverse the R6.7 billion[3] in budget reductions made to our equitable share over the 2024 MTEF. As at the end of September 2024, 6 months into the 2024/25 financial year, the province is already projecting spending shortfalls amounting to R896 million by the end of the financial year. Most of this spending pressure, R673 million, is projected by Education and Health, and this comes despite stringent cost cutting implemented already across our services.
National government could fund this by stopping the fiscal leakages emanating from corruption and ending bail-outs to State-Owned Entities (SOEs). The bailout of State-Owned Entities by the tune of R280 billion over the past five years[4] siphons much needed funds that could have been spent on front-line services such as health, education and social development.
(2) (a) With respect to the provincial equitable share formula, the following could be regarded as unfair and wrong:
- The formula doesn’t keep up with our growing population. Every year the formula is updated with population data for the previous year’s population estimates. That data then takes three whole years to phase into the formula. So, the formula is always funding the population figure from 4 years ago. In a province with a population that grows at an average rate of 2.4 per cent per year[5], this delay is unacceptable. We need to fund public services for our residents now, not in four years’ time.
- Some of the data used in the formula is more than a decade old.
The poverty component (with a weight of 3 per cent) is still based on 2010/11 Income and Expenditure Survey data. It is still not clear if the updated Income and Expenditure data will be available by December 2024 as indicated by National Treasury. Even if this data becomes available, it will only be used to determine the allocations for the 2026 MTEF.
The economic component (with a 1% weight) is still based on 2019 data up to the allocations for the 2024 MTEF. After a delay of five years, this is now being updated for allocations in the 2025 MTEF. If economic growth and jobs are our number 1 priority, this component should be allocated a bigger share with the Provincial Equitable Share formula.
- Problems with the Health Component (with a weight of 27 per cent)
The health component assumes that no public funds are needed to fund health services for people with medical aid. This means that 25.2 per cent of our residents receive no funding for health services, despite many of these residents coming to public clinics and hospitals, especially in emergencies and when their medical aid funds run out.
The formula claims to fund provinces based on the use of our health services. But the output sub-component does not take account of innovative methods of delivering health services. In the Western Cape, the Department of Health and Wellness introduced telehealth services, however patients who receive services through these telehealth services are not being counted as part of the patient load data used in the formula.
In addition, for the risk adjustment factor only access to GEMS medical aid are being used as a proxy for access to medical aid. This is incorrect and access to the data of other medical aids should also be taken into consideration.
- Not all learners are accounted for in the Education Component (with a weight of 48 per cent)
The education component does not include data on learners with special educational needs. We are proud of our special needs schools, that cater to over 22 000 students[6]. However, currently these learners are not counted in the learner numbers used in the PES formula. This is despite the higher costs of providing for their special learning needs.
(b) Although the components of the formula capture most of the core aspects of provincial functions, they do not capture all of them; eg:
- The current formula does not make explicit provision for all social development services, which the Western Government considers a critical front-line service.
- The formula also does not make any provision for the special needs of older persons. As the province with the longest average life expectancy, we are having to pioneer how we adapt our services to the needs of an aging population, but these cost pressures are not compensated for in the formula.
- The weights of the existing components of the formula also urgently need to be reviewed. The formula attaches a weighting of only 27 per cent to the health component, but provinces spend more than a third[7] of their budgets on health services. In the Western Cape 35% of equitable share funding in 2024/25 is spent on Health
- We also believe that increasing the weighting of the economic component from its current 1 per cent will incentivise provinces to grow their provincial economies and through that the overall GDP and associated tax receipts available for distribution.
[1] Figure W1.1 in the DOR Bill, 2024
[2] These are the 3 provinces with the highest per capita allocations, the lowest is Gauteng at R9 700 per person
[3] Total comprised of PES reductions of R2.155bn in 2024/25, R2.264bn in 2025/26 and R2.342bn in 2026/27
[4] https://www.da.org.za/2024/05/anc-government-blows-r280-billion-on-soe-bailouts-for-a-return-of-only-r1-million
[5] Western Cape annual population growth rate 2011 – 2022, cited in Census 2022
[6] Data from Department of Basic Education. WC accounts for 15% of the 143 000 SNE learners nationwide.
[7] Calculated from provincial budget data for all 9 provinces on the NT website – heath accounts for between 33.4% and 35.8% of aggregated provincial budgets in the period 2020/21 to 2026/27.
