Wage agreement eats into provincial budgets

Cape Town - Provinces will have to seek further cost efficiencies to maintain service levels, Finance Minister Nhlanhla Nene said in parliament at the presentation of his mini budget.

Provinces account for 70% of all public service employees and according to Nene, they will have to make the bulk of adjustment to accommodate the increased cost of the public sector wage agreement, which led to a R12.5bn shortfall in the current financial year.

Nene said provinces have already taken steps to contain costs. Since 2012 personnel numbers have declined by about 2%, including a reduction of over 10 000 since the start of this financial year. Provincial spending on non-essential goods and services like advertising, travel and consultants has also been reduced.

Nene said other initiatives to improve government efficiency are bearing fruit. Health departments, for example, have improved supply chain management procedures to reduce wastage in medicines and laboratory costs. In addition, a number of provincial public entities have been rationalised to reduce duplication.

Budget allocations to municipalities continue to grow faster than the national and provincial shares. This reflects the priority placed on basic service delivery by municipalities and the prioritisation of the roll-out of basic services to historically disadvantaged areas, Nene said.

"However, these services have come under stress in some areas because of poor maintenance or weak operations. The development needs of our cities demand that we not just rely on  government funds, but also bring private investors on board.

"In August this year, Minister (Pravin) Gordhan and I co-hosted an Urban Investment Partnership Conference that brought together cities and private investors to explore options to increase municipal infrastructure investment. In support of this, the Development Bank of Southern Africa is expanding its longer-term financing of infrastructure," Nene said.