Provinces to be hard hit by budget changes brought on by Covid-19

Service delivery across all spheres of government will hardest hit as the government responds to the Covid-19 crisis.

According to the supplementary Budget Review, key projects in public works, roads and transport services will be delayed or cancelled due to the reallocation of funds across government spheres to finance the response to the Covid-19 crisis.

The supplementary Budget Review, published on Wednesday, says the postponement of planned sports, arts and culture events is also on the cards at provincial and national level.   

In April, President Cyril Ramaphosa announced a R500bn, or 10% of GDP, social and economic support package for the country to soften the economic blow of Covid-19. The funds would be raised both from existing budget resources and international funding institutions, including the International Monetary Fund (IMF).

According to the Budget Review, adjustments across national, provincial and local government allocations contribute R145bn of the government’s response. This includes R109bn in temporary suspension of baseline allocations and adjustments to the skills development levy. The balance of R36bn is financed through an increase in the main budget deficit. Provinces will reallocate at least R20bn to the Covid-19 response in their own budgets.

Most of the targeted reprioritisation is provided by a R80.9bn temporary suspension of baseline allocations, the Budget Review states.

This suspension consists of R54.4bn in national departmental allocations, R13.8bn in provincial conditional grants and R12.6bn in local conditional grants. Provincial suspensions include R20bn funded from the provincial equitable share.

Further suspensions will be considered as additional Covid-19 spending pressures emerge, according to the Budget Review. These will be affected in the October adjustments budget. Some suspensions will result in the cancellation or scaling back of projects in 2020/2021.

Overall, the division of revenue presented in the 2020 budget will see the national share for 2020/2021 increased from R758bn to R790bn. The provincial share will decrease from R649bn to R645bn and the local government allocation will be adjusted from R133bn to R140bn.

Provincial governments are responsible for most of the public health system that provides care for Covid-19 patients. Provinces also have to manage the reopening of schools and the provision of social welfare services. According to the Budget Review, they will fund this work primarily through reprioritisations.

Provinces have committed to reprioritise at least R20bn within their own budgets. These funds will come from cancelling activities that cannot be undertaken while economic activity is restricted (including travel and venue hire) and postponing implementation of early-stage projects until 2021/2022. Most of the funds to be reprioritised come from the public works, roads and transport sectors, and the postponement of planned sports, arts and culture events.

Details of the provincial reprioritisations will be included in provincial adjustments budgets. At least R15bn is expected to be reprioritised to increase capacity in the public health system, and at least R5bn will be used to augment the education catch-up plan, social welfare support for communities, provision of quarantine sites by public works departments and responses in other sectors.

Provincial adjustments will be complemented by more than R7bn in reprioritisations within conditional grants.

However, according to the Budget Review,  provinces are anticipating a decline in their own revenues of about R4bn, or 18.7% of the amount tabled in their 2020/2021 budgets. Tax receipts from casinos and horse racing have declined. Fees paid for public health services have also fallen, as fewer patients are accessing non-Covid-19-related health services.

In his budget speech, finance minister Tito Mboweni said local government was at the heart of SA’s response to the pandemic. Accordingly, an additional R11bn is allocated to local government through the equitable share. A further R9bn will be reprioritised within allocated conditional grants to fund additional water and sanitation provision and the sanitisation of public transport.

“Municipalities will adjust their budgets to take into account the sharp decline in revenue as a result of the pandemic. We urge communities to hold councils accountable for the spending of Covid‐19 funds,” the minister said.

The Treasury will also monitor the spending through monthly and quarterly reports, said Mboweni.

He said the government needed to find spending adjustments of about R230bn over the next two years.