South Africa. UNICEF/Hearfield

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1 South Africa UNICEF/Hearfield Social development BUDGET SOUTH AFRICA 217/218 1

2 .2 % Real average annual rate projected growth of DSD budgets UNICEF/Bart de Ruigh Preface This budget brief is one of four that explore the extent to which the national budget and social services sector budgets address the needs of children under 18 years in South Africa. The briefs analyse the size and composition of budget allocations for fiscal year 217/18 as well as offer insights into the efficiency, effectiveness, equity and adequacy of past spending. Their main objectives are to synthesise complex budget information so that it is easily understood by stakeholders and to present key messages to inform financial decision-making processes. Key Messages and Recommendations Overall spending trends: Expenditure on social development programmes as a share of total government expenditure appears stable and averages around 13 per cent. Nonetheless, more work is required to reach all eligible social grant recipients and extend much-needed services to targeted beneficiaries. The government is encouraged to: 1. Expedite the process of developing a single overarching legislative framework; 2. Implement the widely accepted and Cabinet-backed Social Protection Floor ; 3. Finalise the core set of services that will be funded as integral to the Social Protection Floor. Composition of spending: The government has done well to maintain the real value of children-specific grants such as the child support, the foster and care dependency grants. The government is encouraged to: 1. Convince the National Treasury that further expenditure reductions over the new 217 Medium-Term Expenditure Framework () baseline are not an option; 2. Protect the real spending power of social grants for children such that these grants can meet children s nutrition and food diversity requirements; 3. Develop its legislative agenda to include service delivery norms and standards that can be used by provincial social development departments to anchor bids for additional funding for social welfare services. Equity of spending: Provincial Departments of Social Development (DSD) budgets are projected to grow at a real average annual rate of.2 per cent, which is not enough to cope with increasing demands for children s services. The government is encouraged to: 1. Support the full spending of available resources on the Early Childhood Development (ECD) conditional grant so as to increase the number of qualifying ECD centres and young children accessing the ECD subsidy; 2. Publish service delivery norms and standards for key children s programmes such as the Children and Families programme to eliminate large disparities in per-child spending; 3. Urgently introduce much-needed stability and certainty in the transfers to Non-profit Organisations (NPOs) to avoid any disruptions to key social welfare services. Financing: The government s review of the provincial allocation formula holds promise for the better funding of the social development portfolio. Nonetheless, the government is encouraged to: 1. Promote the introduction of a social development component in the provincial equitable shares formula (PES); 2. Build understanding among stakeholders that changes in national allocation formulae do not automatically translate into better funding for provincial social welfare services. 2

3 Section 1. Introduction Social protection involves the delivery of goods and services across a range of departments, which include the delivery of social assistance (social grants), education, interventions in health, the expanded public works programme, water and sanitation services, the provision of basic services at local government and various labour market interventions. In this budget brief, we restrict our focus to the ten social development departments and examine their contribution to social protection 1 in South Africa. South Africa has nine subnational (provincial) departments of social development, and a national Department of Social Development that leads policy-making and coordination in the sector. The mandate of the social development sector has been established through several laws and policies and these include: The 1997 White Paper for Social Welfare, which sets out the broad principles for a developmental social welfare system in South Africa; The Social Assistance Act (24), which provides the legislative framework for providing social assistance (the social grants system); The Children s Act (25), which sets out the principles relating to the care and protection of children; The Older Persons Act (26), which provides a framework for empowering and protecting older persons; The Non-profit Organisation s Act (1997), which establishes UNICEF/Bart de Ruigh an administrative and regulatory framework for NPOs; The Social Services Professions Act (1978), amended 1995,1996 and 1998, which provides for the establishment of a South African Council for Social Service Professions and for establishing control over the various social work professions; The Prevention of and Treatment for Substance Abuse (28) (Act No. 7 of 28), which provides for a comprehensive response for the combating of substance abuse and for mechanisms aimed at demand and harm reduction in relation to substance abuse through prevention, early intervention, treatment and re-integration programmes. In terms of the government s s Framework, 2 the social development sector takes ownership of 13, which calls for an Inclusive and responsive social protection system (RSA Government, MTSF, ). The high-level targets for social development (and their corresponding share of the social protection commitments) are articulated in the country s National Development Plan 23 3 and confirmed in the sector s Medium Term Strategic Framework (MTSF). These include: By 23, South Africa should have a comprehensive system of social protection that includes social security grants, mandatory retirement savings, risk benefits (such as unemployment, death and disability benefits) and voluntary retirement savings. Social welfare services should be expanded, with more education and training for social work practitioners (social workers, auxiliary social workers, child and youth care workers, and community development practitioners) and a review of funding for non-profit organisations; Ensuring that individuals and households that are eligible to receive social grants receive the support they need to access much-needed grants. 3

4 Table 1: Key indicators of the health of the social development system Social Development as a percentage of consolidated government budget, 217/ % Child Social Assistance as a percentage of social development budgets, 217/18 36% Child Welfare Services as a percentage of social development budgets, 217/18 4.3% Total number of Child Support Grant beneficiaries (aged 17), July 217 (SASSA database) 12.1 million The percentage of children aged 17 receiving Child Support Grants in 216 (GHS 216) 63.9 Number of vulnerable individuals accessing food through a network of community nutrition and development centres per year, 216/17 415, The percentage of children aged 4 accessing pre-grade R ECD services, 216 (GHS 216) 35.7 Source: Estimates of National Expenditure; GHS 215 and 216; and SASSA database, 217 Figure 1: The performance of the social development sector in South Africa, 215 and 216 % of appeals on social grants that are adjudicated within 9 days % of children between -4 accessing pre-grade R ECD services % of children receiving the child support grant Source: Department of Social Development 217 and GHS 215 & 216 (official reports and own calculations) Takeaways: The government is committed to a target of 9 per cent of appeals to be adjudicated within 9 days by the end of the present. Judged by the provisional results in 216, much more work needs to be done to achieve this goal. Progress has been made in implementing existing laws and policies and the government is encouraged to complete the process of developing consolidated legislation for the social welfare sector. Social assistance for children continues to expand in coverage and it is vital that the sector makes a concerted effort to reach all eligible beneficiaries who are not presently receiving child grants, to eliminate any exclusion errors. Important strides have been made in ECD and the introduction of a conditional grant for provinces in 217 which will help to enhance the momentum of expanding the service to vulnerable children. While great strides have been made in extending social grants to children, the provision of social welfare services accounts for a small proportion of the budget, especially when compared to the provisioning for social assistance, and greater focus is required to re-orient investment towards prevention and early intervention programmes. 4

5 Section 2. Social Development Spending Trends Size of Spending Table 2 shows that the social development sector plans to spend almost ZAR18 billion on programmes that benefit poor and vulnerable children and adults. Provincial budgets are small in comparison to the budget of the national UNICEF/Bart de Ruigh Department of Social Development, which consumes roughly 9 per cent of the resources of the sector. The bulk of the expenditures at the national level involves payments of social grants to poor, orphaned and disabled children and adults. Table 2: Summary of nominal national and provincial social development budgets, 217/18 (ZAR ) Department National Provincial % of total National Department of Social Development (DSD) 16,77,8 89.4% National DSD transfer to provinces -556,392 Combined provincial DSD budgets 19,23, % Eastern Cape 2,632, % Free State 1,172,295.7% Gauteng 4,442, % KwaZulu-Natal 3,41, % Limpopo 1,821,36 1.% Mpumalanga 1,456,9.8% Northern Cape 818,613.5% North West 1,532,57.9% Western Cape 2,16, % Total DSD budget 179,175,4 1% Source: Estimates of National Expenditure 217 and Provincial Estimates of Revenue and Expenditure 217 Figure 2 shows that the social development budgets (national and provincial) consume approximately 13 per cent of total government resources. This is roughly the same share of total government resources that the health sector commands, and only the basic education sector (17%) has a larger share of government expenditures. Expenditure on social development appears planned and in line with the government s thinking on extending social grant benefits and services in a gradual manner. 5

6 Figure 2: Consolidated expenditure and allocation on social development as a percentage of consolidated government expenditure and the GDP (GDP) Consolidated social development expenditure as a % of GDP Percentage / / / /17 Revised estimate / / /2 Consolidated social development expenditure as a % of consolidated government expenditure Source: Estimates of National Expenditure 217 and Provincial Estimates of Revenue and Expenditure 217 Spending Changes Expenditure on social development budgets has enjoyed relative prioritisation, evidenced by the small difference between the inflation-adjusted estimates and the current allocations. No large negative deviations are detected, and the main reason for this has been the government s commitment to link changes in social grant allocations to the prevailing inflation rate. This trend is continued over the, thus signalling further commitment from government to protect vital priority expenditures for poor children and families. Figure 3: Nominal and inflation-adjusted consolidated social development spending and allocation trends, 213/14 to 218/19 (216/17=1) Consolidated social development (nominal) Consolidated social development (real) 5 213/14 214/15 215/16 216/17 Revised estimate 217/18 218/19 219/2 Source: Estimates of National Expenditure 217 and Provincial Estimates of Revenue and Expenditure 217 The Priority of Social Development in the Budget While the consolidated basic education share of consolidated government resources is set to decline from 17.8 per cent in 213/14 to 16.7 per cent by the end of the, the shares of the social development and health functions remain stable over the period above. Expenditure and allocations to social development consume between 13.2 and 13.4 per cent of consolidated government resources. In 217/18 alone, the three largest social service sector votes account for more than 44 per cent of consolidated government expenditure. The stability of the key social services sectors enabled the government to expand provision for higher education and training, especially for the university sector. Given an incomplete legislative framework, it is not clear what mechanisms and tools the national Department of Social Development will use to protect and advance spending in this sector. One possible avenue that is being pursued is to provide policy and legislative backing to the National Development Plan s (NDP) call for a Social Protection Floor (National Development Plan, 211). The NDP document embraces a human rights approach and states that a societal understanding is required of what constitutes the social floor or minimum social protection floor below which no one should fall. More specifically, the NDP elaborates on the requirements of Section 27 of the Constitution, which recognises social security as a basic right. 6

7 Figure 4: Social service sectors as a percentage of consolidated government expenditure, 213/14 to 218/19 Percentage of consolidated government expenditure Other Public order and safety Economic affairs Health Social development Basic education 213/14 214/15 215/16 216/17 Revised estimate 217/18 218/19 219/2 Source: Estimates of National Expenditure 217 and Estimates of Provincial Revenue and Expenditure 217 The response of the national Department of Social Development was to initiate a review of the 1997 White Paper for Social Welfare (Department of Social Development, ), and one of its recommendations endorsed the adoption of a Social Protection Floor. It argues that the establishment of a Social Protection Floor will require additional resources and the re-prioritisation of expenditure. However, the document is less clear on the details of the reprioritisation of expenditure. The combined social development expenditures translate into a share of 3.6 per cent of the country s Gross Domestic Product (GDP). South Africa s spending on social development (excluding other social protection expenditures) is high when compared with other middle-income countries. Its share of the country s GDP is almost three times the spending in comparable countries such as Argentina, Senegal and Ethiopia. Figure 5: Social assistance as a % of the GDP, 213, 214 and 215 Social assistance as a % of GDP South Africa 3.4 Namibia 2.9 Belarus 1.5 Argentinia 1.1 Ethiopia 1. Senegal.5 Tunisia Source: World Bank ASPIRE Social Expenditure Indicators (accessed July 217) and Estimates of National Expenditure, Note: The Social Assistance definition used by the World Bank is not consistent with the South African estimates represented above because the South African figure excludes school feeding, public works and other social expenditures not under the control of the Department of Social Development. Takeaways: Compared to other social service sectors, expenditure on social development has performed well over the sixyear period considered in this budget brief. Expenditure on social development programmes as a share of total government expenditure appears stable and averages around 13 per cent. The lack of comprehensive social development legislation, the existence of uneven service delivery trends among subnational government and continued exclusions of some vulnerable individuals and families invariably mean that the social development budget is far from adequate. Recommendations for a social protection floor are promising, but it is unclear how the introduction of this practice will be accommodated in a cash-strapped spending environment. 7

8 Section 3. Composition of Social Development Spending Composition of Spending by Department Given the profile of social grants and their location in the budget of the national DSD, one would expect the spending of the national DSD to mirror that of consolidated (combined national and provincial) social development spending. This is evident in Figure 6 below. More relevant for UNICEF/Bart de Ruigh our analysis is the fact that since 216/17, spending on social welfare services at the provincial level trails national spending on social grants. A below-inflation spending growth is projected for 218/19, while the remainder of the registers very low growth rates for social welfare programmes at the provincial level. Figure 6: Inflation-adjusted spending and allocation trends in social development departments, 213/14 to 219/2 (216/17=1) Real annual change % / / /17 Revised estimate / / /2 National Department of Social Development Consolidated provincial social development Total consolidated social development Source: Estimates of National Expenditure 217 and Estimates of Provincial Revenue and Expenditure 217 Note: Total consolidated social development expenditure nets out the transfers to provincial social development departments. Composition of Spending by Programme: National DSD Spending in the national DSD budget totals ZAR161 billion in 217/18. The allocation to social grants (Social Assistance Programme) and the provision for the administration of social grants (Social Security Policy and Administration) are the largest programmes in the budget of the national DSD. The social grants allocation is projected to grow by more than 2 per cent on average over the medium term. Planned savings and reductions over the previous baseline reduce the Social Security Policy and Administration budget to that of a virtual maintenance budget over the corresponding period. 8

9 Table 3: Programme spending and allocations in the budget of the national Department of Social Development, 213/14 to 219/2 (ZAR million) ZAR million 216/17 revised estimate 217/18 218/19 219/2 Real change between 216/17 and 217/18 (%) Real average annual change over (%) Administration Social Assistance 138, ,58 163, , Social Security Policy and 6,997 7,333 7,894 8, Administration Welfare Services Policy 721 1,55 1,295 1, Development and Implementation Support Social Policy and Integrated Service Delivery Total 147,133 16,78 173, , Source: Estimates of National Expenditure 217 Composition of Spending by the Type of Expenditure: National DSD As was evident in Figure 6, the growth in the social grant allocation equals the growth of the entire budget of the national DSD. This reinforces the dominant position social grants occupies in the budget of the national DSD. Figure 7 indicates that between 94 and 95 per cent of the national DSD budget is devoted to social grants (transfers to households), while provision for grant administration takes up the remaining spending space (transfers to departmental agencies). The profile of social grants in the budget of the national DSD has obvious implications for the ability of subnational governments to expand spending on social welfare services. Figure 7: Expenditure by type in the budget of the national Department of Social Development, 213/14 to 219/2 Percentage of national social development budget /14 214/15 215/16 216/17 Revised estimate 217/18 218/19 219/2 Other Transfers to households Transfers to departmental agencies Source: Estimates of National Expenditure 217 Note: Expenditure on compensation of employees and capital expenditure is insignificant and is not reflected in the graph above. Trends in Social Grants Spending and Allocations Social grants that target children directly make up about 42 per cent of all grant expenditures. More than ZAR56.2 billion will be spent on the child support grant in 217/18, while corresponding spending on the foster care grant is ZAR5.3 billion. While the Old Age grant goes to eligible adults who are 6 years and older, research has shown that poor and/or orphaned children in female-headed households benefit directly from this grant. Almost ZAR3 billion will be spent on the care dependency grant, which enables caregivers to provide full-time support to children with disabilities. 9

10 UNICEF/Schermbrucker Table 4: Nominal values of key social grants in 217/18 (ZAR billion) Social grant ZAR, billion Beneficiaries Rand value of grant % of total grant funding Old age grant 64.5 Adults: 6 years+ ZAR1,6 (6 74) and ZAR1,62 (75+) 42.5% Child support grant 56.2 Children: 17 years ZAR % Disability grant 21.2 Adults: years ZAR1,6 14.% Foster child grant 5.3 Children and adults: 21 years ZAR92 3.5% Care dependency grant 2.9 Children: 17 years ZAR1,6 1.9% Source: Estimates of National Expenditure, 217 The values of the child support, and care and dependency grants show above-inflation growth for the period represented in Table 4, while the opposite growth pattern is observed for the disability and foster care grants. The real value of the old age grant has been maintained over this period. The decline in the real value of the foster care grant relates, in part, to the government s attempts to minimise legal and administrative burdens by converting the foster care grants for orphans into an extended (or higher value) child support grant. The care dependency grant maintains its real value for the year represented in Figure 8. Figure 8: Inflation-adjusted annual growth in key social grants affecting children in South Africa, 213/14 to 217/18 (%): 216/17=1 217/18 216/17 Revised estimate 215/16 214/ Disability Grant -.1 Old Age Grant Care Dependency Grant Foster Care Grant -3.8 Child Support Grant Real annual change % Source: Estimates of National Expenditure 217 Note: Real percentage changes are indicated for 214/15 and 217/18. 1

11 Figure 9 shows that almost 64 per cent of children received the child support grant in 215, and 1.5 per cent of children received the foster care grant during the same period. These estimates were calculated from the General Household Survey (GHS) and as indicated below, the percentage of children who have accessed the foster child grant might be lower than corresponding data provided by the South African Social Security Agency (SASSA). Figure 9: Percentage of children with child support and foster child grants in South Africa in 216 (children aged 17) Percentage of children receiving CSG Eastern Cape Free State Gauteng KwaZulu-Natal Limpopo Mpumalanga Northern Cape North West Western Cape South Africa Percentage of children receiving FCG CSG FCG Source: General Household Surveys 216 (own calculations) Note: The actual number of foster child grant recipients reported by SASSA is much larger than the estimated numbers from the GHS 216. At the end of 215, SASSA 6 reported 427,928 grant recipients against an estimated 284,455 recipients in GHS 216. Takeaways: The government has succeeded in maintaining the real value of social grants over the medium term, thus continuing a long-standing practice to protect spending on social grants. Spending on social grants accounts for approximately 95 per cent of the spending in the budget of the national DSD, while roughly 5 per cent of expenditure provides for allocations on the administration of the grant. Key child-specific grants such as the child support and the care dependency grants maintain their positive real value, while grant spending that indirectly benefit children (spending on the old age grant) also grew above inflation. The real decline in the foster care grant relates to attempts to remove orphaned children from this grant and introduce a new child support top up grant, which minimises the administrative and legal burden on the system, while still maintaining an allocation value in line with the existing foster care grant. A substantial number of poor children are receiving the child support grant and more children are expected to be covered over the medium term. The Department of Social Development has committed to reducing overall social grant transaction costs, in line with reduced budgets over the previous baseline. While strong spending on social grants offers protection to poor and vulnerable children, this has often come at the expense of spending on services that are developmental and preventative in orientation. 11

12 Section 4. Decentralisation and the Equity of Social Development Spending UNICEF/Schermbrucker Spending and Allocations on Provincial Social Development Budgets Table 5 indicates that provincial social development departments will spend ZAR19 billion on social welfare services in 217/18 and these joint budgets are projected to grow by.2 per cent on average in real terms over the medium term. These budgets can rightly be regarded as maintenance budgets, and in the interest of better understanding key social welfare sectors, the next section focuses on prevention and early intervention services, ECD and the financing of NPOs. Table 5: Spending trends in provincial social development budgets, 213/14 to 218/19 (ZAR ) ZAR 216/17 Revised estimate 217/18 218/19 219/2 Real change between 216/17 and 217/18 (%) Real average annual change over (%) Eastern Cape 2,41,459 2,632,799 2,83,96 3,21, Free State 1,114,11 1,172,295 1,23,23 1,297, Gauteng 4,271,62 4,442,332 4,698,197 4,982, KwaZulu-Natal 2,767,96 3,41,364 3,181,765 3,382, Limpopo 1,679,839 1,821,36 1,92,534 2,32, Mpumalanga 1,436,91 1,456,9 1,492,946 1,561, Northern Cape 756, , ,6 93, North West 1,392,691 1,532,57 1,64,719 1,745, Western Cape 1,963,864 2,16,974 2,24,487 2,329, Total 17,793,452 19,23,992 2,53,583 21,257, Source: Estimates of Provincial Revenue and Expenditure 217 Spending and Allocations on Programmes: Provincial Social Development Budgets Although prevention and early intervention is central to the social development policy framework, there is a wide variance on spending on relevant services across provinces (Figure 1). This Budget Brief operationalises prevention and early intervention services (PEI) by combining the Care and Services to Families and the Community-based care services for children subprogrammes in the Children and Families programme for each of the nine provincial social development departments. Gauteng spends the largest share of its Children and Families budgets on PEI services (28%), while the Western Cape spends the smallest percentage of its budget on PEI services (7.1%). Similarly-sized Children and Families programme budgets (for example, the Eastern Cape and Limpopo DSDs) do not imply the same level of spending on PEI services (15% vs 26% respectively). 12

13 UNICEF/Schermbrucker Figure 1: Prevention and Early Intervention Services as a percentage of the Children and Families Programme Budget, 217/18 Children and families budget (ZAR million) 2, , 1,5 1, 5 Gauteng 2,1 1,31 KwaZulu-Natal Limpopo Eastern Cape Western Cape Mpumalanga Free State North West Northern Cape PEI as a percentage of the children and familes budget Children & families PEI as a percentage of children & families Source: Estimates of Provincial Revenue and Expenditure 217 Spending on ECD services for children aged 4 as a share of total provincial DSD budgets has improved from an average 12 per cent prior to 216/17 to almost 15 per cent for the remainder of the period represented below. The numbers for the period 217/18 are boosted with the introduction of the national ECD conditional grant, which aims to increase the number of ECD centres (and children, therefore) that have access to the ECD subsidy. Table 6: ECD provincial budgets as a percentage of provincial social development budgets, 213/14 to 219/2 Average share between 213/14 and 215/16 216/17 Revised estimate 217/18 218/19 219/2 Eastern Cape 7.1% 1.8% 11.8% 13.% 12.9% Free State 18.6% 19.8% 21.1% 2.3% 19.4% Gauteng 1.5% 1.5% 1.9% 9.9% 9.6% KwaZulu-Natal 1.9% 14.4% 16.4% 16.5% 16.7% Limpopo 14.7% 16.% 17.4% 19.2% 18.6% Mpumalanga 11.7% 18.7% 18.3% 18.3% 18.6% Northern Cape 11.3% 11.2% 11.8% 12.1% 12.% North West 1.3% 1.7% 11.4% 13.7% 13.6% Western Cape 15.5% 14.8% 14.9% 14.9% 14.3% Total 11.7% 13.4% 14.3% 14.5% 14.3% Source: Estimates of Provincial Revenue and Expenditure

14 Overall, the Children and Families budget increases its share of provincial social development budgets from 34 per cent in 213/14 to more than 38 per cent in 217/18. Gauteng has maintained its 47 per cent share, whereas Free State and the Western Cape show declining shares. As reported earlier, the introduction of the ECD conditional grant in 217/18 and expanding allocations on this programme explains part of the growth in the Children and Families budget. Figure 11: Children and families as a % of provincial DSD budgets, 213/14 and 217/18 Percentage of total provincial DSD budget Eastern Cape 39.2 Free State Gauteng KwaZulu-Natal Limpopo Mpumalanga Northern Cape North West Western Cape South Africa 213/14 217/18 Source: Provincial Estimates of Expenditure 217 In absolute terms, Gauteng set aside the largest allocation on the Children and Families budget (almost ZAR2.1 billion) in 217/18, while the Northern Cape made provision for a ZAR275 million budget. When adjusting the allocations for the provincial child populations, the Northern Cape spends about ZAR7 per child, whereas Gauteng spends just under ZAR6 per child, which is to be expected given the large population differences between these provinces. Six provincial departments of social development plan to spend below the national average, which is clearly driven by the large per-child allocations in the Northern Cape and Gauteng. Figure 12: Children and Families allocation per child (ZAR), 217/18 (children aged 17) South Africa 391 Northern Cape Gauteng Free State 53 Mpumalanga 365 Limpopo Western Cape KwaZulu-Natal 319 North West 314 Eastern Cape 291 Per child allocation, ZAR Source: Provincial Estimates of Expenditure 217 and General Household Survey 216 (own calculations) The review of the social welfare sector (Department of Social Development, 216) highlights the centrality of financing for NPOs and the need to bring more stability to NPOs that deliver services to children and families. In 217/18 alone, four provinces plan to spend less on transfers to NPOs that provide services for children, while over the entire period displayed in Figure 12 above, poor and variable funding is common across all provincial DSD budgets. The situation is particularly acute for the Free State and Limpopo. 14

15 Figure 13: Real annual growth of NPO transfers within Children and Families Programmes, 213/14 to 219/2 Eastern Cape 6.9 Free State -4.4 Gauteng 1.6 KwaZulu-Natal.7 Limpopo -2.9 Mpumalanga.9 Northern Cape -2.2 North West 17.4 Western Cape -3.5 South Africa /2 218/19 217/18 216/17 215/16 214/15 Source: Estimates of Provincial Revenue and Expenditure 217 Note: Percentage changes are indicated for 217/18 only. The White Paper Summary Review report identified some of the most pressing challenges facing the financing of NPOs. These issues are: The total funding available to NPOS to deliver services; Differences in NPO financing across provincial departments; In the absence of a finalised policy and financing framework, many NPOS are forced to cut staff and cut back on key service delivery areas; In the context of funding cuts, the report argues that there is a real danger that NPO transfers may be further reduced. Takeaways: Provincial DSD budgets are planned to grow from an allocation of R19 billion in 217/18 to R21 billion at the end of the. Provincial budgets are projected to grow at a real average annual rate of.2 per cent, which is not enough to cope with increasing demands for children services. Spending on ECD budgets continues to grow due to expanding allocations in earlier years and the introduction of a dedicated grant in 217/18. While the growth in ECD budgets is admirable, there are concerns that prevention and early intervention services are not funded at the same level as ECD services. The key programme for children at the provincial level, Children and Families, displays varying per-child spending and three provinces are spending below (an already low) national average in 217/18. Transfers to NPOs that deliver services to children and families, show variable performance and this is particularly worrying in the Free State and North West. 15

16 Section 5. Financing the Social Development Sector UNICEF/Pirozzi In terms of the financing of provincial governments, Section 214 (a-c) of the Constitution 7 makes provision for three revenue sources. These include a vertical division of revenue (among the three spheres of government), a horizontal division of revenue (using a formula to divide resources among provinces), and through special allocations (conditional grants that have strict conditions for their use). Table 7 presents the components and corresponding weights of the provincial revenue-sharing formula. Table 7: Distributing the equitable shares by provinces, 217 Education (48%) Health (27%) Basic share (16%) Poverty (3%) Economic activity (1.%) Institutional (5%) Weighted average Eastern Cape 15.1% 13.5% 12.6% 16.3% 7.6% 11.1% 14.% Free State 5.3% 5.3% 5.1% 5.2% 5.% 11.1% 5.6% Gauteng 18.% 21.8% 24.1% 17.3% 34.3% 11.1% 19.8% KwaZulu-Natal 22.3% 21.7% 19.8% 22.2% 16.1% 11.1% 21.1% Limpopo 13.% 1.3% 1.4% 13.6% 7.1% 11.1% 11.7% Mpumalanga 8.4% 7.3% 7.7% 9.1% 7.5% 11.1% 8.1% Northern Cape 2.3% 2.1% 2.1% 2.2% 2.1% 11.1% 2.7% North West 6.5% 6.7% 6.8% 8.% 6.5% 11.1% 6.9% Western Cape 9.1% 11.3% 11.3% 6.1% 13.6% 11.1% 1.1% Total 1% 1% 1% 1% 1% 1% 1% Source: Budget Review 217 Note: Green represents the highest value, while red represents the lowest value for each component and the total weighted share by province. Box 1 Let s imagine how this formula works in practice. If R1 billion was available to be spent on provinces, then the Eastern Cape provincial government should receive 14% of R1 billion (or R14 billion). Almost half of this money (48%) would have been decided using the education component. That means of the R48 billion decided through the education component, the Eastern Cape government would have received 15.1% of R48 billion (or R7.2 billion). For the health component, the Eastern Cape is entitled to 13.5% of the R27 billion (or R3.6 billion). The formula assumes that the cost of running government is the same for all provinces and the Eastern Cape will receive 11.1% of R11.1 billion (or R1.2 billion). The same calculation is made for all the components; these are tallied and the final shares will be paid over in quarterly instalments during the financial year. 16

17 UNICEF/Pirozzi The White Paper Summary Report argues that the challenges in social development funding could be addressed through a revision of the provincial equitable shares formula. The White Paper Summary Report acknowledges that a change to the formula does not compel provincial treasuries to better fund social welfare services at the subnational level, but provincial DSD could anchor budget bids for better funding of social welfare services by citing the broader intent of the prevised provincial allocation formulae. Two options were presented, namely: (i) increase the existing poverty component because of the implied correlation between poverty and social development expenditures; or (ii) introduce a new social development component (akin to education and health) that allows for some dimension of poverty (such as rurality ) to be considered more explicitly. The White Paper Summary Report argues for the second option and it is believed that these options are under discussion with the National Treasury. All these options will have to be discussed against a background of fiscal space for programmes and services that benefit children. A UNICEF-commissioned study into fiscal space in South Africa 8 has highlighted several issues. Some of the salient findings include: (i) levying taxes on the consumption of luxury goods and introducing the muchdiscussed sugar tax could lead to a sizeable amount of new revenue that could be used to finance priority expenditures in the social services sector; and (ii) building on the ongoing efforts to achieve cost-savings, such as by reducing unnecessary travel, curbing the use of external consultants and generally decreasing spending on non-priority areas that have a poor spending record. This could lead to the better application of resources currently available in the social development sector for the education of children. Takeaways: The policy option to include a social development component in the government s allocation formula holds promise, but advocacy by national and provincial DSD for better funding of social welfare services is still required at the provincial level. The long-assumed fiscal space that existed for the expansion of priority expenditures is constrained and this will force social development authorities to be more effective at delivering key social welfare services. There are several options that can be pursued by the South African government to increase fiscal space for priority expenditures such as child welfare, but it is unclear how local political dynamics will affect such deals and inevitable compromises. 17

18 Endnotes 1 According to the Medium Term Strategic Framework (MTSF) document ( files/mtsf_ pdf), the government defines social protection as an umbrella concept that includes: Social assistance and social welfare services provided by the ten social development departments; Access to basic services at the local government level; Free basic education in 6 per cent of the country s poorest schools; Free health care for pregnant women and children under six; Statutory social insurance policies (such as the Unemployment Insurance Fund); School nutrition and school transport; Active labour market polices to facilitate entry into the labour market; Income support for the working-age poor through public works programmes; The redress of inequalities that are inherent in the system due to apartheid. 2 The government has adopted an s Framework that is based on key issues addressed in the country s National Development Plan and the government s electoral mandate. There are 14 outcomes (including 13 that involves the Social Development Ministry) and the responsible minister is required to report to the President of the Republic of South Africa on progress made in achieving the relevant outcome. 3 The Presidency. The National Development Plan 23: Our future make it work. Pretoria, Government Printers, The Department of Social Development. Summary report on the review of the White Paper for Social Welfare, 1997 Ministerial Committee September 213 to March 216. Pretoria, Government Printers, The data were downloaded from the social indicator website of the World Bank. < indicator/social-expenditure> [accessed 2 July 217]. 6 Data were downloaded from the SASSA website: Fact sheet: Issue no 12 of December 215 A statistical summary of social grants in South Africa: < gov.za/index.php/statistical-reports?start=18> [accessed 13 August 217]. 7 Legally, these constitutional provisions find expression in the annual Division of Revenue Bill/Act that accompanies the main budget documentation at the start of the new financial cycle. The Division of Revenue Bill/Act is particularly helpful in listing in detail the conditions under which conditional grant funding should be used, including reporting requirements and the duration or lifespan of the grant. 8 UNICEF, National political economy analysis and fiscal space profiles of countries in Eastern and Southern Africa: fiscal space analysis South Africa. Rotterdam, UNICEF, 217. UNICEF/Schermbrucker 18

19 United Nations Children s Fund Equity House 659 Pienaar Street Brooklyn Pretoria 181

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