Added : 22 April 1997

The 1997/98 Budget and Health

1. Introduction

The 1997/98 budget was presented on 12th March 1997. Mr. Trevor Manuel was the first ever ANC Minister of Finance to table a budget in Parliament. His speech was generally well received, especially by the business sector. The budget was designed to meet the macro-economic targets set in the Government's strategy for Growth, Employment and Redistribution (GEAR): by the year 2000, the economy is to grow to 6% and 400 000 new jobs should be created. The main assumptions on which the budget is based are a growth rate in 1997/98 of 2,5%, compared to 3% in 1996/97, and an average inflation rate of 8,5%, marginally higher than last financial year.

The annual budget is a financial plan for the expenditure and revenue of Government. It is one of the major tools used to implement economic policy. It influences income distribution, prices, employment and economic growth. The Government also uses other instruments to meet its economic objectives, including monetary policy, labour policy, industry and trade promotion, agricultural development and international economic relations.

The budget also provides a framework for all levels of Government - central, provincial and local - to make strategic choices and to calculate the cost of what will be carried out during the budget period. Subsequently, their performance can be monitored against these financial plans. As such, the budget is an important management tool. In addition, by spelling out detailed plans, the budget is a means of holding the Government accountable for the way it raises and uses money.

The budget is important to all South Africans, because it provides an opportunity:

• to understand the economic policy of the Government which it has elected
• to check how well the Government is managing the Nations's finances
• to hold the Government accountable for the proper control and cost-effective use of appropriated funds.

At present there are few opportunities for civil society to be involved in the budget process. The budget cycle is lengthy, and planning for a specific year's expenditure usually starts 16 months before presentation of the budget. As the responsibility for public services, including health, is increasingly devolved to the Provincial Executive Councils, particular attention must be paid to Provincial budgets.

The budget presented on 12th March was the National budget. The Budget Review, the detailed document which supports the Finance Minister's speech, also contains consolidated National and Provincial budgets. This was the first financial year for which provinces were responsible for developing their own expenditure budgets, within the constraints of national fiscal policy. Their budgets were presented in the weeks that followed announcement of the national budget. The Provinces have been allocated 43,3% of the total National budget, each province receiving an "equitable" percentage share according to a formula developed by the Financial and Fiscal Commission (FFC). Their own revenue base is small, and each Province raises only about 5% of what it spends, the rest comes from National revenue.

Local government finance is also evolving. Municipal budgets for 1996/97 exceeded R 47 billion. Compared to provinces, local governments have a substantial tax base, and have a significant capacity to support the services they provide. An agreement between national and provincial government provides for the inclusion in provincial budgets of R1,6 billion earmarked for local government.

Table One: Transfers to Provinces, for 1996/97 and 1997/98

* supplementary amounts of R 227 million for the Durban academic hospital and R 175 million for increases in social grants.

There are two main components of the budget: revenue and expenditure. The shortfall between revenue and expenditure is called the budget deficit. One of the principles outlined in GEAR is reduction of the budget deficit. The deficit is commonly expressed as a percentage of the total domestic output of the economy, or gross domestic product (GDP). This facilitates comparison of the deficit from one year to the next. Reducing the deficit means that expenditure must increase less than revenue. Given the constraints on increasing tax, which is the main source of Government revenue, there is little scope in this year's budget for increased expenditure.

2. Content of the Budget

Table Two: Key Budget Indicators, 1996/97 and 1997/98

2.1 Consolidated national and provincial expenditure, 1997/98

The national and provincial budgets together make provision for expenditure of R 190,2 billion. This is 6,7% higher than the comparable 1996/97 amount and is equivalent to 30,4% of GDP. The consolidated figures reflect an aggregation of the outcomes of separate budget planning programmes at the national level and in the 9 provinces. The expenditure figures are estimates. It is likely that this year, actual expenditure will differ less than previously from budget estimates, because of new regulations cancelling unspent funds at the end of the financial year, on 31st March. Unspent funds destined to be rolled over totalled R 9 billion this year, and it is likely that R 7 billion will be cancelled.

Government expenditure can be classified two ways:

• functional expenditure indicates the amount of money spent on each service the government provides (for example, health services, transport, defence...)
• economic expenditure differentiates between current expenditure (salaries, social pensions, interest, subsidies...) and capital expenditure (acquisition of assets, land, capital transfers to business...).

Table Three: Functional Classification of Consolidated National and Provincial Expenditure

The main contributors to this year's increases in expenditure are transfers to provinces, state debt costs, housing and the SA Police Service. The largest decreases are for the SA National Defence Force and for improvements in conditions of service.

Nearly 60% of the remaining non-interest spending goes to the social services:

• R 40 billion for education
• R 20 billion for health services
• R 18 billion for social security and welfare; this includes a 9,3% increase in pensions, from R 430 to R 470 as of 1st July and a flat-rate child support benefit
• R 4 billion for housing.

Carry-through of RDP projects amounting to R 4,368 billion has been provided for as part of the normal 1997/98 budgetary process, compared to R 13,88 billion allocated in last year's budget This amount is no longer channelled through the RDP Fund. Approximately 40% of the total amount earmarked for RDP projects is included in transfers to provinces. This comprises:

• R 680 million for free health care
• R 500 million for the primary school nutrition programme
• R 500 million for community water supply and sanitation
• R 350 million for bulk infrastructure for housing
• R 300 million for land redistribution
• R 250 million for urban renewal
• R 200 million for the Maputo corridor and similar initiatives
• R 100 million for peace initiatives in KwaZulu/Natal

Other RDP programmes include the clinic building programme, the culture of learning programme, the school building programme, and support for improvements in policing and the criminal justice system. A further R 300 million has been set aside for community based poverty relief programmes.

Table Four: Economic Classification of Consolidated National and Provincial Expenditure

R 39 billion is taken up by interest on state debt. The total government debt is expected to be 309,507 billion rand on 31st March 1997. Total debt and interest on debt have however stabilised as a proportion of GDP (55% and 6,2%, respectively). As progress is made in reducing the budget deficit, interest on state debt should decrease as a share of total expenditure.

Three-quarters of expenditure on goods and services is budgeted for remuneration of employees. Transfers to households, mainly in the form of social grants, make up over 70% of current transfers. The largest component of transfer payments to other levels of government consists of subsidy payments to universities and technikons.

3. Expenditures on health

Total expenditure on health is projected to be over R 20 billion, up 9,5% on last year's budget of R 17,2 billion. The vote for the national Department of Health is R 358,3. This is 49,7% less than the budgeted allocations for 1996/97 of R 711,8 million, largely because certain capital expenditure items have been transferred to the provinces.

Combined national and provincial spending on health is equivalent to 10,7% of all spending in the coming year, and 3,3% of GDP. This is below the level of spending on health in developed countries (5,6%), but above the average for developing countries (0,9%). About 56% of spending will go on personnel costs, and R 1,8 billion on rehabilitation and replacement of hospitals and health centres. The focus will continue to be on the promotion of primary health care, and primary health care services will continue to be free at the point of delivery. Focus areas for the national department in 1997 will include immunisation campaigns against polio and measles and expanded programmes to combat the HIV epidemic and tuberculosis.

Table Five: Provincial Health Budgets, 1997/98

Responsibility for rendering health services has been assigned to the provinces. Provincial budgets are presented according to a standard format. The budget is divided into 7 main programmes. These are:

1 Health administration, whose aim is to conduct the overall management and administration of the Department (MEC's office, provincial management, regional management...)

2 district health services, whose aim is to render PHC services (district management, community health services, emergency medical services, district hospitals...)

3 provincial hospital services, whose aim is to render general and specialised hospital services

4 academic health services, whose aim is to provide a platform for the training of health workers (medical and dental)

5 health sciences, whose aim is to train nursing and ambulance personnel, grant bursaries and promote research and development of health systems

6 health care support services, whose aim is to render support services required by the Department to fulfill its aims (orthotic, prosthetic and forensic services, laundry, cookfreeze, transport, central medical trading account)

7 Health facilities development and maintenance, whose aim is to provide for new health facilities, and upgrading and maintenance of existing facilities.

Some provinces have other additional budget lines. The budget for each programme must be presented according to standard items (personnel, administration, stores and livestock, equipment, land and buildings, professional and special services, transfer payments). Current and capital expenditure is presented separately. Transfers - for example, to academic or private institutions - are also separated.

4. Total Estimated National Revenue, 1997/98

The total revenue collections for 1997/98 are estimated at R 161 976 billion, an increase of 11,1% on the revised estimate for 1996/97. Collection of personal income tax is expected to raise R 66,7 billion. A first step has been made towards changing the way in which individuals are taxed, in order to make the tax system fairer. Proposals include some relief for taxpayers, which will cost the Government an estimated R2,8 billion. The biggest benefit will be felt by those in the income bracket between R 30 000 and R 60 000, and 60% of the relief will go to low and lower middle income earners. These changes are in line with the recommendations made by the Katz commission. Fringe benefits are targeted and tax payers with car allowances and company cars will end up paying more.

Taxes on companies and retirement funds remain unchanged and VAT has been left at 14%. Marketable securities tax has been reduced from 0,5% to 0,25%, in an effort to improve the competitiveness of the investment environment. Duties on alcohol and cigarettes will increase.

The Government expects to increase revenue by improving the efficiency of tax collection and administration and by improving the policing of tax laws. It expects to collect R2,5 billion in arrear taxes. The South African Revenue Service is being granted autonomy this year as part of this strategy.

5. Other Measures Announced in the Budget

Exchange controls are to be freed up. This will give individuals the right to invest overseas or to hold foreign currency in national bank accounts. Corporations will also be entitled to invest R30 million offshore or R50 million in SADC countries and will be able to use domestic assets as security for loans abroad.

State owned enterprises are to continue to be restructured, or in some cases, to be wholly sold during the coming financial year. These transactions are intended to inject capital into the economy and to bring about improvements in the efficiency, cost-effectiveness and service orientation of these enterprises.

Finally, in his budget speech, the Minister acknowledged that "Growth without job creation does not address the challenges we face. Job creation is the one area lagging behind in the targets we set ourselves". This budget, austere in its expenditure target, will do little in the short term to address unemployment, which is estimated at 29 % of the economically active population. While the budget was generally regarded as being investor friendly, market friendly and business friendly, the government faces the challenge of maintaining the confidence of the poor and organised labour, between now and the next elections in 1999. Next year's budget may be crucial in this respect.

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