Tabling the 2017 Budget in National Assembly, Gordhan said provinces have made progress in implementing the cost-containment measures announced in 2013, and that provincial financial management was in the context of the country's constrained fiscal environment.
Gordhan said spending on nonessential goods and services fell in real terms by 7.1 percent in 2014/15, 6.1 percent in 2015/16 and was anticipated to decline by 4.5 percent annually over the next three years.
"The proportion of provincial spending on personnel has declined to just under 60 percent in 2016/17, freeing up more resources to invest in services," Gordhan said.
"Provinces have also put their public entities under review, to eliminate duplication of activities and ensure effective governance and clear development mandates."
Allocations to provinces total R1.7 trillion over the next three-year period, with Gauteng taking the lion's share. This would be an average annual growth rate of 7.5 percent and slightly higher than usual as a result of additions to enable provinces to continue to provide public health and schooling in line with population growth.
Several allocations were reduced, including R4 billion from the previous baselines of various provincial conditional grants and a R1.6 billion reduction to the provincial equitable share in a bid to support fiscal consolidation and reprioritisation.
The finance minister also said three new conditional grants would take effect in 2017/18. The grants are expected to expand access to early childhood development and improve facilities, provide for increased employment of social workers and improve opportunities for learners with profound disabilities.
"The Auditor-General has called for stronger leadership within provinces to remedy financial management challenges," Gordhan said.
"Better cash management is needed to ensure suppliers are paid on time. Improved oversight is needed to curb unauthorised expenditure. There must be adherence to procurement rules to limit irregular expenditure."