Appropriation Bill 2010: submission by Financial and Fiscal Commission

Standing Committee on Appropriations

19 April 2010
Chairperson: Mr E Sogoni (ANC)
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Meeting Summary

The Financial and Fiscal Commission submission looked at government’s policy priorities for 2010, growth trends and the utilisation of national revenue funding. Government’s top five policy priorities for 2010/11 and Medium Term Expenditure Framework (MTEF) were: Education and Skills Development, Health care, Rural Development, Job creation and infrastructure and Justice, crime prevention and policing. The FFC stated that the appropriations for 2010/11 had addressed government’s most vital priorities and thus it was in full support of the Appropriation Bill.
 
The Committee commented that the presentation was thought provoking. The Committee was concerned about the decline in the budget for rural development the 17% estimate of national expenditure for debt servicing costs. The FFC was asked for more detail on the debt servicing costs, if there was a norm for such costs and also why the debt servicing estimates had been fluctuating. Further, was it accrued debt or linked to the Gross Domestic Profit (GDP)? More clarity was requested about the -4.42% estimate of national expenditure for rural development as well as the differences between 2010 Government Priorities and the Growth Trend graphs.

 

Meeting report

Dr Bethuel Setai, FFC Chairperson, introduced the FFC delegation: Mr Bongani Khumalo (Deputy  Chairperson), Mr Vincent Makinta (Programme Manager for Intergovernmental Relations) and Mr Henry Eksteen (Parliamentary Liaison Officer).  
 
Mr Makinta delivered the presentation which looked at analytical approaches, government’s policy priorities for 2010, growth trends, results with regards to relative growth rates and the utilisation of national revenue funding.
 
He explained that th
e submission was made in terms of Section 4(4)(c) of the Money Bills Amendment Procedure and Related Matters Act 2009 which made it a requirement for the Standing Committee on Appropriations to consider recommendations made by the FFC. The FFC had already made submissions on the 2010 Budget process, the Division of Revenue and the Fiscal Framework.
 
Mr Makinta said that the FFC had a similar stance to the Appropriation Bill as the other two Budget documents. The submission on the Appropriations Bill focused on allocations for various priorities that had been identified for the 2010 Budget by government. Its analysis process was inclusive of an analysis of the table of priorities contained in the Budget review as well as past and current expenditure per vote. Nominal figures had been depleted of inflation and had been expressed in real terms so as to determine real annual growth rates.
 
He
said that government’s top five policy priorities for the 2010/11 financial year and Medium Term Expenditure Framework (MTEF) pertained to Education and Skills Development, Health care, Rural Development, Job creation and infrastructure and Justice, crime prevention and policing.
The Budget Review had also identified Human Settlement conditional grants, social grants and Local Equitable Share as fiscal priorities.
 
Job creation and infrastructure had been reflected through public utility subsidies and conditional grants designed to provide municipal water, road and sanitation infrastructure, sanitation, and public transport via labour- intensive techniques.
 
According to Mr Makinta, the fiscal priority of Education and skills development had been highlighted via the implementation of the occupational specific dispensation for educators and workbooks. Health care had been prioritised via the provincial health professionals and Hospital Revitalisation grants. The fiscal priority of rural development was made tangible through the recapitalisation of the Land Bank. The fiscal priority of Justice, crime prevention and policing had been specified with the appointment of additional policing personnel and a review of the defence force’s remuneration.
 
Mr Makinta tabled the government priorities for 2010 in the form of a graph with estimates of national expenditure percentages as well as a table looking at growth trends. The proportion of the National Revenue Fund to be utilised for government’s top five priorities was estimated at 48.7% for 2009/10. It declined slightly to 48.3% for 2010/11 and 45.2% for 2012/13.
 
Mr Makinta noted further results in relation to the utilisation of the National Revenue Fund. National revenue was projected to grow at 5.9% for 2009/10 and 2010/11 and was set to average at 5.75% over the 2010 MTEF period. Debt servicing costs would increase in real terms, 16.5% for the short- term and 14.7% over the medium-term.
 
Reference was made to the other fiscal priorities by looking at relative growth rates for human settlements, local government, job creation, infrastructure, health care, education and skills development and justice, crime prevention and policing.

In conclusion, Mr Makinta said that the appropriations for 2010/11 had addressed government’s most vital priorities and that FFC was in full support of the tabled 2010 Appropriation Bill.
 
Discussion
The Chairperson welcomed the FFC delegates and said that it was imperative for the FFC to be consulted on any Money Bills so that they could provide feedback.
 
Dr Setai noted that he thought it was a rational budget.  
 
Mr M Swart (DA) displayed concern for the decline in the budget for rural development.
 
Mr Makinta said that rural development was a new target for the executive with a new programme targeting rural development. In terms of nominal amounts, money was going into the programme but when you looked at it in terms of inflation, that is, in real terms, there was no real growth.
 
Dr P Rabie (DA) thanked the FFC for a thought provoking submission. He was concerned about the Growth Trend table and its 17% estimate of national expenditure for debt servicing costs.
 
Mr Makinta responded that if you looked at it in isolation, it showed a year by year growth rate.
 
Dr Rabie asked for more clarity on debt servicing costs and asked if there was a norm for debt servicing costs.
 
Mr Makinta referred to the fluctuation of debt servicing costs. Looking at the two graphs, he said that those were projections and estimates based on a national projection that a particular amount of revenue would be raised. Currently this year the issue relied on how much was going to be collected. If they collected more than the projection, then they would be in a better position to service the debt costs. The fiscal stance was that they adopt a smoother approach.

Mr Khumalo noted that there was no norm in terms of debt servicing costs. Generally there had been no norms around growth rates. The range was dependent on the choices that the country made. The range had been from 40 to 60% and was dependent on how much the country could tolerate. It depended on the structuring of the debt as there was a primary debt structure and a term structure. The term structure pertained to the number of years and the types of debt and the debt that would inevitably have an impact on the growth rate. He noted that the current situation for South Africa was a direct result of the global financial crisis. Government had issued new debt in order to cushion the economy from the losses that the fiscal situation had caused. That had contributed to the share they were seeing in terms of service costs.
 
Mr Khumalo said that the appropriate question to ask was how the debt was impacting on the budget and especially the deficit. He noted that it was a pity that National Treasury was not present at the meeting to address his question. He wanted to know if the debt was putting stress on the deficit or not. If the debt had been putting stress on the deficit, one could expect a lot of inflation. It would be fine if the debt had not been putting stress on the deficit.
 
Mr Khumalo was also concerned about the balance of payments deficit and how it might have adverse effects on the balance of payments itself. He noted that those two issues were fundamental when discussing macro-economic stability.
 
Mr Eksteen agreed with Mr Khumalo.
 
The Chairperson was concerned that National Treasury was not present in the meeting to provide further clarity and explanations to questions from the Committee as well as to the questions posed by Mr Khumalo.
 
Ms B Ngcobo (ANC) asked what areas had not been mentioned by the FFC in their presentation.
 
Mr Makinta referred to the areas of sport and agriculture, even though those had not been identified as priorities.
 
Mr G Snell (ANC) referred to the proportional splits. He asked if the FFC had analysed the budgets of all the departments and then tried to classify according to job creation.
 
Mr Khumalo noted that the presentation had been collated very quickly and that the Committee would receive a detailed submission as soon as possible. A formal approval was still required from the FFC but the submission would be far more detailed than the presentation.
 
The Committee wanted to know if it was accrued debt or if it was linked to the Gross Domestic Profit (GDP). Greater explanation was required about the -4.42% estimate of national expenditure for rural development and growth trends.
 
Ms Ngcobo wanted to know why the debt servicing estimates had been fluctuating.
 
Dr Setai noted that perhaps the FFC should say that government debt was no different from other debt. It was just that the government had certain privileges. For example the government might taken out a loan and say that they would repay it after ten years. However, when those repayment conditions set in, it would have an impact on the cost and the cost would fluctuate.
 
Dr Setai said that the National Treasury needed to be present to address that specific concern.
 
The Chairperson wanted to know what the difference was between the Government Priorities for 2010 and the Growth Trend graphs.
 
Mr Makinta noted that the first table was more the proportion contribution. He used education as an analogy, as education had been identified as a priority. The following table had the FFC look at what had been funded. It had a year on year growth focus.
 
The Chairperson asked if the amount of money that would be sliced off to fund debt servicing would be 17% this year. He sought clarity about the two graphs in terms of debt servicing costs.
 
Mr Khumalo replied that the first table basically represented proportion. It was just a representation of the shares of the different items in the Budget.
 
The Chairperson wanted to know it the FFC was referring to the whole Budget or just different items that had been identified as priorities.
 
Mr Khumalo replied they had been referring to the entire Budget. One needed to ask the question what share was debt servicing in the Budget. The other graph was a basic reflection of growth trends.
 
The Chairperson addressed the one delegate from the National Treasury who had been present at the Committee meeting. He said that Parliament was commencing with the process of appropriation and that it was imperative for National Treasury to be present in order to respond to submissions from the FFC.
 
The meeting was adjourned.

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