First Quarter Expenditure 2010/11: National Treasury report

Meeting report

First Quarter Spending 2010/11: National Treasury (NT) briefing
Mr Robert Clifton, Chief Director: Technical Assistance Unit, National Treasury, said that total allocation of R812 billion for provinces was divided up so that 43% was made up of direct charges, 37% was made up of transfers and subsidies and 16% was made up of current payments. Of these allocations, 23% of the direct charges, 24% of the transfers and subsidies, and 21% of the current payments had been spent. However, only 11% of the payments for capital assets budgets had been spent.
Within the Central Government and Administration Sector, a number of departments had shown significant differences between their projected and actual expenditure.

The Department of Home Affairs (DHA) had not reached its projected expenditure, as a result of municipal rates and taxes being paid at the end of the quarter. The Department of International Relations and Cooperation (DIRCO) had not reached its projected expenditure, as a result of the expenditure taking place at overseas missions, which was not being reconciled in government’s Basic Accounting System. The Department of Public Works had not reached its projected expenditure, as a result of delays in the payment of Expanded Public Works Programme (EPWP) incentive grants.

Dr Mark Blecher, Chief Director: Health and Social Development, National Treasury, said that in the Social Services sector the only vote which had seen a marked difference between projected and actual expenditure was in the Department of Higher Education. This was as a result of this department having transferred monies to universities early in the year. The main spending (of around 94%) in the Health vote related to conditional grants. Total expenditure in this vote had increased by 17.6% to R5.265 billion. The largest expenditure increase was seen in Programme 2, which rose by 43.6%, owing to the step up for HIV/AIDS funding. Spending in Programme 6 had decreased by 18.4% from last year. This was due to the large expenditure that occurred abroad and was claimed via Foreign Affairs account, which was, in turn, received within five months after the expenditure.
HIV/AIDS Grant spending had increased by 53.1%. This was due to the new policy announcement made by the President in which antiretroviral treatment was to be given to pregnant women with CD4 counts of 350 or less, in order to enhance maternal survival, and to people who were co-infected with both TB and HIV who also had CD4 counts of 350 or less. Consideration needed to be given to the problems of the vertical programme and whether the time had come to integrate into the health service. Spending on the Hospital Revitalisation Grant had decreased by 5.6%, with slower-than-expected spending occurring in the Free State (7.6%), KwaZulu-Natal (10.5%) and Limpopo (11.5%).  This slow spending looked set to continue. The Department of Health was putting various strategies in place to accelerate infrastructure delivery. These would include the employment of engineers, technical support, public-private partnerships. It would be useful to ensure increased oversight of slow spending in this programme.

Dr Blecher said that Social Development spending had increased by 39.9%. There was, however, a decrease in spending of 18.4% in Programme 1 as a result of the lease payment for accommodation only being done in the second quarter. Programme 2 saw a 40.6% increase in spending because of the payments of Appeals Backlog cases and the higher number of beneficiaries applying for social grants, due to amendments in the means test. Spending in Programme 3 grew by 26.3%, mainly due to the first payment for the National Student Financial Aid Scheme being made for the social workers’ bursaries. Programme 4 had, however, seen a decrease in spending of 59.8%, due to a decrease in the allocation to the National Development Agency. Programme 5 spending had decreased by 22.1% as a result of the Appeals Unit being shifted to Programme 2.

A major policy issue that was currently under review by the South African Social Security Agency (SASSA) were the large amounts of its administration funds being spent on cash payment contractors. SASSA was reviewing these contracts to negotiate cheaper prices. This would result in a significant saving for the Department of Social Development (DSD) and government as a whole. About 80% of social grant recipients were currently paid via cash payment contractors, at a significant cost to government, so SASSA was also looking at moving to using bank accounts, since bank charges were less than these contractors’ fees.
 
The Department of Basic Education (DBE) had spent 27% of its total available budget. Programme 2 had only seen a spending of 4.64%, due to delays in the submission of claims for payments that were due to be paid in the second quarter. There were also delays in the rollout of the Workbooks Project. Although none of the funds allocated for this programme had been spent, the process was currently under way. The DBE felt confident that Workbook A for the first and second terms in 2011 would be available for use by learners in January 2011.

The Department of Higher Education and Training (DHET) spent 45% of its total available budget. It had also spent 15% of its current payments budget. This was mainly due to delays in the Quality Council for Trades and Occupations (QCTO) Project, delays in the carrying out of the forensic audit of Indlala and delays in the submission of accommodation and transport claims. In relation to transfers, it had spent 7% less than anticipated, mainly due to approved claims for capital grants being less than expected.

Mr Rendani Randela, Chief Director: Justice and Protection Services, National Treasury, said that the Department of Defence and Military Veterans (DODMV) had over-spent as a result of the new salary dispensation. The major differences in the Department of Correctional Services (DCS) projected and actual expenditure were noted, related to administration and facilities costs. These arose because of outstanding invoices and difficulties with the invoicing of the Department of Public Works.

Most of the programmes in the Department of Defence and Military Veterans had over-spent on their budgets as a result of the new salary dispensation.

The Department of Justice and Constitutional Development had seen a significant deviation from their administration costs budget, as a result of the challenges it had around invoices from the Department of Public Works.

There was also a minor deviation with the Department of Police’s administration costs. This was largely due to delays in the issuing of tenders.

Mr D Naidoo, Chief Director: Economic Services, National Treasury, said that, within the Economic Services sector, the Department of Public Enterprises (DPE) had spent 53% of its budget while the Department of Agriculture, Forestry and Fisheries (DAFF) had spent 23% of its budget. The Department of Economic Development (DED) had under-spent as a result of the large number of vacancies within this department, which it was busy filling. The Department of Environmental Affairs (DEA) had spent 21% of its budget, as a result of the late payment for the SA Agulhas Polar Vessel. The Department of Mineral Resources (DMR) had spent 24% of its budget. The Department of Rural Development and Land Reform (DRDLR) had spent 13% of its budget. The settlement of land restitution court cases had seen a R2 billion virement from the Land Reform programmes. The Department’s properties had been attached due to the non-payment of claims, hence the need for this virement.

He continued that the Department of Science and Technology (DST) had spent 18% of its allocated budget. This slow spending was due to delays in the implementation of named projects and delays in the finalisation of Memoranda of Agreements. The Department of Tourism had spent 35.7% of its budget. The fast spending was as a result of 60% of the International Marketing Grant being transferred to South African Tourism in April 2010. The remaining 40% would be transferred in September 2010. Performance bonuses were also paid in April 2010. The Department of Trade and Industry (dti) had spent 16% of its budget. This under-expenditure was mainly due to under-spending under various incentive schemes. An increase in claims was anticipated during the latter part of the financial year.

Mr P Matji, Chief Director: Urban Development and Infrastructure, National Treasury, said that the Department of Cooperative Governance and Traditional Affairs (CoGTA) had noted expenditure that was faster than expected. This was largely due to the Local Government equitable share being transferred to the municipalities earlier than usual. CoGTA said this was informed by a strategic decision taken to assist selected municipalities which had been financially stressed. The Department of Communications (DoC) had only spent 37.83% of its projected expenditure, as a result of transfers to public entities not being made. Public entities such as Telkom and Sentech had not submitted draw-down requests. The Department of Energy (DOE) had spent 87.96% of its projected expenditure. The Department of Human Settlements (DHS) had noted a slower than expected expenditure on its current payments due to the signing of the contract with the Special Investigating Unit and the issuing of tenders for impact and evaluation studies on rental housing and informal settlement upgrading. There was also slow implementation support on the rural sanitation programme. Its slower-than-expected expenditure on payments for capital assets related to an indirect grant to municipalities while slower-than-expected expenditure on transfers to public entities resulted from the delay in the finalisation of the business plans of the Housing Development Agency.
The Department of Transport (DOT) had a higher than expected expenditure, partly due to the payment schedules for the Public Transport Integrated System being increased to cover short-term bridging financing agreements. Capital transfers to the Passenger Rail Agency of South Africa had also been increased in order to reduce the loan for inter-city buses. The Department of Water and Environmental Affairs had spent 15.94% of its projected budget. This was due to outstanding invoices for services rendered in the previous financial year, vacant posts and a contractual agreement between the department and professional service providers not being finalised.

Discussion
Mr L Ramatlakane (COPE) asked what the reasons were behind the delays of monies for incentive programmes being paid. He also questioned if it was acceptable for provinces to adjust their projected expenditures.

Mr Naidoo answered that departments had an indication of the monies they would be allocated for these programmes in the February prior to each financial year. They were therefore given sufficient time to plan accordingly. More needed to be done, however, to ensure that programmes were ready to start as soon as the money was paid.

Mr Matji added that National Treasury was engaging with departments around fast-tracking their programmes, and on how the monies should be spent. This hopefully would ensure not only that spending took place, but also that these programmes also delivered value for money.

Mr G Snell (ANC) asked what measures had been put in place to avoid debt accruing in land claims.

Mr Naidoo answered that there were challenges around this issue, and that National Treasury and the DRDLR were engaging on the issues. The budgets for settling claims were not held in the different regions.


Mr J Gelderblom (ANC) asked whether the paying of bonuses in April, two months ahead of the projected time, was in any way linked to the World Cup.

Mr Naidoo answered that the performance evaluation was done for the previous financial year, which ended on 31 March. It was not unusual for these bonuses to be paid in April.
 
Ms R Mashigo (ANC) asked who funded the Development Bank of Southern Africa (DBSA) projects, especially those executed in the North West province.

Mr Matji answered that the DBSA was funded through donor agencies, with some funding also from the Department of Water and Environmental Affairs. He was unsure exactly how the projects in this province were funded.
 
Ms B Ngcobo (ANC) asked whether the use of the Post Office Bank could be explored, as opposed to making use of shops to make payments. She also wondered if there could not be negotiations around bank charges, suggesting that these should not apply to the aged. She also asked how the departments could work together in order to deal with the increased spend on HIV/AIDS treatment.
 
Dr Blecher answered that there had been attempts to deal with the Social Development matters, although the issue was taken to court. In certain countries, banks would not recover bank charges, as part of their social responsibility. This issue was raised as a policy concern, and a whole range of issues would have to be addressed in a new payment model. There was progress being made with inter-departmental structures, though improvements could still be made in the area of budgets.

Mr Ramatlakane asked whether the provinces’ explanation for not spending because they were still planning was acceptable. He also wondered if the decentralisation of police was in line with budgets.
 
Mr Matji repeated that National Treasury was engaging around fast-tracking programmes.

The Chairperson asked how the process around Department of Education workbooks could be expedited. He also wondered, given the size of the administrative budget of the Department of Police, whether norms should not be set that would place limitations on departments’ administrative budgets.
 
Dr Blecher answered that the issue around the Workbook programme was best answered by the Department of Education itself.

Mr Randela said that although the administrative budget for the Department of Police seemed to be large, it must be remembered that this provided for centralised services. National Treasury had discussed with The Department of Police what need not be included in this budget.

The meeting was adjourned.