Finance Medium-Term Budget Policy Statement Document: Workshop

Meeting report

Medium Term Budget Policy Statement (MTBPS): Budget Process
Ms Kay Brown, Chief Director: Expenditure Planning, National Treasury, said that Government’s outcomes approach provided a framework for results-driven performance. South Africa’s budget was undergoing reform, as shaped by the Money Bills Amendment Procedure and Related Matters Act (the Money Bills Act). For budgeting purposes, votes and their entities had been organised by function across three spheres, which allowed for a more effective comparison of allocations with service delivery trends. In order for the budget to meet its objectives it had to be as comprehensive as possible in covering the public sector. This included budgeting for public entities and State-Owned Enterprises (SOEs), departments in the three spheres, and taking into account donor receipts. This new functional approach allowed for the proper allocation of resources.

The Money Bills Amendment Procedure and Related Matters Act put in place the procedure to amend money bills. It also defined the processes and procedures that would be undertaken to pass the budget. The process started in the year prior to the tabling of the budget, when each parliamentary committee tabled a Budgetary Review and Recommendation Report (BRRR). These reports evaluated the performance of each department, and, once approved by Parliament, had to be referred to the Minister of Finance and the relevant Minister. The recommendations in these reports served as an ‘early warning system’ on issues of concern to Parliament. When the Minister of Finance tabled the budget he / she had to table a report indicating how the Division of Revenue and the budget gave effect to the recommendations made in the reports. If the Minister’s explanation did not address Parliament’s concerns, it could amend the budget in order to give effect to its proposals.

Discussion
Mr M Motimele (ANC) asked what the impact was of the new functional approach.

Ms Brown answered that, as this was the first year in which the functional approach was being taken, its benefits would only be seen at a later stage.

Mr M Swart (DA) asked whether the Act should not have led to changes in the Constitution.


Ms Brown answered that, since she was not a lawyer, she was not in a position to express an opinion around this.

Mr B Mashile (ANC) asked whether aligning the processes was easy.

Ms Brown answered that some teething problems were expected. National Treasury had had meetings with the secretaries of various Committees to look at the issue of time scheduling, as the timelines around the consultation process had proven to be problematic.

Co-Chairperson Sibhidla said that this issue would be addressed in the future, and that Members would hold discussions in order to address this.

Medium Term Budget Policy Statement (MTBPS) and Fiscal Framework briefing
Ms Joan Stott, Director: Fiscal Analysis, National Treasury, said that once the baseline had been constructed, macroeconomic forecasts were updated, once before the MTBPS and once more for the Budget. These forecasts were revised with each release of the Reserve Bank quarterly bulletin. The Revenue Analysis Working Committee met in order to determine revenue projections for the Medium Term Expenditure Framework (MTEF). Budget allocations should be reflective of inflation. Growth in expenditure should reflect growth in the economy.

Discussion
The Co-Chairperson asked what systems were employed in revising the fiscal format.

Ms Stott answered that when setting baselines National Treasury would look at programmes, and at whether these had either come to an end, or were under funded, or needed to be extended. It also considered the macro-economic forecasts.

Ms R Mashigo (ANC) asked whether financing methods were considered when National Treasury considered these forecasts.

Ms Stott answered that long-term financing options were considered. National Treasury did not go into much detail around what percentages were covered by company or personal tax, but was aware that it needed to focus more on this.

Mr Mashile asked what informed the provision for salaries for civil servants.

Ms Stott answered that these figures contained the current wage agreement as well as projections of inflation, pay progression, overtime and other issues.

Adjusted Estimates of National Expenditure (AENE) Presentation
Ms Raquel Ferreira, Director: Expenditure Planning Unit, National Treasury, said that the layout of the Adjusted Estimates of National Expenditure (AENE) contained, among others, summary tables of the adjusted national budget, adjusted appropriations per vote, adjusted appropriations per economic classification, roll-overs, unforeseeable expenditure, declared savings and projected under-spending, and adjusted departmental receipts. The AENE contained one chapter per vote. The votes were arranged according to functional groupings (such as central government administration, financial and administrative services, social services, justice, crime prevention and security and economic services and infrastructure). In relation to the details of adjustments, there were explanations, by programme, of roll-overs, unforeseeable and unavoidable expenditure, other adjustments, gifts, donations and sponsorships, amounts forming a direct charge against the National Revenue Fund and virements and shifts. In relation to virements and shifts, approval was needed by National Treasury for certain categories, which were those that increased the funds appropriated for the compensation of employees, or for transfers and subsidies to other institutions, those which introduced a new transfer to an institution, those which utilised funds that were earmarked for a specific purpose and which utilised saving of funds appropriated as transfers and subsidies for payment to another institution.

Discussion
Mr Swart asked whether it was permissible for provinces to hold on to unspent conditional grant monies.

Ms Ferreira answered that the National Department did not have the power to take money away from municipalities which did not spend on these grants. The Committee could play a role in addressing this.

Mr L Ramatlakane (COPE) asked how unforeseeable expenditure was defined. He asked which sections of the Public Finance Management Act (PFMA) and the Money Bills Act empowered National Treasury to appropriate funds for purposes other than those for which they were originally allocated. He also asked what yardstick was used for the approval of roll-overs.

Ms Ferreira answered that this was typically expenditure which could not have been foreseen at the time of tabling the budget, such as natural disasters. It was not for something related to price increases. There was, however, no specific definition. Adjustments were made in terms of Section 32 of the PFMA while legislation around virements was contained in Section 43 of the PFMA and Section 6.3 of the Appropriations Act.

Mr Mashile asked whether the regulations around virements were in line with the Money Bills Act, and what the implications were for the outcomes of adjustments.

Ms Ferreira answered that the table included as much information around virements as possible. National Treasury would scrutinise these virements to ascertain whether they were in accordance with the rules set out, and would only approve legitimate ones. They were difficult to budget for when the budget was tabled. A column detailing the outcomes had been included.

Mr E Sogoni (ANC) asked to what extent National Treasury monitored the shifting of funds. There needed to be clarity around what could be approved by National Treasury.

Ms Ferreira answered that National Treasury received monthly and quarterly reports around performance expenditure. Transfers could be delayed if under-expenditure was noted.

Division of Revenue Amendment presentation
Ms Wendy Fanoe, Chief Director: Local Government, National Treasury, said that clauses of the Division of Revenue Act would not change, though Schedules of the Act would be amended. Allocations could be amended as a result of, among others, natural disasters and the introduction of new programmes.

Discussion
Mr Mashile asked what the implications were of the re-introduction of conditional allocations that were not correctly reflected in the schedules to the Division of Revenue Act.

Ms Fanoe answered that this was largely due to administrative errors around national departments confusing municipalities with the same name.

The Chairperson said that this issue should be looked into, in order to avoid the same mistakes recurring in the future.

The meeting was adjourned.