Workshop with National Treasury on the Budget; Members' proposals on the process of appointments to the Land Bank board

Meeting report

Proposals from Members on the process of appointments to the board of the Land Bank
Ms Z Dlamini-Dubazana (ANC), as the Acting Chairperson, asked whether any Members had any proposals on the process of appointments to the board of the Land Bank.

Ms H Matlanyane (Limpopo, ANC) stressed that the ANC had noted the matter but the National Treasury did not have any powers in the nomination process.

Mr D George (DA) stressed that the DA would support the proposal as it was.

Mr D van Rooyen (ANC) stressed that it was crucial to learn from experiences that had evolved over time such as the appointments to the South African Broadcasting Corporation (SABC) board. He added that it would seem as if Parliament was acting both as the referee and the player. He stressed that the key issue of Parliament’s oversight role would be compromised, hence Parliament was not supposed to participate in the nomination of board members.

The Acting Chairperson stressed that a proposal had been made that Parliament would not participate in the nomination process of board members and that the proposal had been seconded.

Mr N Singh (IFP) stressed that there were some merits in the proposal and Parliament needed to talk about the issue of being involved in board nominations.

The Acting Chairperson said that Members’ views would be forwarded to the Portfolio Committee on Agriculture, Forestry and Fisheries.

The Budget Process, Documents and the Appropriation Bill
Dr Kay Brown, Expenditure Planning, National Treasury, gave an overview of the budget as a key statement of the Government’s policy. She stressed that it was a process through which choices had to be made about competing priorities. It was said that the budget had to fulfil three functions, namely (i) spending, taxation and borrowing must support economic objectives; (ii) resources must be allocated to political priorities; and (iii) the budget and budget information must be tools to improve the quality and effectiveness of spending for service delivery. In other words, it was supposed to be a value-for-money agenda and it was very difficult to attain.

Dr Brown went on to explain how the Medium Term Expenditure Framework (MTEF) worked. She stressed that since 1997 the Government had been rolling out a three year budget process and went on to give a practical example of how the MTEF worked. The MTEF budget baselines were thoroughly examined to identify possible savings and areas which required additional funding. The three year period enabled departments to engage in the long term framework planning.

The Medium Term Strategic Framework (MTSF) was a statement of Government’s chosen priorities which was adopted by Cabinet every five years and then updated annually. It was within that fiscal framework that the budget transferred resources in line with priorities. There was an outcome of approach which set out 12 clear measurable outcomes which were supposed to lead to the attainment of Government’s priorities and thus form the focus of Government policy and service delivery implementation and targeting. The Government had prioritised its efforts and resources more rigorously to support job creation specifically focused on youth employment, education and skills development, health, integrated and sustainable human settlements and vibrant, equitable and sustainable rural communities.

The National Treasury’s technical role was to provide the overall Division of Revenue proposal between the three spheres based on the decisions made on a political level and on further analysis. Secondly the National Treasury was there to provide the technical guidelines for budget submissions and to make recommendations on the budget that was supposed to be proposed.

Factors that were considered when the Treasury assessed budget submissions were also presented to the Committee. Such factors were link of budget submission proposal to broad government priorities, research on policy options for delivering, funding in the previous MTEF periods, evidence of underspending and or unwise spending, proper plans and proper costing and execution according to budget planning.

Dr Brown went on to mention the role players involved in the budget process such as the MTEC - an interdepartmental committee comprising representatives from the National Treasury, the Department of Public Service and Administration (DPSA) and the Department of Cooperative Governance (DCog). The MTEC considered the allocation of funds in respect of each grouping of departments, in line with the outcomes approach (previously individual departments were not grouped by Government function for budgeting) (slide 7). Other role players were intergovernmental technical forums, relevant entities and donors, the Minister’s Committee on the Budget, the Budget Council, the Budget Forum, the Cabinet, and the Financial and Fiscal Commission, and legislatures (slide 7).

A summary of the key milestones in terms of policy review, departmental planning and budgeting and Parliament was given (slides 8-9), followed by a list of budget documents (slide 10).

There followed the Estimates of National Expenditure (ENE) layout. First there was the introduction and then a summary of additional allocations to departments followed by summary tables (Slides [11-12]).  A guide to the information contained in each chapter was provided (slides 13-21). In terms of the ENE layout there was one chapter per vote and as such there were 38 votes with selected public entities and other agencies. The votes were arranged according to functional groupings such as central government administration, financial and administrative services, social services, justice, crime prevention and security services and economic services and infrastructure. In addition more detailed information on each vote was available on the National Treasury website.

Each chapter started with a budget summary for the Department and the programmes. In each chapter there was also an aim for each of the Department’s strategic objectives, programme purposes, strategic overview and savings and cost effectiveness measures. Included in each chapter was also a table of selected performance indicators which were numerical measures that tracked a department’s progress towards its goal. There were also expenditure estimates and expenditure trends such as infrastructure spending, personnel information and real annual growth rates. Each chapter also contained departmental receipts for the MTEF period described in relation to receipts for 2010/11. Other information that could be found in each chapter were detailed discussions by programme, programme objectives and measures, purpose and activities of sub-programmes in respect of the programme, expenditure estimates per programme table, expenditure trends per programme. Furthermore there were additional tables such as the summary of expenditure trends and estimates per programme and economic classification, details of approved establishment and personnel numbers per salary, summary of expenditure on training, summary of departmental public private partnerships and a summary of expenditure. The tables were also available on the National Treasury website.

Dr Brown went on to give a brief summary of the Appropriation Bill. The Bill provided for the appropriation of money from the National Revenue Fund in terms of section 213 of the Constitution and section 26 of the Public Finance Management Act (PFMA). The Bill was said to set out allocations by vote and main division within votes. An aim was set out for each vote and a purpose was set out for each programme. It was also explained that allocations that were marked with asterisks referred specifically and exclusively to appropriated amounts. Conditional grants were specifically and exclusively appropriated and were also listed in the Division of Revenue Bill. It was explained that spending was subject to the PFMA and provisions of the Appropriation Bill and section 29 of the PFMA applied until the Appropriation Act had been signed.

Reading the Budget review and determining the Fiscal Framework
Ms Joan Stott, Director: Fiscal Analysis, Budget Office, National Treasury, gave a brief presentation on the reading of the Budget Review and determining the fiscal framework. She explained that the fiscal policy was the sustainable management of revenue, expenditure and debt in the context of a dynamic global and domestic economic environment. In order to determine the fiscal framework in terms of the baseline it was necessary to start with the previous framework such as the 2010 MTEF and construct a baseline for total, national non-interest allocations in the new outer year (2013/14). It was done by expenditure planning in consultation with public finance and fiscal policy. In addition the previous baseline (2010/13) was grown by a factor determined by the public finance and budget office which was reflective of inflation and growth. An in depth analysis was conducted by budget analysts to remove any programmes from the baseline that had been completed. It was, however, noted that for the 2011 MTEF the process would change given the constraints on the fiscus.

A determination of the fiscal framework in terms of the context was given. This was to update the fiscal framework for the new macroeconomic forecasts and the key variables that were included in the framework - real gross domestic product (GDP) growth (GDP), nominal GDP, GDP inflation, consumer price index (CPI) and the CPI index. The macroeconomic forecasts would be updated three times before the Medium Term Budget Policy Statement (MTBPS) and once more before the budget. The macroeconomic forecasts would be revisited with each release of the Reserve Bank quarterly bulletin. As to the determination of the fiscal framework in terms of the revenue, the revenue analysis working committee would meet in September, December and January to determine revenue projections for the MTEF. The forum was be comprised of representatives from the budget office, macroeconomic modelling, tax policy, the South African Revenue Service (SARS), the South African Reserve Bank (SARB) and sometimes Statistics South Africa (Stats SA).
As to the credibility of the overall budget, budget allocations were supposed to be reflective of inflation by maintaining the purchasing power of expenditure and maintaining Government spending constant as a percentage of GDP; debt management and growth in revenue was supposed to be reflected in the growth in the economy.

A brief overview of the Budget Review contents was also given. Chapter 1 related to overview and policy and chapter 2 related to economic policy and outlook and included macroeconomic forecasts. Chapters 3, 4 and 5 were all about employment, fiscal policy and tax policy and revenue trends.  Asset and liability management was described in chapter 6, chapter 7 was on social security and chapter 8 related to medium-term expenditure priorities and division of revenue. Previously there were nine chapters in the budget review and they had been reduced to eight chapters.

A structure of government accounts was also given - the main budget followed by the consolidated national budget, consolidated national and provincial accounts, consolidated government accounts, consolidated general government and the public sector. Lastly the issue of fiscal balances or budget balances was explained.

Division of Revenue (DoR) Bill: Conditional Grants Schedules transfers to Provinces, funds returned to NRF
Ms Wendy Fanoe, Chief Director: Intergovernmental Policy, National Treasury, gave a brief summary of the Division of Revenue Bill. She gave an outline and posed certain questions such as how different the Bill was from other “budget” legislation or documentation, the Bill’s contents, why and when the Bill would be amended and how the Bill could be used.

The legal basis of the DOR was Section 214 of the Constitution and section 10(5) of the Intergovernmental Fiscal Relations (IGFR) Act which also gave effect to the Constitution in terms of the consultation process for allocations with Budget Council and the Budget Forum. Section 76(4) of the Constitution required the DoR Bill to be tabled in National Assembly (NA) and go to the National Council of Provinces (NCOP).

Ms Fanoe explained how the DoR Bill related to other “budget” legislation or documentation. The Bill was in terms of section 214 of the Constitution and the Appropriation Bill was in terms of section 213 of the Constitution. Money could be withdrawn from the National Revenue Fund only through an appropriation by an Act of Parliament. Legislation was said to be a Money Bill when it appropriated money and or imposed abolished or reduced national taxes, levies, duties or surcharges or when it authorized direct surcharges against the National Revenue Fund except a Bill envisaged in section 214 authorising direct charges.

Ms Fanoe went on to explain how the Money Bills Amendment Procedure and Related Matters Act 2009 (Act No. 9 of 2009) (MBAPRMA) impacted on the DoR Bill. When a budget was tabled, a report was also to be tabled that responded to the recommendations made by the Parliamentary Committees on Appropriations regarding the proposed division of revenue and conditional grant allocations to provinces and local governments as contained in the MTBPS. The report was to explain how the DoR Bill and the national budget gave effect to, or the reasons for not taking intro account, the recommendations contained in the Committee reports and such a report would be submitted with the 2010 budget.

The DoR was an outcome of extensive consultations such as comments on drafts of bill from stakeholders, implemented where possible, Budget Council and Budget Forum, National Departments and extended Cabinet with Provincial Premiers and the Chairperson of the South African Local Government Association (SALGA). The contents of the Bill were also presented to the Committee. The Bill contained a vertical division of revenue, Schedules setting allocations such as global amounts per share and shares or allocations per province and municipality, Clauses that were applicable to all transfers, Frameworks for each grant, Annexure W1 which was a detailed explanation of all decisions taken and a response to the FFC recommendations and Appendixes that indicated thresholds for incentives grants. Ms Fanoe went on to explain further the schedules or allocations.

A brief overview was given on the transfers to provinces and their oversights. It was stressed that payment schedule would be finalised 14 days after the DoR Act comes into effect. Transfers for the Provincial Equitable Share were agreed to by provinces and these were unconditional transfers. The Transferring National Officer of conditional grants determined the payment schedule for grants. It was stressed that the National Department was supposed to oversee the implementation of grants and ensure that conditions were complied with. Non compliance could lead to the withholding, stopping and possible re-allocation. All unspent funds would be surrendered to the National Revenue Fund (NRF).

The role of provincial treasuries, as set out in Section 18 of the PFMA, was to prepare budgets, exercise control over implementation, promote and enforce transparency and sound management of resources and to ensure that fiscal policies complemented national economic policies. The provincial treasuries were critical role players in ensuring that national priorities were expressed in provincial budgets, control over use of provincial resources, and adherence to approved budgets, and that provincial departments stayed within budgets and spent on Government priorities. It was further added that strong treasuries had a significant impact in fiscal governance in provinces.

As to amending the DoR, Section 12(4) of the MBAPRMA provided that the Minister of Finance was to table a Division of Revenue Amendment Bill with the revised fiscal framework if such revisions impacted on the division of revenue act of the relevant year.

Discussion

The Acting Chairperson appreciated that the National Treasury had tried to simplify the contents of the document. She said that the main core function of Parliament was to conduct oversight and ensure that service delivery was done. She added that it was very difficult to analyse the information in the document since there was some information that was missing from the document and hence it compromised Parliament’s oversight.

Mr Singh said that there were different users of the documents from National Treasury. He pointed out that the real question was how user friendly the documents were. He added that it was difficult for the Committee to analyse the document. He stressed that constituencies needed to know more about performance-based information and not finance-based information, which was what the document presented. He asked why South Africa was moving towards an accrual based system of accounting and whether the MTEF was an effective tool to ensure that departments budgeted within the framework.

Mr B Mashile (Mpumalanga, ANC) stressed that he was under the impression that third year allocations were new allocations.

Ms R Mashigo (ANC) stated that it seemed as if the strategic plans did not work after roll-overs. She asked how the Committee and the National Treasury could work together to address that issue.

Co Chairperson Chaane pointed out that underspending was a serious problem that affected service delivery. He asked what weight the issue of underspending had in the process of budgeting as a criteria and its impact.

Co Chairperson Songoni stressed that the question of the usefulness of MTEF was something that Departments had to be asked. He added that he failed to understand why departments continued to plan late. He also stressed that it had to be asked how credible the budgets were that were going to be passed.

Mr Mashile asked whether the National Treasury compiled information for the purposes of budgeting on Departments that shifted and overspent funds.

The Acting Chairperson said that the workshop that the Committees were having would empower the Committees for future interactions with Departments.

Mr Kenneth Brown, Chief Director, National Treasury, responded that the documents handed out were user friendly. He responded that the book contained 38 votes for 38 different departments. He pointed out that it was a snapshot that needed to be read together with the strategic plan of the department. He further pointed out that researchers were the people that needed to dig into information so that they would empower the Committees. He agreed with Mr Singh that MTEF was not as successful as one wanted it to be. He, however, stated that there were certain departments and provinces that did well such as the Northern Cape but at the same time there were other Departments that were not coming up to speed. He said that the National Treasury assessed provincial budgets to see whether they met the requirements of MTEF but the system was not fool-proof.

Dr Brown agreed that the National Treasury was not supposed to let Departments go lightly with regards to the MTEF. She stressed that she was happy that the Committees had noticed the problem and added that the National Treasury could not hold Departments to account but Parliament could do so. She responded to the question of roll over by saying that there were Departments that were trying to play the game on both sides of the fence. She added that the roll over was not approved until adjustments were approved by Parliament. Furthermore it was stated that National Treasury did not give prior approval to roll-overs. Departments would be informed that the roll-overs might not be successful. In relation to underspending it was stressed that it was difficult to hold departments to account for. She gave an example that the Department of Correctional Services in the pervious years had underspent and the money had been taken away. The issue of underspending was not a trivial one.

Ms F Khumalo (ANC) asked why the explanatory memorandum had been removed from the DoR Bill.

Mr Mashile asked whether at any time of the budget process the civil society was involved. He asked what impact did the payment of schedules 14 days after the Division of Revenue Act had come into effect have on the actual spending of departments.

Ms Stott responded that the explanatory memorandum had been removed because it was lengthy. She added that the National Treasury took peoples’ comments into consideration and, if there was overwhelming support for the return of the explanatory memorandum, then it would be returned. In relation to the involvement of the civil society, she stressed that the current Minister of Finance had continued to take tips from the public and National Treasury constantly monitored the media and engaged with various groups from the civil society.

Tax Issues: Tax Proposals, Amendment Bills
Mr Franz Tomasek, Group Executive for Legislation and Research, South African Revenue Service (SARS), indicated briefly the structure of the tax proposals. There were key messages, revenue estimates and outcomes, estimates before tax proposals, revenue impact of proposals, details of key proposals and Annexure C. It was explained that the key messages provided a quick overview such as highlights and a list of the main tax proposals. Under the subtopic for revenue estimates and outcomes there were revenue estimates and outcomes of the previous year which were audited, current year figures, projection for the MTEF period and revenue trends. An analysis of the projected revenue collections, on the basis of the macroeconomic assumptions used in the budget, were contained under the topic of estimates before tax proposals. Under revenue impact of proposals was a summary of the revenue impact of the tax proposals announced, key tax and duty proposal and research areas, revised tax and duty tables and an overview of key tax administration changes.

Mr Tomasek explained that Annexure C set out details of the impact of any personal income tax changes on various income categories, details of the impact of any personal income tax changes on various income categories and details of any excise duty changes. Furthermore, it set out additional information with respect to the imposition or calculation of specific taxes, which would require legislation to implement and administrative proposals, which may or may not require legislation to implement.

In terms of Amendment Bills, annual amendment Bills were required to give effect to Budget proposals. Each set of Bills was made up of a money Bill that imposed, repealed or varied taxes or duties and an administration Bill. In 2009 there was a switch to a single set of Bills a year rather than two sets. In terms of the informal process the first draft of money Bill would be released close to the Budget. A complete set of draft Bills would be released for public comment later in the year. There would be informal Parliamentary committee hearings on draft Bills and the draft Bills would be revised in light of the public comments that had been submitted. In terms of the formal process the Bills would be tabled in the National Assembly and the Money Bill would be subject to the Money Bills Amendment Procedure and Related matters Act of 2009.  Thereafter there would be a formal consideration by the Standing Committee on Finance and a vote in the National Assembly (NA) and referral of approved Bills to the National Council of Provinces (NCOP). Thereafter there would be a formal consideration by the Select Committee on Finance following which there would be a vote in the NCOP and referral to the President for his signature.

Mr Mashile asked how regulations were implemented.

Mr Tomasek responded that the Income Tax Act did not use many regulations. He added that when it came to regulations there were two types namely (i) generic, that were in the Minister’s discretion and (ii) those that needed to go before the Parliament.

The meeting was adjourned.