Appropriation Bill: Comment by Parliamentary Budget Office

Meeting report

Briefing by the Parliamentary Budget Office

Professor Mohammed Jahed, Director: Parliamentary Budget Office (PBO), said the presentation would focus on priority expenditures, areas to consider for efficiency gains, and possible expenditure pressures.   

Ms Nelia Orlandi, Deputy Director: Policy, PBO, said according to the legislative mandate the Minister must table the proposals setting out the aim and purpose and other performance information for each department, public entity or institution against its expected revenue and scheduled expenditure by programme and sub-programme, and the economic classification items of expenditure. Any amendments to the Appropriations Bill must be in consultation with the relevant Committee for the department or entity affected. The conditions that need to be met were specified before the Committee on Appropriations recommends to the House that the funds be released.

The 2017 Appropriation Bill appropriates money from the National Revenue Fund for the requirements of the State for the 2017/18 financial year. The Bill lists the amounts that were specifically and exclusively appropriated. This was important because if money was specifically appropriated, amendments to the Bill must be approved by the House or the Committee. The Bill prescribes conditions for the spending of funds, and provides for the authorisation of expenditure before an adjustments appropriation is passed and before the commencement of the Appropriations Act for 2018/19.

The Appropriations Bill consists of 45.34% of the total allocation from the Revenue Fund. Transfers and subsidies make up a total of 69% of the total appropriations – the 69% includes capital expenditures, because the transfers were going to the other spheres of government. Payments for capital assets make up 2.06% and payments for financial assets make up 0.65% of the national appropriations. In terms of the current payments, the compensation of employees makes up 19.7%, goods and services make up 8.57%, and interest and rent on land make up 0.01%.

The four departments that receive the most funding are Cooperative Governance and Traditional Affairs (COGTA) 10.22%; Social Development 20.95%; Police 11.35% and Transport 7.80%. Changes to appropriations over time for Social Development and the Police Service had also changed over the years, and had flattened towards the outer years towards 2014/15. Education had started at just below 10% in 1997/98 financial year, but had increased over the medium term, and Defence and Military Veterans had decreased in spending over the years. It was important to note that there was often a trade-off between expenditures.

The departments with the highest transfer amounts were Health; Social Development; Trade and Industry and COGTA. The Health Department’s total percentage of transfers was 92.3%, and they spend 1.2% on administration. There was a correlation between transfers and administration costs -- the higher the administration cost, the lower the transfer as a percentage of total expenditure. At other smaller departments, like Small Business Development, the percentage spend on administration was always higher because there were fixed costs involved in terms of the administration programme.

Social Development spends only 0.22% of the total expenditure on their administration costs, but when the total amount of transfers is deducted from the total expenditure amount, they actually spend 40.1% on administration. This analyses shows a different picture when the transfer payments are included.

The Department of Performance Monitoring and Evaluation spend 18.2% of their total expenditure on administration. The Department also transfers money to youth development programmes, but when the transfer is deducted from their total expenditure, their administration cost is 34.3%, which is high in terms of the service they deliver. The Department of Health also transfers a lot of money – the administration cost is 1.2% of the total budget and the transfers are 95.2%. If the transfers were deducted, the administration cost is 15.7%.

According to the preliminary expenditure as at 31 March 2017, the Department of Police had spent their whole budget and they would receive a budget increase of 7.5% from their actual preliminary expenditure. The Department of Telecommunications and Postal Services spent only 85.9%, and their budget reduces by 22.2%. The Department of Water and Sanitation overspent on their budget by 100.1%, and their budget would decrease by 2.8%.

In-kind allocations were made to COGTA, which receives R103.2 million for municipal systems improvement; National Treasury receives R27.7million for the neighbourhood development partnership; Basic Education receives R2.6 billion for the school infrastructure backlog; Health receives R828.7 million for five different amounts; and Water and Sanitation receives R3.4 billion for regional bulk and water services infrastructure. If there are unspent funds, the Minister may not approve the re-allocation of unspent transfers and subsidies for another purpose and the payment for capital assets for compensation. Appropriations are disaggregated per main division and per vote as contained in the budget; the economic classification and other disaggregated amounts of the R1.7 billion to Parliament needed to be done in terms of the Financial Management of Parliament Act (FMPA), 2009 as amended.

Discussion

Mr A McLoughlin (DA) said the Committee would appreciate a further breakdown of other departments’ administration costs and transfers. In the budget speech, it had been indicated that municipalities would get 9.2% of the appropriations, but the PBO presentation had indicated that municipalities would at least get more than 10%. He asked if their indication included other budget allocations to Traditional Affairs as well. Water and Sanitation had had a decrease of 2.8%, but their in-kind allocation had been the highest. In terms of oversight, it was difficult to oversee where the R3.4 billion had been spent, because the monies were transferred to numerous different programmes, such as the water services boards and the provinces. He asked how the Committee could oversee each programme where the monies were being transferred to. 

The Acting Chairperson asked the PBO to provide the Committee with a breakdown of the Water and Sanitation appropriation.

Mr McLoughlin said that percentages may often be misleading. A 0.2% of a million rand may not sound like a lot of money, but on paper it looks a lot different. When one applies one’s mind, often a department with a low administrative percentage and a high budget amount could, on a per capita basis, have been spending four times as much as another department with a higher administration percentage. As such, a breakdown of each administration cost for each department should be done.

Mr M Figg (DA) suggested that adjustments to appropriations be made to ensure that departments were able to repay their debts, because the high departmental administration costs were disturbing. There were some departments whose high administration costs included employees who were not adding any value to the department, but were nonetheless still being paid. Departments should be encouraged to prioritise on creating jobs, because it would help with decreasing dependency on social welfare. With respect to the statement that Parliament was not complying with the legislation of the appropriation that should be made in terms of votes and economic classification; he asked what the implication of this was -- did it mean that Parliament could not spend more than the 45% they were allowed to spend, or whether any spending done by Parliament was unlawful?

Ms D Senokoanyane (ANC) said the high administration costs of the Department of Performance Monitoring and Evaluation was unacceptable, especially since the department was also responsible for monitoring the administration of other departments. The Committee wanted the public to benefit from the Department of Small Business Development, but their under-spending was a great concern as it indicated that there were only a few who were benefiting from the department’s programmes. 

Ms Orlandi replied that the percentage for COGTA was different from the budget speech because they had included other expenditures -- the 9.2% equitable share which had been transferred to local government would form part of the 9.9% for the entire year in terms of the Division of Revenue. In order to get the real division of revenue, the PBO would have to calculate some of the transfers from national government to provincial and local governments. A further analysis of the administration costs of each department would be made and submitted to the Committee. Also, the National Treasury had the entire database indicating the administration costs for each department on their website, which could be extracted easily.

Comparing the administration costs of departments may prove to be problematic, because departments’ line functions and primary mandates differed. Some departments would have more frontline personnel than others, and as such their administration costs would ultimately be higher. The Department of Performance Monitoring and Evaluation requires personnel with technical skills and due to a lack of skills within the department, they hire consultants who have monitoring and evaluation skills, hence their administration costs tend to be higher. The PBO had also looked into South Africa’s wage bill, and one of the components they had focused on were the resources dedicated to administration versus frontline personnel, which the PBO would present to the Committee.

The Acting Chairperson said the duplication of functions also leads to high administration costs, and asked that the PBO also look into this.

Ms Orlandi said that Parliament may have spent unlawfully, because the FMPA also requires Parliament to appropriate per programme and per economic classification, which had not been done in the previous year in terms of the Appropriations Act.

Professor Jahed added that it would be appropriate for the Chairperson to meet with the chairpersons of the Finance and Select Appropriations Committees to raise the issue, because these Committees had oversight over Parliament’s budget.

Ms S Shope-Sithole (ANC) said the Select Committee on Appropriations and the National Treasury would have to appear before the Committee. She asked what Parliament should have done in order to avoid the issue.

Ms Orlandi replied that National Treasury had not received the proper information from Parliament to appropriate per each programme and economic classification. National Treasury had appropriated only one amount. The PBO did not know what the National Treasury and Parliament’s executive had discussed regarding its budget. In the previous year, the National Treasury had indicated to Parliament that it should appropriate according to the FMPA, but the PBO had not seen that appropriation. There had not been a separate bill tabled with a budget of Parliament in the previous year, and the PBO does not know if the Appropriation Bill would be tabled with its budget during this year. If Parliament tabled the Appropriation Bill with their budget, and it was approved by the National Assembly, it would be legal.

Ms Shope-Sithole said the Finance Committee must report to the Committee and explain why such a decision had been made. She suggested that the meeting should take place during the evening if there were no times available during the day, because the Committee could not postpone this matter to a later date.

Ms M Manana (ANC) asked if the PBO had advised the Finance Committee on the legal implications of not appropriating the amounts.

Ms Orlandi replied that the PBO had communicated with the Joint Finance Committee that there were legal implications involved.

The Acting Chairperson said the funding allocation to the infrastructure in the Department of Trade and Industry should be looked into, especially since infrastructure was not the department’s core mandate.

Dr Mark Blecher, Chief Director: Health and Social Development: National Treasury, said he had communicated the Committee’s concerns regarding the Parliamentary Vote to his colleagues. On the size of the different administration budgets, the findings were interesting but it would be important to note that some departments often mis-classified things that were actually service delivery in their administration programme, but the Committee and the PBO were correct to draw attention to the matter.

The Acting Chairperson said the National Treasury must be present when the Committee meets with the Finance and Select Appropriations Committees.

Ms Shope-Sithole said the Committee in Parliament should not think they could be exonerated from accountability.

The Acting Chairperson asked that the PBO also look into the kind of impact consultants have on the cost of administration for each department. The public hearings in Khayelitsha had been approved.

Mr McLoughlin said the Committee was scheduled to sit from 09:00 to 17:00 on 22 June 2017. However, there was a plenary that would be taking place on the same day. He said the Committee meeting would have to commence after the meeting.

The Acting Chairperson suggested that they start early on that day and leave for the plenary at 13:00. The Committee Secretary would communicate the new times to the Members.

The meeting was adjourned.