REPORT ON THE MEDIUM TERM BUDGET POLICY STATEMENT 2003

The Joint Budget Committee reports as follows:

The Minister of Finance tabled the Medium Term Budget Policy before Parliament on 12 November 2003. In joint sittings together with this Committee, the Portfolio Committee on Finance and the Select Committee on Finance were briefed on the Medium Term Budget Policy Statement (MTBPS) by the acting Director General of Treasury, with the Minister of Finance and the Commissioner of the South African Revenue Services present. Submissions by selected economists on macroeconomic, fiscal and tax issues were also heard.

The Joint Budget Committee also heard submissions from departments, stakeholders and civil society bodies (listed at end of report) between November 14-19, under the following theme headings:

Social services and social security
Economic growth and development
Urban renewal and rural development
International relations and peace support in Africa
Justice and protection services

This report is structured in eight sections: Sections 1 and 2 refer to the joint sittings with the Portfolio and Select Committees on Finance, while Sections 3 to 7 correspond to each of the themes above. Section 8 provides the Committee’s recommendations to the House.

Joint Budget Committee Mandate
The Committee’s mandate regarding the MTBPS requires it to consider the distribution of available expenditure against government’s policy priorities. This mandate is separate from that of the Portfolio and Select Committees on Finance, which respectively deliberate on the macro-economic, fiscal and intergovernmental aspects of the MTBPS. However, since it is difficult to consider the distribution of expenditure separately from the overall resource envelope, there may be related issues raised in this report.

The Committee has interpreted its mandate to mean that it should consider
the likely impact of expenditure allocations in the MTBPS on the effectiveness and efficiency with which departments can respond to government’s stated policy priorities,
whether departments are making the tough choices required, tailoring their planned expenditures to priorities, choosing effective strategies and seeking efficiency in implementation.
The hearings and this report therefore are aimed at addressing these issues, and preparing the Committee and Parliament for its deliberations and vote on the Budget itself.

SECTION 1: MTBPS THEMES AND MTEF ALLOCATIONS
The 2003 MTBPS draws on the government’s 10-year review and the Growth and Development Summit, which focused on priorities for improving growth and broadening participation in the economy. Major themes of the MTBPS are:
An expansionary fiscal stance
Fighting poverty and reducing unemployment
Raising the level of public and private investment
Building sustainable communities
Fighting crime
Fostering regional development through Nepad

The MTBPS is aimed at providing a pre-budget view on the macro-economic context, assumptions and projections underlying the Budget, the medium term fiscal policy framework, and the main divisions of revenue between functions and spheres of government. Given the mandate of the JBC, which relates specifically to the distribution of expenditure, this section of the report is limited to an overview of expenditure issues. For consideration of MTBPS Chapters 2, 3 and 4, which consider macroeconomic issues, fiscal policy and taxation respectively, members are referred to the report of the Portfolio Committee on Finance.

The Medium Term Expenditure Framework

The Committee supplies the tabulated summaries of the MTEF (Tables 1 and 2) set out below, which show real change between the 2003/04 and 2004/05 MTEF allocations, and average annual change over the MTEF period. The first gives an idea which sectors, clusters or functions can be expected to gain, and to what extent, from the 2004/05 Budget. The second table gives a sense of the relative allocations over the MTEF period. Both provide context to the submissions to the Committee which are reported below.

Table 1
MTEF ALLOCATIONS BY SECTOR SHOWING REAL CHANGES

The division of revenue between the spheres of government provides for additional allocations of R37 billion over the MTEF period. Apart from an adjustment for higher salary costs, and R6 billion for BEE initiatives, R29.2 billion goes to the three spheres for enhances services and new priorities. National departments receive 23%, provinces 64%, and local government 13% - relatively the largest increase.

1.2 Provincial and local government finances
Increased resources directed to the two sub-national spheres indicate policy commitment to strengthening key provincial and local government programmes, which are essential to progressive attainment of basic social and economic rights and improvement of living conditions. Additional funding allocated to the provincial sphere aims at:
Increasing learner support materials to poor schools
Scaling up AIDS treatment programmes
Further take up of social security grants, including completion of take up of 11,12, and 13 year old children
Support for labour-intensive development programmes

Growth in transfers to local government targets the rollout of free basic services: the accelerated rollout of free basic electricity, water, refuse removal and sanitation to poor households; and strengthening municipal infrastructure delivery. Key capacity is involved in the process of consolidating local government financial management and budget reforms as envisaged in the municipal finance Management Bill.

Additions to the infrastructure grants of the provincial and local spheres have an essential role in successful delivery of pro-poor services.

SECTION 2. ECONOMISTS’ VIEWS ON THE MTBPS
The Portfolio Committee on Finance, the Select Committee on Finance, and the Joint Budget Committee together heard views of three economists on the MTBPS.
The three economists concurred on a number of fundamental points:
Their macroeconomic forecasts were extremely close to those of Treasury, indicating agreement on major trends and influences.
Views were very similar on the challenges of a global economy with a weak dollar, which is only slowly beginning an upswing, to SA, with its resource-based economy, and high but volatile currency.
They noted that the markets were unconcerned by the projected rise in the deficit over 3 percent of GDP for 2004 and 2005, and pointed out that the past 5 years’ fiscal prudence have resulted in sufficient stability and credibility to allow boldness, and continued expansionary budgets.
They endorsed the proposed changes to the inflation targeting regime, and the fact that the 3-6% range will be retained. They essentially concur with the trend of Treasury’s inflation projections.
Challenges to the success of public works, poverty relief and free basic services lie in the capacity to deliver at local government level.

SECTION 3. SOCIAL SERVICES AND SOCIAL SECURITY
This Committee hearings on Social Services and Social Security grouped submissions from and on services provided by the Departments of Social Development, Health and Education and relevant services of the Department of Home Affairs. The theme area corresponds with the medium term budget priorities of:
R12 billion apportioned for HIV/AIDS and ARV rollout over four years, with ARV rollout planning at an advanced stage.
Extension of social security grants, through the Child Support Grant and other grants targeting vulnerable groups
School textbooks for poor schools
Improving core Home Affairs services to citizens, including rollout to rural areas

The Committee focused on the potential efficiency and effectiveness of use of additional funds by the target departments.

3.1 Department of Social Development
The Department submitted that social security accounts for more than 90 percent of spending in the joint national and provincial social development budget, as it is presently the government’s most effective poverty alleviation measure. Social assistance is the main cost driver in the sector.

The Department outlined the 7 categories of social assistance, and explained that most of these are means tested. The challenge with regard to these grants is one of capacity, especially in provinces. The policy priorities over the medium term include:
Further extension of the social assistance programmes.
The progressive strengthening of the social security system, in line with the recommendations of the Taylor Report.
The establishment of a National Social Security Agency. The Bill that will effect this is still before Parliament. Implementation should not be rushed.
HIV/AIDS
Community development and poverty alleviation.

The sector has had a rapid increase in the uptake of grants. The main reasons for increases are greater awareness, regulatory changes such as the disability assessment approach, increased collaboration between the Department and the Departments of Home Affairs, Justice and Health, the phased extension of the Child Support Grant eligibility from 7 to 9 years (target 14 years) and improved access mechanisms, for example panels for the Disability Grant.

The Department will work with the National Treasury to contain grants to affordable levels and has developed a new model to deal with this effectively. It has also taken action to reduce fraudulent social security claims. This will be done in collaboration with the Scorpions and other departments. In addition the Department has a monitoring unit now and will do a second round of grant impact monitoring on the lives of children.

The Department, however, acknowledged that the sector has been allocated a reasonable increase, especially with respect to social security. An additional R2.1 billion has been allocated in the 2003/04 financial year for the unanticipated growth in grant beneficiary numbers, but this might still be inadequate. Including the backlogs, the Department is projecting an estimated shortfall in funding for social security of R3.6 billion in the current financial year.

The challenge facing the Department now is to clean up its own systems to make its own work more efficient. The increase in administrative and related costs, especially as regards human resources, has been disproportionate to the increase in the number of beneficiaries. Lack of capacity leads to numerous problems and there is the need to monitor compliance, commitment to the payment system by people, and other personnel matters. The Department presently spends approximately 7 percent of the budget on administration.

The Department highlighted that the phased extension of social security has been beneficial, since it allows for growth in capacity. In the next budget cycle, the Department will present a business plan to Treasury for Social Welfare Services.

3.2 Department of Home Affairs
The Department of Home Affairs submitted that it seeks to offer better service delivery to the Social Services cluster. Its presentation highlighted service delivery constraints and its turnaround strategy for improvement of service delivery. The Department of Home Affairs summarized its overall contribution as follows:
Provision of identity documents to allow citizens to vote and access a range of services of the public and private sectors;
Provision of birth certificates to allow citizens to access Child Support Grants and the Department to feed into the collection of national statistics;
Issuing of travel documents to allow international travel, and immigration and emigration to and from South Africa;
Repatriation of undocumented foreigners to their countries of origin.

The Department is currently challenged by growing expectations from citizens; the exponential growth of foreign visitors; the need for effective expenditure on modernized infrastructure, equipment and systems, including the upgrading of information technology infrastructure; the need to improve service delivery to the public, especially in the rural communities; staff shortages and the need for improved efficiency in the provision of marriage and death certificates.

Critical areas of intervention have been identified by the Department to accelerate service delivery. The turnaround strategy is focused on three pillars, which are:
People: Issues include volunteers, new establishment, filling of vacancies and the establishment of a Department of Home Affairs Academy. The Department has advertised approximately 349 vacancies and hopes these will be filled by the end of the financial year. It currently operates with volunteers from time to time, which is not ideal, and would require funding to make it workable.
Infrastructure: Issues include new buildings for headquarters and other offices, equipment, mobile units, transport, opening of foreign offices, as well as upgrading of buildings and ports of entries
Technology: Issues include the modernization of IT infrastructure, rollout of the basic accounting system to regional offices, logistical systems and movement control systems, providing computers in offices and the upgrading of buildings.

Since April 2003 the Department has conducted a successful identification document campaign, with millions of identity documents, birth certificates and passports being issued. It has also repatriated 54 650 undocumented foreigners and processed over a thousand asylum applications, as targeted, and attended to nearly 700 refugees appeals before the Refugees Affairs Appeal Board. The Department took the Committee through its adjusted budget and attributed the need for rollovers to the fact that some projects could not be completed.

Committee concerns:
Rural services: The Committee referred to page 57 of the MTBPS, which expresses a commitment to the improvement of core services to citizens, especially in rural areas. However, Home Affairs services are poor in marginalized communities. There is no capacity to effect this improvement. Rural areas have poor infrastructure, in some cases no computers. The Department acknowledged that this is an extremely costly exercise and will take time to roll out.

Citizens without identification documents: Many people, most of who come from marginalized communities, don’t have identification documents. This is problematic, especially when seeking employment. The Committee enquired as to whether there are plans to work more closely with other Departments (especially Education and Health) in this regard. In response to this, the Department explained that it goes to schools to issue IDs and birth certificates and uses mobile units to get to rural areas. The Treasury has approved a budget for 67 proper mobile units next year. Presently, there are about 357 mobile units, which are inadequate in number and do not have proper infrastructure. With the new mobile units it will be possible to load people’s details onto the system in real time electronically. Multi-purpose community centers are also providing services in rural areas where the Department is thin on the ground. The population register however remains a problem and the Department was not in a position to state the number of South Africans who are presently undocumented.

Funds for detention centres: The Department confirmed that the national government is the sole source of funds for detention centres.

Upgrading of IT systems: The IT systems of the Department presently do not meet the growing capacity required.

Sources of influx: The committee enquired as to where the influx at Lindelani comes from and the response was Mozambique, Zimbabwe and other neighboring countries as South Africa is more economically advanced than most of these countries. The nature of South Africa’s borders is also a problem and on average approximately 150 000 people are repatriated every year.

3.3 Department Of Health
The Department of Health submitted that the MTEF has not been sensitive enough to the needs and challenges of the health sector. Insufficient resources are being allocated to the sector to meet increased demands. The Department of Health outlined a number of concerns.

The Social services cluster consists of three main players (Health, Education and Social Development) and a certain competition for funds exists between these players. The increased allocations to Social Development and Education have disturbed the previous balance within the cluster. The Department claimed that the Health sector got less as the other two sectors got more, especially Social Development.

The Department argued that the Health sector’s service workload has increased, and includes the building of 700 clinics, 60 percent of which provide Primary Health Care. The Sector has had to deal with expanded service delivery and extended care to marginalised societies. This is not sustainable unless backed by appropriate funding.

Due to HIV/AIDS and poverty, amongst other things, increased submissions and increased gravity of illness have dramatically increased the demand on resources in the health sector. People have also become more sophisticated and demand better services.

Committee concerns:
Integration more important: The Committee commented that the departments in the Social Services cluster should not be focused on competition for funds, but instead on integrating to complement each other’s work. The Department responded that there is now a conscious decision by the departments to integrate services. This comes on the back of the mid-1990s resolution to do things individually, thus duplicating services. The Committee wanted to know what informs the Department’s time horizon when making comparisons. The response was that these are based on information on the Department’s database.

As regards relative funding in the social services cluster, the Committee notes, as is documented in this report (under 1.1 above), that the Health sector’s share of the total budget remains constant, and indeed rises slightly in the outer projection year. The main redistribution within the social sector is an increased share of the budget to social development at the cost of the education sector. This does not affect Health.

3.4 Department of Education
The Department of Education pointed out that the performance of the Education sector as a whole is a critical factor in achieving Government’s key goals of increased employment and stronger economic growth. The Department was of the opinion that its policies are strongly geared towards these key objectives, as are the current priorities of the sector. It argued further that major progress had been made in achieving these goals. This progress has been supported by strong growth in the budget of the Department.

Key areas of improvement include:
Flow-through rates in the schooling system
Growing further education and training (FET) enrolment
Improved access to higher education
Quality in schools
Labour market relevance

Government is improving its understanding of why certain areas of change and transformation have proved to be more difficult to achieve. This includes the impact of the intergovernmental system on equity in per capita allocations.

Committee concerns:
Constraints on university access: Committee members expressed concern that students who qualified for National Student Financial Assistance Scheme (NSFAS) bursaries were denied access to universities by the high initial registration fees. The Minister of Education shared this concern and invited proposals.

3.5 Non-governmental Submissions
3.5.1 Human Sciences Research Council (HSRC)
The HSRC's submission contained highly informative statistics on employment sources and patterns in the past 10 years:
Total employment in public, private and informal sectors was falling until 1997, where after there was a sharp rise to 1999 then a plateau.
Formal sector employment has been growing at the same rate as GDP, an unexpected finding.
The decline in public sector employment is drawing down the average.
Unemployment is rising in all race groups but whites.

The HSRC contributed a calculation of what would be required to meet the Growth and Development Summit’s resolution to halve unemployment by 2014. This would require 4.1 million net new jobs, or 372 000 annually. On present trends only 1,8 million are possible, so intervention is needed for remaining 2.3 million jobs. At a low estimate of R50 000 per job, this would cost R100 billion to do through public works/procurement. The HSRC recommends that government investigate the employment potential of providing social security and social development services.

3.5.2 Institute for Democracy in SA (Idasa)
Idasa endorsed the MTBPS as pro-poor, saying the division of revenue supports the interests of the poor, and the increased allocation to provinces and local government are very positive. However, it noted challenges. Idasa questioned whether the provincial equitable share will get to intended beneficiaries. It noted that of R1.1 billion targeted for HIV/AIDS in 2003/04, only 32% was actually spent by provinces on HIV/AIDS. It also questions provinces’ absorption capacity for HIV/AIDS allocations.

SECTION 4: ECONOMIC GROWTH AND EMPLOYMENT
In considering this theme, the Budget Committee heard submissions from eight national government departments, most from the economic services cluster, as well as civil society organizations.

These Departments were called to present because of their key roles in enabling government development policies, including job creation, a stable fiscus and black economic empowerment. It corresponds directly to the MTBPS expenditure priorities of:
Renewed focus on employment creation through the expanded public works programme
Increased infrastructure spending
Promoting broad-based black economic empowerment (BEE) – a new budgetary priority.

4.1 Department of Public Works (DPW)
Due to time constraints, only the Extended Public Works Programme (EPWP) was presented and discussed. The part that was not presented included a discussion of the DPW mandate, key achievements, current budget and contribution to employment and growth. The presentation on the EPWP explained progress in the formulation of the plan, the nature of interventions in the economic, social, environmental and infrastructure sectors. It also explained the training component of the EPWP.

Committee concerns:
SETA Capacity and other training issues: A number of members expressed concern about the capacity of Sector Education and Training Agencies (SETAs) to support the EPWP in the way that is envisaged. Concern was expressed about how employment and training is combined in the EPWP, because the poor can often not afford to study full-time.

Measurement of benefit: Concern was repeatedly expressed about how quantity of job-opportunities is measured. Many departments still list the number of people participating, rather than the generally accepted number of person-hours of work created.

4.2 Department of Water Affairs (DWAF)
The DWAF argued that its core business in water and forestry address economic growth as well as job creation. DWAF’s water policy management strategy is explained in the National Water Resource Strategy that will be finalised early next year. In the short term the DWAF is working with Agriculture to support and expand the role of black farmers in the irrigation sector. DWAF is also involved in a number of infrastructure investments to provide water for mining and agriculture. At local level DWAF has moved from the direct provision of water services to supporting and regulating the way municipalities provide water services. In forestry, DWAF expressed its immediate challenge as completing the State’s exit from the direct management of forest plantations. Lastly DWAF also outlined its involvement in a number of external initiatives such as the Lesotho Highlands project and the establishment of an African Ministers Council of Water (AWCOW)

Committee concerns:
Local Level Capacity: Members expressed concern about the lack of capacity in local authorities and water boards to deliver services. They also expressed concern about the unwillingness for these bodies to learn from each other. The DWAF pointed out that it was aware of these challenges, but had tried to encourage this process.

Tariff structures: The Committee also expressed concern about the impact of high water tariffs on the poor. The DWAF pointed out that infrastructure investment needs of the relevant Water Boards often impacted on these tariffs, but that the Minister is monitoring these.

4.3 Department of Transport (DoT)
The Department of Transport explained the key role that transport infrastructure plays in economic development. It listed its key interventions as:
Ensuring that 10% of its projects are executed using labour intensive methods in terms of the EPWP
Development of tourism routes
Ensuring broad-based BEE by addressing the formation of cartels
Growth in public transport investment
In the rest of its submission DoT listed greater detail on each of these interventions

Committee concerns:
Job creation: Members were concerned at the stated aim to make 10% of roads projects part of the EPWP. The Department pointed out that the shifting to labour intensive methodologies would take time and that this target will be increased in the future.

4.4 Department of Agriculture (DoA)
In its presentation the DoA explained its initiatives in the following key policy areas:
Rural development and Urban Renewal
Integrated food security and nutrition
Agriculture natural resources use
Marketing and information support
The rest of its submission dealt with the policy, resource and institutional challenges that it faces; key challenges in the agriculture sector and key growth and employment trends in the agriculture sector.

Committee concerns
Transformation in agriculture: The Department of Agriculture pointed to the impact of adverse global conditions on a number of transformation initiatives. The pressure that these conditions exert on established farmers makes them less conducive to participation in number of key departmental activities. The Committee itself expressed concern about the extent to which emerging farmers are supported after the transfer of land. Members pointed out the persistent shortage of finance opportunities to emerging farmers. The Department of Agriculture indicated that the Land Bank was providing more such credit, but that the Bank needed government support in order to further expand its activities. The Department is in discussion with the Treasury in this regard. The Department pointed to the need for the private sector to share in the investment costs in farm-worker equity schemes. While a number of these schemes have succeeded, others did not provide farm workers with full value for their investment.

Food security: The Department raised the lack of capacity of NGOs in assisting in food security programs and the need to support these NGOs. Local governments also lack capacity to take into account long-term agriculture and food-security needs in zoning.

4.5 Department of Trade and Industry (DTI)
In its presentation the DTI explained its aims as being:
Providing leadership to the SA economy
Acting as catalyst for transformation and development
Supporting the goals of growth, employment and equity
Providing an enabling environment for investment and trade
Building an adaptive economy for accelerated growth, employment creation and greater equity by 2014.

In the medium term its priorities will be to promote an integrated and advanced manufacturing sector, promote and facilitate fair trade, regulate the enterprise environment, promote diversification of export products, ensure a fair, competitive and efficient market-place, promote the economic empowerment of historically disadvantaged individuals and promote the economic development of all regions of SA, the Southern African Development Community (SADC) and Africa. Subsequently the DTI explained how its budget supports these aims and strategies and how its monitors and measures performance.

Committee concerns:
DTI role in job-creation: The Committee expressed concern about the limited role of the DTI in pursuing job-creation in the economy. It was felt that the DTI could be more proactive than just ‘enabling’ business activity.

DTI capacity: Concern was expressed about the capacity of the DTI to monitor critical economic developments such as employment and sectoral growth trends.

4.6 Department of Mineral and Energy Affairs (DM&E)
In its presentation the DM&E listed its medium-term strategic objectives as being:
Development and maintenance of administrative systems to monitor the targets set by its various Charters;
Contribute to the sustainable development of minerals and energy resources;
Ensuring safe and healthy working environments in the minerals and energy industries;
Redressing past imbalances and promoting equitable redistribution of benefits from these industries;
Implementing polices to ensure the optimal utilisation of mineral and energy resources.

In the rest of its presentation the DM&E explained its participation in the EPWP, its initiatives to improve the regulatory environment in the industries under its jurisdiction, its initiatives to accelerate learnerships and skills development and its BEE strategy.

Committee Concerns
DM&E Capacity: The Committee expressed concern at the ability of the Department to monitor the implementation of legislation, regulations and charters that they have put in place over the last few years. This could compromise the efficacy of a number of key achievements such as the Mining Charter.

Services to the poor: The Department said that limited budgets and the effect of the Rand exchange rate on the cost of infrastructure limited its ability to rollout its electrification program and eradicate persistent backlogs.

4.7 Department of Environmental Affairs and Tourism (DEAT)
In its presentation DEAT expressed its key focus areas over the MTEF period as being:
Creating conditions for sustainable tourism growth and development;
Promoting the conservation and sustainable development of our natural resources;
Protecting and improving the quality and safety of the environment;
Promoting a global sustainable development agenda;
Transforming the Department, public entities, and sectors under its responsibility.

In the rest of its presentation, DEAT outlined their achievements and service targets in each of these areas and explained the spending options that they presented to the National Treasury.

Committee concerns
BEE and rural development: DEAT claimed that while they trained large numbers of black tour guides, private sector operators were generally hesitant to employ them. The Committee felt that more could be done in providing learnerships in the tourism industry to especially people in rural areas. The Committee expressed concern about the extent to which rural communities were benefiting from growth in the tourism sector. The DEAT explained that its strategy was to expand tourism to these communities by expanding the flow-off from established routes. Members felt that more should be done in this regard.
Members expressed concern that DEAT was not exploiting all opportunities to grow tourism exploiting and pointed to the possibility of exploiting historical links with the Anti-Apartheid Movement, the promotion of local tourism and the possibility of exploiting the rural links of many urbanites.

4.8 Department of Labour (DoL)
The DoL presentation explained historical developments in the South African labour market and government policy interventions since 1994. Subsequently it listed the post- 1994 achievements in the labour market which included:
Greater industrial peace and stability
Better social dialogue through NEDLAC
Progress to achieving employment equity
Greater workplace safety
The extension of unemployment insurance (UIF) to domestic workers
Better legal protection of vulnerable workers.

The DoL explained that structural unemployment persists despite its interventions, but that the agreements reached at the national Growth and Development Summit could go a long way towards addressing these.

4.9 Civil Society submissions
4.9.1 Chamber of Commerce of South Africa (CHAMSA)
CHAMSA agreed that the policies and strategies outlined in the 2003 MTBPS are broadly supportive of growth and employment in both the long and short term. Specific points made included:
CHAMSA warned that the increasing complexity of the tax system could threaten compliance.
CHAMSA also pointed out that delays in the comprehensive review of taxation of retirement funds should not prohibit immediate adjustments to this tax.
It pointed out the drop in costs of financing (falling interest rates) and imported capital goods (the strong rand) may make labour a relatively high cost input, thus putting employment under further pressure.
It also expressed concern about the inflationary impact of administered prices.
It pointed out that if a higher deficit and expansionary budget is to be used a counter-cyclical tool, then it should come down as the economy recovers. The MTBPS projections do not however reflect this.

CHAMSA also argued that the higher Public Sector Borrowing Requirement that results from the higher deficit, risks crowding out the private sector and pushing up interest rates. Alternative sources of revenue like privatisation proceeds could offset this trend, but the MTBPS does not report on progress in this regard. CHAMSA raised a general point around the increasing reliance on local and provincial governments for the implementation of key programmes while the capacity of particularly the former was suspect.

4.2.2 People’s Budget
While no written submission was made available to the Committee, the People’s Budget presented analyses from their proposals for 2004/05 Budget. The People’s Budget repeated its argument that the introduction of a Basic Income Grant could drive consumer-led growth. They also argued that government could free up funds for social spending by relaxing the TAX-GDP ratio without impacting on macro-economic stability. The People’s Budget also proposed a multi-tiered VAT system that would increase more basic foodstuffs while increasing VAT on luxury items. The People’s Budget expressed concern about the slow implementation of the Land Reform programme. They also expressed the opinion that the eligibility requirement for housing grants should be further relaxed.

4.2.3. FEDUSA
FEDUSA expressed the need to investigate how the impact of external shocks on our economy could be softened.

4.10 Overriding Committee concerns
Capacity to implement progressive policies: The over-riding concern of the Committee was with the ability of departments to implement the progressive policies that have been formulated. The Committee pursued the lack of results, implementation and capacity for implementation in a number of departments. In some cases this was linked to the hesitancy of the private sector (such a the provision of credit to emerging farmers) and doubt as regards in its own and its partners’ lack of capacity.

Policy effectiveness: The Committee also grappled with ‘facilitating’ role adopted by some Departments (specifically DOA, M&E, DTI). The Committee struggled to reconcile these approaches with the more expansionary and interventionist role outlined for government by the President and the Minister of Finance.

Financing: A number of Departments expressed concern about the application of targeted transfers (both conditional grants and ring-fenced portions of the equitable share) for other purposed by the recipient provinces. More generally departments such as Agriculture were concerned about the extent to which provinces fund services to support national interventions such as the Land Reform programme.

Satisfaction with overall framework: The committee was generally satisfied with the macro-economic framework pursued by government and was generally not too concerned with the critical points made by Unions and Community Service Organisations in this regard. Its focus was more on the likely impact of expenditure allocations, through departmental activities, on the realization of projected growth.

SECTION 5: RURAL DEVELOPMENT AND URBAN RENEWAL
The Committee’s hearings under the Rural Development and Urban Renewal theme corresponded with the MTBPS priorities of:
Continued rollout of free basic services and investment in municipal infrastructure
The committee also considered submissions that could cast light on the rural and urban dimension of job creation and development. It heard submissions from the Departments of Provincial and Local Government, Housing and Land Affairs, and several non-governmental organizations. This report focuses on the implication of the MTBPS expenditure allocations for this theme, in line with the Committee’s mandate.

5.1 Department of Provincial and Local Government (DPLG)
The Department of Provincial and Local Government submission was restricted to its Urban Renewal and Integrated Sustainable Rural Development programmes (in line with the Committee’s request). The Department submitted that the programmes (URP and ISRDP) were launched in February 2001 by the President.with the aim of conducting a sustained campaign against rural and urban poverty and underdevelopment.

In its approach, the Department identified 21 nodes (13 rural and 8 urban) to implement the programmes over a 10 year phased implementation period. There is an emphasis on partnerships and community participation and the use of integrated development plans (IDPs) to inform planning and investment decisions across all spheres of government. The Department has piloted approaches to intergovernmental fiscal reengineering and to inter-sectoral and inter-sphere coordination and integration. The Department has attempted to be innovative, and seek tailored approaches to planning, design, implementation and financing.

There have been a number of challenges:
Local Government, which is supposed to be a front-line player, was only two months old when the nodes were announced, and thus municipalities did not have comprehensive municipal plans.
Resources from the National and Provincial Government to support implementation were not lined up.
Departments had already made their medium term resource commitment.
Municipalities were only busy with interim IDPs, many of which did not feature the two programmes.
Anchor projects, which were to be used to demonstrate progress, were wish lists. There is a need to work closely with the nodes to identify anchor projects and align them to resources.

The actual progress so far:
All 21 nodal municipalities now have fully fledged IRDP and have improved.
The two programmes have a lifespan of 10 years and the department needs to develop a shared appreciation of this unfolding trajectory. This requires that the assessment and expectations of progress should be mindful of the remaining years and not make pre-emptive conclusions based on the formative years of the programmes. There is a need to understand that the initial years were spent on putting in place the necessary institutional capacities and inter-governmental mechanisms on which the two programmes rest.
Coordination structures have been established across all three spheres of government
The programmes are presently in the implementation and delivery phase, and rates of implementation have remained constant at 60 percent.
There are 155 anchor projects, spread across the 13 rural nodes. There needs to be an interactive process to assess the practicality of anchor projects. The anchor projects have decreased from 260 as a result of a more programmatic reprioritisation, focusing on the viability and impact of anchor projects. An estimated 357 permanent jobs have been created and 51 769 temporary jobs of varying periods.

The Department has planned the following for 2003/04:
Putting in place community development workers at local level.
Effecting a skills development programme in the nodes. The DoL is busy with a skills audit in all 21 nodes.
Creating proper support for key anchor projects, which will be divided into 10 sectors.
Aligning and consolidating IDPs and PGDS across the three spheres.
A sustainable information management system is critical if the programs are to succeed.

5.2 Department Of Housing
The Department of Housing submitted on Urban Renewal and Rural Housing Development.

Urban Renewal
The department quoted the President, in his 2002 address, announcing the government’s intention to increase densities in urban areas; address the rental demand in urban areas and facilitate inner city regeneration. Accordingly the Department’s strategy has two main components: the social housing policy and a capital programme to finance projects.

The social housing policy is meant to address the need for sustainable housing institutions to develop, hold and administer the housing stock. The policy will facilitate intervention to ensure sustainable, well-managed institutions. The main components of the policy are an accreditation process, three funding grants (pre-establishment, establishment and capacity building grant), the social housing institutions, the obligatory risk insurance scheme and the Social Housing Act. The social housing institutions are in financial crisis and the Department is working on a rescue plan.

The capital programme will finance projects in the urban medium density housing development programme through a capital grant to accredited institutions. It will include a focus on developing well-located land and making optimal use of existing infrastructure in urban areas. It aims to maximise private sector involvement (in the form of credit provision) and providing as wide as possible a range of options to address needs in urban areas. It further seeks to provide short-term accommodation, although ownership could be considered later. The programme is not for people with no income – it’s for people with a sustainable income. However, the definition of the target group is still a problem. The Department will seek partnership with the Department of Land Affairs and municipalities to implement the programme. The time frame is linked to social housing policy processes, with implementation starting on 1 April 2004, depending on legislative processes.

Other Urban Renewal initiatives include various projects that were financed through the Human Settlement Redevelopment programme. The Human Settlement Redevelopment Programme has supported 55 urban renewal projects to the value of R143 Million.

Rural Housing Development
Rural housing development is a national priority. Housing assistance through the housing subsidy scheme takes a variety of forms -- project linked subsidies; rural subsidies; individual subsidies; people’s housing processes -- and credit is augmented by the RHLF. Altogether 1091 projects have been undertaken, representing project-linked and rural subsidies and comprising approximately 28.7 percent of all projects compared to urban oriented projects. The Human Settlement Redevelopment Programme was also used to finance 17 rural development node projects to the value of R45, 5 million.

Committee concerns
Flow of funds to projects: With regard to the question of access to finance, the Committee suggested an instalment-based disbursement, instead of an upfront payment. The Department responded that it would provide 50 up front, and beneficiaries could decide whether to be paid the remaining 50% immediately or over time.

The Committee asked about housing provision in rural areas, whle noting that this was not necessarily the top priority need in such areas, and suggested that the department allocate resources to sustainable ruraldevelopment.

5.3 Department Of Land Affairs
The Department of Land Affairs reported that with regard to restitution and urban renewal, about 80 percent of land claims lodged are urban and about 6 875 land claims to the value of R600 Million were finalised over the last six months. Altogether 17 999 households will benefit and 265 778 hectares of land are involved. The Department gave a few examples of urban claims that have been settled.

Rural land claims constitute about 20 percent of claims lodged, most of which are community claims involving a large number of hectares, households and land parcels. Challenges of land restitution include the cooperation of municipalities for land acquisition, bulk infrastructure, technical assistance (including human, capital, funding and other support) and capacity building for community structures and municipalities. Municipalities in rural areas cannot work effectively with the Department to further its objectives because of capacity and resource problems.

The challenges of the Department include inadequate resources for land restitution and land tenure reform. The 2000 ministerial policy directive -- that 30 percent of agricultural land should be distributed in 15 years -- means that the Department needs to redistribute 1.6 million hectares of land per annum. In order to achieve this, the Department needs R2.3 billion per annum, based on a conservative price of R1400 per ha. However, the Treasury has only availed about R500 million for this purpose.

Committee Concerns
Level and settlement rate of rural claims: During discussions, it surfaced that challenges are greater when dealing with rural claims rather than urban claims, e.g. no documents, resource constraints, etc. In addition, reporting systems for rural restitution provides poorer information as opposed to urban reporting.

Progress achieved: The Committee noted that the Department had made progress and can concentrate on outcomes and better benefits. However, it was suggested that the Department reconsider the hectares it has to redistribute, because its current target is not realistic, either financially or logistically. The Department does not have alternatives in respect of the non-availability of financial resources. The Department reported that it will look at options during its strategic planning processes.

Cash or kind: During discussions, it surfaced that land restitution beneficiaries mostly opt for cash rather than land and that the Western Cape office is being restructured to have a financial compensation office. The Department is aware that the financial compensation office is not ideal but it will have to do, especially for the elderly and the disabled. Moreover, in most cases people are so poor that they usually opt for money rather than land. There was concern about the effect this has on the government’s poverty alleviation and job creation efforts. The Department stated that its annual report contains more information in this regard

5.4 Non-governmental submissions

5.4.1 The Independent Development Trust
The IDT submitted that there has been a shift in programme profile, with a shift from exclusively national programmes to 60 percent in provincial departments and drifting towards rural municipalities. The challenge with regard to this is that there are no roads, no access to water, sanitation and other resources, etc. The IDT feels that the National and Provincial Government should support municipalities in planning and implementing their resources to achieve the desired outputs. Processes in rural development are challenging. There is a need to generate better alignment between local priorities and resources and a need to understand what the inputs of Treasury are directed at, and to understand whether this addresses the challenge.

Committee concerns: The Committee enquired about economic rural development and job creation, and the answer was that economic rural development does not necessarily require more money, but more time and community interest because these involve people-oriented processes. Community interest is very important and people should not just see projects as government’s babies, they should own the projects.

5.4.3 Others
The Development Bank of South Africa and the South African Local Government Association submitted information to the Committee on their activities, with the SALGA submission focusing on a case study of a successful urban renewal programme. Information on the submissions is not included in the report since it did not speak directly to the effectiveness and efficiency of proposed expenditure against government priorities.


SECTION 6: INTERNATIONAL RELATIONS AND PEACE SUPPORT IN AFRICA
The Departments of Foreign Affairs and of Defense made submissions to the Committee, of which a central element was engagement in Africa. This report highlights the implications of the MTBPS expenditure allocations for government priorities as expressed in the MTBPS regarding:
Promoting peace in Africa, including South African National Defense Force (SANDF) peace support, and regional trade and development.

6.1 Department of Foreign Affairs
The Department of Foreign Affairs submitted that its achievements 2003 relate to the African Union, NEPAD, the SADC and contribute to economic development (including a significant increase in tourism, exploring new markets for trade and investment purposes, etc.) and multilateral relations. In 2004/5 the Department’s activities will include or support the African Renaissance, politics and security, sustainable development, structured bi-laterals; international conferences; public diplomacy, support services and state protocol. The Department provided considerable information on its structure and budget, but little input on the MTBPS. It provided information on property procurement plans.

Committee concerns
Foreign properties: In response to a Committee enquiry as to whether properties acquired abroad would be included in the government asset register, the Department said that the forthcoming Foreign Property Bill would address this. The Department is responsible for all foreign properties abroad, but is not clear how foreign properties abroad will be dealt with, as market structures differ. The properties will be in the Department’s own asset register.

African engagement: However, with regard to the MTBPS priority of African engagement and development, the Department said in response to a question that the African Union (AU) framework is a very strong basis for building capacity. The Committee asked whether South Africa’s contribution to Burundi is just individual, or whether it will be capacitated by the United Nations to deal with the situation more effectively. The Department responded that joint cooperation frameworks between countries (such as the Burundi initiative) in a structured and professional manner are important. The Department should also involve other departments such as the Government Communication and Information Service (GCIS), Defence, etc. and an interdepartmental framework would need to be arranged to ensure this. Capacity needs to be improved to create provisions and support to Africa.

6.2 The Department of Defence
The Deputy Minister of Defence and officials’ submissions to the Committee noted the SANDF’s increasingly and unprecedentedly intensive role in SA's intra-African relations. One of the four major themes put forward by government’s 10-year review document is development of SA’s policy in relation to the AU, NEPAD, and improving the regional environment.

The Deputy Minister noted that the Defence Department straddles the Justice and Protection cluster and the International Relations cluster, with:
Ad hoc internal crime prevention deployment in SA:
A SAPS request that Defence assist it during the general election.
3 SANDF battalion groups made up of some 3000 troops deployed in five African countries.
Early warning and diplomatic initiatives: thus far the latter are unfunded.
Peace support, following agreed settlements
And, potentially, support during post-conflict reconstruction.

The core elements of the Defence Department’s presentation centered on the effects of unforeseeable and unavoidable deployments on its long term military effectiveness and readiness; the limits of reprioritsation in responding to such expense; and the need for a policy-appropriate contingency budgeting modality for the military. This should conform with international best practice.

Unforeseeable and unavoidable deployments were ordered by the President in the national interest in two regions of the DRC, as well as in Burundi and in Algeria. Troops in the DRC and Burundi were reported as functioning well in tough conditions and being respected locally, without loss so far, though with some wounded. Their problems with depleted stocks, from waterproofing to earthmoving equipment, reflect earlier reprioritsations. Fiscal constraints and corresponding reprioritsation has eaten into the maintenance of operational capacity, prevents restaffing of an aging force, and limits the available combat ready units for unforeseen situations.

Committee Concerns
Erosion of capability: Committee members expressed concern at the erosion of military and peacekeeping capability. The Chair noted that the committee took the issue of the shortfall and unpredictable in-year expenditure demands seriously, as a constraint on policy, and will arrange a forum to deal with the issue.

SECTION 7: Justice and protection services
Under this theme the Committee heard submissions on the impact of the MTBPS expenditure allocations on the effectiveness and efficiency of activities related to the MTBPS expenditure priority of:
Strengthening the Safety and Security sector, through the sector policing strategy and a new Protection and Security Services Division for border post policing. Child Justice Centres are provided for.
The management of the Order Trust, now containing R464 million, is now done by a public-private partnership.

The Integrated Justice Services cluster has seen its MTBPS allocation grow by 8.6%. The testimony of the departments of Justice, Safety and Security and Correctional Services in 2003 to the Committee contrasted strongly with their coherent joint presentations in 2002, when they set out the Integrated Justice Services (IJS) plan, with planned outcomes and distribution of resources according to that. The Justice Department representative this year in fact called for non-competitive planning, saying the cluster should have submitted a joint plan to Treasury, and that they need to develop an assessment tool for sector based performance. The Integrated Justice Services committee now includes Treasury and the Department of Social Development. In 2003, only the Safety and Security submission built on the previous year’s undertakings and the joint plan.

7.1 Safety and security
The Minister of Safety and Security and SAPS officials told the Committee that they felt their key needs were being addressed in the MTBPS. Their allocation provides for 3000 additional personnel in 2004. The funding 2002/3-2006/07 provides for 33 560 more personnel which is as much as present training capacity could handle. The Minister added that the SAPS training colleges were now full and the Department was working on finding additional places. SAPS spending are allocated 78% to personnel and 22% to operations, a good balance of staff with sufficient equipment and resources.

The purpose of the new Protection and Safety Services division is to enhance and improve coverage at border posts, specifically to counter organized crime and counter past inadequacies. Pilot projects for this are Johannesburg airport, Cape Town railway station, Durban harbour, and the Beit Bridge land border.

Committee concerns
Calibre of personnel: Are staff educationally qualified to function adequately? The Minister responded that SAPS was modernising, and he was satisfied with the quality of present intake, an improvement, especially on the "kitskonstabels" inherited from the previous regime.

Woman and child protection: Is the increase in funding adequate to needs? The Minister responded that there are now 46 fully resourced woman and child protection units. These are still not enough to meet the problem, and the Department is conducting analysis to increase such units.

7.2 Department of Justice
Current Department of justice priorities are corporate governance, re-engineering of core services, and giving effect to legislation, Cabinet and court decisions. Cross-cutting and complex new legislation is being introduced. The Children’s Bill and the Child Justice Bill are examples. R54 million of the R100 million allocated to the Department is allocated to services benefiting vulnerable groups. Cluster issues include the need to develop and use consistent indicators for IJS assessment, improve the use and availability of statistics, and to create synergy in the budget process, for example by submitting a joint plan to Treasury. Increased success in policing means more strain on the justice system, and down the line on correctional Services. Poor security made equipment such as computers and fax machines difficult to keep in rural areas.

Committee concerns:
Implementation capacity: The Justice representative noted that the Department struggles to fill posts, which with current procedures takes considerable time. So in a sense the department shows savings on personnel, but at the expense of service.

The accounting system: The Department representative said that Justice is the last Department which does not yet have the new computerized public service accounting system. It is in fact a threat that the department does not have a unified system, or universal connectivity, with some areas having no telephones or no security to prevent theft of computers if they received them. The absence of a unified financial administration system is a threat, and the R800 million budgeted for IT had to be reprioritized and cut by half, so IT rollout is delayed. However, management of the Order Trust, now containing R464 million, is now done by a public-private partnership.

Adequacy of resources to implement the Children’s Bill: The Justice representative said that Cabinet gave instructions on the bill without reference to the financial implications. The department is reprioritizing to find resources to implement the Children’s Bill.

7.3 Correctional Services
The Department of Correctional services complained that it did not get budget allocations in line with its projections of the prisoner population (extrapolating from trends to date). It also requested R2,9 billion for construction of new prisons. Treasury requested a feasibility study comparing the implications of using PPPs as opposed to the usual method. Accordingly there has been a rollover of R200 million.

Committee concerns
Underspending: The Committee noted that the department underspent its allocations for 2003/04. The Department said this was because it lost skilled personnel to opportunities abroad. The Committee was not satisfied with projected expenditure of well over 80% on personnel, apparently also with regard to the requested new prisons. It concluded that the Department’s presentation and explanations were unclear.


SECTION 8: COMMITTEE RECOMMENDATIONS
The Committee sees its deliberations around the MTBPS as supportive of its greater role during Parliament’s consideration of the Medium Term Budget in February/March. The Committee intends to follow up with the relevant Departments the issues raised in this report, and requests prompt responses by Departments to this report. The issues raised during the hearings help the Committee prepare for that phase, where it will follow up on issues raised in this report, and focus its recommendations on influencing the Government’s medium term expenditure policies. The recommendations below should be seen in this light:

Recommendations
The Committee recommends that Parliament strengthen its oversight role and its capacity to perform oversight effectively. This must be done through the work of Portfolio Committees and of the JBC, which will monitor the outcomes of intra-department expenditure allocations for capacity development. The Committee will also follow up on the implementation of policies through its mandate to monitor in-year actual spending.
The Committee recommends that Parliament pay particular attention over the medium term to Departments’ effectiveness in implementing policies which support the key MTBPS priorities of growth, job creation and Black Economic Empowerment. Parliament should ensure that Departments have in place monitoring systems both to ensure that their implementation supports these policies, and that such implementation is having the desired effects, to enable timely policy adjustments.
The Committee notes the significant increase in allocations to HIV/AIDS and recommends that the relevant Portfolio Committees monitor the fiscal room and capacity in the Health and other sectors to take up additional expenditure responsibilities
The Committee notes the fact that the Department of Defence’s resources are critically overstrained by its recent deployments in peace support in Africa, and that inadequate funds are eroding its readiness at home. The Committee recommends that the JBC will assist the Portfolio Committee on Defence in reviewing the allocations to the Department of Defence.
The Committee recommends that the Integrated Justice Services Committee investigate means of upgrading the management and accounting capabilities of the Justice Department, and the planning and projection methods of the Department of Correctional Services.
The Committee recommends that it Provincial budgets be examined to ensure that the policy priorities of the MTBPS are adequately provided for.
The Committee recommends that public hearings be held by the JBC to examine the quality of spending of the entire government budget.
The Committee recommends that ongoing attempts to incorporate the IDPs in the budgeting process should be strengthened.
The Committee recommends that the recommendations of the People’s Budget be studied and that the JBC further engage with the organisations party to the People’s Budget, as well as other bodies of civil society.

DEPARTMENTS, STAKEHOLDERS AND CIVIL SOCIETY BODIES WHICH MADE ORAL PRESENTIONS BEFORE THE COMMITEE:

1. DEPARTMENTS:
Department of Agriculture
Department of Correctional Services
Department of Defence
Department of Education
Department of Environmental Affairs and Tourism
Department of Foreign Affairs
Department of Health
Department of Home Affairs
Department of Housing
Department of Justice and Constitutional Development
Department of Labour
Department of Land Affairs
Department of Minerals and Energy
Department of Provincial and Local Government
Department of Public Works
Department of Safety and Security
Department of Social Development
Department of Trade and Industry
Department of Transport
Department of Water Affairs and Forestry

2. STAKEHOLDERS AND CIVIL SOCIETY BODIES
Agric-SA
Chamber of Commerce and Industry of South Africa (CHAMSA)
Development Bank of Southern Africa
FEDUSA
Human Sciences Research Council (HSRC)
Idasa
Independent Development Trust
Mr Dennis Dykes: Economist
Mr Mandla Maleka: Economist
People’s Budget
Prof Ben Smith: Economist
South African Local Government Association (SALGA)

OTHER INDIVIDUALS AND ORGANISATIONS WHO MADE WRITTEN SUBMISSIONS ONLY:
Centre for Land and Policy Studies
National Youth Chamber of Business
Dr Haroon Bhorat: Develoment Policy Research Unit (University of Cape Town)