The following report replaces the Report of the Standing Committee on Appropriations which was published on page 922 in ATC No 33 dated 23 July 2014

 

 

REPORT OF THE STANDING COMMITTEE ON APPROPRIATIONS ON THE APPROPRIATION BILL [B4-2014] (NATIONAL ASSEMBLY – SECTION 77), DATED 22 JULY 2014

 

Having considered the Appropriation Bill [B4 – 2014], referred to in terms of Section 10(a) of the Money Bills Amendment Procedure and Related Matters, Act No. 9 of 2009, the Standing Committee on Appropriations reports as follows:

 

Introduction

 

Section 27(1) of the Public Finance Management Act No. 29 of 1999 (PFMA) requires that the Minister of Finance (the Minister) tables the annual budget for a financial year in the National Assembly before the start of that financial year or, in exceptional circumstances, on a date as soon as possible after the start of the financial year, as the Minister may determine. Section 26 of the PFMA requires that Parliament and eachprovincial legislature appropriate money for each financial year for the requirement of the State and the province, respectively. In executing this mandate, the Standing Committee on Appropriations, hereinafter referred to as the Committee, was established in terms of section 4(3) of the Money Bills Amendment Procedure and Related Matters Act, No. 9 of 2009, and herein referred to as the Act. In line with section 10(1)(a) of the Act and after the adoption of the Fiscal Framework, the Standing Committee on Appropriations has a responsibility to consider the Appropriation Bill, hereinafter referred to as the Bill, and report thereon to the National Assembly.  In terms of Sub-sections 10 (5) and 10 (6) of the Act, Parliamentary Committees may advise the Appropriations Committee on the appropriated funding. No formal submissions were received from Committees in terms of Sub-sections 10 (5) and 10 (6) of the Act.

 

The national budget for the 2014/15 financial year was tabled by the Former Minister of Finance in the National Assembly together with the Appropriation Bill (the Bill) on 26February 2014. The Bill was tabled together with the Division of Revenue Bill, Estimates of National Expenditure (ENE), Budget Review and the Budget Speech.

 

The Bill was referred to the Committee on 12 March 2014 for consideration and reporting but lapsed at the end of the last sitting of the Fourth Parliament. The Bill was revived on 18 June 2014 in the National Assembly where it was agreed that proceedings thereon be resumed from the stage it reached on the last sitting day of the Fourth Parliament.

 

In the process of dealing with the Appropriations Bill, section 9(7) (a) of the Act requires the Committees on Appropriations of both Houses to consult with the Financial and Fiscal Commission (FFC). Section 10(8) (a) and (b) of the Act requires the Committees on Appropriations to hold public hearings on the Appropriation Bill and proposed amendments and for the Committee on Appropriations to report to the House on the comments on and amendments to theAppropriation Bill. To this end, an advertisement was published in national and community newspapers from 5 to 12 July 2014 inviting general public inputs from which no submissions were received. In addition to the National Treasury which briefed the Committee on the Bill in its entirety, the following stakeholders were invited for comment:

 

 

 

 

1.             Context and Overview of the 2014 Appropriation Bill (B4 – 2014)

 

1.1          Context for the 2014 Appropriation Bill

 

The 2014 Budget was tabled within the framework of the National Development Plan (NDP) which seeks to give effect to government’s policy objectives of accelerating growth and reducing poverty and inequality.  The NDP includes objectives and actions to provide for the following outcomes:

 

·         Quality basic education;

·         A long and healthy life for all South Africans;

·         All people in South Africa are and feel safe;

·         Decent employments through inclusive growth;

·         Skilled and capable workforce to support an inclusive growth path;

·         An efficient, competitive and responsive economic infrastructure outlook;

·         Comprehensive rural development;

·         Sustainable human settlements and improved quality of household life;

·         Responsive, accountable, effective and efficient developmental local government system;

·         Protect and enhance our environmental assets and natural resources;

·         Creating a better South Africa and contributing to a better and safer Africa in a better world;

·         An efficient, effective and development oriented public service;

·         An inclusive and responsive social protection system; and

·         Transforming society and uniting the country.

 

The NDPprovides an integrated approach to guide government’s allocation of resources within a sustainable framework. Policy priorities contained in the NDP that are funded and supported in 2014 budget framework include building on formal social accords and consultation in the areas related to the minerals sector, partnerships in education involving teachers, parents and pupils; allocations for the building, refurbishment and maintenance of health infrastructure, the rollout of the Community Works Programmein every municipality, new bus rapid transit systems to be constructed in nine cities with existing networks expanded; and there will be expanded support for small, medium and micro enterprises.

 

The fiscal outlook remains under pressure. The 2014 Estimates of National Expenditure (ENE), which provides detailed information per vote, states that the government remains committed to the principles of counter-cyclicality, debt sustainability and intergenerational fairness. In particular, the state remains committed to maintaining the value of the social wage and improving the quality of spending and eliminating inefficiencies.

 

Budgeting will be underpinned by the provision of public services that prioritise doing more with less rather than higher expenditure. To maintain the expenditure ceiling, additional allocations to priority areasand upward adjustments to the public-sector wage bill have been achievedthrough reprioritisation across departments. In the 2009 budget, reprioritisation constituted only 12 per cent of total revisions made to the budget whilst in the 2014 budget, reprioritisation constitutes over 50 per cent on the revisions made to the budget. This shows that additional funds available to be added onto the total budget have declined significantly.      

 

The consolidated government expenditureis projected to increase by 7.7 per cent ayear, from R1.05 trillion in 2013/14 to R1.31 trillion in 2016/17. The table below shows trends in the economic classification of payments for consolidated government expenditure excluding debt service costs for the period 2009/10 to 2016/17. 

 

Figure 1: Consolidated Expenditure by Economic Classification

Source: National Treasury 2014

 

In the 2014/15 financial year, compensation of employees constitutes 35.2 per cent of consolidated government expenditure followed by transfers and subsidies at 32.4 per cent and goods and services at 15.2 per cent. Payments for capital assets and payments for financial assets are 7.3 per cent and 0.3 per cent respectively.

 

During the period 2010/11 to 2013/14, transfers and subsidies as a share of consolidated expenditure have increased from 31.7 per cent to 32 per cent. Transfers and subsidies are projected to increase marginally from 32.4 per cent in 2014/15 to 32.8 per cent in 2015/16. The large share of expenditure allocated to transfers and subsidies represents government’s contribution to poverty reduction and social development.  Social assistance is government’s primary mechanism in combating poverty. The number of social grant beneficiaries has risen from 14.6 million in 2010/11 to an estimated 16.1 million in 2014/15.  

 

The share for compensation of employees of government consolidated expenditure was 35.2 per cent in 2010/11, rising to 36.3 per cent in 2011/12 and declined slightly to 35.8 per cent in 2013/14. The increase in the percentage share of the public sector wage bill in 2011/12 was due to higher than anticipated inflation forecasts. Government reached a multi-year wage settlement in 2012 and this has served to provide greater certainty in wage settlements. The budget share for compensation of employees is projected to moderate in the medium term and reach 34.8 per cent in 2016/17. Pressure on the wage bill is being partially offset by declining headcount growth in national and provincial governments. The 2014 Budget Review states that government intends to maintain employee numbers at a constant level in the next three years. A new round of wage negotiations will begin in 2014.

 

The share for goods and services declines in the medium term from 15.2 per cent in 2014/15 to 14.7 per cent in2016/17. The 2014 Budget intends to maintain controls over core areas of goods and services such as educational materials and medical supplies. Spending on travel, catering, consultants and other administrative payments will decline as a share of total goods and services. Payments for capital assets maintain an average percentage share of consolidated government expenditure of 7.4 per cent in the Medium Term Expenditure Framework (MTEF) periodand payments for financial assets decline to less than 0.3 per centin 2016/17.

 

The 2014 fiscal framework makes additional allocations of R14.7 billion for the 2014 MTEF. Budget reprioritisation and spending cuts make available R19.6 billion for MTEF baseline allocations. The drawdown on the contingency reserve makes available R4.5 billion. Therefore, main budget level non-interest expenditure provides for baseline additions of R38.8 billion for the 2014 MTEF. Out of the R38.8 billion available, R21.9 billion will be allocated to compensation of employees to alleviate spending pressures on wage budgets, R5.9 billion for goods and services that prioritise service delivery, R5.5 billion for infrastructure projects, and R5.5 billion for transfers to households and government agencies.

 

The 2014 Budget allocates MTEF baseline additions to government’s policy priorities in a number of function areas. Education and related functions receives R6.3 billion, Health and Social Protection receives R5.2 billion, Defence, Public Order and Safety receives R3.8 billion, Economic Infrastructure receives R2.5 billion, Local Government, Housing and Community Amenities receives R1.5 billion and Employment and Social Security receives R700 million. There are baseline reductions of R5.2 billion in three function areas, namely, General Public Services, Economic Services; and Science, Technology and Environmental Affairs. The 2014 ENE states that the budget reductions in the baselines of these three function areas should not have an adverse impact on service delivery as the reductions were largely revisions to goods and services expenditure and realigning spending to institutional capacity.

 

The table below shows expenditure growth by function. Allocated government expenditure is projected to increase from R1.05 trillion in 2013/14 to R1.29 trillion in 2016/17. 

 

Table 1:Government expenditure by function 2013/14 to 2016/17

Source: National Treasury 2014

 

The largest growth will be in employment and social security. This function grows by 13.1 per cent to reach R69.3 billion in 2016/17. Government launched the third phase of the Expanded Public Works programme in April 2014 and intends to create 6 million jobs in the next five years. The Community Work Programme will constitute the largest component in expanded public works. The state reports that emphasis will be placed on improving the quality of work in the Community Work Programme so that participants are better able to move into the formal economy. Priority will also be linking employment programmes with initiatives to foster small enterprises and collectives. However, spending performance in areas such as the Green Fund, Jobs Fund and the Special Economic Zones has not been as per planned projections.

 

Expenditure growth in the medium term will continue in the areas of education, health, science and technology, and social protection with even higher growth in the local government and housing functional area. Spending growth in education is driven largely by compensation of employee costs as a result of higher than anticipated inflation forecasts and the establishment of occupation-specific-dispensation for therapists. Allocations in the health areas aim to strengthen HIV/AIDS treatment and the rollout of new vaccines.  Expenditure growth in the local government, housing and community amenities function area will be driven by resource allocation for the provision of water and sanitation.  

 

The 2014 Budget outlines a number of initiatives aimed at ensuring improvements in the delivery of government services within the current constrained budget framework. Measures to improve public services and eliminate waste and cost inefficiencies include:

 

 

 

 

 

 

 

 

 

1.2          Overview of the 2014/15 Appropriation Bill

 

National Votes receive budget baseline additions amounting to R19.8 billion over the 2014 MTEF period. In particular, R5.4 billion is allocated for the 2014/15 financial year,
R5.6 billion in 2015/16 and R8.8 billion in 2016/17. The table below shows the appropriations per vote which give effect to the state’s policy objectives.   

 

Table 2: 2014/15 Main Appropriation per Vote

Source: National Treasury 2014

 

The table above shows allocations per vote as per the 2014 Appropriation Bill (B4–2014). The main appropriation for national departments (excludes direct charges against the National Revenue Fund) increases from a revised estimate of R583.5 billion in 2013/14 to R635.4 billion in 2014/15. The national votes receiving the largest allocations for the 2014/15 financial year are Social Development, Police, Cooperative Governance and Traditional Affairs, Transport, Defence and Military Veterans and Higher Education and Training. Other national votes receiving significant funding for 2014/15 include Basic Education, Health, Human Settlements, National Treasury and Correctional Services.

 

2.             Hearings on the 2014 Appropriation Bill

 

2.1          National Treasury

 

National Treasury in its briefing outlined the legislative processrelating to the passing of the Appropriation Bill and highlighted the provisions in the PFMA, in particular Section 29 that allowed for theexpenditure before the Appropriation Bill is passed. The Bill provides for the appropriation of money from the National Revenue Fund with spending subject to provisions contained in the PFMA (as amended). The 2014 Budget will continue with support for economic recovery within the policy framework of fiscal consolidation. 

 

National Treasury reported that the process for giving administrative effect to the President’s new Cabinet portfolios i.e. the National Macro Organisation of the State (NMOS) is expected to be completed by November 2014. Upon the completion of the organisational structures, changes to votes and programme structures will be included in the 2014 Adjustments Appropriation Bill and/or the 2015 Appropriation Bill. National Treasury indicated that no funding will be allocated to the new votes. The new votes and programmes will receive funding from existing budget votes. For the transition period, the new votes will co-exist with the current votes and expenditure incurred by a current vote on behalf of a new vote will be in terms of a memorandum of understanding agreed to by the two departments.

 

The Committee expressed its concernsregarding the cost of servicing government debt and the effect thereof on equity and intergenerational fairness. The Committee emphasised the importance of ensuring that state borrowing was financing investment in infrastructure and not current expenditure. The Committee views the shifting of the composition of spending away from consumption and towards productive investment as critical for sustainable public finances. Emphasis must be placed on the provision of social infrastructure such as schools, libraries and clinics so as to ensure improvements in the quality of life of citizens for the short, medium and long term.

 

The Committee made reference to the interim funding arrangements for the newly established departments as per the President’s State of the Nation Address on 17 June 2014. To this end, clarity was sought on whether the interim funding for those departments from existing departmental budgets would not negatively affect the existing departments’ budgets. The National Treasury clarified that Section 33 of the PFMA provides that the transfer of functions from one department to another be accompanied by the transfers of funds allocated for that specific function and that the allocation of additional funds where required will be accommodated through the budget adjustment process in October 2014. National Treasury indicated that the required additional funds would be accommodated through a reprioritisation process in an effort to maintain the government’s nominal expenditure ceiling.

 

The Committee enquired whether National Treasury had monitoring mechanisms in place for the implementation of the cost containment measures which were introduced in December 2014. The Committee stated that early detection was critical as opposed to waiting for the audit process. Furthermore, in many instances while the message for cost containment was emphasised in national and provincial governments, similar emphasis did not filter through to local government level.

 

With regards to earmarked funds, specifically indirect conditional grants, the Committee pointed out that this approach may pose challenges in realising the policy objective of minimising the use consultants as the existing capacity constraints in local government may not be addressed. In addition, the implementation of conditional grants such as the Municipal Infrastructure Grant should be only as per the prescribed grant objectives. The Committee envisages that skills transfers will remain an important focus area in the rollout of conditional grants in the provincial and local spheres of government. 

 

While the Committee welcomed the approach to a centralised system of procurement, it was concerned about the effect that a centralised approach would have on provincial and local service providers. National Treasury reported that the Chief Procurement Office is in the process of evaluating procurement practices throughout government.The Committee pointed out that funds misappropriated as a result of procurement irregularities or corruption should be recovered from those found to have transgressed regulations. The Committee supports the strengthening and enhancement of work targeted at ensuring contracts are fair and transparent. It is stated in the 2014 Budget Review that the Accountant-General has conducted a number of investigations into fraud, corruption and maladministration resulting in criminal investigations and disciplinaryhearingswith R503 million in contracts cancelled and R61 million surrendered back into the fiscus.

 

With regards to value for money in higher education, the Committee highlighted that the investment made by government in higher education and training has increased significantly over the past few years though the increase in expenditure has not been proportionate to the increase in the skills level of the country’s workforce, especially within the previously disadvantaged communities. The Committee stated that for the country to accelerate growth and development and realise the NDP’s vision of a vibrant knowledge based economy able to compete successfully in the global economy, spending on education and training will need to realise better outcomes.

 

2.2          Parliamentary Budget Office

 

The Parliamentary Budget Office briefed the Committee on its mandate as per the Money Bills Act and on its assessment of the 2014 budget framework. The mandate of the Parliamentary Budget Office is to provide independent, objective and professional advice and analysis to Parliament on matters related to the budget and money bills. The work of the PBO will include monitoring, research, technical analysis and advice on fiscal and related economic matters.

 

The PBO in its submission reported that the economic outlook for the country has changed since the passing of the 2014 fiscal framework in March 2014. In particular, the economy has experienced its first contraction since the 2009 financial crises and declined by 0.6 per cent in the first quarter of 2014. The slower growth is likely to translate into lower revenue. This may negatively affect projections for budget estimates of non-interest expenditure and thus reduce the quantum of funding available for government services.

 

The 2014 Budget Review states that the risks to the fiscal outlook include economic uncertainty and this year’s round of public-sector wage negotiations.The PBO highlighted that significant risks exist to the wage bill as projected MTEF estimates provide for inflation linked salary increases. A wage settlement above the current annual adjustment of inflation plus 1 per cent will add pressure to projected budgets.

 

The PBO reported that the inflation outlook poses risks to costs of providing public service. The concerns raised by the PBOare in line with National Treasury’s indication in the 2014 Budget documents that higher than anticipated inflation will add to the costs of service delivery through increased costs for goods and services. The PBO submitted that government’s adherence to expenditure ceilings on goods and services items such as travel and subsistence appeared to have an impact.

 

The PBO reportedthat possible responses to funding reductions may include the identification of the root causes of the country’s slow growth, reprioritisation, efficiency gains and enhanced monitoring of service delivery programmes. In its submission the PBO indicated that whilst education receives the largest allocation in the 2014 Budget, there has been no discernible change in the past 11 years in the percentage of personsaged 5 – 24 attending educational institutions. The number of persons in the aforementioned bracket attending educational institutions was at 73 percent in 2013. Trends in other socio-economic indicators reflectthat in the past 11 years the percentage of households that live in formal dwellings and whose dwellings were fully owned increased by 2 per cent from 52.9 per cent to 54.9 per cent.  

 

The Committee emphasised that work needs to be undertaken in identifying policy options available to improve growth and meet the President’s target growth rate of 5 per cent per annum as outlined in the post-election 2014 State of the Nation Address. With regards to value for money, the Committee was concerned about the effectivenessof monitoring mechanisms in the use of allocated budgets particularly in the areas of education and healthcare.

 

Whilst the development of quality and sustainable human settlements remains a key priority for government, the Committee raised concerns around the funding made available to the provision of housing and basic services relative to the housing development outcomes. In particular, the Committee was concerned that in many instances housing beneficiaries did not utilise their properties as assets and as instruments in creating value. There were examples cited where occupants of government provided houses preferred to sell or rent these out. An assessment of the impact of the housing programme relative to funds allocated to the programme was therefore required.

 

The Committee noted the submissions by the National Treasury and PBO that the wage bill poses significant risks to the fiscal outlook. The Committee views the research and investigations into possible funding strategies that may assist in stabilising compensation budgets as essential.The need to involve all sectors affected and devise options where all stakeholders may contribute towards attaining sustainable compensation budgetsis fundamental. There is a need to strengthen partnerships between public and private stakeholders in creating capacity and developing growth strategies.

 

The Committee highlighted that the work of the PBO, specifically in relation to ensuring value for money will need to incorporate the use of the latest data from Statistics South Africa. The Committee pointed out that statistical data often indicates slow progress in many policy outcomes areas yet funding allocated to address these challenges was in place. The Committee raised concerns regarding the constraints preventing the acceleration of industrial development with specific reference to strengthening and availing resources to regulatory entities such as the Competition Commission. The Committee was of the view that the work of the state’s regulatory entities will go some way in creating a conducive environment for small and rural enterprises to compete successfully.

 

2.3          Financial and Fiscal Commission

 

The Financial and Fiscal Commission (FFC/Commission) in its submission welcomed the 2014 Appropriation Bill and viewed the Bill as giving effect to the effective allocation of resources towards priority areas. However, there was an urgent need for government to improve the impact of spending programmes. The Commission noted that the continuedtight fiscal environment will necessitate trade-offs between various funded priority areas in order to balance fiscal sustainability and the need to accelerate socio-economic development.

 

The Commission supports the process followed in giving administrative effect to the additional cabinet portfolios and views the approach as entrenching the principles of fiscal consolidation. In its assessment of the composition of funds in the 2014 Appropriation Bill, the Commission reported that expenditure performance was low in a number of programmes that are important drivers for job creation and economic development such as the budget votes of Public Works, Basic Education and Human Settlements.

 

With regards to education, the Commission submitted that while it supports the reprioritisation strategy of aligning allocations of the Schools Infrastructure Backlogs Grant and Education Infrastructure Grant with spending capacity, such alignment should not compromise school infrastructure delivery. The Commission reported thatthere is a need for the Department of Basic Educationto strengthen its support to provinces. In particular, delivery challenges were pronounced in the Eastern Cape thus capacity support needs to be enhanced in the province so as to ensure the successful delivery of schools infrastructure.With reference to the funding for Further Education and Training, the Commission submitted that systems need to be in place to monitor the financial health of Further Education and Training Colleges.

 

The Committee emphasised the need for ensuring that Further Education and Training(FET) programmes were successful levers in the skilling of young people. The main concern was progress in the transfer of the FET function from the provinces to the Department of Higher Education and Training. The Committee noted the indication by National Treasury that a special committee has been established and will work with the headsof the Education Committee and the Council of Education Ministers to provide executive stewardship ofthe full funding shift of Further Education and Training Colleges by1 April 2015 and adult education andtraining functions by1 April 2016. The FFC reported that it is part of theET Special Committee.

 

With regards to health, the Commission reported that there remain challenges in the implementation of the National Health Insurance (NHI) with slow spending performance in the NHI grants. However, the Commission was supportive of efforts by the Department of Health to address challenges of performance. In particular, the centralisation of medicine procurement and establishment of the Office of Health Standards were seen as positive developments. 

 

The FFC in its submission welcomed employment tax incentives to alleviate youth unemployment and foster economic growth. The Commission reported that the state needs to create incentives within the labour market that encourage firms to substitute capital for labour. While the FFC views state employment programmes as an important policy lever, it indicated that the coordination of job creation efforts across departments remains a challenge.

 

The Committee was concerned with the extent to which alternative capital-intensive methods were being utilised for fast tracking infrastructure and service delivery. The main concern was the displacement of labour and possible negative effects this may have on the policy objectives of the EPWP programme. The FFC indicated that programmes such as the EPWP were transitory in nature and critical in addressing the significant challenge of high unemployment. Any innovation that results in additional jobs should be encouraged. The Committee welcomes efforts aimed at job creation though re-iterates that emphasis should be placed on value for money and programme effectiveness in funding allocations for employment creation programmes. The NDP envisages that unemployment rate should reduce to 14 percent by 2020 and to 6 percent by 2030. Therefore total employment should rise from 13 million to 24 million.

 

The FFC indicated that there remain capacity challenges in State Owned Entities and local government to deliver effectively on government’s significant infrastructure investment. The Commission submitted that delays in large-scale infrastructure projects such as the Medupi Power Plant coupled withthe cost overruns resulting from such delays pose significant risks to economic growth. The Commission reported that the maintenance and rehabilitation of existing infrastructure still remained a challenge. In particular, new infrastructure is funded through transfers to provinces and local government while the responsibility for maintenance and rehabilitation lies with the sphere where the infrastructure is developed.There was a need to find an appropriate balance between funding for new infrastructure and funding for operations and maintenance. In many instances maintenance was not adequately budgeted for coupled with under-spending on the same under-budgeted maintenance projects.

 

The Presidential Infrastructure Coordinating Commission (PICC) will drive government’s infrastructure programme in the medium term. Critical is the realisation that most of the planned infrastructure projects fall within the ambit of local government and State Owned Entities. In its submission, the FFC indicated that the value add of the PICC will be in how it interfaces with the Intergovernmental Fiscal Relations (IGFR) system. Research findings from the Commission indicate that the IGFR system supports economic growth but faces challenges due to the bias of provincial and local government budgets towards current expenditure.

 

The Committee pointed out that systems need to be strengthened to capacitate municipalities in properly budgeting for operations and maintenance. The Committee notes with concern the overall poor municipal performance in relation to infrastructure development and the provision of basic services despite the wide-range of funded capacity buildinginitiatives being directed to municipalities. The Committee supports the constitutional principle that states that national government must support and strengthen municipal capacity in order for municipalities to perform their functions.

 

In its submission, the FFC reported that a focus area in reducing public service costs was the objective determination for the equitable sharing of resources betweenthe provinces and local government. The Commission reported that although the equitable share formula was updated annually, some of the indicators were not updated timeously so as to be aligned with impacting factors such as migration at the beginning of a school year.

 

The Committee emphasised that resource allocation needs to respond efficiently to differences in provincial and local socio-economic conditions. The Committee highlighted that high density and economically vibrant regional economies such as Gauteng necessarily lend themselves to different requirements and interventions compared to other provinces. The Committee raised concerns that the local government share of nationally raised resources needs to respond effectively to the needs of rural municipalities. The revenue raising powers of rural municipalities were limited. The FFC submitted that there remains a considerable gap between the potential revenue capacity of municipalities and the actual revenue collected.Improving the collection of revenue in municipalities will go some way in supplementing their capital budgets.In addition, the Committee stated that education on fiscal matters is critical to rural communities so as to increase public participation in the budget process.

 

The FFC outlined a number ofstrategies that the state may consider to stimulate cost-efficiencies and these include the moderation of the public sector wage bill through prioritisation of frontline service delivery staff over general administration staff, the reduction of waste and duplication and accurate cost estimates for services being delivered. The Commission proposed the development of norms for frontline staff versus administrative staff to total expenditure per sector and ensuring that there are consequences for accounting officers who recruit outside of the approved establishment.  The Commission mentioned that the development of a model for costing basic services could be a valuable oversight tool for ensuring the efficient use of public resources. Furthermore, the establishment of precise cost estimates of norms and standards for concurrent functions will enhance measures for attaining cost-effectiveness.

 

The Committee sought clarity around the role of standardisation and the elimination of salary disparities in the public sector as a cost containment measure of the public service wage bill. The Committee pointed out that the disparities in remuneration across all government departments and state entities may negatively affect efforts aimed atimproving public service productivity. The FFC reported that the Public Administration Bill, which aims to build an effective and efficient public service, may address some of the challenges relating to disparities in remuneration amongst the disparate state entities and also establish uniform standards and conditions of service. The FFC is currently involved in a joint project with the Public Service Commission on improving public sector productivity.

 

2.4          Public Service Commission

 

The Public Service Commission (PSC/Commission) stated that the 2014 Appropriation Bill was responsive to priority areas and efficacious in balancing compensation and goods and services within the confines of the prevailing economic conditions. The PSC reported on the linkage between the Bill and the principles of efficiency, economy, and effectiveness and reported that the outputs achieved vis-à-vis the percentage of budget spent has become a well-established indicator in South Africa. However, this indicator did not expatiate in detail on the issue of effectiveness as outcome data was seldom provided in departmental annual reports.  It was reported that the percentage of national departments that managed to achieve more than 80 per cent of planned targets increased from 5 to 15 per cent from the 2011/12 to 2012/13 financial year.

 

The Commission reportedthat 2 Heads of Department (HoDs) were evaluated in 2009/10; 8 in 2010/11; 7 in 2011/12; and no HoD was evaluated in the 2012/13 financial year.The Committee viewed this as a cause for concern given the fact that 65 per cent of performance agreements were submitted by 30 June 2012.

 

The Commission indicated that there were limitations in determining the cost-benefit linkages of government spending programmes due to misalignment in the capturing of expenditure and output information. Itrecommended that departments should set efficiency indicators. The PSC re-iterated the importance of thepayment of invoices within 30 days by departments as this was indicative of administrative efficiency. It was of the view that reasons cited by departments for late payment of invoices related to internal factors which can be remedied by proactive action on their part.

 

The PSC highlighted that potential strategies for public sector wage bill efficiencies depended on the number and grading of posts on the establishment and post levels. This encompasses up-to-date reviews of departments’ establishments, determining whether establishments were based on rational post provisioning norms and alternative service delivery models that can alter the labour intensiveness of some public functions. The Commission indicated that the management of the usage of consultants was also critical and that this should be guided by service delivery models in order to avoid duplication of skills and efforts within departments.

 

The Committee expressed concern at the reported disjuncture between budget spent and outputs achieved by national departments and was of the view that remedial steps should be taken to improve the situation. The PSC reported that this was indicative of poor planning within departments and can be remedied through proper target setting, redesigning of service delivery models and proper performance management. The Committee noted the lack of a culture of enforcement and discipline within the public service especially relating to poor performance by public officials. Of serious concern, was the reported lack of compliance with regard to the evaluation of Heads of Departments (HOD) as a result of logistical and timeline challenges. The Committee viewed this asa significant deficiency as HoDs should visibly support performance management processes and ensure that this cascades down to other levels in the Senior Management Service (SMS), if the principle of accountability is to be achieved in the Public Service.

 

The Committee welcomed the PSC’s role in monitoring post establishments to contribute toward the management of the wage bill. However, the Committee was concerned about the delays in the filling of funded vacancies and enquired whether a skills audit has been conducted in departments to ascertain the relevance of skills employed versus the mandate of the departments. The Committee emphasised the need for interventions in terms of the development and submission of service delivery models in order to curb the duplication of skills in the usage of consultants.

 

Furthermore, the Committee expressed concern at the reported non-compliance by departments with payment of invoices within 30 days of receipt and its negative impact on the sustainability of Small, Medium and Micro Enterprises (SMMEs).

 

3.             Committee Findings and Observations

 

Having considered all the submissions made by the above stakeholders on 2014Appropriation Bill, the Standing Committee on Appropriations identified the following findings and areas of concern:

 

 

3.1          The Department of Public Service and Administration is leading a process to give administrative effect to the President’s new Cabinet portfolios. The new votes and programmes will receive funding from existing budget votes once functions are fully transferred.

 

3.2          The Committee notes the increase in the country’s net debt stock over the next three years. The Committee’s view is that emphasis should be on funding allocationsthat prioritise capital expenditure and minimise current expenditure so as to effect the fiscal principle of intergenerational fairness.

 

3.3          In the 2009 budget, reprioritisation constituted only 12 per cent of total revisions made to the budget whilst in the 2014 budget, reprioritisation constitutes over 50 per cent on the revisions made to the budget.Budgeting will entail finding efficiency gains and enhancing the monitoring of service delivery programmes.

 

3.4          Cost-containment measures were introduced in December 2013 to limit expenditure on conferences, travel, entertainment and other non-essential items. The establishment and enhancement of monitoring mechanisms on implementation of the cost-containment measures is critical.

 

3.5          The Committee welcomes work by the Chief Procurement Officer in building national systems for the purchase of high-value goods and services commonly used throughout government.However, procurement reforms should not negatively affect small businesses as they constitute government’s regional and local service providers.

 

3.6          The Committee supports the strengthening and enhancement of work targeted at ensuring contracts are fair and transparent. In particular, work underway by the Accountant-General in investigating fraud and maladministration relating to state contracts is a positive initiative.

 

3.7          Funding allocated to higher education and training has increased significantly over the past few years though the increase in expenditure has not been proportionate to the increase in the skills level of the country’s workforce.

 

3.8          The Committee welcomes efforts aimed at job creation though re-iterates that emphasis should be placed on value for money and programme effectiveness in funding allocations for employment creation programmes.

 

3.9          The implementation of conditional grants such as the Municipal Infrastructure Grant should be only as per the prescribed grant objectives. The Committee envisages that skills transfer will remain an important focus area in the rollout of conditional grants in the provincial and local spheres of government. 

 

3.10        There is a need to find an appropriate balance between funding for new infrastructure and funding for operations and maintenance. In many instances maintenance was not adequately budgeted for and spending performance on budgets for operations and maintenance was poor.

 

3.11        There remains a considerable gap between the potential revenue capacity of municipalities and the actual revenue collected. Improving the collection of revenue in municipalities will go some way in supplementing their capital budgets.

 

3.12        The formulation of precise cost estimates of norms and standards for concurrent functions for provincesand municipalities to implement may minimise the unevenness in access to and quality of services enjoyed by beneficiaries within the different provinces.

 

3.13        The Committee welcomes government’s intention to maintain employee numbers at a constant level in the next three years. In addition, the Committee supports research underway by the Financial and Fiscal Commission and Public Service Commission on enhancing public sector productivity. 

 

3.14        There remain significant disparities between departments’ expenditure and performance against pre-determined targets. The Committee notes that while departments routinely spend above 90 per cent of their budgeted funds they perform significantly lower in terms of their performance targets.

 

3.15        The Committee notes that there were Medium Term Expenditure Framework baseline reductions effected on the Schools Infrastructure Backlogs Grant and Education Infrastructure Grant in order to align spending with institutional capacity. The Committee is of the view that slow expenditure performance should not compromise the attainment of service delivery performance targets.

 

3.16        The overall compliance rate for the submission of Performance Agreements of Heads of Department by the due date of 30 June 2012 was 65 per cent. However, the number of Heads of Departments evaluated has been less than18 per cent in the past four years with none evaluated in 2012/13.

 

3.17        Departments need to significantly improve on ensuring that suppliers that do business with government are paid within 30 days from receipt of an invoice.  The Committee views the non-payment of suppliers by government departments as having adverse effects on the economy specifically on the operations of Small Micro-Medium enterprises.

 

3.18        The Committee welcomes additions by the National Treasury to the 2014 grant frameworks of specific indirect grants that set explicit requirements on “Skills Transfer and Capacity Building” which will set out how skills transfer and capacity building will be provided by national departments to province and municipalities.

 

4              Recommendations on Briefings and Comments by invited stakeholders

 

The Standing Committee on Appropriations, having considered the briefings and comments by invited stakeholders on the 2014 Appropriation Bill, recommends as follows:

 

4.1          That the Minister of Finance should consider the following:

 

4.1.1       That National Treasury in partnership withthe Department of Cooperative Governance and Statistics South Africa develop systems to enhance municipal data and municipal statistics for the appropriate costing of infrastructure projects and basic services.

 

 

4.1.2       That National Treasury in partnership with the Department of Cooperative Governance develop and implement strategies aimed at enhancing the revenue generation and debt collection capacity of provincial and local government; especially small and rural municipalities.

 

4.1.3       That National Treasury in partnership with the Department of Higher Education and Training develop and implement strategiesto link funded municipal capacity building programmes with Further Education and Training (FET)programmes and position municipalities as employers of choice for FET graduates.

 

4.1.4       That National Treasury develop systems and measures that incentivise departments to find best practice in finding spending efficiencies and that these are scaled up sufficiently across departments

 

4.1.5       That National Treasury in partnership with the Department of Cooperative Governance develop and implement strategies aimed at ensuring municipalities plan and budget effectively for operations and maintenance on their infrastructure assets.

 

4.1.6       That National Treasury in partnership with the Department of Performance Monitoring and Evaluation ensure that all suppliers that do business with government are paid within 30 days from receipt of an invoice.

 

4.1.7       That National Treasury develop and implement measures that will encourage and attract the private sector in the implementation of government’s programmes of job creation and infrastructure development.

 

4.1.8       That National Treasury develops systems and strategies to encourage and raise the individual household savings rate and the overall national savings rate so as to stimulate higher investment rates for rapid economic growth.

 

4.1.9       That National Treasury through the Chief Procurement Office develop and implement strategies aimed at ensuring government procurement practices which prioritise the purchase of local goods and supports domestic suppliers.

 

 

4.2          That the Minister of Public Service and Administrationshould ensure the following:

 

4.2.1       That the Department of Public Service and Administration in consultation with the Public Service Commission develop and implementsystems and mechanisms that will ensure that all departments and state agencies appoint officials within approved organisational structures.

 

4.2.2       To consider developing and establishing norms and standards relating to the functions of the public service, organisational structures and establishments of department and other organisational and governance arrangements in the public service so as to support efforts at moderating the wage bill.

 

4.2.3       The Department of Public Service and Administration in consultation with the Public Service Commission review the current system of evaluating Heads of Departments and develop alternative systems and mechanismsthat ensure that all Heads of Departments are evaluated annually.

 

4.2.4       That all funded vacant posts within government departments should be filled timeously.

 

 

4.3          That the Minister of Basic Educationshould ensure that the Department of Basic Education develop measures and strategies to ensure the establishment of institutional capacity for the successful implementation of the Schools Infrastructure Backlogs Grant and Education Infrastructure Grant.   

 

5              Committee Recommendation on the Bill

 

Notwithstanding the recommendations in section 4above and due to the fact that no formal amendments were proposed by Parliamentary Committees, the Standing Committee on Appropriations recommends that the National Assembly adopts the 2014 Appropriation Bill, without amendments.

 

 

 

Conclusion

 

The Committee noted that the 2014 Appropriation Bill as tabled on 26 February 2014, did not take into account the new departments announced by The President of the Republic of South Africa on 17 June 2014. To this end, National Treasury will table technical corrections in terms of section 14 of the Act for consideration by the National Assembly.

 

 

Report to be considered.