Report of the Standing Committee on Appropriations on
the 2014 Medium Term Budget Policy Statement, Dated 19 November 2014
Having considered and heard comments from
identified stakeholders on the 2014 Medium Term Budget Policy Statement, the
Standing Committee on Appropriations reports as follows:
1 Introduction
The Minister of Finance tabled the Medium
Term Budget Policy Statement (MTBPS) on 22 October 2014 as required by section
6 (1) of the Money Bills Amendment Procedure and Related Matters Act, No. 9 of
2009 (the Act), outlining the budget priorities of government for the medium
term. The 2014 MTBPS was tabled with the Division of Revenue Amendment Bill [B11
- 2014] and the Adjustments Appropriation Bill [B10 - 2014] in Parliament. Part
of the MTBPS was referred to the Standing and Select Committees on
Appropriations for consideration and report. This was done in accordance with
their respective mandates as outlined in the Act. Among its responsibilities,
as per Section 6 (8), in respect of the MTBPS, the Committee was required to
consider and report on the following issues:
The MTBPS provides an overview of
government’s key spending areas as the setting for detailed sectoral policies and
departmental programmes that will accompany the 2015 budget. The Committee, in
order to deepen democracy, good governance and promote public participation
during the budget process, invited public comments. To give effect to this
process a number of stakeholders were identified, namely,
In addition, an
advertisement was published in national and community newspapers as well as
radio promotions at local radio stations from 17 to 22 October 2014 inviting
general public comments and the following submissions were received:
The 2014
MTBPS is tabled within the framework of the Constitution which requires
government to act within its available resources for the progressive
realisation of fundamental social and economic rights. Fiscal policy ensures
the health of the public finances by applying the principles of counter-cyclicality,
debt sustainability and intergenerational fairness. In the past ten years,
public expenditure has doubled in real terms, funding a large expansion of the
social wage and capital budgets.
The Medium
Term Strategic Framework 2014-2019 (MTSF) highlights key findings contained in
the Twenty Year Review and the National Planning Commission’s 2011 Diagnostic
Report which show that poverty, inequality and unemployment continue to
negatively affect the lives of many people. Too few people have work,
investment is too slow and education lags behind the country’s requirements.
In his
opening address to the fifth democratic parliament, President Zuma stated that
the country needs economic growth of around 5 per cent a year to decisively
reduce unemployment and poverty, and to transform South Africa’s social and
economic order. The MTSF asserts that this requires radical economic
transformation and a sustained focus on addressing the uneven quality of
service delivery.
The main
budget tabled in February 2014 had projected the economy to grow by
2.7 per cent for the year 2014. The 2014 MTBPS has revised growth projections
down to 1.4 per cent. The downward revision in growth projections reflects the
continued weak global economic environment with slow economic growth in the
country’s major trading partners and other emerging markets. The MTBPS states that South Africa’s weak
economic performance has highlighted structural constraints in the economy
which have now become embedded into expectations. In particular, constraints to
the country’s envisaged socio-economic development trajectory include energy
constraints, labour market tensions, skills shortages, administrative
bottlenecks, transport constraints and challenges in the economy’s industrial
transformation.
The MTBPS
asserts that the consumption-led, debt financed economic growth of recent years
has reached its limits, and growth has slowed. Expectations are that the
economic growth outlook will improve in the medium term as global economic
growth improves, exports to the rest of the continent increase and new energy
and transport investments start to operate and investment recovers. However,
the weak economic performance has put a great deal of pressure on the fiscus,
with revenue insufficient to cover expenditure. The budget deficit is high,
debt levels have approached the limits of sustainability and the economy is
vulnerable to global volatility.
Critical in the
government’s proposed spending priorities policy package is the necessity to
act now for the establishment of a sustainable foundation for public service
budgets that will allow for the re-building of fiscal space. Over the medium
term, government will place emphasis on debt sustainability, allocative efficiency,
and obtaining value for money in public spending.
It is against
this background that the Committee engaged with identified stakeholders on the
2014 MTBPS.
2 Medium Term Expenditure Framework
The
Minister of Finance in his 2014 MTBPS presentation to Parliament indicated that
the success of the budget is much more than a schedule of taxes and spending
plans, but that it should encompass how the budget will contribute to the attainment
of the South Africa’s developmental goals as outlined in the National Development
Plan’s (NDP) Vision 2030. Government’s medium term strategic framework (MTSF)
2014-2019 is tied into the 2030 vision of the NDP and affirms the need for
partnerships between a capable developmental state, a successful business
sector and a strong civil society.
In
engaging with government’s proposed spending plans for the 2015 MTEF, the
Committee notes the following long term trends in public spending as reported
in the MTBPS:
The
government proposes expenditure growth of 6 per cent a year over the next three
years and the main budget framework is projected to reach R1.22 trillion by
2017/18. The Minister indicated that the state will adopt a more focused
approach to budgeting with emphasis placed on the scope and quality of long
term expenditure planning. A comprehensive assessment of baseline estimates
will be conducted in the coming two years thus significant allocations in the
third outer year are left unallocated in the third year pending the outcome of
this assessment. The table below shows that main Budget Framework for the 2015
Medium Term Expenditure Framework (MTEF).
Table 1: Main
Budget Framework, 2011/12 to 2017/18
Source: National Treasury (2014)
The 2015
medium term budget framework allocates 48 per cent to national departments,
42.9 per cent to provincial departments and 9.1 per cent to local government in
2015/16. Budget allocations to the national sphere will increase by 5.7 per
cent over the 2015 Medium Term Expenditure Framework (MTEF) period, provincial
allocations will increase by 6.2 per cent and local government allocations will
increase by 6.5 per cent. Provincial and local government allocations show
slightly higher growth in the medium term due to government’s emphasis on
front-line services such as health, education and basic services. For
provinces, the MTBPS reports that there will renewed focus on human resource
management and supply chain management. Personnel expenditure in provinces now
accounts for 61 per cent of total provincial spending.With regards to local
government, there will be renewed support for revenue collection and management
of infrastructure.
Table 2: Consolidated Government Expenditure, 2013/14
to 2017/18
Source: National
Treasury (2014)
National
Treasury states that public debt is now approaching the limits of
sustainability with debt-service payments increasing its share of the national
budget thus narrowing the space to expand public services and investment. Debt
service costs grows faster than total state expenditure in the medium term. The
cost of servicing government debt is projected to grow at an average annual
rate of 9.3 percent in nominal terms over the medium term.
The fastest
growing programmes as outlined in the consolidated expenditure framework are
post-school education and training; employment, labour affairs and social
security funds; and housing development and social infrastructure. There will
be lower expenditure growth in the areas of general public services and
economic infrastructure and network regulation. The
largest allocations over the three year spending period ahead are to basic
education (15 per cent), health (11 per cent) and social protection (11 per cent).
Basic
education remains the largest single category of government expenditure.
Expenditure in the education function is projected to increase at an annual
average rate of 6.3 per cent in the medium term from R201.5 billion in 2014/15
to R226.1 billion in 2017/18. The increase in the budget baseline for the
education function is largely due to the high personnel costs given that a
significant portion of the budget is for compensation of employees. The MTBPS
reports that proposed allocations for schools infrastructure will ensure that
gazetted norms and standards are met by 2016.
The funding
allocations for post-school education and training will rise rapidly in the
medium term from R59.5 billion in 2014/15 to R68.1 billion in 2017/18. Out of
the allocations for the post school, 55 per cent consists of subsidies to
universities and contributions to the National Students Financial Aid
Scheme. It is important to note that
funding for sector education and training authorities and the National Skills
Fund is channelled through payroll taxes.
There is currently an interdepartmental team that is developing finance
proposals for the envisioned expansion of access to universities, technical,
vocational and adult learning centres.
The proposed
spending projections for the health sector point to moderate growth in
allocations over the medium term at 6.3 per cent per annum. Funding will
increase from R154.6 billion to R175.1 billion.
A significant portion of heath allocations are directed towards expanding
the provision of antiretroviral drugs which now reaches 2.7 million. Spending
on health service in provinces has been driven largely by compensation of
employees which has grown at 10 percent in the past three years and may need
careful management in the medium term. There is currently a high level working
group that is assessing implications of the National Health Insurance on the
intergovernmental fiscal framework.
The baseline
allocations for social protection will rise from R154.9 billion in 2014/15 to
R176.3 billion in 2017/18. The number of social grants beneficiaries is
expected to reach 17.8 million in 2017/18. Focus areas in the medium term will
be on enhancing the legislative and policy framework for improved access and
also improve regulation and oversight of the sector.
The National
Development Plan emphasises continued investment in economic infrastructure as
critical in efforts to stimulate the economic development, create jobs and
address socio-economic inequalities. Economic infrastructure will account for 5
percent of spending in the medium term and National Treasury reports that
complimentary investments by the private sector will be encouraged. Funds will
be shifted from the solar water heater programme to fund the rollout of
broadband infrastructure and surpluses from the Water Trading Account will be
shifted to the alleviate service delivery pressures in the provision of water services.
The budget
allocated for the housing development and infrastructure function grows by 8.1
per cent per annum in the 2015 MTEF and reaches R198.3 billion in 2017/18.
Spending growth in this function is drive largely by commuter rail transport.
The state proposes to shift funds from this function group to support high
priority infrastructure projects and address effects of the acid mine drainage.
The interim solution for the Moloto project will be upgrading of the road which
is estimated at R3 billion and the long term solution is rail network through
the Private Public Partnership process for which feasibility studies estimate
at R57.7 billion. The National Development
Plan states that transforming human settlements will require strong and
effective spatial planning systems. The government is currently reviewing its
approach to housing delivery.
The 2014
MTBPS emphasise the development of effectively planned and well-managed
urbanisation can accelerate economic growth. National Treasury proposes reforms
to the structure and conditions of infrastructure grants to local government
should accelerate the provision of well-located and affordable social housing,
and strengthen the upgrading of informal settlements. A key strategy will be
the crowding in of private sector and household investment for housing
infrastructure and the expansion of the municipal debt market.
Expenditure on industrial development, trade and
innovation will moderate in the medium term largely as a result of the tapering
of spending on the economic competitiveness support package. The economic
competitiveness support package was formulated as a temporary buffer measure to
support the economy following the global economic crisis of 2008. There are
proposed allocations for the development of a regulatory architecture for shale
gas exploration and policies to develop the oceans economy.
The MTBPS states that priority focus in the function group
of employment, labour affairs and social security funds will be on ensuring the
creation of 6 million jobs through the EPWP programme and a 30 per cent
increase in the statutory workplace inspections.The Community Works Programme
will be rolled out in every municipality by 2017 and the EPWP is expected to
achieve its targets without the requirement for additional resources. Table 3
shows funding for employment programmes up to 2017/18.
Table 3: Funding for employment programmes, 2012/13
to 2017/18
Source: National Treasury
(2014)
The baseline
allocations for rural development and land reform increases moderately from
R10.7 billion in 2014/15 to R12.3 billion in 2017/18. Key focus areas in the
medium term in the function group will be the management and investigation of
new land claims following the re-opening of land reform process. The state will
also look into addressing the duplication of activities by various state
agencies working on rural development
In ensuring
the realisation of the vision of communities wherein all are free and safe,
funding allocations for defence, public order and safety will increase in the
medium term and is expected to reach R198.3 billion in 2017/18. The MTBPS
states that resources will be shifted to priority programmes and institutions,
including the Public Protector, the Financial Intelligence Centre, family
advocates, public defenders, and the prosecution service.
Funding
allocations for General Government Services grows minimally in the medium term
and reaches R71.4 billion in 2017/18. The state will make funds available
within the group budget for the completion of the Community Survey 2016. Data
from the Community Survey will inform policy planning and resource
allocation.Also, the launch of the Property Management Trading Entity is
expected to significantly alter the institutional arrangements in the state’s
immovable property portfolio and the rollout of the national infrastructure
projects.
2.1 Measures
to contain public expenditure and improve public service delivery
The
2014 MTBPS proposes to reduce the expenditure ceiling by R10 billion in 2015/16
and R15 billion in 2016/17. The proposed decreases in indicative baselines will
be allocated proportionately across national, provincial and local government,
according to their share of national revenue. Critically, aggregate expenditure
will continue to grow in real terms by 1.8 per cent a year. It is envisaged
that all government departments and agencies will adopt measures that reduce
inefficiency and waste. The state will adopt a deficit-neutral approach to
financing state-owned companies. Over the next two years, government will
ensure that any capitalisation required does not widen the budget deficit. It
is intended that outcome will be to minimise the impact on front-line service
delivery through the targeting of nonessential items and uncommitted resources.
Spending on core social obligations will be protected.
National
Treasury indicated that savings in national departments will be achieved in the
following ways:
·
The cost-containment measures being currently
implemented will be extended by freezing the budgets of certain nonessential
goods and services at 2014/15 levels, and allowing others to increase at the
rate of inflation;
·
It is proposed that allocated personnel
budgets where posts have been vacant over an extended period be withdrawn;
·
National departments will reduce the rate of
growth of transfers to public entities, particularly those with cash reserves.
The
cost saving strategy specifies that about 40 per cent will come from curbing
spending growth on non-essential goods and services and a further 40 per cent
of savings will be achieved by reducing the rate of growth of transfers to
public entities. The remaining 20 per cent of savings will come from the
withdrawal of funding for non-essential vacant posts. It is expected that
provinces will adopt similar cost saving strategies and national departments
will support provinces in ensuring that basic services targeted for the poor
and vulnerable are protected.
The
establishing of centralised oversight of public procurement will improve is
expected to result in efficiencies and combat fraud in government public
procurement programme in the medium term. The range and scope of
nationallynegotiated contracts will be expanded, a national price-referencing
systemwill be introduced, and government will draw on private-sector
expertiseand best practice in procurement systems.
The
2014 MTBPS also states that budgets in the 2015 MTEFwill place emphasis on
restructuring the way that departments and agencies work together in order to
eliminate inefficiencies and prevent overlapping mandates. Emphasis will be
placed on ensuring that the removal of obstacles to private investment is a
priority for government at all levels.
3 Hearings on the 2014 MTBPS
3.1 Financial and Fiscal Commission
The
Financial and Fiscal Commission (FFC) welcomed the main themes of the 2014
MTBPS and indicated that these resonated well with its submission for the
2015/16 Division of Revenue which was made in May 2014. Themes such as the need
to derive value for money out of service delivery programmes, the state’s position
on fiscal consolidation and the tightening of measures to maintain expenditure
sustainability such as the freezing of funded vacant posts were supported. The
FFC also welcomed government’s intention to intensify initiatives to combat
waste, inefficiency and corruption, thus fostering the establishment of a
capable state. The FFC views the proposed management of the contingency
reserve/unallocated resources as an important and useful buffer in mitigating
the effects of an unstable economic environment. The FFC commended efforts by
government to protect conditional grants as these were fundamental to the
improvement of services to communities.
The FFC
noted the greater distribution of funds through the Local Equitable Share to
poorly resourced municipalities, but was of the view that the spending ability
and absorptive capacity of municipalities should be continuously monitored.
This was needed to ensure that services delivered to beneficiaries are not compromised
due to a lack of capacity.The Commission highlighted that there was a need for
wage increases to be linked to productivity and to standardize wage scales
across government to achieve fairness in the earnings of public officials.
While the FFC
welcomed the strong priority attached to funding for housing and accompanying
basic infrastructure, it was of the view that such funding needed to be
accompanied by technical support to municipalities to assist with the roll-out
and maintenance of new and existing infrastructure.The FFC was also supportive
of the back to basics approach for local governments as paramount was the
effective of basic municipal services. This approach also re-enforces the need
for enhanced support to local governments by national and provincial
departments. The emphasis placed on the improvement of quality education was
welcomed though measures should be taken address the absence of teachers from
class.The FFC also indicated that the Employment Tax Incentive Grant should be aimed
at creating new jobs instead of jobs which would have been created irrespective
of its introduction.
3.2 Parliament Budget Office
The
Parliamentary Budget Office (PBO) gave an overview of the 2014 MTBPS and focused on National Development Plan (NDP) and growth targets, the external
and internal factors affecting South Africa’s growth rates, and the proposed
fiscal package and its impact on local government. The fiscal challenges around
the State Owned Enterprises (SOEs) were also alluded to by the PBO as well as
the Public Sector Wage Bill. The linkage between the NDP was also highlighted
and the point was made that there was a clear intent to align government
expenditure with the Medium Term Strategic Framework, from which more details
was forthcoming during the 2015 Budget Speech.
The
Parliamentary Budget Office indicated that personnel numbers are estimated to
grow by less than 1 per cent over the 2015 MTEF for national and provincial government
levels. The PBO submitted that there is no single data source with personnel
numbers available. In its submission, PBO indicated that efficiency gains
between the spheres of government is not evident and that envisaged slower
growth in transfers needs to result in efficiency gains. In terms of job
creation initiatives, the PBO indicated that the outcomes of all job creation
projects will need to be assessed.
The
Parliamentary Budget Office submitted that a possible avenue for averting the
decline in economic growth was state expenditure geared towards productive
investment such as effective post schooling funding framework. However, in
response to increasing the scope for more debt to finance this expenditure, the
PBO submitted that South Africa was a small open economy with volatile capital
flows thus more research will be required in this area.
3.3 Human
Sciences Research Council
The Human Sciences Research Council (HSRC/ Council)
was invited to comment on the 2014 MTBPS. In terms of its overall assessment of
the 2014 MTBPS, the HSRC welcomed the commitment to contain public spending growth
and efforts at reducing budget deficit so as to limit the rate of growth in
borrowing. The Council also supported the commitment to accelerate infrastructure
investment especially economic infrastructure as well as efforts aimed at
unlocking private sector investment and the tougher approach to the
managementof state entities.
The
HSRC noted that the climate of fiscal prudence requires greater emphasis on
efficient resource allocation and an effective, capable and efficient state. There was a proposal for increased focus on
procurement costs through a Public Procurement Review; as well as opportunities
to support non-technological forms of innovation for social purposes. The HSRC
recommended that government, as a large procurer of goods and services,should
encourage problem solving, solution development and innovativeness in the
procurement of critical services such as health and social services. In
addition, it was highlighted that linking disbursement of infrastructure grants
more tightly to the efficient delivery of capital projects
would yieldsignificant
efficiencies. The HSRC also emphasised the need for stringent monitoring and
reporting requirements in order to fight waste and corruption.
The
Council pointed out that the poor and the vulnerable must be cushioned through
the efficient and effective use of social expenditure, including stimulating
economic development and growth by creating jobs. It was emphasised that
investment in Early Childhood Development services should therefore be
prioritised because investment in later education would not yield as great an
impact in the absence of ECD services which are foundational in nature. In this
regard, the HSRC proposed the provision of population level services and not
small programmes operating in pockets, as well as funding an essential package
of services that includesservices during pregnancy, birth registration, health
and nutritional support.The HSRC estimated that this would cost R16.7 billion.
There
was an indication that there has to be an integrated approach in order to
enhance the effectiveness of education. Basic education had to be evaluated
holistically taking into account factors that impact on learner performance
such as the home and community. In addition, the focus on school infrastructure
had to be expanded to include pedagogical resources such as laboratories, computers,
calculators, & math sets. In addition, the Council indicated that
government resources must be directed to skill areas that would tackle unemployment
and skills shortages. In this regard, the proposed model for skills planning by
the Labour Market Intelligence Partnership was highlighted. This model proposes
improved levels of education and training, improved workplace skills training
as well as an emphasis on a demand driven approach that aligns skills
development with industrial development policies.The HSRC also reported that
the FunzaLushaka bursary scheme has been success in increasing the number of
graduates in the area of teacher training. However, it remains concerned
that these teacher graduates from the state supported do not want to go to
teach in the rural areas where the need for qualified teachers is most acute.
Although
the HSRC welcomed the annual increments for health spending over the MTEF, the
Council was of the view that the proposed growth in allocations was inadequate for
the following reasons: a) expansion of
the National Health Insurance (NHI) which is being scaled up, b) the additional
costs of putting an additional 2 million people living with HIV (PLHIV) on antiretroviral treatment after adopting the new World Health
Organisation treatment guidelines which have changed the eligibility for
treatment from 350 to 500 CD4 cells/mm3, meaning that PLHIV will commence
treatment while they are still healthy, and c)
the shortfall in funding due to cutbacks by major bilateral donors such
as the President’s Emergency Plan for AIDS Relief- PEPFAR) and the
UK (e.g., Department for International Development - DFID).
3.3
Public
Service Commission
The Public Service
Commission (PSC or the Commission) was invited to comment on the 2014 MTBPS. In
its submission it observed that the position of fiscal consolidation
highlighted in the 2014 MTBPS requiresgreater accountability on the management
of resources as well as joint and integrated planning in order to improve programme
effectiveness and achieve the National Development Plan (NDP) milestones. The
PSC was of the view that planning should therefore inform budgeting through the
costing of the implementation of annual performance plans. The
translation of Strategic Plans into feasible implementation strategies and
performance targets, supported by effective financial management, was viewed as
being imperative in this regard. Furthermore, this
alignment would contribute to finding a balance between actual performance and
expenditure.
It was reported that overall there seems to
be an improvement in achievement of targets for the 2013/14 financial year and performance
information in departments has improvedin terms of usefulness, however, the
quality and reliability thereof was still poor.
The PSC was concerned about the general lack of compliance management
and support of performance management processes by the Executive Authorities
(EAs) and Heads of Department (HODs). This was viewed as having a negative
impact on performance and ultimately service delivery. The Commission cited
that there has been a significant decline in compliance with the submission of
Performance Agreements by HODs. It was
also indicated that Human Resource Management remains the weakest competence
area of the four MPAT areas due to a lack of effective performance management
of Senior Management Services and Heads of Department (HODs), and poor levels
of planning and management of disciplinary cases. Specifically, the Strategic Management competence area and the
Governance and Accountability competence areas had compliance levels of 69% and
58% respectively, with the areas of Human Resources Management and Financial
Management at 34% and 56% respectively.
The PSC highlighted that effective and
efficient performance should focus on the quality of service delivery and made
reference to the General Household Survey which revealed that although service
delivery has increased, the number of protests has increased due to the quality
of service delivery. The Commission was of the view that increasing access to
housing should remain a key focus area for government. The PSCalso indicated
that there is a perception that corruption is high amongst government,
therefore the public service should ensure that anti-corruption measures and
capacities are strengthened to deal swiftly with corruption cases. It reported
that there was minimal improvement in overall feedback rate on National
Anti-Corruption Hotline largely due to lack of capacity within departments.
3.5 National Union of Metalworkers of South
Africa (NUMSA)
In its submission the
National Union of Metalworkers of South Africa (NUMSA or
the Union)highlighted that that
the policy stance of narrowing the deficit in order to stabilise public debt
was inappropriate given the prevailing challenging economic environment which
requires increased spending to make up for a stagnant private sector. NUMSA was
of the view that the real growth rate of government expenditure is conservative
and therefore the budget would not meaningfully deliver on economic
transformation. In particular, there were concerns that the expenditure growth
rate for some functional groups e.g. police services, education and general
public services is less than inflation.
The labour
organisation was also of the view that industrial and trade policy should not
be delinked from patterns of state spending in critical sectors of the
economy. NUMSA indicated that although there
were no details yet on tax reforms, they had concerns regarding a possible mild
fiscal cliff due to increase in taxation and decrease in government spending
which would have a negative impact on the poor. There were also concerns that a
regressive tax reform using Value Added Tax (VAT) would take a toll on the
poor.
The Union noted
with concern that the 2014 MTBPS is silent on issues of procurement, local
content and local production. They raised awareness about the awarding of
rolling stock contracts to Chinese and BBBEEE consortiums by Passenger Rail
Agency of South Africa (PRASA) and Transnet which could potentially harm local
industry and lead to loss of jobs. The union was of the view that any further infrastructure
allocations should strictly adhere to local content requirements. NUMSA called
for stricter sanctions on those who breach procurement regulations in order to
curtail irregular expenditure. They welcomed the cost containment measures
however were of the view that severe measures are required to deal with
corruption, fraud, misappropriation of funds and non-compliance with
procurement policies and regulations.
NUMSA proposed that
government should implement measures to harmonise electricity tariffs, ensure
that electricity is affordable and increase the amount of free basic
electricity from 50kwh to 100 kwh. They welcomed the increased funding for the Green
Fund however were of the view that government should ensure that renewable
energy programmes benefit the working class and the poor. There were also
concerns about unclear statistics in terms of jobs createdthrough the
Employment Tax Incentive Act (ETIA), in particular, the difficulty to
distinguish between deadweight jobs (i.e. the jobs that would have been created
anyway apart from ETIA).
3.4
Equal Education (EE) and Public Service
Accountability Monitor (PSAM)
The Equal Education&
Public Service Accountability Monitor (EE & PSAM)welcomed the 2014 MTPBS’s
prioritisation of education with reference to the allocation of R833 billion
and R640 billion allocated respectively to post-school education& skills
development, and basic education over the 2015 MTEF. However they
highlighted a number of concerns about
school infrastructure i.e. Education Infrastructure Grant (EIG) &
Accelerated Schools Infrastructure Delivery Initiative (ASIDI). They were
concerned about a lack of transparency in the implementation of the EIG whereby
only publically available information are project lists under provincial
education department votes. The EE & PSAM indicated that the proposed
increased allocation of R700 million between 2015/16 and 2016/17 would be
inadequate for the implementation of the Norms and Standards.They also had
concerns about the poor expenditure performance and implementation challenges
of ASIDI which have resulted in extended lengths of projects and reductions in
budget allocations.
With regard to Scholar
Transport, EE and PSAM highlighted a number of concerns including clarity of
roles between Department of Transport and Department of Basic Education (DEB)
to ensure adequate data capturing of learners in need, sufficient budgeting to
meet need, and rollout of service to reach intended beneficiaries.Concerns were
raised about the inadequacy of funds allocated by provinces to transport all
qualifying learners. In addition, a concern that the 2014 MTBPS and the proposed
Division of Revenue did not allocate exclusive funding for scholar transport.
The EE & PSAM
also indicated concerns about the National School Nutrition Programme (NSNP)
such as therisk of reduction of the grant due to underspending; the exclusion
of vulnerable learners in quintile 4 and
5; and the reductions made by the Department
of Basic Education to the budget for monitoring and oversight of provinces over
the NSNP.
With
regard to the above concerns, EE and PSAM made the following recommendations to
the Committee:
·
The Department of
Basic Education allocate adequate budget for infrastructure maintenance;
·
That the Department
of Basic Education in collaboration with the National Treasury improve planning
alignment between Provincial Education Departments and the Department of Basic
Education;
·
That adequate funds
be allocated towards the implementation of the Norms and Standards;
·
That copies of provincial reports on Norms and
Standards be made available in the public domain;
·
A call for the
adoption of the National Scholar Transport Policy of 2009;
·
DBE to collect and
verify data on the number of learners needing scholarly transport, particularly
in the Eastern Cape;
·
Proposal for
introduction of a grant for provision of scholar transport, particularly in the
Eastern Cape;
·
That the DBE be
cautioned against reductions made to the budget pertaining to monitoring and
oversight over NSNP;
·
DBE to elicit clear
data from provinces relating to the number of learners that are eligible to
benefit from the NSNP;
·
DBE to critically
consider inclusion of all eligible learners on the NSNP.
3.7 University
of Witwatersrand (WITS) and University of South Africa (UNISA)
The University of Witwatersrand (WITS) and
University of South Africa (UNISA) made a joint submission to the Committee
focusing on the possible fiscal cliff which South Africa was facing, the
sustainability of social assistance expenditure and, remuneration of civil
servants, and tax revenue increases for the fiscus.
The universities were of the view that given
spending patterns beginning in 2012, South Africa was heading for a fiscal
cliff with social assistance expenditure and the remuneration of civil servants
exceeding all government revenue by 2026 if allowed to continue unabated. It
was reported that the growth in expenditure on social grants has since declined
but required careful monitoring. As such the initial estimation of a fiscal
cliff will be further than anticipated. The following areas were highlighted:
·
It was necessary to contain
growth in the civil service employment and the size of the Cabinet should be
reduced to avoid a fiscal cliff;
·
There was no scope to
increase civil service remuneration by more than the rate of inflation plus one
percentage point;
·
There was limited room for
raising extra income by means of increased taxation as it will impact
negatively on the economy’s growth performance.
3.8 Congress of South African Trade Unions
(COSATU)
The Congress of South African Trade Unions
(COSATU or the Congress) indicated that it viewed the 2014 MTBPS as a three
year full-on austerity budget framework which was delivered at a time when the
country needed economic growth, productive investment and employment creation.
To this end, COSATU expressed concern at the revisited estimate for economic
growth which was reduced to 1.4 per cent and was of the view that this would
militate against any prospects of economic recovery. It indicated that it
welcomed a number of proposed initiatives such as, amongst others, the efforts
to expand the rail capacity and the provision of funding for an additional
116 000 tertiary students by 2016.
COSATU highlighted that, notwithstanding, government’s
efforts to spend more efficiently and curtail wasteful expenditure, the cutting
of expenditure particularly economic and social investment will have disastrous
consequences. The organisation strongly opposed the freezing of funded vacant
positions and rejected the notion that civil servants’ wages were to blame for
the current expenditure difficulties, while the Cabinet grew with each new
administration.With reference to the announcement on the possible sale of
non-strategic State-owned Entities, the Congress indicated that it will
vigorously oppose any further attempts at privatisation and outsourcing. The
commitment to scrutinise SOEs’ expenditure was however welcomed.
COSATU did not support the proposed R15 billion
and R45 billion allocations towards the contingency reserve in 2016/17 and 2017/18
while at the same time, there was a freezing of posts, and possible reduction
of allocation for wages, infrastructure and social expenditure. The Congress
indicated that it was prepared to fight against any attempt to extract the
envisaged R27 billion in revenue from the working class and the poor and was
against the Employment Tax Incentives programme as the latter has become a
straight subsidy for labour brokers.In respect of corruption, whilst it
welcomed the reported 54 convictions of fraud, much more needed to be done by
government to tackle corruption.Government needed to clarify what it meant by
‘improving dispute-settlement mechanisms in labour relations’ as it must not be
an attempt to reduce the workers’ rights. Of concern to COSATU, was the lack
details around the need to expand beneficiation in the mining sector and the
funding models plus implementation date for the National Health Insurance.It
expected the announcements made during the MTBPS to be subject to a bona fide collective bargaining process
at the Public Service Collective Bargaining Chamber.
4. Committee
observations and findings
The Standing Committee on Appropriations,
having considered the 2014 Medium Term Budget Policy Statement, and having
engaged with the various stakeholders makes the following findings and
observations:
In terms of the overall thrust of the 2014 MTBPS
4.1 The Committee welcomes the 2014 MTBPS
and the proposed 2015 MTEF budget’s emphasis on the establishment of a
sustainable foundation for public finances that will allow the re-building of
fiscal space. The 2015 MTEF budget is to be underpinned by the principles of
debt sustainability, allocative efficiency, and obtaining value for money in
public spending
4.2 The Committee notes the proposal in the 2014
MTBPS to reduce the expenditure ceiling by R10 billion in 2015/16 and R15
billion in 2016/17. The proposed decreases in indicative baselines will be
allocated proportionately across national, provincial and local government, according
to their share of national revenue. The Committee emphasises that any proposed
reduction should not have an adverse impact on the service delivery, especially
the poor and vulnerable.
4.3 The Committee finds that the fastest
growing programmes as outlined in the consolidated expenditure framework are
for post-school education and training; employment, labour affairs and social
security funds; and housing development and social infrastructure. The largest
allocations over the three year spending period ahead are to basic education
(15 per cent), health (11 per cent) and social protection (11 per cent).
With regards the budget principles of efficiency, effectiveness and
economy
4.4 It is envisaged that all government
departments and agencies will adopt measures that reduce inefficiency and
waste.The proposed cost saving strategy specifies that about 40 per cent will
come from curbing spending growth on non-essential goods and services; a
further 40 per cent of savings will be achieved by reducing the rate of growth
of transfers to public entities, especially those with cash reserves. The
remaining 20 per cent of savings will come from the withdrawal of funding for
non-essential vacant posts.The Committee notes that these cost saving
strategies will not impact on frontline service delivery as nonessential items
and uncommitted resources will be targeted.
4.5 The Committee notesthat the current path
of fiscal consolidation provides government with opportunities to encourage innovations
and the development of efficient and effective solutions in the procurement of
public goods and services with a view of stimulating the local economy as well
as fostering non-technological forms of innovation, with emphasis on social
innovations.
4.6 In the 2015 MTEF the state will adopt a
more focused approach to budgeting with emphasis placed on the scope and
quality of long term expenditure planning. A comprehensive assessment of
baseline estimates will be conducted thus a significant allocations in the
third are left unallocated in the third year pending the outcome of this
assessment.
4.7 The Committee
notes the emphasis contained in the MTBPS on the significant potential that
improved alignment and coordination across the whole government (i.e. inter
department and inter sphere cooperation) has on elevating programme
effectiveness.
4.8 The Committee notes that local government fiscal capacity varies substantially
across various municipalities and trends show that it appears to have declined
over time. The Committee
also notes
the intention of government to expand the municipal debt market. However, the
Committee has reservations on the ability of some municipalities to sustainably
service debt and is of the view that borrowing should be encouraged for capital
investment and job creation wherein revenue collection through rates and service
charges should enable municipalities to sustainably deliver basic services such
as water, sanitation and facilitate energy distribution.
4.9 The Committee
notes the work underway by the Chief Procurement Office to establish a
centralised oversight system of public procurement aimed at improving
cost-effectiveness in the operations in the public sector and is of the view
that this should cut across all spheres of government. The MTBPS states that
the range and scope of nationally negotiated contracts will be expanded, a
national price-referencing system will be introduced, and government will draw
on private-sector expertise and best practice in procurement systems.
4.10 While noting the concerns by
COSATU and NUMSA regarding the proposed freezing of funded positions; the
Committee is of the view that these positions may not be deemed as critical to
the functioning of the department by virtue of the protracted periods in
filling of these vacancies. The Committee supports the freezing of these posts
to reprioritise funds towards other key service delivery programmes while
noting that exceptions would be made in instances where departments can
motivate for the preservation of these posts and subsequent speedy appointment
of required personnel. In addition, the Committee asserts that a comprehensive
review of all positions in the public sector should be undertaken with a view
to determining all the critical posts for effective service delivery.
With regards to the focus area of education and skills development
4.11 The
Committee concurs with the concerns raised by Equal Education & the Public
Service Accountability Monitor around the challenges related to school infrastructure delivery, school
nutrition, and scholar transport; and these matters are and will be closely
monitored by the Committee. With regard to school nutrition, the Committee is
concerned that there are instances where the quintile system excludes under
privileged scholars.
4.12 The Committee is of the view that the
development of skills is a key driver for the unlocking of labour intensiveness
in the manufacturing, agricultural and mining sectors so as to alleviate
unemployment and stimulate the economy. However; the Committee is concerned
about the extent to which post-school education responds to the skills
requirement of the economy. The Committee supports the
plans currently underway for the development of the Skills Planning Mechanism.
4.13 The Committee notes that post-school education and
training is the fastest growing expenditure item in the 2015 MTEF although it
views as critical the upscaling of investment into National Student Financial
Aid Scheme (NSFAS). The MTBPS indicates that work is underway by the
interdepartmental team that has been established to develop finance proposals
for the envisioned large scale expansion of access to universities, technical,
vocational and adult learning centres. The
Committee views the enhancement of systems within NSFAS as critical in combating
fraud and corruption thus ensuring that only qualifying beneficiaries benefit
from the programme. This will ensure that funds allocated to NSFAS benefit more
qualifying students.
4.14 The Committee notes that there is a need
for increased investment in a holistic Early Childhood Development service
package in order to leverage better returns for current investment in education.
With regards to improving
health care and services:
4.15 The Committee notes that the future
introduction of national health insurance may require a significant
restructuring of intergovernmental fiscal relations in the health sector. In
addition, the Committee welcomes the high-level working group examining the
introducing of that National Health Insurance which is expected to make
recommendations to the Ministers’ Committee on the Budget.
4.16 The Committee notes COSATU’s submission on
the high vacancy rate in provincial departments of health and education. The
MTBPS states that provincial financing of health, education and social
development will entail the enhanced management of the growth in the
compensation of employees budgets, reduction on non-core staff and the
retention and recruitment of critical staff.
With regards to accelerating
economic growth and development, investment and job creation
4.17 The Committee welcomes the prioritisation
of the development of cities in order to promote urban spatial transformation
and growth. However, it is concerned about a lack of intergovernmentalcohesive planning
for projects in the local government sphere.In this regard, the Committee
welcomes the process underway for the finalisation of the Integrated Urban
Development Framework as well as reviewsundertaken by the Minister of Cooperative
Governance for the strengthening of the Intergovernmental Relations (IGR)
system.
4.18 The Committee welcomes the proposed
reforms to the structure of infrastructure grants to local government in order
to scale up the provision of well-located and affordable social housing as well
managed urbanisation can enhance economic growth.
4.19 The Committee notes that large capital
investments under way in the transport sector by states entities such as
Transnet and PRASA may result in higher productivity in the period ahead. The
Committee also welcomes government’s commitment to maintain its investment roll-out
programme and expand private sector participation in public sector investment
at all levels. The Committee is of the view that government should minimiseadministrative
bottlenecks as this would remove blockages to private sector participation in
the economy.
With regards to developing a capable and effective public service
4.20 The Committee notes with concern that
Human Resource Management was the weakest key performance areain the four
Management Practice Assessment Tool (MPAT) areas. This highlights a lack of
accountability for the management of government resources. The Committee remains concerned with the low
compliance in the signing and filing of Performance Agreements by Heads of Departments,
improper use of the Performance Management Development System; as well as poor discipline management in
departments.
4.21 The Committee notes with concern that the
Performance Management Development System is merely utilised as a
remunerative/punitive tool and not as a developmental tool and for ensuring
that service delivery targets of the department are achieved. The Committee
reiterates the need for performance agreements and assessments to be linked to Annual
Performance Plans (APP) so as to remove the anomaly of rewarding staff for
performance whilst APP targets are not achieved. With regard to discipline
management, the Committee is of the view that there should be guidelines to
ensure that disciplinary sanctions are standardised albeit the merit of each
disciplinary case should be fully considered.
4.22 The Committee supports the recommendation
by Public Service Commission for integrated planning and the alignment of
strategic, financial and human resource management standards; and views the
proposal for costing of Annual Performance Plans as potential critical factor to
be considered for the attainment of efficiencies and effectiveness in the use
of government resources. In addition, the Committee remains concerned with the
high vacancy rate within Departments.
5. Recommendations
The Standing Committee on Appropriations, having considered the 2014
Medium Term Budget Policy Statement, recommends as follows:
5.1 That the Minister of Finance should
ensure that:
5.1.1
National Treasury, in conjunction with the
Department of Planning, Monitoring and Evaluation develop systems and
mechanisms targeted specifically at the seamless alignment of budget functional
groups and Medium Term Strategic Framework 14 outcomes.
5.1.2
National Treasury, in conjunction with the
Department of Planning, Monitoring and Evaluation consider the establishment of
innovation unit that will identify and assess mechanism for scaling up best
practice across the public service in the areas of cost containment
efficiencies, MTEF planning and target formulation, job creation initiatives,
utilising shared services and the development on innovative solutions to the
delivery of public services. Active efforts should be made ensure that best
practice on efficiencies is disseminated to all parts of the public service.
5.1.3
National Treasury, in conjunction with the
Department of Planning, Monitoring and Evaluation consider the inclusion of
efficiency targets as a planning requirement in the frameworks guiding the
compilation of Strategic Plans and Annual Performance Plans.
5.1.4
National Treasury in partnership with the
Department of Higher Education and Training consider the mechanisms on
leveraging funding streams within the Sector Education and Training Authorities
and the National Skills Fund towards student funding in higher education,
especially increased funding for the National Student Financial Aid Scheme.
5.1.5
National Treasury, in consultation with the
Department of Basic Educationand with the assistance of the Financial and
Fiscal Commission, consider the formulation and development of a conditional
grant for the provision of scholar transport.
5.1.6
National Treasury, in consultation with the
Department of Basic Education should assess the effectiveness of the quintile
system with particular emphasis on ensuring that qualifying beneficiaries for
programmes such as school nutrition programme are adequately catered for.
5.1.7
National Treasury and the Department of
Higher Education consider developing systems for ring-fencing funds earmarked
for learnerships and internships in the public service and developing rigorous
frameworks in enhancing the quality of training entailed in these
learnership/internship.
5.1.8
National Treasury together with the
Department of Health consider ways of leveraging resources within available
funds for the provision of social and behavioral change
communication (SBCC) programmes to reduce the high HIV infection rate and other
health challenges.
5.1.9
National Treasury and the Department of
Higher Education develop and implement a capacity enhancement and support
initiative specifically aimed at the establishment of a Labour Market
Intelligence Unit towork on linking economy wide demand for the supply of
required skills.
5.2 That the Minister of Public Service and
Administration should ensure that:
5.2.1 the Department in conjunction with the
Department of Planning, Monitoring and Evaluation to consider the development
of systems and mechanisms to ensure that vetting processes are speedily
undertaken so as to ensure that all vacant posts across the public services are
timeously filled.
5.2.2 the Department in conjunction with the Department
of Planning, Monitoring and Evaluation to consider the development of technical
support systems to Executive Authorities and Heads of Departments on
finalisation of performance agreements.
5.3 That the Minister of
Basic Education should ensure that:
5.3.1 the
Department of Basic Education, in partnership with the Department of
Cooperative Governance and National Treasury
consider developing, , innovative bottom up approaches within the
current resource envelope for the provision of early childhood development
programmes in each district.
5.3.2 the
Department considers the development of innovative ways of ensuring the
effective rollout of schools’ infrastructure through partnerships with social
partners and the private sector.
6. Conclusion
The
responses by the relevant Executive Authorities to the recommendations as set
out in section 5 above must be sent to Parliament within 60 days of the adoption
of this report by the National Assembly.
Report
to be considered.