JOINT BUDGET COMMITTEE REPORT ON THE BUDGET AND MEDIUM TERM
EXPENDITURE FRAMEWORK FEBRUARY 2008
“The economic expansion since 1994 has allowed public spending to rise
rapidly in all areas…Over the period ahead, government’s spending plans again
allow for a progressive extension of public services, informed by the “apex
priorities” outlined by President Mbeki in the State of the Nation Address” – the Minister of Finance,
Hon. T Manuel, Budget Speech 2008.
Having considered the Appropriation
Bill [B 3-08 (s77)] and Division of Revenue 2008/09 [B 4-08 (s76) (1)] together with the Budget Review
and Estimates of National Expenditure (ENE), and after reviewing the policy
priorities as stated in the State of Nation Address (SONA), the Joint Budget
Committee reports as follows:
1. INTRODUCTION
The
Minister of Finance, the Hon. T Manuel, on 20 February 2008 tabled the budget –
along with the Budget Review and Estimates of National Expenditure (ENE)
2008/09-2010/11 which includes the Medium-Term Expenditure Framework (MTEF).
The budget was then referred to the Joint Budget Committee (JBC) (ATC 17 and 18
- 2008) to consider in terms of its mandate. The Committee is mandated to “consider proposed allocations in the
Medium-Term Expenditure Framework and the Appropriation Bill and whether these
allocations are broadly in keeping with the policy directions of Government.”
The
Committee, jointly with the Portfolio Committee on Finance, engaged with the
Minister of Finance, National Treasury and the South African Revenue Services
(SARS) on the budget and MTEF. Further engagements where held on the Financial
and Fiscal Commission’s (FFC) recommendations for the Division of Revenue. The
Committee then engaged separately with National Treasury on the Budget Review,
with a focus on medium-term priorities and the division of resources across
clusters.
This
report is divided into three sections. Firstly, it comments on the fiscal
framework, government priorities and the division of resources between spheres
of government, secondly on the medium-term expenditure framework and the
various government services and sectors and, lastly, on the Committee’s
recommendations. The report is in preparation for the First Reading Debate on
the Appropriation Bill.
2. THE
FISCAL FRAMEWORK AND BUDGET PRIORITIES
Uncertainties
in the global economy, rising inflation and supply constraints are expected to
inhibit
·
Investing in both economic and social infrastructure to facilitate
economic growth and access to basic services;
·
Improving education, health and other services to reduce poverty;
·
Enhancing job creation by supporting labour-absorbing industries and
expanding employment-intensive government programmes;
·
Improving the efficacy of police services and the justice system; and
·
Enhancing the effectiveness of economic and sectoral interventions
through the regulation of and support for business.
These
objectives are further defined through the identification of 24 apex priorities
for the forthcoming year. Specific interventions include, inter alia,
expanding industrial policy, implementing a campaign to save electricity,
consolidating skills development initiatives, strengthening the machinery of
state, accelerating employment and poverty alleviation programmes and revamping
the criminal justice system.
To accomplish
government’s developmental objectives, the 2008 budget and MTEF propose that an
additional R115.6 billion be added to the fiscus over the medium-term. Of the additional R115.6
billion, R78 billion is made available to national government, R45 billion for
provincial government and R14 billion for local government.
The Committee believes that for these additions to
advance government’s developmental agenda and enhance service delivery they
must be accompanied by robust departmental planning, implementation, monitoring
and timeous reporting. The Committee has consistently identified the
misalignment of government planning, budgeting, and financial management. This
includes under-spending, excessive virements i.e. shifting of funds between
programmes, and wasteful expenditure – which becomes increasingly evident
towards the end of the financial year.
Government
has set a target of realizing efficiency savings of R2.3 billion over the next
three years. Departments should clearly define how they intend to contribute to
meeting this target. The Committee, in its report on the 2007 MTBPS (ATC 137-
2007), asked National Treasury to develop a monitoring mechanism for government
and report progress on this initiative.
The
Committee has also taken cognisance of reforms to departmental budget formats
as reflected in the ENE, and specifically, as part of the Performance
Information Framework, the inclusion of quantifiable objectives and performance
indicators for each department. The Committee considers this as extremely
important development as it will provide the foundation for results-based
budgeting and improve oversight. The Committee will continue to engage National
Treasury on the budget format.
3. GOVERNMENT
SERVICES AND THE MEDIUM TERM EXPENDITURE FRAMEWORK
Governance
and Administration
While
the steady expansion of the fiscus is encouraging, the Committee maintains that
improved delivery is only possible if government develops the capacity to
absorb and spend resources effectively and efficiently. Although government
expenditure has improved, the Committee has noted ongoing challenges in
spending across all levels of government, which have compromised better service
delivery. The situation is acknowledged by National Treasury that: “growth in public spending has not
been matched by a concomitant improvement in service delivery”.
Given
the capacity constraints, the Committee agrees with the emphasis given in the
budget to training and capacity-building initiatives. Training expenditure in
national departments is set to grow by 15 percent over the next three years.
Government should give clear indicators on training and capacity-building
targets. As highlighted in the MTBPS report, it is essential that the South
African Management Development Institute (SAMDI), which receives an additional
R103 million over the MTEF, complete its restructuring process and focus on
implementation. It must also ensure that training programmes are of a high
quality and are fully implemented.
The
Committee is of the opinion that the recurring departmental vacancies are
having a negative impact on budgeting, spending and service delivery. However government’s
commitment to fill key posts during this year is a positive step but is not
sufficient. The Committee believes that government should extend this
commitment, which must be acted upon, to
all vacancies. In addition, there should be a clear correlation between human
resource plans and budgets in order to avoid excessive virements, especially
from compensation of employees, later in the year. The Committee will continue
to monitor this phenomenon closely and intervene if this trend persists.
The
integration of planning and information systems are prerequisites for
efficiency. Government has consequently undertaken to further align national,
provincial and local development plans. Given the severe capacity shortcomings
in many municipalities measures should be taken to ensure that the R1.5 billion
allocated to modernise local government budgeting and financial management systems
is well-spent. These resources must be matched by a discernible improvement in
financial management and the delivery of basic services.
As part of the
turnaround strategy to improve the capacity and organization of the Department
of Home Affairs (
To stimulate economic development
and job creation, the budget and MTEF provide a prudent R2.3 billion for
industrial policy initiatives and a further R5 billion in tax incentives. The
Committee agrees with these allocations but the swift implementation of the
Industrial Policy Action Plan is fundamental.
The Committee is aware that agriculture’s
contribution to the economy is well below its potential, which compromises
exports and food security. At the same time there is a pressing need to
finalize land restitution and accelerate distribution. While the budget
provides a significant cash injection for these sectors, it is important that
the departments of Land Affairs (DoLA) and Agriculture (DoA) overcome their
organizational deficiencies. Given the challenges there is a risk that the
allocated funds will not be efficiently, effectively and economically utilized. The challenges
confronting the Land Bank should also be addressed as a priority to overcome
wasteful and fruitless expenditure.
Public infrastructure and capital investment are
prerequisites for sustained growth, employment creation and the hosting a
successful 2010 World Cup. The budget and MTEF reflect a strong emphasis on
infrastructure investment with expenditure set to rise from R124 billion in
2007/08 to R210 billion in 2010/11 – a 1.5 percent increase as a percent of
GDP. A large share of proposed
investment has been earmarked for the built environment. Although
significant, infrastructure spending needs to accelerate over the long term.
Economic development depends on efficient transport systems. The
budget and MTEF reflect strong growth in the transport sector, with expenditure
set to reach R23 billion by 2010/11. The Committee agrees with the need for
accelerated investment in this sector but budgetary expansion must be matched
by the simultaneous expansion of monitoring and evaluation systems.
The housing sector budget is set
to increase at an annual average rate of 19.1 percent between 2007/08 and
2010/11, more than any other. As underlined in the MTBPS report, the lack of
capacity in the national Department of Housing (DoH), provinces and
municipalities as well as weaknesses in co-ordination could hamper service
delivery.
Power
shortages have reached critical proportions over the past months, jeopardizing
government’s economic development programmes. Investment in generation capacity
and energy conservation is therefore an urgent and obvious priority. Government
has indicated that it will invest up to R60 billion in Eskom over the next five
years, of which an estimated R20 billion will be spent over the MTEF period. This is a substantial and long-term investment in the
economy.
While
infrastructure expenditure has steadily improved it is critical that planning
and delivery of infrastructure is better aligned. This synchronization will
ensure optimal spending. It remains imperative for capital projects to be
accompanied by comprehensive maintenance plans, and the associated risks and
costs reduced through effective planning and monitoring. In this regard, the
Committee notes progress with the Infrastructure Delivery Implementation
Programme (IDIP) and looks forward to a report on the proposed integrated infrastructure plan.
The
skills deficit remains a serious and binding constraint. The budget reflects a
renewed emphasis on skills development – R1.4 billion is earmarked for the
Further Education and Training (FET) colleges and spending by the Sector
Education and Training Authorities (SETA’s) is projected to rise from
R6.8billion in 2007/08 to R9.1 billion by 2010/11. For these resources to be of
maximum benefit, however, the Committee is convinced that there should be
closer alignment between the programmes and curricula of these institutions and
a higher employment rate for graduates. In executing its oversight function the
Committee will call on government to report quarterly on progress with the
implementation of the findings of the recent SETA review.
The
social services continue to receive the largest share of revenue – 59.2 percent
of total expenditure for the budget period, growing to 60.5 percent over the
MTEF.
Social
assistance and welfare grants are important instruments in addressing poverty.
The budget and MTEF provide for the steady expansion of grants with an
additional R12 billion for inflation-related increases and the extension of the
Child Support Grant and Old Age Pension. These additions result in the social
welfare sector growing
by an annual average rate of 10.8 percent over the medium term. The
expansion of the social net is welcome however grants should be effectively administered
to ensure that funds reach the intended recipients within a reasonable time.
In terms of the ongoing reforms to the social
security system, the Committee has identified a number of proposals that will
have far-reaching budgeting implications for the sector. The Committee has also
noted the
suggestion to attach conditions to certain grants – such as linking the Child
Support Grant to school attendance – however such conditions could exclude the
marginalized unless government is able to simultaneously guarantee access to
basic services. The Committee intends
pursuing its oversight in this sector.
Education is recognized as pivotal to sustained
growth and reducing inequality and as the
foundation of a developmental state. The budget and MTEF proposals provide
continued financial support for the sector – which grows at an average annual
rate of 11.5 percent between 2007/08 and 2010/11. As highlighted in the 2007
MTBPS report, however, the sector has experienced a number of organizational
and budgeting challenges, which have, at times, led to serious disjuncture
between resources and outcomes.
The
health sector is facing a number of acute challenges including the lack of
personnel and inadequate infrastructure and capital equipment, which has
compromised the provision of basic health services. The Committee notes the
continued growth in the sector, with expenditure set to rise by an average
annual rate of 10.6 percent. While these
resources are
necessary, planning and co-ordination in the sector as well as the capacity of
the relevant departments to spend effectively remains a concern. The projected
under-expenditure by a number of provinces on hospital revitalization for
2007/08 is an example.
In
this regard, the implementation of concurrent functions and the apparent
failure by certain provinces to support national priorities remains an
extremely serious matter that should be urgently rectified. The Committee is
also of the view that the performance of the social services, especially in the
departments of education and health, is relatively difficult to quantify.
Despite the increased allocations to education and health, the Committee is of
the opinion that these are not commensurate qualitatively with the outcomes.
Justice and
Protection Services
Crime
remains at unacceptable levels, a situation which compromises both citizen
security and government’s social and economic initiatives. To reduce crime to
target levels, government has undertaken to revamp the criminal justice system
as an apex priority.
The
significant allocation of resources, over the MTEF period, to the Justice and Protection
cluster, is not effectively aligned with the stated outputs and outcomes. It is imperative that an improvement in
service delivery is linked to planned expenditure. More robust measures should
be implemented in the financial management and the reporting systems of the
cluster. The Committee expects the relevant institutions and departments to
finalize institutional arrangements and recruitment processes within the
shortest possible time.
The
Committee appreciates
the urgent need for new correctional facilities but is not
convinced that the department has the capacity to spend additional funds
effectively in this financial year, although the bulk of additional funds are
earmarked for 2010/11. Construction projects are typically high-risk in nature
– highlighted by the delays in the finalization of the Kimberley Correctional
Centre. The Department of Correctional Services (DCS) should satisfy Parliament
that it has taken account of all risks and operational implications relating to
these projects.
4. CONCLUDING REMARKS AND
RECOMMENDATIONS
The allocations
proposed in the budget and MTEF are broadly in line with the policy priorities of
government. However, the Joint Budget Committee has identified various
challenges and has reservations about the ability of certain sectors and
departments to absorb additional funds and spend their budgets with maximum effectiveness
and efficiency. Having scrutinized the bills before it, participated in the
budget hearings and subsequently deliberated, the Committee has made following
recommendations.
1.
Based on the directive in the State of the National of “Business Unusual”,
departments must ensure that they spend their budgets in line with
national priorities and their strategic plans, and avoid the current ad hoc utilization
of virements.
2.
National Departments should report to Parliament on spending, including
transfers to provinces and public entities in meeting national priorities. Such
reports should routinely include non-financial, performance information.
3.
Departments should accelerate the establishment of sound administrative
and financial systems to create an environment for effective and efficient
financial management. The development of realistic key performance indicators
should be included in this exercise.
4.
To effectively reduce the current unacceptably
high vacancy rates, affected departments should establish specific timeframes and
furnish the JBC, on quarterly basis, with the progress in the filling of funded
vacant posts. Notwithstanding the vacancy rate, effective and efficient service
delivery goes beyond the deployment of funds and personnel and requires
competency and commitment. The Committee therefore calls for a recommitment to
the Batho Pele principles by all public servants.
Lastly,
the Co-Chairperson would like to thank all those involved in the budget
hearings and in the compilation of the report.
Report to be considered.
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Co-Chairperson Hon. LL Mabe Co-Chairperson Hon. Mr BJ Mkhaliphi