ATC121115: Report of the Standing Committee on Appropriations on the 2012 Medium Term Budget Policy Statement, dated 14 November 2012

REPORT OF THE STANDING COMMITTEE ON APPROPRIATIONS ON THE 2012 MEDIUM TERM BUDGET POLICY STATEMENT, DATED 14 NOVEMBER 2012

Having considered and heard comments from identified stakeholders on the 2012 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 25 October 2012 as required by section 6 (1) of the Money Bill Amendment Procedures and Related Matters Act, No. 9 of 2009 (the Act), outlining the budget priorities of government for the medium term. The MTBPS was tabled together with the Division of Revenue Amendment Bill [B33 - 2012] and the Adjustments Appropriation Bill [B32 - 2012] 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 spending priorities of national government for the next three years;
• the proposed division of revenue between the spheres of government and between arms of government within a sphere for the next three years; and
• the proposed substantial adjustments to conditional grants to provinces and local government, if any.

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 2013 budget. The Committee, in order to deepen democracy, good governance and promote public participation during the budget process, public comments were invited. To give effect to this process a number of stakeholders were identified, namely,

· Public Service Commission (PSC);

· Human Sciences Research Council (HSRC); and

· Financial and Fiscal Commission (FFC).

In response to the advertisement that was placed in national newspapers, the Committee also received a written submission from Earth Life Africa.

The MTBPS was tabled amidst challenges of subdued growth in the world’s economy. The global outlook continues to deteriorate as the European debt and banking crisis remain unresolved. South Africa faces particular challenges such as a decrease in revenue collection, increase in government debt and recent domestic events such as the mining labour disputes. In an effort to respond to the challenges posed by the prevailing economic environment, the Minister of Finance pointed out the need to sustain public sector infrastructure investment, address the domestic and structural imbalances that permeate the country’s socio-economic landscape and institute measures to ensure that government realises value for money in its expenditure. Furthermore, shifts in the composition of expenditure are being made towards infrastructure investment, economic competitiveness and education and health care. In doing this, consideration must be given to the maintenance of discipline in administrative costs and consumption spending. Despite the reduction in revenues, the Minister highlighted the opportunity to expand infrastructure investment, broaden the social wage and continue with efforts at a revival of investment in productive activity. Better planning in government for projects including those that are still in the pipeline as well as the implementation of reforms in provincial and municipal infrastructure delivery will be critical moving into the future.

It is against this background that the Committee engaged with the public and identified stakeholders on the MTBPS.

2. Medium Term Expenditure Framework

In the Fourth Parliament, government adopted an outcome based approach and prioritised its resources in the following areas:

• job creation initiatives;
• enhancing the quality of education and skills development;
• provision of quality health care;
• driving a more comprehensive rural development strategy; and
• intensifying the fight against crime and corruption.

In the 2012 policy statement the Minister of Finance pointed out that in order for Government to afford its priorities now and in the future, the rate of growth in public spending must be moderated. The fiscus does not increase funds available beyond the 2012 budget baseline. The spending framework takes account of the need to increase efficiency of existing allocations to improve public services.

The proposed medium term budget framework proposes a total appropriation of R1.05 trillion in 2013/14, R1.14 trillion in 2014/15 and R1.23 trillion in 2015/16. This translates into expenditure growth of around 8 per cent a year or 3 per cent in real terms. Debt service costs will increase from R98.6 billion in 2013/14 to R106.8 billion in 2014/15 and reach R114.8 billion in the 2015/16 financial year.

Debt service costs continue to outpace the overall growth in expenditure In particular; the costs of servicing government debt are projected to grow at an annual average of 8.9 percent in nominal terms over the medium term.

The 2013/14 medium term budget framework allocates 47 per cent to national departments, 44 per cent to provincial departments and 9 per cent to local government. Budget allocations to the national sphere increase by 7.4 per cent over the MTEF period, provincial allocations increase by 7.1 per cent and local government allocations increase by 9.1 per cent. The reprioritisation of funds in the next three years amounts to R40 billion. National Treasury considered the requirements of the public-sector wage bill, education and health in the share of additional allocations for the provincial sphere. Increased infrastructure investment and costs emanating from the wage bill were key considerations on additional allocations whilst infrastructure priorities were the main drivers for adjustments to the local government sphere allocations.

Expenditure in health services is projected to moderate in the 2013/14 medium term budget framework. This follows significant growth in health spending in the past five years which averaged 15.8 percent per annum. Priority areas in health spending over the medium term will be on the roll-out of an improved diagnostic test to tuberculosis, additional allocations for the HIV/AIDS programme and investments in health and hospital infrastructure.

In social development, the number of grant beneficiaries is forecast to increase from 16.2 million in 2012/13 to 17.3 million in 2015/16. The budget provides for the recruitment of graduates from the social worker scholarship programme. The sector is to realise savings of about R450 million per year as a result of the new grants administration contract. Savings realised will be allocated to improvements in the South African Social Security Agency’s (SASSA) infrastructure system.

Priority areas in the education function for the medium term are to improve the quality of educational outcomes, develop a skilled and capable workforce and the promotion of an inclusive citizenship. The education function remains the largest expenditure item in the budget framework, increasing from R234 billion in 2012/13 to R268.9 billion in 2014/15. Additional funds flowing from internal reprioritisation will be allocated to the Education Infrastructure Grant to provinces and the Community Library Grant to support the construction of new universities in Mpumalanga and Northern Cape . Government plans to achieve better performance in infrastructure delivery through new approaches such as requirements for provinces to bid for allocations two years in advance and build into the grants financial incentives for provinces implementing best practices in infrastructure delivery.

Funding for the local government and housing function grows by an annual average of 9.0 per cent in the medium term from R121.7 billion in 2012/13 to R157.5 billion in 2015/16. Due to slow spending on the Municipal Infrastructure Grant, funds are to be reprioritised to a new interim water supply programme. The provision of water and sanitation services has expanded steadily over time with just over 10 million households serviced in 2011/12. Additional funding will be allocated to regional bulk water supply, acid mine drainage, De Hoop Dam pipelines, a pipeline from Flag Boshielo to Mokopane and waste water management at Magalies Water.

Government is committed to expanding employment opportunities through active labour market policies and investments in a variety of public works and special employment programmes. Additional funding will be provided in the medium term to the Department of Labour’s public employment services. The Department of Public Works will spend over R4 billion in incentive grants to expanded public works projects implemented in the provincial and local government sphere. The 2013/14 MTEF provides for R7.6 billion for the Community Works Programme (CWP) and R8.5 billion for environmental programmes. The budget will include funding for non-governmental organisations (NGOs) that participate in non-state sector employment programmes. While there has been slow progress in establishing administrative capacity for the Employment Creation Facilitation Fund (Jobs Fund), an amount of R9 billion is expected to be committed to the fund over a five year period.

The budget framework provides for growth in funding for transport, energy and communication from R83.5 billion in 2012/13 to R105.1 billion in the 2015/16 financial year. Government recognises that investment in infrastructure is central to improving competitiveness, modernising the economy and enhancing the growth potential of the economy. The 2013/14 budget will focus on national public transport, national road upgrades, provincial road maintenance, electrification upgrades and information communications technology (ICT) investment. Expenditure on rail services is projected to grow an average annual rate of 19.7 percent in the medium term. Funding will be allocated for upgrades to municipal electricity distribution. Additional allocations will be set aside for digital television broadcasting and a new broadband strategy once approved by Cabinet.

Government is committed to efforts geared at improving the growth potential of the economy. Funding allocations for government economic services will increase from R44.6 billion in 2012/13 to R52.6 billion in 2015/16. The Departments of Agriculture, Forestry and Fisheries; and Rural Development and Land Reform account for over 50 per cent of spending on economic services. The National Youth Rural Services Corps (NAYRSEC) has recruited 8 000 young people to work in rural communities. The 2013/14 budget makes available over R10 billion for the economic competitiveness support package announced in 2011. There will be additional resources allocated to the Department of Minerals Resources for support for the beneficiation strategy, regulatory obligations associated with shale gas exploration, the rehabilitation of the approximately 6 000 derelict and ownerless mines and the implementation of amendments to the National Environmental Management Act.

South Africa and Australia have been selected to host the global astronomy project known as the Square Kilometre Array (SKA). The budget framework makes provision for South Africa ’s leading role in the radio-telescope project, which is an international project that is expected to attract global funding of R20 billion over the long term. The science and technology function funding allocation rises from R14.5 billion in 2013/14 to R16.0 billion in 2015/16.

The budget framework provides for growth in allocations in the general public services function of 5.2 per cent a year from R53.3 billion in 2012/13 to R62.1 billion in 2015/16. The Department of Public Works is allocated R400 million for the implementation of its turnaround strategy to stabilise its operations. The turnaround strategy includes clean audit interventions, anti-corruption and maladministration initiatives and improvements in technical capacity.

Consolidated spending on defence, public order and safety will grow at an annual average rate of 6.2 per cent in the medium term from R141.7 billion in 2012/13 to R169.8 billion in 2015/16. The serious crime rate per 100 000 of the population has declined from 4 299 in 2008/09 to 4 126 in 2011/12. Priority areas for reprioritised funds within the Department of Police are to support expanded detective and forensic capability.

3. Public Hearings

3.1 Public Service Commission

The Public Service Commission was invited to comment on the 2012 MTBPS. In its submission it addressed the following issues:

• Governance

- Government expenditure vs. performance outcomes;

- The quality of performance information;

- Service delivery improvement;

- Filing of Performance Agreements ( PAs ) by Heads of Department ( HoDs );

- National Anti-Corruption Hotline; and

- Financial Disclosure Framework and Financial Misconduct;

• Effective and Efficient Performance

- Quality of service delivery with focus on electricity, access to water, education, health, and housing;

- Delivery in relation to need; and

- Unemployment and government programmes

• Human Capital Management

- Reflections on the public service wage bill;

- Areas of focus included organisational design and human resource planning, vacancy rate, average time it takes to fill posts, average tenure by SMS members, Human Resources Development and critical skills; and

- Management of Discipline

3.1.1 Governance

In its submission, the Public Service Commission (the Commission) noted that deficiencies in the public service are partly responsible for the lack of success in accelerating development in post-apartheid South Africa . The Commission focused its presentation on departments which were directly contributing to government’s five policy priorities. While most departments recorded expenditure that was above 90 per cent in 2010/11 and 2011/12, average performance against predetermined targets was below 60 per cent. For example, the Department of Agriculture, Forestry and Fisheries had spent 99.3 per cent of its budget allocation for 2011/12 but attained only 41 per cent of its performance targets. Moreover, the quality of submitted performance information remains poor. The performance information submitted in 2010/11 and 2011/12 by the Departments of Agriculture, Forestry and Fisheries, Basic Education, Cooperative Governance and Traditional Affairs; and Rural Development and Land Reform was found to be not useful nor reliable. In many instances performance information found in annual reports overwhelms, rather than enhance oversight.

The Commission pointed out that government recognised the need for improvements in public service but this needed to be supported by realistic and achievable plans. Over 74 per cent of departments assessed themselves as either non-compliant or only partially compliant in service delivery improvement requirements. Moreover, overall compliance with the submission of Performance Agreements ( PAs ) of Head of Department ( HoDs ) was 57 per cent nationally and 73 per cent provincially.

The Commission noted that there was insuffient capacity to deal with cases reported to the National Anti-Corruption Hotline. There are no consequences imposed for incidents of irregular, fruitless, wasteful and unauthorised expenditure. The Commission assessed financial disclosures of Senior Management Service (SMS) members and found that only 48 per cent of national and provincial departments complied with the financial disclosure framework. The financial disclosures of a selected number of departments indicated that just over a third of SMS members had potential conflicts of interest.

The Committee was concerned about the accessibility of the findings and recommendations of the Commission to Cabinet. The Commission indicated that it made regular submissions to Cabinet on all its findings.

3.1.2 Effective and Efficient Performance

The Commission noted that while there have been expansions in the levels of delivery of basic services; these have paradoxically been followed by rising levels of service delivery protests. In a recent survey on the levels of satisfaction with service at a public health facility, over 62 per cent of respondents said they were very satisfied with the service rendered. Survey results reveal that the main concerns of those enrolled at educational institutions were a lack of books, high tuition fees and large classes. Government needed to communicate its achievements more directly to citizens.

Unemployment remained high at 25 per cent (narrow definition) and highly skewed with the largest number of the unemployed concentrated in the former homelands. The Commission saw the provision of short term employment programmes as a rational and appropriate response to expanding employment. The Expanded Public Works Programme (EPWP) created work opportunities for over 3 million individuals in 2011/12 whilst the CWP had over 100 000 participants in 2011/12. The CWP was viewed as more developmental as it was more community oriented and focused on local priorities. However, it was noted that the size of these government employment programmes was still relatively small.

Approximately 17 million people or 30 per cent of South Africa ’s population still resided in the former homelands. Only about a third of working age adults in the former homelands have a primary education compared to less than a quarter in the rest of the country. The impact of rural development is still unclear in the rural areas and there is no clear relationship between land reform and rural development. The Commission called for the need for additional allocations for the establishment of logistics and marketing institutions; education and health care services in rural areas.

An additional challenge to the effective implementation of governments’ rural development programmes were the high costs incurred. For example, implementing the Community Rural Development Programme (CRDP) in Diyatalawa cost the State R200 000 per household in the provision of housing units and community amenities. The CRDP rollout illustrated that taking the programme to scale is not viable and the work done by the Department of Rural development and Land reform is a duplication of work done by other departments.

The establishment of the NARYSEC has contributed to youth employment and skills development in rural areas but employment in rural areas is still lower today than it was in 2009. The effective implementation of rural development programmes and expansion in the Community Programmes were seen as critical in the alleviation of unemployment in rural areas.

Overall, government performance in many instances is uneven and inconsistent. A contributing factor is the complex regulatory framework which promotes compliance over effective service delivery. Public services need to be systematic and comprehensive. Examples include the inadequate provision of extension services to emerging farmers following the granting of farm land.

3.1.3 Human Capital Management

The MTBPS shows that personnel spending have increased from 33 per cent of total government expenditure in 2008/09 to 35 per cent in 2012/13. The 2013 Budget framework seeks to limit the share for compensation of employees of total expenditure to 34 per cent in 2015/16.

The Commission viewed the signing of the multi-year public service wage agreement as a positive step in containing the State wage bill. There was however a need to link wage and salary increases to productivity. The Commission was also supportive of the announcement by the Department of Public Service and Administration (DPSA) of the development of principles that would govern increases in remuneration wherein salary increases were based on productivity and performance improvements.

With regards to human resource strategies of government departments, over 65 per cent of departments rated themselves as not complying with the prescripts of organisational design and ensuring that all positions on the approved structure were funded. Just fewer than 90 per cent of departments had vacancy rates of above 10 per cent for professionals and Senior Management Service (SMS) members. The Commission was concerned that human resource management frameworks had become too complex. The State’s human resource strategies needed to be streamlined and simplified.

In respect of human resource development, results of a study on a sample of 30 departments found that 43 per cent of the sampled departments had never conducted a skills audit. Distribution of personnel was skewed in some departments resulting in high concentrations of lower and semi-skilled employees. The Commission pointed out the need to improve opportunities for specialisation in skilled occupations. Addressing the skills shortages in specialised personnel such as architects, town and traffic planners, engineers, quantity surveyors, chemists, etc was critical in attaining the objectives of government’s human resource development plans.

The Commission was concerned at the short tenure by SMS members on a given salary band. In a sample of 11 departments assessed by the Commission, the average tenure of employees on salary level 14 was three years before being promoted to salary level 15. This was deemed as insufficient to consolidate the necessary experience. Concern was also expressed at the poor management of discipline within the public service which was characterised by long periods of precautionary suspensions due to the poor management of disciplinary proceedings.

The State needed to reconfigure its overarching approach to human capital management and human resource regulatory framework so that it became more sensitive to the unique challenges facing the country and capacity constraints that permeate the public service. The Commission pointed out that it was unrealistic to expect each state entity to take responsibility of its own human resource management and development practices. The Committee noted and supported the signing of the multi-year public service wage agreement.

The Committee noted the findings by the Public Service Commission on the lack of usefulness and the lack of reliability of the information contained in Annual Reports.

Concern was expressed by the Committee at the level of compliance to the financial disclosure framework by SMS members of state entities and the potential conflicts of interests arising from SMS members’ ownership of companies that deal directly with the state.

The Committee notes with concern the compliance oriented approach that has developed in the public service. In particular, the cumbersome human resource management frameworks do not seem to position government for effective and efficient service delivery.

3.2 Human Sciences Research Council

The Human Sciences Research Council (HSRC) was invited to comment on the 2012 MTBPS. In its submission it addressed the following issues:

• Health

- What can be done to ensure that the health system is ready for the implementation of the National Health Insurance (NHI)?

• Education

- What can be done to improve the delivery of schools infrastructure
and quality education?

-

• Job Creation

- Which areas of Government’s core delivery mandate can realise the most jobs?

- How can these be unlocked?

• Infrastructure

- What can be done to improve the effective delivery of governments infrastructure programme?

• Rural Development

- How can expenditure be improved to attain the best outcomes with regard to rural development?

3.2.1 Health

The MTBPS makes provision for spending on healthcare in the medium term on a number of priority areas which include the rollout of an improved diagnostic test to tuberculosis, additional allocations for the HIV/AIDS programme and investments in health and hospital infrastructure. National Treasury indicated that the provision of additional funding for the National Health Insurance (NHI) would be dependent on progress on institutional reforms and progress on the capacity of the health system to provide services.

The HSRC outlined the main objectives of NHI as the creation of a single fund which consolidated all risks into one fund, procured services on behalf of the entire population, improve the resourcing of the public health sector and improve the quality of health services for all. While there were a number of initiatives underway in the planning phase of the NHI, the Council was concerned that these were concurrent with a decline in government health expenditure.

With regards to the performance of the NHI conditional grant, the Council pointed out a number of factors that were hampering the rollout of the grant. The budget allocations for the NHI were deemed inadequate for visible and meaningful demonstration of the various components of NHI and there were challenges such as lack of delegations to teams managing NHI Pilot sites and Supply Chain Management issues. The Council suggested that the NHI conditional grant be changed from a Schedule 5 to a Schedule 7 grant.

The HSRC also pointed out that the establishment of a NHI fund was required. The Department of Health can establish a shadow operational unit for the NHI fund. The shadow unit should be capacitated and resourced to undertake preparatory work for the implementation of the NHI. The Council viewed the shadow unit as a crucial institutional infrastructure for delivery. This will ensure that NHI is understood in a coherent manner that is consistent across provinces.

The Council pointed out the need to establish ICT infrastructure for NHI that will consolidate all data for the entire population and link with systems of other entities such as the Department of Home Affairs. The NHI will also need to develop a risk system that will detect and manage cases of fraud such as the overcharging of services rendered and link the system with the South African Revenue Services (SARS).

The HSRC pointed out that the Department of Health ( DoH ) should add an additional 10 pilot districts as per the green paper and these should seek to address the design and test of a sub-national structure of the NHI fund; and DoH to pilot test models for the integration of public and private sectors in the provision of healthcare.

While the Committee noted efforts at repriotisation of funds within the Department of Health for the medium term. The Committee was concerned at the impact that moderate budget increases for the health sector will have on the implementation of the National Health Insurance (NHI) and to allocations for medical goods and services such as medicines and medical equipment.

The HSRC noted that implementation of the NHI has been hampered by a lack of a common understanding of operational requirements of the project by the different spheres of government. The main concern was that there existed competing action plans from the different spheres of government in the implementation of common policy objectives.

The Committee noted the Council’s suggestion for the NHI conditional grant to be changed from a Schedule 5 grant to a Schedule 7 grant. The NHI grant should be able to cover services at Primary Health Care (PHC) level.

3.2.2 Education

The 2012 MTBPS maintains the spending trajectory of government in terms of preserving the resource envelope for critical government priorities such as education. The largest share of consolidated government expenditure, R234 billion, goes to education and related activities for the 2012/13 financial year.

The Council was concerned at the prevailing inequalities that permeate the South African school system. The education system has been unable to significantly reduce infrastructure inequalities and personnel deficits in schools among disadvantaged communities in the 18 years of democracy. Poor quality education significantly limited the future success of learners in the labour market.

With regards to infrastructure shortfalls, out of the 24 793 total number of schools in the country, 14 per cent did not have access to electricity, 10 per cent had no access to clean water and 93 per cent had no stocked library. A conducive schools environment that facilitates effective teaching and learning would need to cater for classrooms according to the enrolment as per the teacher- learner ratio.

The Council was concerned at the high levels of under spending on infrastructure budgets by provinces. Provinces that showed vast under-expenditure were the Eastern Cape and North West . While the Council supported the Accelerated Schools Infrastructure Initiative (ASIDI) programme, the main concern was the significant under-expenditure in the programme with less than 10 per cent of the projected budget spent as at March 2012.

The Council urged for the finalisation of National Norms and Standards for Schools infrastructure. While calls for submission on National Norms and Standards were released in 2008, the formalisation of norms and standards has yet to be finalised. The Council viewed the formalisation of official norms and standards as critical in providing guidance to the development of basic indicators of adequacy and conducive learning space.

For improved results in the roll-out of schools infrastructure, there needed to be clear roles defined for the Department of Basic Education and the Department of Public Works. While the National Education Infrastructure Management System ( NEIMS) and other indicators could be used to cost and implement a multi-year budget to address deficits, systems need to be developed to effectively connect public works and the schooling system.

The Committee noted the high degree of under-expenditure in the ASIDI programme and was further concerned about the possible under expenditure for this grant in the 2012/13 financial year .

The Committee noted that the formalisation of norms and standards for schools infrastructure was important for the roll-out of a uniform quality schools infrastructure nationally.

Concern was expressed by the HSRC at the lack of clearly defined roles for the Department of Basic Education and the Department of Public Works in the roll-out of schools infrastructure.

3.2.3 Job Creation

The MTBPS noted that employment gains have decelerated in the past year as growth in the domestic economy continued to slow. The number of persons employed in the public sector increased by 38 000 whilst that of the private sector increased by 87 000. An additional 1.1 million South Africans have been classified as discouraged since the end of 2008.

The Council noted that efforts at accelerating job creation needed to be evaluated in the context of global and domestic economic developments. In terms of the global context, there were real concerns regarding the uncertainties in the United States , the slowdown of growth in China and India ; and the stagnation of the European economy. However, there were still opportunities for growth in the Southern African Development Community (SADC) region.

In terms of the domestic context, ongoing industrial disputes posed a significant threat to the economy’s growth trajectory, business confidence remained weak, private sector investment needs to increase and there has been a decline in foreign direct investment. However, positive developments include the maintenance of fiscal stability and increased public infrastructure investment.

The Council noted that the budget framework provided for a real increase in spending although this would cater mainly for the higher government wage bill. The Government needs to increase efforts at improving the quality of spending. In particular, the Council urged for a shift in the spending composition towards infrastructure investment, industrial policy and expanding the social wage. There should be less spending on consumption items such as administrative costs, staff salaries and wasteful spending.

According to the Council, the main area of job growth would be in Government’s public works programme. Projections indicate increased employment in infrastructure, construction, agriculture, manufacturing, mining; green economy and even more substantial increases in jobs for tourism, business services and consumer services sectors.

The Council pointed to uncertainties on how to effectively promote labour absorbing growth. The relationship between the private and public sector remained unclear. There are still no firm proposals on alleviating youth unemployment. There remained uncertainties on the strategy and practical implementation of the Jobs Fund. The Council emphasised that addressing these uncertainties was critical in efforts to expand the country’s levels of employment.

3.2.4 Infrastructure

The 2012 budget provided for R844.5 billion in planned and approved public sector infrastructure projects. The 2012 MTBPS allocated funds to social and community infrastructure projects such as schools, health facilities, and secondary roads. The bulk of the spending on infrastructure was to be financed from the balance sheets of State Owned Entities ( SOEs ). Costs would be recovered by charges levied on users.

With regards to infrastructure delivery, the Council cited a number of challenges that needed to be addressed and these include:

- Weak implementation capacity that causes significant delays and cost over-runs

- Poor project planning

- Poor coordination amongst government agencies and spheres of government

- Lack of partnerships between government and the private sector

The Council welcomed the formation of the Presidential Infrastructure Coordinating Commission (PICC). The PICC was formed to coordinate and accelerate the long term infrastructure build. The Council viewed the PICC as an important step in enhancing collaboration amongst State entities and removing barriers to inefficiencies. The Council also urged for the inclusion of participatory elements in Government’s plans for improving the delivery of infrastructure.

In the MTBPS it is stated that government needs to improve on the overall effectiveness of infrastructure delivery and locate efficiencies within the delivery chain. There is recognition that large scale projects have the potential for corruption and maladministration. The Council has forged links with the Construction Sector Transparency Initiative (COST) whose aim was to ensure transparency at every stage of the infrastructure development process. COST will complement rather than replace the state’s existing supervision and regulatory framework. The Council viewed the rollout of the initiative as key in enhancing the levels of transparency in the delivery of major infrastructure and ensuring that communities obtain value for money on infrastructure projects.

The Committee supported proposals for a participatory approach that involve communities in the delivery of government infrastructure programmes. Initiatives such as COST may improve levels of transparency in the rollout of large infrastructure projects.

3.2.5 Rural Development

The budget framework makes provision for funding allocations of R15 billion to rural development, land reform and agricultural development. However, the budget allocation to the lead departments in the implementation of rural development constituted less than two per cent of the total national budget. HSRC indicated that current levels of spending on rural development was far below the 2003 Maputo Declaration which stated that every Southern African Development Community (SADC) member is to allocate 10 per cent of the national budget for agricultural development.

The Council noted that 62 per cent of land reform expenditure is now allocated towards the "proactive land acquisition" by the state. Direct land grant transfers to beneficiaries have fallen from 47 per cent in 2009/10 to 22 per cent in the 2012/13 financial year. However, the main concern was the lack of emphasis on the importance of smallholder farming. HSRC indicated smallholder farming has been successful in emerging economies such as Brazil .

The Council urged for the development of new infrastructure and the revitalization of old infrastructure in rural areas. The Council welcomed projects such as the I-school Africa programme (13 Comprehensive Rural Development Programme (CRDP) schools) which sought to improve access to ICT in rural schools. Other positive initiatives included the rollout of several pilot projects for rural infrastructure development based on green principles.

The Council indicated that the NARYSEC was a core focus of the rural development programme and constituted over 40 per cent of the programme’s budget allocation. For each year over the MTEF, 5 000 new youths will be enrolled in NARYSEC. The Committee was concerned at the lack of a visible link between NARYSEC and the National Youth Development Agency (NYDA).

The Council highlighted the sharp fall in primary agricultural employment in the past decade. Employment in primary agriculture has declined from 2.5 million workers in 2000 to less than a million in 2011. In terms of state support, small farm households do appear to have access to state sponsored Agricultural Development Support (ADS). However, the Council had concerns with reported beneficiary numbers and could not ascertain the impact that ADS is having on the livelihoods of small farm households.

With regards to household food security, 3.2 million households were deemed to be food insecure in 2011. The Council indicated that rapid food price inflation was a real threat to food security. Food distribution was regarded as the main challenge to ensuring food security rather than food production. Hence food distribution should be the main area of focus for policy development.

The Committee is concerned at the high number of food insecure households in the country which constituted 21.5 per cent of total households in 2011. The Committee noted the importance of food distribution in increasing the number of food secure households.

The Committee notes government support to small farm households through the Agricultural Development Support (ADS). However, the Committee was concerned at the lack of a visible impact of the programme on the livelihoods of small farm households.

3.3 Financial and Fiscal Commission

The Financial and Fiscal Commission (FFC) in its submission welcomed the 2012 MTBPS and viewed the proposed budget framework as reflective of the recommendations that the FFC has made over the years. The Commission stated that economic growth has come in slower than expected and this has been exacerbated by internal strife in the labour markets resulting in a downward revision of revenue by R5 billion and a higher than projected budget deficit. However, the Commission was also of the view that growth and employment in South Africa can only be achieved through a combination of fiscal consolidation and investment into future growth given the prevailing economic climate.

The Commission was broadly supportive of government’s initiatives at job creation which seek to focus on active labour market policies and amended labour legislation. Furthermore, FFC supported proposed supplementary funding for maintaining factories providing jobs for disabled workers, expansion of employment opportunities through public works and special employment programmes (including EPWP and CWP).

The FFC noted that Government has now made many proposals to stimulate job creation that include promoting education and skills development, the Manufacturing Competitiveness Enhancement Programme, the Jobs Fund, a Youth Subsidy, the Community Works and Expanded Public Works Programmes and the investment infrastructure programme. However, the Commission was concerned at the muted response to these proposals by business and labour. There was a need to foster cooperation amongst all parties on initiatives that seek to broaden employment.

With regard to education, it was stated that due consideration should be made for operational costs of school infrastructure such as the safeguarding, maintenance and operation of completed school infrastructure. The Commission indicated that most schools did not have the required conditions for effective learning outcomes and this impacted learners from disadvantaged backgrounds and disabled learners’ disproportionately.

The Commission cautioned against fiscal consolidation through the indiscriminate cutting of education expenditure such as delayed or decreased funding to schools as there were concerns about the associated capability losses. Cost cutting should be done in a prudent manner that will not negatively affect educational outcomes.

The budget framework provides for 0.2 per cent real growth in health spending over the MTEF. FFC welcomed government’s efforts at obtaining value for money from health spending. However, the Commission was concerned at the impact of fiscal consolidation to the quality of health care in an environment where provinces put salaries as a first claim on the fiscus above medicines and the maintenance and upkeep of medical equipment. There will need to be tighter monitoring of health budgets in the medium term.

Given the efficiency challenges plaguing provincial Health Departments, the Commission suggested that human resource, financial management and procurement should be devolved to hospital management to in order to improve efficiencies. Furthermore, FFC called for the establishment of norms and standards that will define the level of service that should be expected from public health facilities.

With regard to social development, the budget framework reprioritises funds already in the baseline towards strengthening selected child welfare programmes, improving SASSA infrastructure and systems, and the employment of additional social workers. The Commission was concerned that provincial departments of social development were internally prioritizing away from transfers to NGOs to personnel costs and goods and services. This will have a negative effect on the resource envelope available to NGOs.

The MTBPS proposes a number of reforms in the conditional grant frameworks with a view to improve conditional grant spending in the provincial and local spheres of government. The MTBPS calls for a performance linked and demand driven conditional framework for provinces. The FFC supports the reform in principle but calls for caution in its implementation as it may entrench inter-provincial inequities. The other main concerns with the conditional framework were the continual proliferation of grants, shortcomings of national departments in administering grant frameworks and the need to make transferring officers more accountable for grant performance.

The Commission indicated that it was important to strengthen the monitoring and evaluation of local government grant outcomes as improved spending was not always linked with better outcomes.

In pursuing constitutional interventions in local government, the State had to be mindful of balancing capacity and accountability. The FFC proposed for enabling legislation for constitutional interventions that foster the current accountability and oversight frameworks of government. The main concern was that punitive measures may be counterproductive. The Commission recommended that a framework be developed for Section 100 interventions. The framework should outline the parameters for the intervention, contain clearly defined roles and responsibilities for all stakeholders and define clear timelines.

3.4 Earth Life

Earth Life proposed the following with regard to the 2012 MTBPS:

· The Department of Energy should complete an accurate cost analysis of proposed future nuclear energy that takes account of all relevant information. The provision of R1.7 billion allocated to the South African Nuclear Energy Corporation (NECSA) should not be approved until:

- Integrated Resource Plan (“IRP”) has been revised so as to address the shortcomings of the IRP 2010 relating to the costing of the nuclear program and should include:

o an accurate cost analysis of nuclear energy procurement

o all relevant information not included in the IRP 2010

o an update of information that has arisen in the two years since the IRP 2010;

· The Department of Energy should be required to act in a more transparent manner, providing adequate information to the public and Parliament as to its intentions and the decisions being taken regarding this proposed procurement;

· That funds budgeted for large-scale energy procurement should be conditional on greater parliamentary oversight;

· That there is a risk that South Africa will commit itself to order a large number of reactors that will impose huge additional costs on consumers. However, the more likely risk is that, as in 2008, the nuclear programme will prove impossible.

4. Committee Concerns and Findings

Having considered all the submissions made by the above stakeholders, the Committee identified the following findings and areas of concern:

4.1 The Committee notes that the Division of Revenue Bill contains clauses that specify criteria and conditions in which infrastructure funds may be allocated and the Committee’s view is that similar conditions should be incorporated into the Appropriation Bill.

4.2 The Committee noted with concern the slow implementation of the Job Fund.

4.3 The Committee noted the declared savings of R3.021 billion in 2012/13 by national departments and envisaged savings in the medium term. The Committee however expressed concern at the lack of distinction between savings and under expenditure as well as the adverse effect of under expenditure on the performance by departments.

4.4 The Committee welcomed the reforms aimed at improving the conditional grant frameworks for provincial and local government but remained concerned at the cost of employing implementing agents.

4.5 The Committee expressed concern about the planning in the longer term by departments given the advantage that they should derive from the Medium Term Expenditure Framework.

4.6 The Committee welcomed the additional funding made available for infrastructure projects administered by the Department of Water Affairs but remain concerned at the readiness of the Department to implement the projects given the persistent under expenditure on infrastructure projects over the years.

4.7 The Committee welcomed the Public Service Commission’s proposal to develop a legal framework that will empower the Commission to enforce compliance with its recommendations.

4.8 The Committee noted government’s commitment for more prudent expenditure by departments however, it is the Committee’s view that such reprioritisation of funds should not be done at the expense of service delivery.

4.9 The Committee noted the challenges experienced by national departments to administer grant frameworks and stressed the need to make transferring entities more accountable for the performance achieved by way of transferred funds.

4.10 The Committee noted with concern the shifting of funds originally budgeted for filling vacant positions; and the extent to which this could negatively affect service delivery and budget performance over the Medium Term Expenditure Framework (MTEF) period.

4.11 The Committee is concerned about the decentralisation of infrastructure development to departments without such departments having the necessary capacity or skills to perform the tasks or where the tasks allocated fall outside the core functions of the departments.

5. Committee Recommendations

Based on the findings in section 4 above, the Standing Committee on Appropriations recommends that:

5.1 The National Treasury reports to Parliament on:

5.1.1 Declared savings and projected underspending by departments and the effect thereof on performance targets of departments. The minimisation of costs associated with the employment of implementing agents for delivery of infrastructural programmes.

5.1.2 The possibility of reviewing the MTEF budgeting framework so as to strengthen the management, planning and spending in government departments to ensure credible budgets.

5.2 The Department of Water Affairs submits a report on:

5.2.1 The Turnaround plan outlining its readiness to implement and effectively deliver on its infrastructure programme.

5.2.2 The human resource capacity and concomitant skills required for effective service delivery.

5.2.3 The immediate steps to eliminate the backlog on issuing of water distribution licences.

5.3 The Department of Public Service and Administration-

5.3.1 Puts in place measures to ensure full compliance with financial disclosure frameworks and mechanisms to detect and prevent potential conflicts of interest particularly as far as officials transacting with the state are concerned.

5.3.2 Ensures the filling of funded vacancies within six months.

5.4 The Department of Basic Education expedites the process of formalising norms and standards for schools infrastructure.

5.5 The National Treasury puts in place measures to ensure that transferring entities are held accountable for the administration and performance of the conditional grants.

5.6 The Department of Performance Monitoring and Evaluation reviews the performance of agricultural support programmes and their impact on the livelihoods of people residing in rural areas.

Report to be considered.