ATC131105: Report of the Standing Committee on Appropriations on the 2013 Medium Term Budget Policy Statement, dated 05 November 2013

Report of the Standing Committee on Appropriations on the 2013 Medium Term Budget Policy Statement, dated 05 November 2013

Having considered and heard comments from identified stakeholders on the 2013 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 23 October 2013 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 2013 MTBPS was tabled with the Division of Revenue Amendment Bill [B38 - 2013] and the Adjustments Appropriation Bill [B37 - 2013] 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 2014 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,

• Financial and Fiscal Commission (FFC);
• Human Sciences Research Council (HSRC); and
• Public Service Commission (PSC).

No responses were received to the advertisement that was placed by the Committee inviting individuals and organisations for comment on the 2013 MTBPS in relation to Section 6(8) of the Act. The advertisement appeared in national and community print media from 18 to 23 October 2013.

The 2013 MTBPS was tabled amidst challenges of an uneven global economic recovery. The improving outlook for the world economy is subject to high volatility.  In addition, the 2013 MTBPS states that the country cannot rely on developments in the global economy in order to accelerate domestic growth and expand local economic opportunities. South Africa requires immediate measures to implement structural reforms and reignite growth in the medium term.

South Africa continues to face a number of challenges which include the high unemployment rate especially for those between the ages of 19 and 29 and the over-indebtedness of many households. Government expenditure significantly exceeds government revenue with the budget deficit estimated at 4.2 per cent of Gross Domestic Product (GDP) in 2013/14. In addition, interest payments remain the fastest growing expenditure item which indicates the significant increase in government debt in recent years. The widening current account deficit means that South Africa is reliant on foreign savings to fund the gap between government revenue and expenditure and availing resources for critical policy imperatives such as the rollout of the extensive infrastructure programme.

It is against this background that the Committee engaged with identified stakeholders on the 2013 MTBPS.

2          Medium Term Expenditure Framework

In the 2013 MTBPS the Minister of Finance pointed out that the proposed allocation of resources over the next three years will be informed by government’s strategic priorities and in particular the National Development Plan (NDP). Growth in public expenditure is expected to remain within the limits set out by the government over the past two years. The 2013 MTBPS proposes an average annual real increase of 2.2 per cent in non-interest public spending over the next three years. In addition, the Minister indicated that more will be done in an effort to find and identify possible savings, eliminate waste and reprioritise spending towards key social and developmental programmes. In particular, R10 billion in budget allocations has been reprioritised in the medium term.

Table 1: Consolidated Government Expenditure, 2013/14 to 2016/17

Source: National Treasury (2013)

Debt service costs continue to outpace the overall growth in total expenditure. In particular; the cost of servicing government debt is projected to grow at an annual average rate of 10.4 percent in nominal terms over the medium term. Government expenditure in employment and social security services shows the most rapid growth in the medium term at 13.8 per cent. This is followed by the local government, housing and community amenities function at 8.4 per cent and the transport, energy and communication function at 7.9 per cent.

The real growth in spending in the education, health and social protection, and defence functions is mainly the result of additional salary requirements. The 2013 MTBPS states that maintaining the main budget expenditure ceiling will entail higher levels of expenditure in some areas and lower levels of expenditure in other areas. For example, average growth in spending on goods and services will decline from the 9.2 per cent observed in the past three years to 5.9 per cent over the medium term. In addition, expenditure growth will decrease in the medium term compared to the 2010/11 to 2013/14 period for general public services and economic services while it will increase for the employment and social protection services. Table 2 below outlines the main budget framework for the period 2010/11 to 2016/17.

Table 2: Main Budget Framework, 2010/11 to 2016/17

Source: National Treasury 2013

The 2014 medium term budget framework allocates 47.6 per cent to national departments, 43.4 per cent to provincial departments and 9 per cent to local government in 2014/15. Budget allocations to the national sphere will increase by 6.7 per cent over the 2014 Medium Term Expenditure Framework (MTEF) period, provincial allocations will increase by 6.9 per cent and local government allocations will increase by 8 per cent. Provincial allocations show slightly higher growth in the medium term due to significant personnel costs in provincial service delivery while local government growth reflects its growing role in building infrastructure and providing services.

Expenditure in defence, public order and safety grows at an average annual rate of 6.1 per cent to reach R184.4 billion in 2016/17. Expenditure growth in this function is largely to finance the sector’s higher wage bill due to the labour-intensive nature of the function. The Department of Correctional Services has reprioritised funds towards the electronic monitoring system to alleviate prison overcrowding while the Department of Defence has reprioritised funds towards the operational budget of the South African Air Force.

Some of the key proposals contained in the NDP include making sustainable investments in competitive economic infrastructure. Expenditure for the transport, energy and communications function grows by an average annual rate of 7.9 per cent to R105.8 billion in 2016/17. The medium term budget provides for funding to support the Passenger Rail Agency of South Africa’s (PRASA) procurement of rolling stock. PRASA plans to purchase more than 300 six-car trains over the next ten years. In addition, funding is provided for the provision of set-top boxes to more than 5 million low-income households in preparation for the switch to digital television in 2015. The 2013 MTBPS states that the taxi recapitalisation programme is in the process of being reviewed, as such funding in that regard will be delayed in the medium term.

The Committee views the implementation of the taxi recapitalisation programmes as critical although the outcomes of the programme and the impact on the taxi industry thus far are not clear.

The budget baseline for the economic services function grows at an average annual rate of 4.2 per cent from a revised estimate R47.3 billion in 2013/14 to R53.4 billion in 2016/17. The economic services function includes a broad range of incentives to support economic competitiveness to enhance South Africa’s industrial capacity, boost exports and encourage inward investment. It also includes funding for small enterprise development, promotion of special economic zones and support for broad-based black economic empowerment. The budget framework will prioritise key areas such as research and development in the industrial sector, financing for development institutions, funding for land reform and restitution; and investment in emerging commercial farms and in farms belonging to land reform beneficiaries.

Expenditure in health services is projected to moderate in the 2014 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.

The NDP emphasises the need for an improvement in the education system in order to address poverty and strengthen efforts at building a more capable workforce. Education is the largest single category of government expenditure. Expenditure in the education function is projected to increase at an annual average rate of 7 per cent in the medium term from R233.6 billion in 2013/14 to R286.5 billion in 2016/17. 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 medium term budget allocations for the school infrastructure backlogs grant and education infrastructure grant have been slightly reduced. However, it is critical to note that the two infrastructure grants continue to grow rapidly over the MTEF with an average annual growth rate of over 10 per cent.

Government employment programmes are to be scaled up so as to provide work opportunities to 2 million people per year. This is in line with targets contained in the NDP and is a significant improvement on the one million work opportunities the government provided in 2012/13. It is envisaged that the Community Works Programme will be present in every municipality in the medium term. The budget allocation for the employment and social security function will increase significantly in the 2014 MTEF from R50.6 billion in 2013/14 to R74.6 billion in 2016/17.

The Committee was of the view that the success of the Community Works Programme (CWP) and other employment programmes was critical for the creation of work oppurtunities and the development of skills though it is concerned with the quality of services rendered by agents (Professional Service Providers and Non-Governmental Organisations) appointed to implement government’s employment programmes.  Of particular concern to the Committee was the proportion of funding allocated towards the administration of government’s employment programmes in relation to the funding directed to the actual beneficiaries.

Consolidated spending on health and social protection will grow at an average annual rate of 7.3 per cent in the medium term from an estimated R266.0 billion in 2013/14 to R328.4 billion in 2016/17. Priority areas include provisions for antiretroviral treatment and the purchase of new equipment for forensic chemistry laboratories. In addition, the Department of Health is to introduce a new vaccine aimed at reducing incidences of cervical cancer.

The 2013 Budget Review indicated that the number of social grant beneficiaries was 16 095 million in 2012/13 and is expected to grow to  17 172 million in 2015/16. Spending on social grants will increase in the medium term to accommodate the increase in the number of beneficiaries and expenditure growth on social grants will be offset by savings from the re-registration of beneficiaries. It is envisaged that the re-registration process will eliminate erroneous or fraudulent claims and thus allow for funding provision to legitimate grant recipients.

Funding for the local government and housing function grows at an average annual rate of 8.4 per cent in the medium term from R128.1 billion in 2013/14 to R163.2 billion in 2016/17. The 2013 MTBPS states that government intends to devolve responsibility for the housing function from provincial government to local government in six metropolitan areas. The six metropolitan municipalities will receive R900 million in the medium term to manage this function. In addition, funding is made available to provinces to upgrade informal settlements in mining towns.

The budget framework provides for substantial investment in water services in the 2014 MTEF. Funding will be made available to a number of priority areas including additional allocations to the regional bulk infrastructure grant , more resources towards strengthening the Department of Water Affairs’ project management and regulatory capacity and the commencement of work on the Umzimvubu Dam beginning in 2015/16. The Municipal Infrastructure Support Agency will receive additional funding in the medium term.

Government has prioritised efforts to strengthen procurement practices in order to obtain value for money. The MTBPS states that the Office of the Chief Procurement Officer will in the next six months pilot reference pricing. The pilot project entails determining fair values of targeted products, developing guidelines for reference pricing and discussions are currently underway with key spending departments and agencies.

The government is committed to eliminating wasteful expenditure. The Minister announced a new collaborative effort between National Treasury and the Department of Performance Monitoring and Evaluation on a programme of expenditure reviews focusing on housing, broadband access, industrial development zones and other areas. The 2013 MTBPS states that government is finalising details of cost-containment instructions that will be issued with the 2014 Budget. The Minister during the tabling of the 2013 MTBPS outlined six focus areas to be effected beginning December 2013 as key in the drive to reduce costs and eliminate wasteful expenditure. The following measures were listed, namely;

(i) Consultants - While recognising their importance in some of the engineering and advisory services employed by government departments, going forward emphasis is to be placed on better contract management, stricter control of consultancy fees and each government entity is to develop a consultancy reduction plan over the course of the 2013/14 financial year.

(ii)    Usage of official credit cards is to be prohibited.

(iii) Travel and related costs – The hiring of cars is to be restricted to B Class except for special instances such as rural travel, business class travel will be restricted to Directors-General only, the number of officials travelling to Cape Town offices will be limited and the cost implications of the current Pretoria-Cape Town arrangements will be looked into.

(iv) Advertising - Guidelines will be developed on limiting non-essential costs and promoting better use of the facilities of Government Communications and Information Services.

(v) Catering and event costs - Guidelines will be developed for reducing costs of state events with priority on better use of government facilities, use of public funds to purchase alcohol will be prohibited and the entertainment allowance will be limited to R2 000.

(vi) Accommodation Leases - Work is underway in government’s effort to reduce long term office accommodation and government housing costs and improve electricity demand management measures in government buildings.

3          Hearings on the 2013 MTBPS

3.1        Financial and Fiscal Commission

The Financial and Fiscal Commission (FFC/Commission) in its submission welcomed the 2013 MTBPS and viewed the emphasis contained in the budget policy framework on the intention and commitment to implement the NDP as commendable. The Commission stated that a resolute policy strategy for growth is imperative if the country is to move further on its path to attaining the NDP 2030 Vision. Government’s growth strategy should entail specific focus on areas such as the scaling up of the rate of investment, high efficiency in the use of investment resources and a focus on infrastructure projects that are necessary to meet stated targets in economic growth, employment, poverty and inequality. In addition, government views infrastructural investment as a principal driver of a projected upturn in economic growth.

The Commission had projected the domestic economy to remain under severe pressure due to the protracted slow global economic growth. The continued subdued growth lends itself to tight public budgets in the medium term.  However, the Commission views the unchanged budget deficit of 4.2 per cent for 2013/14 and the limited increase in the budget deficit for the medium term as reflective of a sustainable fiscal policy stance.

The FFC reiterated the point made in the 2013 MTBPS regarding the public wage bill which poses a significant risk to the fiscal outlook. The Commission supports the priority emphasis highlighted in the 2013 MTBPS on enforcing discipline in the hiring of additional government workers. Furthermore, it remains important that government productivity and frontline service delivery remain key considerations in any recruitment process. The MTBPS states that government aims to maintain staff numbers at a constant level over the next three years.

The Commission indicated that a significant risk to the development objectives of government’s expansionary fiscal policy is the persistent under spending by departments. In particular, persistent under-expenditure by departments may halt the attainment of the long term development goals outlined in the NDP. The Commission indicated that total projected under-expenditure in all three spheres of government is R3.14 billion. The Commission indicated that possible measures to mitigate the risk posed by persistent under-spending may include the ensuring the appointment of competent individuals and enhancing public service capacity.

A number of domestic challenges were highlighted which may impede on the positive effect that public spending has on reducing poverty, inequalities and stimulating economic growth. In the medium term,   the poor performance of government in infrastructure development is a major concern given the need to accelerate infrastructure investment in port facilities, roads, rail, energy, energy, water and sanitation. Secondly, trends indicate that increases in tax revenues from a given increase in the tax base are declining thus making it difficult to generate the required financing to fund higher levels of investment; thirdly, long term unemployment, skills shortages, poor health standards and poor educational outcomes have a negative bearing on the country’s human capital base necessary to improve effectiveness in public service delivery. Governance was also highlighted as a key impediment in realising South Africa’s development potential. Accordingly, strengthening accountability and creating consequences for non-compliance is critical for improvements in service delivery efficiencies.

In the long term, key challenges set to face South Africa include the rapid rate of urbanisation requiring large investments into urban infrastructure by provinces and municipalities, ever increasing pressure to create jobs for millions of job seekers coupled with the need to balance technological development with labour intensive job creation initiatives and possible future costs associated with adapting to climate change.

The Committee pointed out that the roll out of the land reform programme is likely to require significant funding in the long term. The Committee viewed this as a significant issue for consideration in outlining any projections on South Africa’s fiscal path and thus a key issue that the FFC may consider looking into in the medium term.

The Committee indicated that there was a need for enhanced linkages between interventions aimed at assisting municipalities with infrastructure development such as the work of the Municipal Infrastructure Support Agency (MISA) and the Approach to Distribution Asset Management (ADAM) programme. The ADAM is a sector specific intervention in the electricity sector aimed at assisting municipalities with asset maintenance and refurbishment. The Commission agrees with the need for integration in sphere level infrastructure support interventions e.g. (MISA) and sector specific infrastructure support interventions such as ADAM.

The Commission welcomed government’s approach to reallocating resources within the prevailing constrained fiscal framework and noted the increased allocations in the priority areas of job creation and investment in socio-economic infrastructure in the medium term. However, the Commission indicated that social spending programmes need to be protected during the course of the budget reprioritisation process.

With regards to education, the Commission highlighted that in cases where schools underperform; emphasis should continue to be placed on the professional development of teachers, improving school management as well as greater accountability of school principals. In terms of health, the Commission reported that it notes the existing challenges with the National Health Insurance (NHI) pilot sites and will await the funding arrangements for NHI.

The Commission is supportive of government’s efforts in realising spending efficiencies in the rollout of social grants by eliminating erroneous and fraudulent claims. The MTBPS states that funds from the health function have been reprioritised to the establishment of shelters for victims of gender based violence and substance abuse. However, the Commission views the large disparities in funding of child welfare services as a key concern.

The MTBPS proposes for reductions through reprioritisation in the 2014 MTEF in a number of provincial and municipal conditional grants which include CASP (Comprehensive Agriculture Support Programme) and land care grant; school infrastructure backlogs grant, NHI grant, municipal infrastructure grant, Urban Settlement Development grant and Expanded Public Works Programme grants. The Commission supports the principle of reprioritising funds away from poor performing conditional grants but calls for a careful assessment of the impact of such budget reductions on the development objectives of the grant.

The Committee notes with concern the finding that the expenditure performance of indirect grants is poor relative to direct grants. The Commission was of the view that where requisite capacity exists, the School Infrastructure Backlogs Grant and the National Health Insurance grant should be transferred directly to provinces.

The Committee is of the view that the rescheduling of the Rural Household Infrastructure Grant to a direct grant may not result in improvements in the grant’s service delivery performance. The Rural Households Infrastructure Grant (RHIG) is aimed at providing capital funding for the reduction of rural water and sanitation backlogs and to target existing households where bulk dependant services are not available. The National Treasury reported that the conversion of RHIG into a direct grant would result in municipalities being better able to maintain the constructed facilities, municipalities being better able to consult communities and ensuring alignment with Integrated Development Plans. In addition, the National Treasury indicated that municipalities receiving RHIG were performing above average on their Municipal Infrastructure Grant (MIG) allocations and were already managing large infrastructure budgets. However, the Committee pointed out that the re-scheduling of RHIG should give due consideration to the capacity of municipalities to effectively implement the grant.

The Committee was concerned at the lines of accountability and responsibilities in the implementation of direct grants relative to indirect grants. The Committee pointed out that in some instances local beneficiaries of specific grants were at times unsure of accountability channels and how to traverse the various lines of responsibility for a specific conditional grant in cases of poor performance of a conditional grant.

3.2        Human Sciences Research Council

The Human Sciences Research Council (HSRC/ Council) was invited to comment on the 2013 MTBPS. In its submission it addressed the following issues:

· Education
Enhancing the effective utilization of financial resources in institutions of higher learning and ensuring value for money in the budgets for public institutions

· Health

How the functioning of hospitals can be improved

· Job creation

How to accelerate economic growth and create more jobs

· Rural Development

An assessment on the effectiveness in the utilization of government resources geared towards increasing the participation of citizens in agricultural activities.

· Infrastructure

Challenges and opportunities for improvement in the rollout of significant infrastructure investment in the medium term

3.2.1 Education

The budget for the Department of Higher Education and Training constitutes 4.4 per cent of the 2013/14 total adjusted main budget. In addition, transfers to higher education institutions increase by 7.2 per cent from R23.6 billion in 2013/14 to R29.0 billion in 2016/17. The HSRC highlighted that a significant portion of funding is allocated to the university sector rather than the skills sector which raises the question whether there is sufficient focus on intermediate skills. The Committee enquired about the assistance that can be provided to Further Education and Training (FET) colleges in order to enhance their role in the development of skills.

The Council indicated that a significant issue for consideration was the adequacy of the funding base that is able to match the proposed expansion in the higher education sector (e.g. 930 000 students in 2011 to 1.6 million in 2016), sector plans to improve success rates and also the ability of universities to meet the demand for a highly skilled citizenry as outlined in government’s policy priority objectives. In addition, South Africa’s expenditure on higher education was low compared to other emerging market economies such as Brazil and India.

The Committee enquired about the extent of funding disparities between historically disadvantaged (HD) universities and the other well established universities. The HSRC indicated that an audit had been conducted on university facilities had highlighted disparities between HD universities and other well established universities. Consequently a funding review has been completed and a report submitted to the Minister of Higher Education and Training.

The HSRC pointed out that the university sector needed to be responsive to the socio-economic needs of the country and assume its leadership role towards the achievement of the country’s developmental objectives. Universities were viewed as having a key role to play in providing innovation skills thus contributing towards the attainment of a knowledge-based economy. The Council was concerned about universities’ low responsiveness as evidenced by a limited history of demand-side skills planning. The Council also highlighted concerns about the relevance and appropriateness of qualifications in comparison to competencies and capabilities.

The HSRC indicated that there has been steady growth in the country’s Gross Enrolments Rate for Higher Education although there were concerns around the low participation rates in post-graduate qualifications especially at Masters and Doctoral level. The NDP targets for the 5000 doctoral graduates by 2030 but results show that there were less than 1500 doctoral graduates in 2010.

The Council was also concerned about the quality of graduates wherein a large percentage of South African graduates scored poorly when compared to other developing countries. The HSRC was of the view that the country was not obtaining the requisite value for the high investment made in the higher education sector. The Committee raised concerns about the low return on investment in education spending and enquired on the interventions needed to reverse this trend. The Council indicated that a complex set of  interventions was required in order to improve the quality of university outputs and that such interventions should not be targeted only at higher education but should begin with Early Childhood Development.

3.2.2. Health

The HSRC provided an overview of the challenges facing public hospitals and primary health care facilities as per the 2012 National Health Care Facilities Baseline Audit. The audit indicated the following:

• Low compliance to national core standards functional areas and ministerial priority areas;
• Only about a third of hospitals have Audiology and Psychology services;
• Half of district hospitals did not have financial managers and 40 per cent did not have human resource managers;
• Some hospitals did not have doctor input and dental services in hospitals were lacking; and
• The availability of equipment and medicines is extremely poor.

The Council noted that although the audit indicated poor standards of quality in terms of public hospitals and primary health care facilities, the public perceptions of health care services indicated some level of satisfaction with care received in both the public and private health sector. For example, the South African Health and Nutrition Examination 2012 survey showed that 83 per cent of public sector inpatients and 80 per cent of outpatients were satisfied or very satisfied with care received.

The Council highlighted a number of measures that would have to be implemented in the short term and in the long term in order to improve hospitals. In the short term, measures include the provision of goods and services whereby the government needs to prioritise the stocking of functional equipment and essential medicines; develop an accelerated health facilities planning and re-vitalisation program, implement staffing norms across all hospitals and prioritize the staffing of financial managers in all public hospitals.

In the long term, the development of a National Essential Equipment list and the establishment of service delivery requirements for non-negotiable goods and services will be critical. In addition, there had to be a strengthening of quality assurance through hospital certification and accreditation, the regulation of public hospitals similar to private hospitals, the development of a Human Resource for Health (HRH) database and the decentralisation of the management of hospitals thus ensuring authority to manage rests with Hospital Boards and hospital executive management. The Council emphasised that hospital revitalisation should be comprehensive with long term planning for building and maintenance.

3.2.3 Job Creation

The budget framework provides for the maintenance of the 2012 public spending ceiling and aims to reduce the large budget deficit in order to stabilise the public debt trajectory over the medium term. As a result thereof, there is limited scope for debt financed public spending for stimulating economic growth. The HSRC noted that this was a challenging context for job creation. There were concerns around the complex global economy environment, the sluggish performance of the domestic economy, and other factors such as labour unrest, weakened business confidence, the uncertainty of government policies and subdued private investment.

The Council was of the view that a shift in the composition of government spending from salaries and consumption transfers towards infrastructure, industrial policy and business support was critical. While it was important to maintain a social welfare safety net, the Council urged that emphasis should be on poverty reduction mechanisms and not poverty alleviation. Proposed mechanisms include incentives for the private sector to increase their investment rates and recruit additional labour; and the expansion of public employment and community works programme.

The Committee acknowledged the need to transition from poverty alleviation towards poverty reduction but was concerned about the protection of social services. The Council indicated that bolder policies were needed but more concerning were the challenges impeding the successful implementation of government’s job creation incentive schemes. For example, the lack of performance of initiatives such as the Jobs Fund as evidenced by the regular returning of funds to the National Revenue Fund.

The Council pointed out that the transformation of the government-business-labour relationship was imperative for unlocking domestic growth. There was a need for government to boost investment through deal making whereby the state would unlock land and infrastructure in return for the private sector’s commitment to accelerate investment. There was also a need to build trust between business and labour. The Council also highlighted that there were challenges that needed to be addressed in terms of assistance to small businesses, young entrepreneurs, and the non-governmental agencies in their efforts at creating jobs and opportunities for society.

3.2.4 Rural Development

The 2014 MTBPS provides for substantial funding for rural development, land reform and land restitution. There is a reprioritisation of funds from land acquisition to invest in emerging commercial farms and farms acquired through the land reform programme; and also the prioritisation of agricultural research.  The HSRC was of the view that the current level of spending on rural development, which is approximately 2 per cent of national expenditure was far below the target of 10 percent set forth by the 2003 Maputo Declaration for South African Development Community (SADC) members.

The Council indicated that budget allocations must be geared towards investments in local agro-food markets and food price subsidies for low-income families in order to make good quality food more affordable. The Council also welcomed the policy shift in the new draft Food Security policy towards the strengthening of household food access. The Council noted the progress with implementation of the Comprehensive Rural Development Programme (CRDP) and acknowledged that rural communities are food insecure. Concerted efforts were required for sustainable job creation, enterprise development and the upscaling of household food production.

The Council reported that Agricultural Development Support (ADS) seemed to be reaching a large number of small farm households though it was not clear whether there was a proportionate impact on beneficiaries’ livelihoods. In addition, the ADS programme needs to prioritise resources towards training programmes so as to support farmers effectively. There were concerns that the Recapitalization and Development programme (RECAP) targets of resuscitating defunct farms and training small farmers were not being reached. For example, of the 2013/14 stated target for training 416 farmers only 83 had been trained as at end of September 2013.

The Council expressed concerns about the uneven spread of farmer support programmes wherein the same farm households seemed to be beneficiaries of more than one state-driven farmer support programme e.g. Pro-active Land Redistribution (PLAS) beneficiaries were also the main beneficiaries of the RECAP. The Council was of the view that this may be indicative of a lack of integrated co-ordination between the Department of Rural Development and Land Reform and the Department of Agriculture, Forestry and Fisheries. There were also concerns about a lack of bottom-up consultation when rural development programmes are designed.

The Council acknowledged that 7401 young people were trained through the National Rural Youth Service Corps (NARYSEC) to increase their chances of employment and that over the 2014 MTEF 5000 youths per annum would be enrolled in NARYSEC. However the Council pointed out that there is a need to improve the transit rate of NARYSEC beneficiaries towards employment opportunities.

3.2.5 Infrastructure

The HSRC welcomed the new format for consolidated government accounts as reflected in the 2013 MTBPS and was of the view that this new format would facilitate comparative analysis and monitoring of public infrastructure investment programmes against the NDP policy objectives and targets.

The NDP proposes that government should make sustainable investments in competitive economic infrastructure and the target for economic and social infrastructure investment is 10 per cent of Gross Domestic Product (GDP). The Council pointed out that South Africa’s economic and social infrastructure investment requirement was projected to grow at a rate of 3.8 per cent per annum and that this growth was premised on economic infrastructure projects in the transport and energy sector. However the largest share of the 2013 infrastructure expenditure estimates is allocated towards socio-economic infrastructure. The Council was concerned that SA’s performance is weak when compared to other BRIC (Brazil, Russia, India and China) countries in relation to a number of indicators such as the gross fixed capital formation, total capital investment, and capital investment per capita.

The Council also noted that although there were increasing budget allocations for infrastructure this did not translate to actual infrastructure investment as a result of persistent under spending. The Council stated that the NDP policy objectives and targets for infrastructure development were unlikely to be met at the current level of public infrastructure investment.

3.3        Public Service Commission

The Public Service Commission was invited to comment on the 2013 MTBPS.  In its submission it addressed the following issues:

• Governance

¾      Government expenditure vs. performance outcomes;

¾      The quality of performance information;

¾      Service delivery improvement;

¾      Filing of Performance Agreements (PAs) by Heads of Department (HoDs);

¾      National Anti-Corruption Hotline; and

¾      Financial Disclosure Framework and Financial Misconduct.

• Effective and Efficient Performance

¾      Quality of service delivery with focus on electricity, access to water, education, health, and housing;

¾      Delivery in relation to need;

¾      Unemployment and government programmes; and

¾      Development orientation.

3.3.1     Governance

In its submission, the Public Service Commission (the Commission) focused its presentation on departments which were directly contributing to government’s five policy priorities, i.e. Labour; Trade and Industry; Cooperative Governance; Agriculture, Forestry and Fisheries; Public Works; Economic Development; Basic Education; Health; Rural Development and Land Reform; Human Settlements; South African Police Service; and Justice and Constitutional Development. The Commission highlighted the persistent disparity between departments’ expenditure performance versus performance against pre-determined objectives. While most departments recorded expenditure that was above 90 per cent in the past three financial years, average performance against predetermined objectives was below 60 per cent. The table below shows trends in spending versus performance for selected departments.

Table 3: Performance vs. Expenditure

Department

Performance

% of budget spent

2012/13

2011/12

2010/11

2012/13

2011/12

2010/11

Agric, Forestry and Fisheries	59%	41%	35%	100%	99%	97%
Basic Education	63%	69%	47%	92%	92%	89%
COGTA	43%	47%	44%	97%	96%	100%
Economic Dev	97%	67%	85%	88%	97%	89%
Health	46%	61%	37%	99%	97%	97%
Human Settlements	53%	75%	67%	97%	99%	98%
DoJCD	44%	33%	50%	100%	100%	98%
Labour	53%	67%	43%	95%	100%	100%
SAPS	22%	77%	59%	100%	99%	100%
Public Works	39%	46%	44%	93%	90%	89%
RDLR	31%	55%	41%	99%	98%	98%
DTI	64%	77%	51%	99%	99%	94%

Source: Public Service Commission (2013, 2012)

The trends in service delivery performance versus expenditure show that while departments regularly exhaust their allocated budgets, the attainment of stated performance targets continues to be a challenge and is uneven across sectors. In particular, while some departments performed well below average, the Departments of Basic Education, Economic Development and Trade and Industry managed to achieve more than 60 per cent of their planned performance targets for 2012/13.

The Commission reported that the quality of submitted performance information remained poor. The performance information submitted in 2012/13 by the Departments of Agriculture, Forestry and Fisheries; Cooperative Governance and Traditional Affairs; Labour; and Rural Development and Land Reform was found to be not useful nor reliable. In addition, there was a need to improve the layout and presentation of information contained in the annual reports of departments. With regard to the filing of Performance Agreements by Heads of Department (HoDs), the Commission reported that the overall compliance with submission on or before 30 June 2013 was at 70 per cent for selected national departments. The Commission stated that there was a need for all Executive Authorities and Heads of Departments to show visible support performance management processes so as to ensure that these cascade down to all levels of the organisation.

With regard to the 2012 Management Performance Assessment Tool (MPAT) results, the Commission reported that the majority of departments were not compliant in terms of service delivery mechanisms such as service charters and service delivery improvement plans. One of the key findings from the 2012 MPAT was that 74 per cent of departments operated with an organisational structure without having secured concurrence from the Department of Public Service and Administration. In addition, the MPAT found that 88 per cent of departments were not compliant with the requisite Human Resource (HR) planning requirements. The Commission reported that in some instances jobs were upgraded without the requisite job evaluation resulting in costs to the state in terms of financial resources and the efficacy of service delivery.

The Commission reported that out of the 2077 cases referred to the National Anti-Corruption Hotline in selected departments, only 668 or 32 per cent of the referred cases were closed. The Commission cited the lack of requisite capacity in dealing with reported cases as well as the lack of senior leadership will to conduct such investigations as a key constraint. The Commission assessed financial disclosures of Senior Management Service (SMS) members and found that only 50 per cent of selected national departments complied with the financial disclosure framework as at 30 May 2013. The Commission reported that electronic disclosure forms will be introduced as from 1 April 2014 and it is envisaged that this endeavour will significantly improve the level of compliance.

The Committee expressed concerns at national departments’ expenditure performance relative to performance on pre-determined objectives. The Committee stated that there was a need for an assessment on the requests for additional funding by government departments vis-a-vis departments’ performance against pre-determined objectives. The Committee was concerned with the effectiveness of the current Performance Management Development System. The Committee pointed out that there was need for performance to be linked to Annual Performance Plans (APP) so as to remove the anomaly of rewarding staff for performance yet APP targets are not achieved.

The Committee expressed concerns at the number of departments which operate with organisational structures that do not meet the necessary requirements as per the relevant regulations from the Department of Public Service and Administration (DPSA). In addition, the Committee was concerned at the number of departments which did not comply with HR planning requirements.

The Committee welcomed the Commission’s undertaking to introduce an electronic disclosure form for SMS members from April 2014. The Committee indicated that the Public Service Commission needs to play an active role in the assessment and monitoring of government expenditure in relation to the service delivery objectives of the public service.

3.3.2     Effective and Efficient Performance

The Commission noted that while there has been an expansion in the levels of delivery of basic services, these have paradoxically been followed by rising levels of service delivery protests. The increase in protests in many instances relates to the quality of services rendered.

With reference to service delivery outcomes relative to trends in key development indicators, the Commission pointed out that while unemployment remains exceedingly high, there has been a slight decrease in poverty level indicators such as the number of persons vulnerable to hunger in the past three years. The challenge of food inadequacy was most pronounced in the provinces of North West and the Eastern Cape. The Commission noted the positive expansions in government’s employment programmes with the EPWP doubling the number of participants in the period 2010-2012 compared to 2004 to 2009. The Community Works Programme (CWP) has increased the number of participants from less than 60 000 in 2009/10 to approximately 160 000 participants in 2012/13.

The Commission identified the human settlements programme as a key lever in the state’s development objectives. The assessment of water services development plans by the Department of Human Settlements has assisted in ensuring that sanitation projects are prioritised and adequately budgeted for at a local level. The Rural Household Infrastructure Programme (RHIG) has provided 27 144 households with sanitation facilities, thus reducing the rural sanitation backlog in the seven provinces benefitting from the programme.

The Commission highlighted the need for government departments to ensure that the recommendations outlined in the National Development Plan (NDP) are reflected in planning documents such as department’s Strategic Plans and Annual Performance Plans. The Commission also stated that resource management, in particular Human Resources (HR) was central to building a capable state to deliver on the development objectives of the National Development Plan.

4. Committee Observations and Findings

Having considered all the submissions made by the above stakeholders on 2013 MTBPS, the Committee identified the following findings and areas of concern:

4.1 The Committee welcomes the 2013 MTBPS and the proposed measures to contain costs and eliminate waste of public funds.

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

4.3 The Committee, noting its added responsibilities for oversight over the Department of Performance Monitoring and Evaluation, welcomes the partnership between National Treasury and the Department of Performance Monitoring and Evaluation in rolling out the programme of expenditure reviews.

4.4 The Committee supports the planned devolution of responsibility for the housing function from provincial to local government in six metropolitan areas. The Committee views this as a positive step in changing the institutional arrangements of human settlements and is in line with the recommendations of the National Development Plan for the housing function to shift to the local government level.

4.5 The Committee notes that there are slight reductions in the medium term budget allocations for the school infrastructure backlogs grant and education infrastructure grant. These School Infrastructure Grants continue to grow rapidly over the MTEF with an average annual growth of over 10 per cent.

4.6 The Committee notes the commitment to contain and moderate growth in the public sector’s wage bill and the proposed monitoring of the hiring of personnel.

4.7 The Committee notes the Public Service Commission’s findings that in 2012/13 over 70 per cent of departments operated with an organisational structure without having obtained approval from the Department of Public Service and Administration.

4.8 The Committee notes that the Taxi Recapitalisation Programme is in the process of being reviewed, as such, funding for the Taxi Recapitalisation Programme will be delayed in the medium term.

4.9 The Committee welcomes government’s commitment to establish and implement the Community Works Programme in every municipality in the country.

4.10 The Committee notes the lack of integration in farmer support programmes provided by the Departments of Rural Development and Land Reform and Agriculture, Forestry and Fisheries.

5. Committee Recommendations

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

5.1 That the Minister of Finance ensures the following:

5.1.1 That National Treasury, in conjunction with the Department of Basic Education develop systems and mechanisms targeted specifically at enhancing the performance of schools infrastructure programmes such as the Accelerated Schools Infrastructure Development Initiative.

5.1.2 That National Treasury develops and implement mechanisms to ensure that baseline funding requirements are in place for the successful transfer of the Further Education and Training Colleges function to the Department of Higher Education and Training.

5.1.3 That National Treasury’s announced programme of expenditure reviews include an assessment of the performance of direct versus indirect conditional grants.

5.1.4 That National Treasury develops and incorporates spending conditions in  respect of the Community Works Programme and other employment programmes that stipulate minimum standards of service quality for those Non-Governmental Organisations and service providers implementing the said programmes.

5.1.5 That National Treasury, in consultation with the Department of Performance Monitoring and Evaluation, include performance on pre-determined objectives in its quarterly expenditure reports submitted to the Standing Committee on Appropriations.

5.2 That the Ministers of Finance and Human Settlements develop and implement a capacity enhancement and support initiative specifically aimed at the successful devolvement of the human settlements function to the six metropolitan municipalities.

5.3 That the Minister in the Presidency for Performance Monitoring and Evaluation, as well as Administration ensure that the Department of Performance Monitoring and Evaluation conducts a comprehensive implementation evaluation of the schools infrastructure programme.

5.4 That the Minister of Public Service and Administration ensures that government departments operate with approved organisational structures so as to ease the monitoring of the wage bill and the hiring of government personnel.

5.5 That the Minister of Rural Development and Land Reform and Minister of Agriculture and Forestry and Fisheries jointly develop systems and mechanisms to integrate and coordinate  farmer support programmes so as to realise value for money.

6.         Conclusion

The responses to the recommendations as set out in section 5 above by the relevant Executive Authorities must be sent to Parliament within 60 days of the adoption of this report by the National Assembly.

Report to be considered.

A