ATC141119: Report of the Standing Committee on Appropriations on the 2014 Medium Term Budget Policy Statement, Dated 19 November 2014
Report of the Standing Committee on Appropriations on the 2014 Medium Term Budget Policy Statement, Dated 19 November 2014
Having considered and heard comments from identified stakeholders on the 2014 Medium Term Budget Policy Statement, the Standing Committee on Appropriations reports as follows:
The Minister of Finance tabled the Medium Term Budget Policy Statement (MTBPS) on 22 October 2014 as required by section 6 (1) of the Money Bills Amendment Procedure and Related Matters Act, No. 9 of 2009 (the Act), outlining the budget priorities of government for the medium term. The 2014 MTBPS was tabled with the Division of Revenue Amendment Bill [B11 - 2014] and the Adjustments Appropriation Bill [B10 - 2014] in Parliament. Part of the MTBPS was referred to the Standing and Select Committees on Appropriations for consideration and report. This was done in accordance with their respective mandates as outlined in the Act. Among its responsibilities, as per Section 6 (8), in respect of the MTBPS, the Committee was required to consider and report on the following issues:
- the 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 2015 budget. The Committee, in order to deepen democracy, good governance and promote public participation during the budget process, invited public comments. To give effect to this process a number of stakeholders were identified, namely,
- Financial and Fiscal Commission (FFC);
- Parliamentary Budget Office (PBO);
- Human Sciences Research Council (HSRC); and
- Public Service Commission (PSC).
In addition, an advertisement was published in national and community newspapers as well as radio promotions at local radio stations from 17 to 22 October 2014 inviting general public comments and the following submissions were received:
- National Union of Metalworkers of South Africa (NUMSA);
- Equal Education (EE) and Public Service Accountability Monitor (PSAM);
- Researchers from the University of Witwatersrand (WITS) and University of South Africa (UNISA); and
- Congress of South African Trade Unions (COSATU).
The 2014 MTBPS is tabled within the framework of the Constitution which requires government to act within its available resources for the progressive realisation of fundamental social and economic rights. Fiscal policy ensures the health of the public finances by applying the principles of counter-cyclicality, debt sustainability and intergenerational fairness. In the past ten years, public expenditure has doubled in real terms, funding a large expansion of the social wage and capital budgets.
The Medium Term Strategic Framework 2014-2019 (MTSF) highlights key findings contained in the Twenty Year Review and the National Planning Commission’s 2011 Diagnostic Report which show that poverty, inequality and unemployment continue to negatively affect the lives of many people. Too few people have work, investment is too slow and education lags behind the country’s requirements.
In his opening address to the fifth democratic parliament, President Zuma stated that the country needs economic growth of around 5 per cent a year to decisively reduce unemployment and poverty, and to transform South Africa’s social and economic order. The MTSF asserts that this requires radical economic transformation and a sustained focus on addressing the uneven quality of service delivery.
The main budget tabled in February 2014 had projected the economy to grow by
2.7 per cent for the year 2014. The 2014 MTBPS has revised growth projections down to 1.4 per cent. The downward revision in growth projections reflects the continued weak global economic environment with slow economic growth in the country’s major trading partners and other emerging markets. The MTBPS states that South Africa’s weak economic performance has highlighted structural constraints in the economy which have now become embedded into expectations. In particular, constraints to the country’s envisaged socio-economic development trajectory include energy constraints, labour market tensions, skills shortages, administrative bottlenecks, transport constraints and challenges in the economy’s industrial transformation.
The MTBPS asserts that the consumption-led, debt financed economic growth of recent years has reached its limits, and growth has slowed. Expectations are that the economic growth outlook will improve in the medium term as global economic growth improves, exports to the rest of the continent increase and new energy and transport investments start to operate and investment recovers. However, the weak economic performance has put a great deal of pressure on the fiscus, with revenue insufficient to cover expenditure. The budget deficit is high, debt levels have approached the limits of sustainability and the economy is vulnerable to global volatility.
Critical in the government’s proposed spending priorities policy package is the necessity to act now for the establishment of a sustainable foundation for public service budgets that will allow for the re-building of fiscal space. Over the medium term, government will place emphasis on debt sustainability, allocative efficiency, and obtaining value for money in public spending.
It is against this background that the Committee engaged with identified stakeholders on the 2014 MTBPS.
2 Medium Term Expenditure Framework
The Minister of Finance in his 2014 MTBPS presentation to Parliament indicated that the success of the budget is much more than a schedule of taxes and spending plans, but that it should encompass how the budget will contribute to the attainment of the South Africa’s developmental goals as outlined in the National Development Plan’s (NDP) Vision 2030. Government’s medium term strategic framework (MTSF) 2014-2019 is tied into the 2030 vision of the NDP and affirms the need for partnerships between a capable developmental state, a successful business sector and a strong civil society.
In engaging with government’s proposed spending plans for the 2015 MTEF, the Committee notes the following long term trends in public spending as reported in the MTBPS:
- Public spending has increased faster than inflation, with nominal annual spending growth averaging 11.7 per cent between 2005/06 and 2014/15. In addition, it is important to note that public spending grew faster than the economy as a whole.
- Spending on social and economic infrastructure (with the doubling of proportion of spending to housing and municipal infrastructure), as well as programmes that contribute to the social wage such as education and health care has risen from 51 per cent of the main budget in 2005/06 to 59 per cent in 2014/15.
- Growth in spending on capital goods has outpaced growth in current spending.
- Growth in allocations for compensation of employees has been rapid while growth in spending on goods and services; and transfers to households now accounts for a smaller share of spending.
- Interest payments have grown rapidly and now absorb more than 10 per cent of the budget, up from about 8 per cent in 2008/09 and 2009/10.
The government proposes expenditure growth of 6 per cent a year over the next three years and the main budget framework is projected to reach R1.22 trillion by 2017/18. The Minister indicated that the state will adopt a more focused approach to budgeting with emphasis placed on the scope and quality of long term expenditure planning. A comprehensive assessment of baseline estimates will be conducted in the coming two years thus significant allocations in the third outer year are left unallocated in the third year pending the outcome of this assessment. The table below shows that main Budget Framework for the 2015 Medium Term Expenditure Framework (MTEF).
Table 1: Main Budget Framework, 2011/12 to 2017/18
Source: National Treasury (2014)
The 2015 medium term budget framework allocates 48 per cent to national departments, 42.9 per cent to provincial departments and 9.1 per cent to local government in 2015/16. Budget allocations to the national sphere will increase by 5.7 per cent over the 2015 Medium Term Expenditure Framework (MTEF) period, provincial allocations will increase by 6.2 per cent and local government allocations will increase by 6.5 per cent. Provincial and local government allocations show slightly higher growth in the medium term due to government’s emphasis on front-line services such as health, education and basic services. For provinces, the MTBPS reports that there will renewed focus on human resource management and supply chain management. Personnel expenditure in provinces now accounts for 61 per cent of total provincial spending. With regards to local government, there will be renewed support for revenue collection and management of infrastructure.
Table 2: Consolidated Government Expenditure, 2013/14 to 2017/18
Source: National Treasury (2014)
National Treasury states that public debt is now approaching the limits of sustainability with debt-service payments increasing its share of the national budget thus narrowing the space to expand public services and investment. Debt service costs grows faster than total state expenditure in the medium term. The cost of servicing government debt is projected to grow at an average annual rate of 9.3 percent in nominal terms over the medium term.
The fastest growing programmes as outlined in the consolidated expenditure framework are post-school education and training; employment, labour affairs and social security funds; and housing development and social infrastructure. There will be lower expenditure growth in the areas of general public services and economic infrastructure and network regulation. The largest allocations over the three year spending period ahead are to basic education (15 per cent), health (11 per cent) and social protection (11 per cent).
Basic education remains the largest single category of government expenditure. Expenditure in the education function is projected to increase at an annual average rate of 6.3 per cent in the medium term from R201.5 billion in 2014/15 to R226.1 billion in 2017/18. The increase in the budget baseline for the education function is largely due to the high personnel costs given that a significant portion of the budget is for compensation of employees. The MTBPS reports that proposed allocations for schools infrastructure will ensure that gazetted norms and standards are met by 2016.
The funding allocations for post-school education and training will rise rapidly in the medium term from R59.5 billion in 2014/15 to R68.1 billion in 2017/18. Out of the allocations for the post school, 55 per cent consists of subsidies to universities and contributions to the National Students Financial Aid Scheme. It is important to note that funding for sector education and training authorities and the National Skills Fund is channelled through payroll taxes. There is currently an interdepartmental team that is developing finance proposals for the envisioned expansion of access to universities, technical, vocational and adult learning centres.
The proposed spending projections for the health sector point to moderate growth in allocations over the medium term at 6.3 per cent per annum. Funding will increase from R154.6 billion to R175.1 billion. A significant portion of heath allocations are directed towards expanding the provision of antiretroviral drugs which now reaches 2.7 million. Spending on health service in provinces has been driven largely by compensation of employees which has grown at 10 percent in the past three years and may need careful management in the medium term. There is currently a high level working group that is assessing implications of the National Health Insurance on the intergovernmental fiscal framework.
The baseline allocations for social protection will rise from R154.9 billion in 2014/15 to R176.3 billion in 2017/18. The number of social grants beneficiaries is expected to reach 17.8 million in 2017/18. Focus areas in the medium term will be on enhancing the legislative and policy framework for improved access and also improve regulation and oversight of the sector.
The National Development Plan emphasises continued investment in economic infrastructure as critical in efforts to stimulate the economic development, create jobs and address socio-economic inequalities. Economic infrastructure will account for 5 percent of spending in the medium term and National Treasury reports that complimentary investments by the private sector will be encouraged. Funds will be shifted from the solar water heater programme to fund the rollout of broadband infrastructure and surpluses from the Water Trading Account will be shifted to the alleviate service delivery pressures in the provision of water services.
The budget allocated for the housing development and infrastructure function grows by 8.1 per cent per annum in the 2015 MTEF and reaches R198.3 billion in 2017/18. Spending growth in this function is drive largely by commuter rail transport. The state proposes to shift funds from this function group to support high priority infrastructure projects and address effects of the acid mine drainage. The interim solution for the Moloto project will be upgrading of the road which is estimated at R3 billion and the long term solution is rail network through the Private Public Partnership process for which feasibility studies estimate at R57.7 billion. The National Development Plan states that transforming human settlements will require strong and effective spatial planning systems. The government is currently reviewing its approach to housing delivery.
The 2014 MTBPS emphasise the development of effectively planned and well-managed urbanisation can accelerate economic growth. National Treasury proposes reforms to the structure and conditions of infrastructure grants to local government should accelerate the provision of well-located and affordable social housing, and strengthen the upgrading of informal settlements. A key strategy will be the crowding in of private sector and household investment for housing infrastructure and the expansion of the municipal debt market.
Expenditure on industrial development, trade and innovation will moderate in the medium term largely as a result of the tapering of spending on the economic competitiveness support package. The economic competitiveness support package was formulated as a temporary buffer measure to support the economy following the global economic crisis of 2008. There are proposed allocations for the development of a regulatory architecture for shale gas exploration and policies to develop the oceans economy.
The MTBPS states that priority focus in the function group of employment, labour affairs and social security funds will be on ensuring the creation of 6 million jobs through the EPWP programme and a 30 per cent increase in the statutory workplace inspections. The Community Works Programme will be rolled out in every municipality by 2017 and the EPWP is expected to achieve its targets without the requirement for additional resources. Table 3 shows funding for employment programmes up to 2017/18.
Table 3: Funding for employment programmes, 2012/13 to 2017/18
Source: National Treasury (2014)
The baseline allocations for rural development and land reform increases moderately from R10.7 billion in 2014/15 to R12.3 billion in 2017/18. Key focus areas in the medium term in the function group will be the management and investigation of new land claims following the re-opening of land reform process. The state will also look into addressing the duplication of activities by various state agencies working on rural development
In ensuring the realisation of the vision of communities wherein all are free and safe, funding allocations for defence, public order and safety will increase in the medium term and is expected to reach R198.3 billion in 2017/18. The MTBPS states that resources will be shifted to priority programmes and institutions, including the Public Protector, the Financial Intelligence Centre, family advocates, public defenders, and the prosecution service.
Funding allocations for General Government Services grows minimally in the medium term and reaches R71.4 billion in 2017/18. The state will make funds available within the group budget for the completion of the Community Survey 2016. Data from the Community Survey will inform policy planning and resource allocation. Also, the launch of the Property Management Trading Entity is expected to significantly alter the institutional arrangements in the state’s immovable property portfolio and the rollout of the national infrastructure projects.
2.1 Measures to contain public expenditure and improve public service delivery
The 2014 MTBPS proposes to reduce the expenditure ceiling by R10 billion in 2015/16 and R15 billion in 2016/17. The proposed decreases in indicative baselines will be allocated proportionately across national, provincial and local government, according to their share of national revenue. Critically, aggregate expenditure will continue to grow in real terms by 1.8 per cent a year. It is envisaged that all government departments and agencies will adopt measures that reduce inefficiency and waste. The state will adopt a deficit-neutral approach to financing state-owned companies. Over the next two years, government will ensure that any capitalisation required does not widen the budget deficit. It is intended that outcome will be to minimise the impact on front-line service delivery through the targeting of nonessential items and uncommitted resources. Spending on core social obligations will be protected.
National Treasury indicated that savings in national departments will be achieved in the following ways:
- The cost-containment measures being currently implemented will be extended by freezing the budgets of certain nonessential goods and services at 2014/15 levels, and allowing others to increase at the rate of inflation;
- It is proposed that allocated personnel budgets where posts have been vacant over an extended period be withdrawn;
- National departments will reduce the rate of growth of transfers to public entities, particularly those with cash reserves.
The cost saving strategy specifies that about 40 per cent will come from curbing spending growth on non-essential goods and services and a further 40 per cent of savings will be achieved by reducing the rate of growth of transfers to public entities. The remaining 20 per cent of savings will come from the withdrawal of funding for non-essential vacant posts. It is expected that provinces will adopt similar cost saving strategies and national departments will support provinces in ensuring that basic services targeted for the poor and vulnerable are protected.
The establishing of centralised oversight of public procurement will improve is expected to result in efficiencies and combat fraud in government public procurement programme in the medium term. The range and scope of nationally negotiated contracts will be expanded, a national price-referencing system will be introduced, and government will draw on private-sector expertise and best practice in procurement systems.
The 2014 MTBPS also states that budgets in the 2015 MTEF will place emphasis on restructuring the way that departments and agencies work together in order to eliminate inefficiencies and prevent overlapping mandates. Emphasis will be placed on ensuring that the removal of obstacles to private investment is a priority for government at all levels.
3 Hearings on the 2014 MTBPS
3.1 Financial and Fiscal Commission
The Financial and Fiscal Commission (FFC) welcomed the main themes of the 2014 MTBPS and indicated that these resonated well with its submission for the 2015/16 Division of Revenue which was made in May 2014. Themes such as the need to derive value for money out of service delivery programmes, the state’s position on fiscal consolidation and the tightening of measures to maintain expenditure sustainability such as the freezing of funded vacant posts were supported. The FFC also welcomed government’s intention to intensify initiatives to combat waste, inefficiency and corruption, thus fostering the establishment of a capable state. The FFC views the proposed management of the contingency reserve/unallocated resources as an important and useful buffer in mitigating the effects of an unstable economic environment. The FFC commended efforts by government to protect conditional grants as these were fundamental to the improvement of services to communities.
The FFC noted the greater distribution of funds through the Local Equitable Share to poorly resourced municipalities, but was of the view that the spending ability and absorptive capacity of municipalities should be continuously monitored. This was needed to ensure that services delivered to beneficiaries are not compromised due to a lack of capacity. The Commission highlighted that there was a need for wage increases to be linked to productivity and to standardize wage scales across government to achieve fairness in the earnings of public officials.
While the FFC welcomed the strong priority attached to funding for housing and accompanying basic infrastructure, it was of the view that such funding needed to be accompanied by technical support to municipalities to assist with the roll-out and maintenance of new and existing infrastructure. The FFC was also supportive of the back to basics approach for local governments as paramount was the effective of basic municipal services. This approach also re-enforces the need for enhanced support to local governments by national and provincial departments. The emphasis placed on the improvement of quality education was welcomed though measures should be taken address the absence of teachers from class. The FFC also indicated that the Employment Tax Incentive Grant should be aimed at creating new jobs instead of jobs which would have been created irrespective of its introduction.
3.2 Parliament Budget Office
The Parliamentary Budget Office (PBO) gave an overview of the 2014 MTBPS and focused on National Development Plan (NDP) and growth targets, the external and internal factors affecting South Africa’s growth rates, and the proposed fiscal package and its impact on local government. The fiscal challenges around the State Owned Enterprises (SOEs) were also alluded to by the PBO as well as the Public Sector Wage Bill. The linkage between the NDP was also highlighted and the point was made that there was a clear intent to align government expenditure with the Medium Term Strategic Framework, from which more details was forthcoming during the 2015 Budget Speech.
The Parliamentary Budget Office indicated that personnel numbers are estimated to grow by less than 1 per cent over the 2015 MTEF for national and provincial government levels. The PBO submitted that there is no single data source with personnel numbers available. In its submission, PBO indicated that efficiency gains between the spheres of government is not evident and that envisaged slower growth in transfers needs to result in efficiency gains. In terms of job creation initiatives, the PBO indicated that the outcomes of all job creation projects will need to be assessed.
The Parliamentary Budget Office submitted that a possible avenue for averting the decline in economic growth was state expenditure geared towards productive investment such as effective post schooling funding framework. However, in response to increasing the scope for more debt to finance this expenditure, the PBO submitted that South Africa was a small open economy with volatile capital flows thus more research will be required in this area.
3.3 Human Sciences Research Council
The Human Sciences Research Council (HSRC/ Council) was invited to comment on the 2014 MTBPS. In terms of its overall assessment of the 2014 MTBPS, the HSRC welcomed the commitment to contain public spending growth and efforts at reducing budget deficit so as to limit the rate of growth in borrowing. The Council also supported the commitment to accelerate infrastructure investment especially economic infrastructure as well as efforts aimed at unlocking private sector investment and the tougher approach to the management of state entities.
The HSRC noted that the climate of fiscal prudence requires greater emphasis on efficient resource allocation and an effective, capable and efficient state. There was a proposal for increased focus on procurement costs through a Public Procurement Review; as well as opportunities to support non-technological forms of innovation for social purposes. The HSRC recommended that government, as a large procurer of goods and services, should encourage problem solving, solution development and innovativeness in the procurement of critical services such as health and social services. In addition, it was highlighted that linking disbursement of infrastructure grants more tightly to the efficient delivery of capital projects would yield significant efficiencies. The HSRC also emphasised the need for stringent monitoring and reporting requirements in order to fight waste and corruption.
The Council pointed out that the poor and the vulnerable must be cushioned through the efficient and effective use of social expenditure, including stimulating economic development and growth by creating jobs. It was emphasised that investment in Early Childhood Development services should therefore be prioritised because investment in later education would not yield as great an impact in the absence of ECD services which are foundational in nature. In this regard, the HSRC proposed the provision of population level services and not small programmes operating in pockets, as well as funding an essential package of services that includes services during pregnancy, birth registration, health and nutritional support. The HSRC estimated that this would cost R16.7 billion.
There was an indication that there has to be an integrated approach in order to enhance the effectiveness of education. Basic education had to be evaluated holistically taking into account factors that impact on learner performance such as the home and community. In addition, the focus on school infrastructure had to be expanded to include pedagogical resources such as laboratories, computers, calculators, & math sets. In addition, the Council indicated that government resources must be directed to skill areas that would tackle unemployment and skills shortages. In this regard, the proposed model for skills planning by the Labour Market Intelligence Partnership was highlighted. This model proposes improved levels of education and training, improved workplace skills training as well as an emphasis on a demand driven approach that aligns skills development with industrial development policies. The HSRC also reported that the Funza Lushaka bursary scheme has been success in increasing the number of graduates in the area of teacher training. However, it remains concerned that these teacher graduates from the state supported do not want to go to teach in the rural areas where the need for qualified teachers is most acute.
Although the HSRC welcomed the annual increments for health spending over the MTEF, the Council was of the view that the proposed growth in allocations was inadequate for the following reasons: a) expansion of the National Health Insurance (NHI) which is being scaled up, b) the additional costs of putting an additional 2 million people living with HIV (PLHIV) on antiretroviral treatment after adopting the new World Health Organisation treatment guidelines which have changed the eligibility for treatment from 350 to 500 CD4 cells/mm3, meaning that PLHIV will commence treatment while they are still healthy, and c) the shortfall in funding due to cutbacks by major bilateral donors such as the President’s Emergency Plan for AIDS Relief- PEPFAR) and the UK (e.g., Department for International Development - DFID).
- Public Service Commission
The Public Service Commission (PSC or the Commission) was invited to comment on the 2014 MTBPS. In its submission it observed that the position of fiscal consolidation highlighted in the 2014 MTBPS requires greater accountability on the management of resources as well as joint and integrated planning in order to improve programme effectiveness and achieve the National Development Plan (NDP) milestones. The PSC was of the view that planning should therefore inform budgeting through the costing of the implementation of annual performance plans. The translation of Strategic Plans into feasible implementation strategies and performance targets, supported by effective financial management, was viewed as being imperative in this regard. Furthermore, this alignment would contribute to finding a balance between actual performance and expenditure.
The PSC highlighted that effective and efficient performance should focus on the quality of service delivery and made reference to the General Household Survey which revealed that although service delivery has increased, the number of protests has increased due to the quality of service delivery. The Commission was of the view that increasing access to housing should remain a key focus area for government. The PSC also indicated that there is a perception that corruption is high amongst government, therefore the public service should ensure that anti-corruption measures and capacities are strengthened to deal swiftly with corruption cases. It reported that there was minimal improvement in overall feedback rate on National Anti-Corruption Hotline largely due to lack of capacity within departments.
3.5 National Union of Metalworkers of South Africa (NUMSA)
In its submission the National Union of Metalworkers of South Africa (NUMSA or the Union) highlighted that that the policy stance of narrowing the deficit in order to stabilise public debt was inappropriate given the prevailing challenging economic environment which requires increased spending to make up for a stagnant private sector. NUMSA was of the view that the real growth rate of government expenditure is conservative and therefore the budget would not meaningfully deliver on economic transformation. In particular, there were concerns that the expenditure growth rate for some functional groups e.g. police services, education and general public services is less than inflation.
The labour organisation was also of the view that industrial and trade policy should not be delinked from patterns of state spending in critical sectors of the economy. NUMSA indicated that although there were no details yet on tax reforms, they had concerns regarding a possible mild fiscal cliff due to increase in taxation and decrease in government spending which would have a negative impact on the poor. There were also concerns that a regressive tax reform using Value Added Tax (VAT) would take a toll on the poor.
The Union noted with concern that the 2014 MTBPS is silent on issues of procurement, local content and local production. They raised awareness about the awarding of rolling stock contracts to Chinese and BBBEEE consortiums by Passenger Rail Agency of South Africa (PRASA) and Transnet which could potentially harm local industry and lead to loss of jobs. The union was of the view that any further infrastructure allocations should strictly adhere to local content requirements. NUMSA called for stricter sanctions on those who breach procurement regulations in order to curtail irregular expenditure. They welcomed the cost containment measures however were of the view that severe measures are required to deal with corruption, fraud, misappropriation of funds and non-compliance with procurement policies and regulations.
NUMSA proposed that government should implement measures to harmonise electricity tariffs, ensure that electricity is affordable and increase the amount of free basic electricity from 50kwh to 100 kwh. They welcomed the increased funding for the Green Fund however were of the view that government should ensure that renewable energy programmes benefit the working class and the poor. There were also concerns about unclear statistics in terms of jobs created through the Employment Tax Incentive Act (ETIA), in particular, the difficulty to distinguish between deadweight jobs (i.e. the jobs that would have been created anyway apart from ETIA).
- Equal Education (EE) and Public Service Accountability Monitor (PSAM)
The Equal Education & Public Service Accountability Monitor (EE & PSAM) welcomed the 2014 MTPBS’s prioritisation of education with reference to the allocation of R833 billion and R640 billion allocated respectively to post-school education & skills development, and basic education over the 2015 MTEF. However they highlighted a number of concerns about school infrastructure i.e. Education Infrastructure Grant (EIG) & Accelerated Schools Infrastructure Delivery Initiative (ASIDI). They were concerned about a lack of transparency in the implementation of the EIG whereby only publically available information are project lists under provincial education department votes. The EE & PSAM indicated that the proposed increased allocation of R700 million between 2015/16 and 2016/17 would be inadequate for the implementation of the Norms and Standards. They also had concerns about the poor expenditure performance and implementation challenges of ASIDI which have resulted in extended lengths of projects and reductions in budget allocations.
With regard to Scholar Transport, EE and PSAM highlighted a number of concerns including clarity of roles between Department of Transport and Department of Basic Education (DEB) to ensure adequate data capturing of learners in need, sufficient budgeting to meet need, and rollout of service to reach intended beneficiaries. Concerns were raised about the inadequacy of funds allocated by provinces to transport all qualifying learners. In addition, a concern that the 2014 MTBPS and the proposed Division of Revenue did not allocate exclusive funding for scholar transport.
The EE & PSAM also indicated concerns about the National School Nutrition Programme (NSNP) such as the risk of reduction of the grant due to underspending; the exclusion of vulnerable learners in quintile 4 and 5; and the reductions made by the Department of Basic Education to the budget for monitoring and oversight of provinces over the NSNP.
With regard to the above concerns, EE and PSAM made the following recommendations to the Committee:
- The Department of Basic Education allocate adequate budget for infrastructure maintenance;
- That the Department of Basic Education in collaboration with the National Treasury improve planning alignment between Provincial Education Departments and the Department of Basic Education;
- That adequate funds be allocated towards the implementation of the Norms and Standards;
- That copies of provincial reports on Norms and Standards be made available in the public domain;
- A call for the adoption of the National Scholar Transport Policy of 2009;
- DBE to collect and verify data on the number of learners needing scholarly transport, particularly in the Eastern Cape;
- Proposal for introduction of a grant for provision of scholar transport, particularly in the Eastern Cape;
- That the DBE be cautioned against reductions made to the budget pertaining to monitoring and oversight over NSNP;
- DBE to elicit clear data from provinces relating to the number of learners that are eligible to benefit from the NSNP;
- DBE to critically consider inclusion of all eligible learners on the NSNP.
3.7 University of Witwatersrand (WITS) and University of South Africa (UNISA)
The University of Witwatersrand (WITS) and University of South Africa (UNISA) made a joint submission to the Committee focusing on the possible fiscal cliff which South Africa was facing, the sustainability of social assistance expenditure and, remuneration of civil servants, and tax revenue increases for the fiscus.
The universities were of the view that given spending patterns beginning in 2012, South Africa was heading for a fiscal cliff with social assistance expenditure and the remuneration of civil servants exceeding all government revenue by 2026 if allowed to continue unabated. It was reported that the growth in expenditure on social grants has since declined but required careful monitoring. As such the initial estimation of a fiscal cliff will be further than anticipated. The following areas were highlighted:
- It was necessary to contain growth in the civil service employment and the size of the Cabinet should be reduced to avoid a fiscal cliff;
- There was no scope to increase civil service remuneration by more than the rate of inflation plus one percentage point;
- There was limited room for raising extra income by means of increased taxation as it will impact negatively on the economy’s growth performance.
3.8 Congress of South African Trade Unions (COSATU)
The Congress of South African Trade Unions (COSATU or the Congress) indicated that it viewed the 2014 MTBPS as a three year full-on austerity budget framework which was delivered at a time when the country needed economic growth, productive investment and employment creation. To this end, COSATU expressed concern at the revisited estimate for economic growth which was reduced to 1.4 per cent and was of the view that this would militate against any prospects of economic recovery. It indicated that it welcomed a number of proposed initiatives such as, amongst others, the efforts to expand the rail capacity and the provision of funding for an additional 116 000 tertiary students by 2016.
COSATU highlighted that, notwithstanding, government’s efforts to spend more efficiently and curtail wasteful expenditure, the cutting of expenditure particularly economic and social investment will have disastrous consequences. The organisation strongly opposed the freezing of funded vacant positions and rejected the notion that civil servants’ wages were to blame for the current expenditure difficulties, while the Cabinet grew with each new administration. With reference to the announcement on the possible sale of non-strategic State-owned Entities, the Congress indicated that it will vigorously oppose any further attempts at privatisation and outsourcing. The commitment to scrutinise SOEs’ expenditure was however welcomed.
COSATU did not support the proposed R15 billion and R45 billion allocations towards the contingency reserve in 2016/17 and 2017/18 while at the same time, there was a freezing of posts, and possible reduction of allocation for wages, infrastructure and social expenditure. The Congress indicated that it was prepared to fight against any attempt to extract the envisaged R27 billion in revenue from the working class and the poor and was against the Employment Tax Incentives programme as the latter has become a straight subsidy for labour brokers. In respect of corruption, whilst it welcomed the reported 54 convictions of fraud, much more needed to be done by government to tackle corruption. Government needed to clarify what it meant by ‘improving dispute-settlement mechanisms in labour relations’ as it must not be an attempt to reduce the workers’ rights. Of concern to COSATU, was the lack details around the need to expand beneficiation in the mining sector and the funding models plus implementation date for the National Health Insurance. It expected the announcements made during the MTBPS to be subject to a bona fide collective bargaining process at the Public Service Collective Bargaining Chamber.
4. Committee observations and findings
The Standing Committee on Appropriations, having considered the 2014 Medium Term Budget Policy Statement, and having engaged with the various stakeholders makes the following findings and observations:
In terms of the overall thrust of the 2014 MTBPS
4.1 The Committee welcomes the 2014 MTBPS and the proposed 2015 MTEF budget’s emphasis on the establishment of a sustainable foundation for public finances that will allow the re-building of fiscal space. The 2015 MTEF budget is to be underpinned by the principles of debt sustainability, allocative efficiency, and obtaining value for money in public spending
4.2 The Committee notes the proposal in the 2014 MTBPS to reduce the expenditure ceiling by R10 billion in 2015/16 and R15 billion in 2016/17. The proposed decreases in indicative baselines will be allocated proportionately across national, provincial and local government, according to their share of national revenue. The Committee emphasises that any proposed reduction should not have an adverse impact on the service delivery, especially the poor and vulnerable.
4.3 The Committee finds that the fastest growing programmes as outlined in the consolidated expenditure framework are for post-school education and training; employment, labour affairs and social security funds; and housing development and social infrastructure. The largest allocations over the three year spending period ahead are to basic education (15 per cent), health (11 per cent) and social protection (11 per cent).
With regards the budget principles of efficiency, effectiveness and economy
4.4 It is envisaged that all government departments and agencies will adopt measures that reduce inefficiency and waste. The proposed cost saving strategy specifies that about 40 per cent will come from curbing spending growth on non-essential goods and services; a further 40 per cent of savings will be achieved by reducing the rate of growth of transfers to public entities, especially those with cash reserves. The remaining 20 per cent of savings will come from the withdrawal of funding for non-essential vacant posts. The Committee notes that these cost saving strategies will not impact on frontline service delivery as nonessential items and uncommitted resources will be targeted.
4.5 The Committee notes that the current path of fiscal consolidation provides government with opportunities to encourage innovations and the development of efficient and effective solutions in the procurement of public goods and services with a view of stimulating the local economy as well as fostering non-technological forms of innovation, with emphasis on social innovations.
4.6 In the 2015 MTEF the state will adopt a more focused approach to budgeting with emphasis placed on the scope and quality of long term expenditure planning. A comprehensive assessment of baseline estimates will be conducted thus a significant allocations in the third are left unallocated in the third year pending the outcome of this assessment.
4.7 The Committee notes the emphasis contained in the MTBPS on the significant potential that improved alignment and coordination across the whole government (i.e. inter department and inter sphere cooperation) has on elevating programme effectiveness.
4.8 The Committee notes that local government fiscal capacity varies substantially across various municipalities and trends show that it appears to have declined over time. The Committee also notes the intention of government to expand the municipal debt market. However, the Committee has reservations on the ability of some municipalities to sustainably service debt and is of the view that borrowing should be encouraged for capital investment and job creation wherein revenue collection through rates and service charges should enable municipalities to sustainably deliver basic services such as water, sanitation and facilitate energy distribution.
4.9 The Committee notes the work underway by the Chief Procurement Office to establish a centralised oversight system of public procurement aimed at improving cost-effectiveness in the operations in the public sector and is of the view that this should cut across all spheres of government. The MTBPS states that the range and scope of nationally negotiated contracts will be expanded, a national price-referencing system will be introduced, and government will draw on private-sector expertise and best practice in procurement systems.
4.10 While noting the concerns by COSATU and NUMSA regarding the proposed freezing of funded positions; the Committee is of the view that these positions may not be deemed as critical to the functioning of the department by virtue of the protracted periods in filling of these vacancies. The Committee supports the freezing of these posts to reprioritise funds towards other key service delivery programmes while noting that exceptions would be made in instances where departments can motivate for the preservation of these posts and subsequent speedy appointment of required personnel. In addition, the Committee asserts that a comprehensive review of all positions in the public sector should be undertaken with a view to determining all the critical posts for effective service delivery.
With regards to the focus area of education and skills development
4.11 The Committee concurs with the concerns raised by Equal Education & the Public Service Accountability Monitor around the challenges related to school infrastructure delivery, school nutrition, and scholar transport; and these matters are and will be closely monitored by the Committee. With regard to school nutrition, the Committee is concerned that there are instances where the quintile system excludes under privileged scholars.
4.12 The Committee is of the view that the development of skills is a key driver for the unlocking of labour intensiveness in the manufacturing, agricultural and mining sectors so as to alleviate unemployment and stimulate the economy. However; the Committee is concerned about the extent to which post-school education responds to the skills requirement of the economy. The Committee supports the plans currently underway for the development of the Skills Planning Mechanism.
4.13 The Committee notes that post-school education and training is the fastest growing expenditure item in the 2015 MTEF although it views as critical the upscaling of investment into National Student Financial Aid Scheme (NSFAS). The MTBPS indicates that work is underway by the interdepartmental team that has been established to develop finance proposals for the envisioned large scale expansion of access to universities, technical, vocational and adult learning centres. The Committee views the enhancement of systems within NSFAS as critical in combating fraud and corruption thus ensuring that only qualifying beneficiaries benefit from the programme. This will ensure that funds allocated to NSFAS benefit more qualifying students.
4.14 The Committee notes that there is a need for increased investment in a holistic Early Childhood Development service package in order to leverage better returns for current investment in education.
With regards to improving health care and services:
4.15 The Committee notes that the future introduction of national health insurance may require a significant restructuring of intergovernmental fiscal relations in the health sector. In addition, the Committee welcomes the high-level working group examining the introducing of that National Health Insurance which is expected to make recommendations to the Ministers’ Committee on the Budget.
4.16 The Committee notes COSATU’s submission on the high vacancy rate in provincial departments of health and education. The MTBPS states that provincial financing of health, education and social development will entail the enhanced management of the growth in the compensation of employees budgets, reduction on non-core staff and the retention and recruitment of critical staff.
With regards to accelerating economic growth and development, investment and job creation
4.17 The Committee welcomes the prioritisation of the development of cities in order to promote urban spatial transformation and growth. However, it is concerned about a lack of intergovernmental cohesive planning for projects in the local government sphere. In this regard, the Committee welcomes the process underway for the finalisation of the Integrated Urban Development Framework as well as reviews undertaken by the Minister of Cooperative Governance for the strengthening of the Intergovernmental Relations (IGR) system.
4.18 The Committee welcomes the proposed reforms to the structure of infrastructure grants to local government in order to scale up the provision of well-located and affordable social housing as well managed urbanisation can enhance economic growth.
4.19 The Committee notes that large capital investments under way in the transport sector by states entities such as Transnet and PRASA may result in higher productivity in the period ahead. The Committee also welcomes government’s commitment to maintain its investment roll-out programme and expand private sector participation in public sector investment at all levels. The Committee is of the view that government should minimise administrative bottlenecks as this would remove blockages to private sector participation in the economy.
With regards to developing a capable and effective public service
4.20 The Committee notes with concern that Human Resource Management was the weakest key performance area in the four Management Practice Assessment Tool (MPAT) areas. This highlights a lack of accountability for the management of government resources. The Committee remains concerned with the low compliance in the signing and filing of Performance Agreements by Heads of Departments, improper use of the Performance Management Development System; as well as poor discipline management in departments.
4.21 The Committee notes with concern that the Performance Management Development System is merely utilised as a remunerative/punitive tool and not as a developmental tool and for ensuring that service delivery targets of the department are achieved. The Committee reiterates the need for performance agreements and assessments to be linked to Annual Performance Plans (APP) so as to remove the anomaly of rewarding staff for performance whilst APP targets are not achieved. With regard to discipline management, the Committee is of the view that there should be guidelines to ensure that disciplinary sanctions are standardised albeit the merit of each disciplinary case should be fully considered.
4.22 The Committee supports the recommendation by Public Service Commission for integrated planning and the alignment of strategic, financial and human resource management standards; and views the proposal for costing of Annual Performance Plans as potential critical factor to be considered for the attainment of efficiencies and effectiveness in the use of government resources. In addition, the Committee remains concerned with the high vacancy rate within Departments.
The Standing Committee on Appropriations, having considered the 2014 Medium Term Budget Policy Statement, recommends as follows:
5.1 That the Minister of Finance should ensure that:
- National Treasury, in conjunction with the Department of Planning, Monitoring and Evaluation develop systems and mechanisms targeted specifically at the seamless alignment of budget functional groups and Medium Term Strategic Framework 14 outcomes.
- National Treasury, in conjunction with the Department of Planning, Monitoring and Evaluation consider the establishment of innovation unit that will identify and assess mechanism for scaling up best practice across the public service in the areas of cost containment efficiencies, MTEF planning and target formulation, job creation initiatives, utilising shared services and the development on innovative solutions to the delivery of public services. Active efforts should be made ensure that best practice on efficiencies is disseminated to all parts of the public service.
- National Treasury, in conjunction with the Department of Planning, Monitoring and Evaluation consider the inclusion of efficiency targets as a planning requirement in the frameworks guiding the compilation of Strategic Plans and Annual Performance Plans.
- National Treasury in partnership with the Department of Higher Education and Training consider the mechanisms on leveraging funding streams within the Sector Education and Training Authorities and the National Skills Fund towards student funding in higher education, especially increased funding for the National Student Financial Aid Scheme.
- National Treasury, in consultation with the Department of Basic Education and with the assistance of the Financial and Fiscal Commission, consider the formulation and development of a conditional grant for the provision of scholar transport.
- National Treasury, in consultation with the Department of Basic Education should assess the effectiveness of the quintile system with particular emphasis on ensuring that qualifying beneficiaries for programmes such as school nutrition programme are adequately catered for.
- National Treasury and the Department of Higher Education consider developing systems for ring-fencing funds earmarked for learnerships and internships in the public service and developing rigorous frameworks in enhancing the quality of training entailed in these learnership/internship.
- National Treasury together with the Department of Health consider ways of leveraging resources within available funds for the provision of social and behavioral change communication (SBCC) programmes to reduce the high HIV infection rate and other health challenges.
- National Treasury and the Department of Higher Education develop and implement a capacity enhancement and support initiative specifically aimed at the establishment of a Labour Market Intelligence Unit to work on linking economy wide demand for the supply of required skills.
5.2 That the Minister of Public Service and Administration should ensure that:
5.2.1 the Department in conjunction with the Department of Planning, Monitoring and Evaluation to consider the development of systems and mechanisms to ensure that vetting processes are speedily undertaken so as to ensure that all vacant posts across the public services are timeously filled.
5.2.2 the Department in conjunction with the Department of Planning, Monitoring and Evaluation to consider the development of technical support systems to Executive Authorities and Heads of Departments on finalisation of performance agreements.
5.3 That the Minister of Basic Education should ensure that:
- the Department of Basic Education, in partnership with the Department of Cooperative Governance and National Treasury consider developing, , innovative bottom up approaches within the current resource envelope for the provision of early childhood development programmes in each district.
- the Department considers the development of innovative ways of ensuring the effective rollout of schools’ infrastructure through partnerships with social partners and the private sector.
The responses by the relevant Executive Authorities to the recommendations as set out in section 5 above must be sent to Parliament within 60 days of the adoption of this report by the National Assembly.
Report to be considered.
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