ATC091113: Report 2009 Medium Term Budget Policy Statement

Standing Committee on Appropriations

Report of the Select Committee on Appropriations on the 2009 Medium Term Budget Policy Statement, dated 13 November 2009

 

1.             Introduction and Background

 

The Minister of Finance, Honourable Pravin Gordhan, tabled the Medium Term Budget Policy Statement (MTBPS) on 27 October 2009, outlining the budget priorities of government for the medium term. The MTBPS was tabled together with the Adjustments Appropriation Bill [B13 - 2009]. The Adjustments Appropriation Bill was referred to the Select Committee on Appropriations for consideration and report while the MTBPS was referred to the Select Committee on Finance and the Select Committee on Appropriations to consider, in accordance with their respective mandates as outlined in the Money Bills Amendment Procedure and Related Matters Act No 9 of 2009. Among its responsibilities in respect of the MTBPS, the Select Committee on Appropriations (the Committee) is 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 Committee, in collaboration with the Standing Committee on Appropriations, invited the national departments of Basic Education, Health, Rural Development and Land Reform, Public Works, Water and Environmental Affairs as well as Cooperative Governance and Traditional Affairs as they were considered strategic partners in the implementation of policy priorities. These departments were required to account for their budget plans. Furthermore, the Human Sciences Research Council, the Financial and Fiscal Commission, independent economists and the Peoples Budget Coalition were invited to comment on the 2009 MTBPS. All the invited organisations and individuals made their submissions with the exception of the People’s Budget Coalition.

 

The Committee acknowledges that the MTBPS is tabled during a time when world economies, including South Africa’s, are in economic difficulty. This presents serious challenges including decreased revenues, job losses and increased dependence on social programmes. The economic meltdown and projected decline in the tax revenue, in the near term, may require changes in medium term budget proposals. This will in turn necessitate that domestic policies ensure that funds are directed to those sectors and programmes which have the greatest impact on the lives of people living in South Africa.

 

 

2.             Budget priorities for the medium-term

 

The budget priorities over the medium-term support policy priorities of government. In line with the second 2009 State of the Nation Address (SONA), government prioritises its resources in the following five areas:

• supporting job creation initiatives and realigning support to business to enhance employment opportunities;
• enhancing the quality of education and skills development;
• improving the provision of quality health care;
• driving a more comprehensive rural development strategy; and
• intensifying the fight against crime and corruption.

 

These priorities are supported by a government strategy which includes the shifting of resources to labour intensive sectors of the economy. Furthermore, government will strive to improve State performance with specific regard to the delivery of services to the poor. In the light of the current budget pressures, the Committee is of the view that limited resources should be utilised to produce maximum output, without compromising the quality of services.  The fiscal framework makes an addition of R78 billion to the baseline budget. A substantial share of this budget is allocated to provinces for health and education. This increase in provincial baselines is intended to finance health and education for salary increases as well as the Occupational Specific Dispensation (OSD). Other resources are allocated for antiretroviral treatment, workbooks for early phases of schooling and housing programmes. Infrastructure programmes including the Municipal Infrastructure Grant (MIG) received an additional allocation. The additional budget to national departments will finance the child support grant, rural development, the criminal justice sector as well as industrial development and job creation. The consolidated expenditure of government is expected to be R841.4 billion, and R1 052.8 billion in 2009.10 and 2012/13 financial years, respectively.

 

 

3.             Overview of the Budget Adjustments

 

The downturn in the global economy and various domestic constraints have affected millions of South Africans where the economy has contracted by 2 per cent in the first quarter of 2009 which was eventually estimated to 1.9 per cent for 2009. However, an estimate of 1.5 per cent economic growth in 2010 has been projected in the domestic economy as a result of an increase in government spending on transport projects and soccer stadiums for the 2010 Federation of International Football Association (FIFA) World Cup. Domestic economy is driven by a strong investment growth and continuous investment in the economic infrastructure to provide an important support to economic recovery, reduce infrastructure backlogs and attract more private investors. The International Monetary Fund (IMF) expects the rest of the world to grow by approximately 3.1 per cent in 2010.  The additional R14 billion that has been proposed in the Adjustments Appropriation Bill is welcomed. This addition includes R5 billion on the higher interest costs and R9 billion in higher non interest spending. It is noted that, initially, the overall budget was R738.5 billion and this has been adjusted to R752.5 billion during the adjustment period. While the departments have only managed to spend R368 billion in the first six months of the 2009/10 fiscal year, the MTBPS allocates an additional budget of R14 billion.   

 

The Committee supports the proposed increased lending capabilities of the Development Bank of Southern Africa (DBSA) by about R102 billion over the next five years to focus and contribute to development. The Committee also supports an additional funding of R1 billion a year in the provincial equitable share for spending in frontline services particularly in education and health in order to accommodate higher salaries for teachers and doctors and to strengthen good governance and oversight in provinces and municipalities. 

Public infrastructure is allocated R872 billion over the medium term to invest in school buildings, public transport, water and sanitation. The Committee welcomes this allocation, as infrastructure development is needed to boost the recovery of the economy. Careful planning and monitoring of infrastructure projects is essential to limit the risk of costs escalation.

 

An amount of R1.5 billion, which emanated from the rollovers arising from commitments related to unspent funds in the 2008/09 budget, has been noted. Among other things, the non-payment and non-completion of projects within specific timeframes result in unspent funds. This state of affairs remains a cause for concern according to the Committee as most of these projects are regarded as essential projects which are associated with job creation as well as with the 2010 FIFA World Cup. This is indicative of poor planning and non compliance with certain supply chain management and finance legislative frameworks.

 

The Committee welcomes the additional funding of R12 billion in order to the increase in the public service’s compensation of employees particularly with regard to the Occupational Specific Dispensation (OSD) agreements; it is hoped that this will assist in retaining scarce skills in the public sector such as those of doctors, civil engineers, architects etc. 

 

The Committee supports the additional allocation of R509 million to compensate municipalities for the escalating costs of providing free basic services such as water and electricity to citizens that qualify for free basic services under the indigent policy of municipalities. This will assist in reducing pressure imposed by the costs of free basic services to municipal budgets which must be provided to indigent households in order to keep up with the Bill of Rights as stipulated in chapter 2 of the Constitution of the Republic of South Africa, 1996.

 

The 2009 MTBPS proposes a culture of savings rather than under-spending. It was indicated that there is a need for the government to identify areas of savings through rearrangement of government priorities and reduction of spending in non-core functions. This can be achieved through reduction in irregularities, corruption and fraud as well as reduction of fruitless and wasteful expenditure, and creating a culture of doing more with less. 

 

 

4.             Budget Estimates for the 2009/10 Mid-Year

 

National departments were allocated R399.6 billion in the 2009/10 financial year, excluding the direct charge. The Adjustments Appropriation Bill proposes an additional spending of R9.2 billion for national departments in the 2009/10 financial year. Of these funds, R1.9 billion was rolled over from the previous year’s budget. It was indicated to the Committee during public hearings that rollover funds have already been committed by the departments. Among the Committee’s concerns was a lack of spending of infrastructure budgets by various departments. This pattern was evident in respect of the MIG projects, which required a rollover of R287.8 million. 

 

The budget adjustments propose a shift of R2.3 million from the Department of Cooperative Governance and Traditional Affairs (CoGTA) to the Department of Rural Development and Land Reform. This shift was necessitated by the transfer of the rural development programme from CoGTA to the Department of Rural Development and Land Reform, in line with the reconfigured government structure. The Department of Cooperative Governance and Traditional Affairs (CoGTA) indicated that the lack of spending in MIG was due to 33 municipalities that could not spend their allocations. CoGTA indicated its intention to withhold funds and request National Treasury to redirect them to spending municipalities.  It is determined that of the 33 municipalities that did not appropriately spend on the MIG, three were affected by the recent service delivery protests. These were the Mbombela Local Municipality, NalaLocal Municipality and the City of Johannesburg.

 

The lack of spending on the MIG is a matter of serious concern, particularly in light of recent service delivery protests in some of the under-spending municipalities. The Committee notes that the shifting of funds from under-spending to other municipalities would be problematic as it could create infrastructure backlogs for the under-spending municipalities. This intervention might therefore have undesired political outcomes. Needless to say, its constitutionality and legality might be questionable.

 

The Department of Public Works is allocated an additional amount of R524.9 million for unforeseen and unavoidable expenditure. This includes funds for the offices and residences of new Ministers and Deputy Ministers, the Devolution of Property Rates Grant and salary increases. Some of these funds are for the creation of new jobs through the Expanded Public Works Programmes (EPWP) to meet the targets announced by the President, His Excellency Mr. Jacob Gedley’hlekisa Zuma, during the State of the Nation address.  The Department rolled over R116.7 million for infrastructure projects from the previous financial year. These include funds for Re Kgabisa Tshwaneprojects, upgrading of some buildings in Bloemfontein, land ports of entry development projects and prestige accommodation. The Department does not seem to have enough capabilities to spend funds allocated to the Re KgabisaTshwane and Prestige projects. Funds from these programmes have been rolled over since the 2006/07 financial year. With regard to the prestige projects, the Department has indicated that work has already been done for Ministerial houses but the payment was still to be made to the Property Management Trading Entity (PMTE). The Department also indicated that there is a challenge in the conceptualisation of the Re Kgabisa Tshwane projects. It is only responsible for the purchasing of the land while the actual construction is done through a Public-Private Partnership (PPP). The Department indicated its intention to contribute to the comprehensive rural development strategy through this programme.

 

The Committee understands the purpose of the Re Kgabisa Tshwane projects to be the refurbishment and provision of office space for national departments. It also understands its operations to be limited to the City of Tshwane and any proposal to extend the projects beyond this might be outside its scope and purpose. The persistent rollover of funds for similar projects is a matter of concern, since funds could have been redirected to urgent priorities.

 

The Adjustments Appropriation Bill proposes a shift of functions from the Department of Water Affairs and Forestry due to the reconfiguration of government structure. This shift of functions resulted in R487.6 million originally allocated to this Department being shifted to the Department of Agriculture, Forestry and Fisheries. The shift of the sanitation function to the Department of Human Settlements has not been fully implemented and no funds have been shifted for this purpose. The Department rolled over R232.3 million of the funds for capital projects from the previous financial year. These include funds for the construction of the De Hoop Dam and the Regional Bulk Infrastructure grant. The funds for the De Hoop Dam have been rolled over since the 2007/08 financial year. The Department has indicated that delays in finalising a memorandum of agreement with 23 mines contributed to the slow spending in the 2008/09 financial year. Furthermore, continuous rainfalls delayed the timeous completion of projects. The late submission of invoices delayed spending on the Regional Bulk Infrastructure. 

 

The Department of Rural Development and Land Reform indicated that it had requested an additional budget of R4.4 billion for the 2009/10 budget adjustment to fund rural development, new offices of the Ministry as well as the Restitution and Deeds Trading Entity. Due to the bad economic conditions, the Department revised its request downward to R1.7 billion. An additional budget of R292 million was allocated to rural development, R9 million to the Ministry and R31 million for general salary adjustments.  Of the R3.5 billion requested for the Restitution programme, only an additional budget of R1.1 billion was granted. The Department indicated that it might be difficult to meet the objectives of rural development due to budget constraints. Shifting of funds will need to be made to finance the restitution programme.

 

The Committee is in agreement with the Department that the budget allocation to the Restitution programme is not sufficient to support the development needs of the country. The Restitution programme had already spent 91 per cent of its budget by the end of the second quarter and the lack of sufficient funding in this area compromises the rural development agenda of government. It is reported that this challenge is worsened by the attitude of land owners who inflate land prices when negotiating the land sale agreement with government and the cost of land is selling at the price which is three times more than the market price which makes the purchase of land expensive. This is worrying since land is central to the implementation of the government’s comprehensive rural strategy and if resources are not prioritised for land reform programmes, the objectives of this strategy might not be achieved.

 

The Department of Education received a total Adjustment of R561.686 million. The Department rolled over R8.6 million for operations, R3.5 million for HIV/Aids conditional grant (for Limpopo province) and R9 million for new functions of the Council on Higher Education (CHE). The Department also received an additional budget of R8 million for the new ministry of Higher Education. This will go towards sustaining the ministerial offices and those of the Director-General. In future, it is anticipated that more funds will be required for the running of the new Department of Higher Education. A substantial amount of R524.1 million was allocated for workbooks for literacy and numeracy for grades 1 to 6 learners in quintiles 1 to 3 schools. An amount of R8.5 million was allocated for increase in improvement of conditions of service.

 

The Department indicated that R94.4 million was requested for examination and assessment, and R291.7 million for the National School Nutrition Programme was requested but funding was not provided for these. The Department noted that the Occupational Specific Dispensation for Educators was not fully funded. The Committee expresses is concerned about the lack of sufficient funding in the National School Nutrition Programme.

 

 

5.             Medium Term Spending Priorities

 

The Minister of Finance indicated to a joint meeting of the Finance and Appropriations committees that ambitions of government are curtailed due to the financial pressures. He noted that borrowings will burden some parts of future generations and that savings will be made in government spending. The Minister called upon the business sector to commit and outline its role in the government savings programme. He indicated that employment is not as fast as expected and that it was necessary to improve training programmes and basic education in South Africa. Over the period ahead, more people will be employed for the front line and less in the administration. Matric vouchers programme is proposed to subsidise the costs for employers in hiring persons with matric certificates without lowering applicable salaries. The Minister reiterated government’s commitment to infrastructure investment. With regard to uprooting corruption in government funds, a task team has been established to look at each case of corruption and weaknesses in the procurement system. He called on society at large to assist government in fighting the culture of corruption. It was indicated that spending priorities support the policy priorities.

 

The Financial and Fiscal Commission (FFC) noted that, the national proportion of the Division of Revenue continues to decline over the Medium Term Expenditure Framework (MTEF) from 50.1 per cent in 2009/10 financial year to 46.9 per cent in the 2012/13 financial year. On the other hand the provincial and local proportions are increasing over the MTEF (refer to table 1 below).

 

     Table 1: Division of nationally collected revenue

	2009/10 revised	20010/11	2011/12	2012/13
% share		Medium-term estimates
National	50.1	48.3	47	46.9
Provincial	42.6	43.6	44.4	44
Local	7.3	8	8.7	9.1

     Source: FFC presentation

 

The Commission was particularly concerned about the unanticipated wage bill. It suggested that there should be a deliberate attempt to synchronise the centralized bargaining process of the public sector with the budget process to reduce undue burden to sub-nationals by decisions over which they have no direct control. The high wage bill led to immense pressure on provincial budgets. Of the R39 billion added to the provincial fiscus, R32.7 billion is transferred in the form of equitable share while R7.1 billion is transferred in the form of conditional grants over the MTEF. The Commission highlighted the need to identify which conditional grants were impacted by the increase.

 

5.1 Expanding employment and safeguard social security

 

The MTBPS proposes a shifting of resources towards labour intensive sectors and the creation of jobs in the delivery of public services. While government expects all its prioritised programmes to contribute to job creation, its main target for expanding employment is skills development and training, infrastructure development and the expanded public works programme. Government intends to create 4.5 million jobs over the next five years. An amount of R114.5 million is provided for community works programme in the budget adjustments in the current financial year. This programme is expected to create 180 000 full time jobs by 2014.  New incentives to encourage government departments and municipalities to use their budgets for labour intensive programmes in the infrastructure sector are proposed. These incentives will be extended to the environmental, cultural and social sectors.

 

The Human Sciences Research Council (HSRC) welcomed the government’s commitment to generate sustainable employment. It noted however that it was not always easy to make the connection between the need to create employment and the budget. It was critical for the country not to compete purely on price but also to explore product development, venture capital and market access. Continued infrastructure spending is critical in creating jobs. The HSRC highlighted a need to prioritise the youth over the next four years of the current administration. It is reported that more than 50 per cent of the youth leaving school are unemployed. About 65 per cent of black youth leaving school is reported to be unemployed.  To this end the provincial grant aimed at sport and recreation was seen to be inadequate. The HSRC noted that this grant could be critical pre-labour market intervention in the context where youth was marginalised from most social organisations. In addition, the HSRC recommended the introduction of a youth transitional jobs scheme. It is of the view that commitment to further education and training is critical. However, the budget set a target of 350 000 enrolments by 2014 which was a third of the HSRC’s expectations.

 

The Department of Public Works (DPW) plays a leading role in the job creation initiatives through the Expanded Public Works Programme (EPWP) and other infrastructure projects. It has received an additional budget of R9.7 billion over the Medium Term Expenditure Framework (MTEF) period.  This includes R3.5 billion for EPWP and R4.4 billion for infrastructure budget. The Department has been allocated additional allocation of R835.8 million in the 2010/11 financial year to strengthen the EPWP incentive scheme. This scheme will be extended to such sectors as the social sector, environmental sector and community work programmes. Labour intensive methods are enforced through this scheme with ongoing monitoring done to ensure that empowerment is attained. Of the additional budget for infrastructure, R451.1 million is allocated for the 2010/11 financial year. This goes to Border Control Operational Coordinating Committee (BCOCC). The DPW is the custodian of immovable assets at 54 land ports of entry. This budget goes for infrastructural development at the land ports of entry by 2010 and beyond. The implementation of this programme is expected to be labour intensive and pro-Black Economic Empowerment (BEE).

 

An additional budget also provides for R771.6 million in 2010/11 for the construction of a new Parliamentary precinct, construction of parking bays and a multipurpose centre. This project is expected to cost R2 billion and the feasibility study has been completed.  The budget also provides for additional R16.2 million in 2010/11 financial year for accessibility to State-owned buildings and R214.8 million to address the problem of old and inefficient water works systems in State-owned buildings. The DPW indicated its challenges in attracting strategic and technical skills, and the budgetary constraints make it more difficult to retain skills and create the necessary capacity needed to maintain and manage immovable property.

 

The DPW indicated that it is still enhancing the asset register and the valuation of State-owned buildings will not be done in the 2009/10 financial year. It also indicated that the chief directorate was established within the Department to focus on the asset register. However, the Committee is concerned about the slow progress in the development of the asset register. The department continuously receives qualified audit outcomes as a result of the outstanding asset register. The Committee calls upon the department to capacitate itself in this respect in view of the fact that it is responsible for all other departments’ asset registers.

 

The Department of Water and Environmental Affairs plays a crucial role in the job creation initiatives of government. For the period ahead the Department plans to contribute in job creation, particularly in rural areas, through its construction programmes. It intends to fill vacant positions in its regional offices and to be less dependant on consultants. The Department values the role of the Small Medium and Macro Enterprises (SMMEs) in creating jobs and stimulating economic growth, and as such will appoint SMMEs for its work. The Department contributes to the EPWP through the Working for Fire and Working for Water programmes. The Working for Fire programme is allocated R184.4 million in 2010/11 which increases to R254.6 million in 2012/13. The Working for Water programme is allocated R579.9 million in 2010/11, which increases to R855.5 million in 2012/13. For its capital expenditure, the Department proposed an additional budget of R4.8 billion, R10.9 billion and R8.1 billion in 2010/11, 2011/12 and 2012/13 financial years, respectively. The proposed additional budget was scaled down to R2.4 billion, R4.1 billion and R8.4 billion in 2010/11, 2011/12 and 2012/13 financial years, respectively. The Department indicated that no allocation was made for other projects after the scaling down. These include Mooi–Mngeni Transfer Scheme, KomatiWater Augmentation Project and Mokolo and Crocodile River Water Augmentation Project. The Department indicated that the National Treasury was of a view that these projects can be funded off-budget through the Trans-CaledonTunnel Authority (TCTA). Part of the mandate of the TCTA is to fundraise for bulk water infrastructure through loans from the commercial water users that benefit from these projects.

 

The Committee views rural development as one of the urgent priorities of government, and notes that some of the water scheme projects that are not funded are in rural areas. Their funding from the fiscus would support government’s commitment to develop rural areas, since farming activities are expected to be at the centre of rural development. These farming activities would create self employment and create more job opportunities that are much needed by rural youth. It is the Committee’s view that funds should have been directed to these programmes in support of government priorities and to ensure participation of rural communities in the country’s economic activities. Furthermore, in interacting with the Department, it became evident that additional funding for the refurbishment of water infrastructure might not adequately cover the maintenance needs of infrastructure. The lack of sufficient funding in this area introduces new risks of collapse in infrastructure. If funds are not made available for the maintenance of water infrastructure this might lead to challenges similar to those experienced during the electricity crisis.

 

The Department of Cooperative Governance and Traditional Affairs recognises that the role of municipalities is important in job creation through programmes aimed at building infrastructure. Its role in this regard is to provide support to municipalities to ensure prudent management of funds earmarked for infrastructure development and to ensure that they achieve the desired objectives. It undertook to increase its monitoring activities to ensure value for money.

 

 

5.2 Improving the Quality of Education and Skills Development

 

Over the next three years, government intends to improve literacy and numeracy by providing workbooks to children in poorly-resourced schools. The target of learners who will benefit from workbooks will increase from 3.5 million in 2010/11 financial year to 5.5 million in 2011/12 financial year. Improving access and quality of education will be prioritised and additional funds are allocated to building of schools and teacher training. Furthermore, a new conditional grant will be introduced to provide additional resources for the improvement of the education system. Government intends to increase the coverage of the national schools nutrition programme to reach more learners and to improve the quality of meals.

 

A study conducted by the HSRC showed that there are structures aimed at improving governance in schools, but these structures are not being fully utilised. Further, the criterion used for promoting teachers was not known among teachers. Government needs to be more transparent in this respect. According to the HSRC, there is a need for universal access to the Early Childhood Development (ECD) programme and the number of 0-4 year old children in the ECD should doubled by 2014. This will reduce the number of grade 1 learners who start school without adequate foundation and preparation at ECD level.

 

The Committee supports the prioritisation of resources to improve the quality of education and the development of skills. The education system is an important factor in producing skills that are much needed by the economy. Many government departments have always under-spent over the years in personnel budget as a result of lack of skills, particularly in the engineering sector. The Department of Public Works indicated during the public hearings that, technical skills remain a challenge that impedes the execution of its projects. The national education system coupled with other skills development institutions play a crucial role in providing social cohesion and skilled human resources in the developmental state. The requirements of the economy always play a central part in determining the output of the education and training systems. In order for government to deliver appropriate skills to the workplace, strong controls over the institutions responsible for education and training and investment of resources to education are important.

 

During the public hearings, the Department of Education was requested to attend to the concerns raised about the moral of teachers at schools with a view to address the causes thereof. Notwithstanding the fact that the Further Education and Training colleges now resided with the newly established Department of Higher Education, the Department was requested to ensure that service delivery is not compromised in the process of restructuring the Education Department and the transfer of functions in this regard. The Department was also requested to ensure the improvement of the quality of education, the provision of adequate Learner Teacher Support Material (LTSM) and adequate provision of the National School Nutrition Programme to all the relevant beneficiaries as well as to ensure that the workbooks distributed by the Department reached all the targeted learners.

 

 

5.3 Enhancing the Quality of Heath Care

 

It was reported that the Department of Health has developed a 10-point plan to improve the quality of health services. This plan includes overhauling the management and operation of public hospitals, improving human resource planning, enhancing staffing levels and ensuring efficient procurement of medicine and medical drugs. These are seen as initiatives that lay foundation for a national health insurance system. In order to stabilize the health sector and to ensure the implementation of the ten-point plan a resolution was taken to:

• Request the National Treasury to ensure that there is no budget shortfall for the Occupational Specific Dispensation (OSD);
• Request full funding for personnel where the posts were filled;
• Request full funding for the ARV treatment programme; and
• Ensure that there is funding for priority health services such as blood services and the laboratories.

 

The fight against HIV and Aids is a key priority for the Department of Health and the target for new entrants to the treatment intake is expected to be more than 300 000 a year and more than 900 000 people are expected to receive antiretroviral treatment by 2011/12 financial year. Additional funds were made available over the medium-term period for expansion of the treatment programme to accommodate a higher number of people on antiretroviral treatment.On the target of 900 000 people who are expected to receive treatment by 2011/12, the HSRC argued that this target would be reached earlier. This conclusion was based on a study it conducted which showed that 800 000 people with HIV/AIDS are already on ARV treatment.

 

The HSRC noted that, according to a study conducted by the University of Cape Town, service conditions in the public sector were not vastly different from those in the private sector. But, the HSRC reported that there are problems in the public health sector and funds are needed to address these problems. The HSRC also noted that the 2009 MTBPS did not provide adequate funding to address the quality of service in the public health sector. Another challenge was the skills flight as doctors and nurses leave South Africa for other countries. The amount allocated for the Occupational Specific Dispensation was welcome with the understanding that it would retain the health professionals in the public sector. However, the HSRC indicated that there has always been under-funding of the public health sector and this has resulted in the poor quality of health services. The 8.6 per cent increase in the health budget is insufficient given the under-funding that has happened over a long time.

 

The Department of Health received a total increase of R1.4 billion. Of the R1.4 billion, an amount of R231.1 million is for roll over funds for the 2008/09 financial year resulting in an increase of 17 per cent. An amount of R160 million is earmarked for the H1N1 Influenza pandemic. A further R900 million has been allocated for the comprehensive HIV/AIDS care, R20 million for countrywide measles and polio immunization campaign and R30 million for the 2010 World Cup Health Preparation Strategy Grant. While it seems as if no allocation was made in the 2009 MTBPS for the National Health Insurance (NHI), the Department indicated that the ten-point plan relates to the NHI. The funds for various programmes within the ten-point plan are funds for the NHI. The details of the NHI would be made available once the Minister of Health has gone through the relevant processes at the Cabinet level.

 

New salary scales for doctors, dentists, pharmacists and emergency medical personnel will be phased in over the two years. An amount of R400 million was requested for the OSD of doctors for the respective financial years over the MTEF. The different categories of health professionals were being dealt with in phases. It was reported that the doctors and pharmacists have been catered for and a review of their OSD would be reviewed in 2010.

 

 

5.4 Rolling out a Comprehensive Rural Development Strategy

 

The comprehensive rural development programme aims to raise rural income, increase food production, improve the viability of small farms and draw on the economic potential of rural areas. A two-year pilot project was launched inLimpopo and will inform the rollout of the programme. Support to the beneficiaries of land will be stepped up to properly skill and equip these beneficiaries. An additional number of 1000 extension officers will be recruited over the next three years and their skills level will be enhanced and necessary tools will be provided. An amount of R4.1 billion is allocated to provinces through respective grants to support emerging farmers. Agricultural starter packs will be provided to 140 000 households per year. A total spending on rural development is expected to rise from approximately R6 billion in 2009/10 financial year to approximately R8 billion in 2012/13 financial year.

 

The HSRC is of the view that rural areas have been neglected for many years. Poor conditions in respect of water and land are among the challenges experienced in these areas. About 40 per cent of the South African population lives in rural areas and less than 10 per cent are economically active, mostly in agricultural activities. This was noted as a sign of lack of support and channelling of resources. Growing spending on rural development from R6 billion to R8 billion by 2012/13 financial year was noted to be a large increase but still very small relative to the challenge and levels of neglect in rural areas.

 

While the HSRC appreciates the dramatic effect of social grants in reducing poverty and hunger, it noted that approximately 50 per cent of households still experienced hunger and under-nutrition. Furthermore, 50 to 80 per cent of households could not afford minimum nutrition at current prices. Rural households spend 9 to 15 per cent more than urban households for the same basic food basket. According to the HSRC 51 per cent of all severely hungry households qualified for grants but did not receive them. To this end, the HSRC recommended that a policy should be formulated to guide the urgent rolling out of grants in a more comprehensive way while expanding the household food production in the form of food gardening. It added that budgets aimed at improving food security should be ring-fenced and monitored stating that it is expensive to be poor, but more expensive to be hungry.

 

The HSRC was of a view that, the budget as outlined in the 2009 MTBPS is constraining given the amount of work that the department had to embark upon. Out of the 18 Land Redistribution for Agricultural Development (LRAD) projects that had been initiated by the former Department of Land Affairs, only two of them are still in place. Others have collapsed and the land was sold back to its original white owners. The HSRC noted that, for the Department of Rural Development to successfully carry out its mandate, more funding and human resources are required.

 

The programmatic budget structure of the Department of Rural Development and Land Reform has been condensed from 7 to 5 programmes to reflect the new rural development mandate. The Department requested an additional budget of R18.3 billion over the medium term. Rural Development and Restitution programmes together requested R16.5 billion (90 per cent) of the Departments total request. There is no baseline budget over the medium term for the rural development programme and the department indicated that the indicative baseline for the Restitution over the MTEF (R2.2 billion) is less than the 2007/08 level. The Department of Water Affairs (DWA) indicated that it will support rural development through investing in water resource infrastructure in rural areas to make water available for economic growth and development. Furthermore, the Department of Water Affairs intends giving employment preferences to the people from rural areas where DWA project exists.

 

The Committee is of the view that one of the key priorities of government is rural development, which the country cannot afford to postpone any longer. Rural communities have been marginalised and neglected over the years through the uneven distribution of resources between rural and urban areas. This has resulted in a lack of economic activities in rural areas, thus forcing people to migrate from rural areas to urban areas in search of employment and better living conditions. A serious burden is put on government’s social programmes, like housing, water, and electricity as a result of this phenomenon. The Committee notes the underdevelopment of rural areas in South Africa and the neglect they have been experiencing over the years. The lack of infrastructure to support the initiatives of rural communities is another worrying factor. The Committee is of a view that budget in this area does not recognise the urgent need and intervention to deal with the backlog in rural areas. It supports the HSRC’s recommendations that more funds should be channelled for rural development.

 

Another concern of the Committee is a lack of sufficient funding in the Restitution programme. The lack of sufficient funding in this area compromises the rural development agenda of government. In some cases, this problem is worsened by the attitude of land owners who inflate their land prices.

 

 

5.5 Creating a Built Environment to Support Economic Growth

 

Infrastructure and the service delivery function need to complement each other in order to promote efficiency, employment and integrated development. Government continues to prioritise spending on housing with a goal to eradicate informal settlements. The budget makes provision for an increase in subsidy and for additional houses to be built. As a way of investing in infrastructure, the Municipal Infrastructure Grant (MIG) received an additional budget of R2.5 billion, increasing to R45.9 billion over the medium term. The Neighbourhood Development Partnership Grant will receive additional resources over the three-year period. These are for regeneration of townships projects. A total of R8.2 billion is added to local government equitable share over the MTEF period to cater for the increased costs of bulk services.

 

The Financial and Fiscal Commission (FFC) reiterated its previous recommendation that there should be a link between the Municipal Infrastructure Grant and the Local Government Equitable Shares (LES). This is such that, as infrastructure is rolled out through the MIG allocations to municipalities, and those from the LES reflect the need associated with the infrastructure that is been rolled out. This would eliminate the current challenge where municipalities roll out infrastructure without having the necessary funding to maintain it. Moreover, the performance of the Neighborhood Development Grant needs to be reviewed given its poor spending over the years.

 

The Department of Cooperative Governance and Traditional Affairs (CoGTA) initiated alternatives to augment and complement the management of additional budget over the MTEF period. In striving to achieve clean audits and good financial management in municipalities by 2014, the department has launched Operation Clean Audit campaign. A key objective of this campaign will be that of building and ensuring prudent financial management of public resources in municipalities. The Department will also launch a programme aimed at improving revenue enhancement in municipalities. Presently, municipalities are owed between R50 to R53 billion by residents, businesses and other government departments. This programme of revenue enhancement will assist municipalities to become more financially viable as they seek to accelerate the roll-out of their service delivery programmes. The Department is also establishing a programme that will allow close monitoring of funds that are allocated to municipalities for infrastructure development. The main objective of the latter programme is to ascertain if government is deriving value-for-money from the scarce funds allocated to municipalities. CoGTA indicated that the MIG faces some challenges. These include MIG funds being consumed by bank overdrafts of certain municipalities, some legislative impediments, poor and weak capacity in planning, project management and financial management in some municipalities, and lack of continuity and sustainability in municipal management.

 

The Committee commends the initiatives that are provided by CoGTA to increase capacity in municipalities, particularly the Operation Clean Audit 2014. However, more intervention is needed in the implementation of the MIG projects. The ability to spend funds that are allocated to the MIG is a matter of serious concern to the Committee. The Committee views the role played by the MIG in the development of infrastructure as critical, particularly for those municipalities who do not have revenue base. The tendency of under-spending in the MIG is a cause for concern since some of the service delivery aspects, particularly infrastructure, are linked to this grant. The Committee recognises the role of CoGTA to be to give support to municipalities without capacity. Such intervention from CoGTA, National Treasury, Provincial Treasury and District Municipalities is required to support municipalities who struggle to implement infrastructure projects.

 

 

5.6 A Broad-Based Approach to Fighting Crime

 

Government has committed to curbing the high level of crime. The government understands the fight against crime to be including enhanced partnerships, strengthened social security and job creation. The aim of government is to recruit an additional 22 447 police personnel by 2012/13 to strengthen detective services and crime intelligence. The fight against crime will be boosted by a proposed allocation for the Directorate of Priority Crime Investigation, which will increase its investigators to 2 400 by 2012/13. The additional budget, in this regard, supports the implementation of the Children’s Act of 2005, the Child Justice Act of 2008 and the Sexual Offences and Related Matters Act of 2007.

 

The HSRC is of the view that commendable work has been done in the fight against crime; however there has been a lot of emphasis in the use of force and less emphasis on working with communities and raising awareness among communities. The Committee supports initiatives that seeks to curb crime in our society.

 

 

6. Key Findings

 

Having considered and deliberated on the 2009 MTBPS, the Select Committee on Appropriations notes the following

6.1 Communities in rural areas are not receiving serious attention they deserve. Rural communities have been neglected for many years in the past. Given the current economic downturn, life in rural areas is difficult. This undesirable situation has led, and continues to lead, to the migration of people from rural areas to urban areas in search of decent jobs and better living condition; and

6.2 The need to contain state expenditure as a percentage of gross domestic product and fully supports the strategy of government to ‘do more with less’, namely:

·         6.2.1 Find savings through reduced spending on non-core functions and activities, including shifting resources from administrative components to frontline services;

·         6.2.2 Rationalise public entities and agencies to save money and improve accountability;

·         6.2.3 Review public spending to weed out poorly performing programmes, low priority activities and ineffective policies;

·         6.2.4 Reform procurement systems to reduce corruption and obtain better value of money, including giving consideration to centralising the procurement of selected goods and services; and

·         6.2.5 Change the culture of the public service to reduce waste and to prevent extravagant spending, shoddy work and corruption.

 

 

7. Recommendations

 

The Select Committee on Appropriations, having satisfied the requirement of section 6(8) of the Money Bills Amendment Procedure and Related Matters Act, recommends that:

 

7.1 The National Treasury considers allocating additional funds during the 2010 National Budget to the Department of Rural Development and Land Reform for economic development of rural communities. The Committee also recommends that:

·         7.1.1 The Department of Public Works extends their Expanded Public Works Programme to rural areas in the medium and long term with the aim of creating decent jobs and providing much-needed infrastructure;

·         7.1.2 The Department of Water and Environmental Affairs expands their water projects to rural areas in order to provide them with water for agricultural and domestic use and providing people in rural areas with decent jobs; and

·         7.1.3 The Department of Cooperative Governance and Traditional Affairs develops programmes to assist municipalities in rural areas in their development agenda.

7.2 The Committee recommends that the training layoff scheme and other programmes encapsulated in the Framework Response to Global Economic Crisis by the National Economic Development and Labour Council (NEDLAC) are implemented within six (6) months to help mitigate the effects of the economic crisis;

7.3 The Committee recommends that government extend the wage-based incentive mechanism to other sectors to help drive a massive increase in employment creation;

7.4 The Committee recommends that the Presidency reviews the efficiency and effectiveness (outcomes) of education expenditure that is amongst the highest, as a percentage of gross domestic product, in the world;

7.5 The Committee recommends that government facilitate the implementation of the much-needed National Health Insurance system;

7.6 The Committee recommends that National Treasury, Provincial Treasury and the Department of Cooperative Governance and Traditional Affairs work together in capacitating under-spending municipalities instead of shifting funds from under-spending municipalities to adequately spending municipalities as the latter practice will create additional backlog in service delivery; and

7.7 The Committee recommends that additional increases in health budgets are appropriated in 2010 to improve the efficiency and quality of service in the public sector.

 

Report to be considered