Proposed Budget Formats for 2001

Meeting report

STANDING COMMITTEE ON PUBLIC ACCOUNTS
27 September 2000
PROPOSED BUDGET FORMATS FOR 2001

Documents handed out
Presentation on the proposed budget formats for 2001 - text outline only [see Appendix 1]
Proposed changes to the 2001 Budget Formats: Integration of the Estimates of Expenditure (White Book) and National Expenditure Survey [see Appendix 2]
The 2001 National Medium Term Expenditure Estimates
(to obtain copies of this document e-mail: [email protected])

SUMMARY
The most important proposed change to the budget format is the integration of the White Book and the National Expenditure Survey into a single budget document known as the National Medium Term Expenditure Estimates. Expenditure review is an important part of the budget process. The proposed integration will bring service delivery indicators into explicit consideration alongside other financial information.

According to this Committee's chairperson, the proposed budget format captures the essence of the White Book and the National Expenditure Survey. However, if they do not take it a step further by defining outputs then the potential that the document could have will be compromised.

In respect of revenue collection, the National Treasury proposed that the budget format for inland revenue and customs & excise revenue be merged. The distinction between the two has become obsolete.

MINUTES
Summary of presentation
The Acting Deputy Director General of the Budget Office in the National Treasury, Mr Andrew Donaldson made the presentation. Other delegates from the National Treasury were also present. Among them was the Chief Director of Planning in the National Treasury, Mr Nors Du Plessis.

Introduction
The proposed budget formats are still work in progress. They only reflect a first draft. They are based on the fact that expenditure reviews are important for the budget process. The idea is that the process of reprioritising expenditure is now built into the normal ongoing budget process. Service delivery indicators will now be explicitly considered along with other financial information. The Public Finance Management Act changes the budget documentation requirements (starting in 2 years time) so qualitative service delivery indicators will be required anyway.

Revised budget formats
The main change for next year is the integration of the White Book [expenditure estimates] and the National Expenditure Survey (NES) into the National Medium Term Expenditure Estimates (NMTEE). This is proposed because there is currently some duplication between the two budget documents. The integration of the two documents means that service delivery indicators will be considered along with other financial information.

More performance information of budget managers will be available. Thus the revised format will strengthen and reinforce accountability of accounting officers for the resources at their disposal. This enhances accountability to Parliament and provides more comprehensive source documentation for researchers and the public.

Aside from the integration of the White Book and NES, proposed budget format changes will also relate to:
- A move toward improved accounting standards such as GRAP and GFS (Government Financial Statistics). GFS is an important standard for government statistics.
- The extension of medium term information. New formats will break down the spending plan for the next three years. The breakdown will be more detailed than it is now.
- There will also be a new economic classification system.

Process for 2001 budget
There will be a detailed database containing programme information and sub-programme information. (This information will be stored in an electronic format). Government departments will have to classify the information themselves but the Treasury will work with them to help them get to grips with the new classification system. Once this information is submitted, Treasury will consolidate the information.

Estimates of Revenue
Currently the classification is based on the difference between inland revenue and customs & excise revenue. The distinction between these two is becoming less important. Therefore the Treasury proposes an integration of the SARS revenue account. The classification proposal is a modification of international standards of revenue.

Further design challenges
Mr Donaldson admitted that accomplishing this presented a substantial design challenge. The plan that they have in place now is only a first sketch plan. The design challenges include the following:
- The budget documentation for a department must be brought in line with that department's Appropriation Account. This is a big challenge. The Treasury must work together with Standing Committee on Public Accounts, the Auditor General and Departments to ensure that the two fit together better [that is, if an amount of money is given to a department then that amount of money must be reflected in that department's appropriation account and must have been spent in the proper financial year]
- They want to develop a clear distinction between ''appropriations'' and ''expenditure estimates''. They do not want a significant gap between the appropriations for the year and the budget estimates [that is, between the spending estimated for the year and the actual spending for the year.]

In conclusion Mr Donaldson noted that the proposed budget formats gives practical effect to the merger of State Expenditure and the Finance Department. With this they hope to improve the efficiency of the public sector.

Discussion
Mr Feinstein (ANC) commented that this marked a significant improvement as MPs would now have easy access to detailed information on spending. He asked for an example of what outputs would relate to.

Mr Donaldson said that employment creation would be an outcome of trade. The emphasis was not on outcomes however but on outputs. Output related specifically to particular projects.

He said that he was not sure exactly how much information would be put in the budget document and how much would be left to the relevant department's report. They will try to find broad and illustrative indicators as to how this will be done. The question as to what has to be included will require more discussion between the Treasury and Departments. They will get comments on this.

It was noted that section 27(4) of the Public Finance Management Act is delayed until the 1 August 2002. In terms of this, departments will have to define outputs, they will have to say what they do with their programs. In light of the delay of this section, the new budget format is aimed at trying to push departments to define outputs and to think about their program structures so that when August 2002 comes they have already considered it.

Ms Jumat (ANC) asked what support the Budget Office gives to the Departments.
Mr Donaldson replied that there must be a balance between strengthening capacity in departments and going in and making suggestions. They send out guidelines early in the year and say what they expect in the budget document. Sometimes the departments call them in and sometimes the departments prefer to ''go it alone''. Treasury tries not to be too prescriptive on how the relationship between the Departments and the Treasury evolves. They leave this to the particular individuals involved. It varies from department to department.

Mr Leeuw (ANC) commented that they should interact with departments at least by having informal discussions.

A minority party member asked if they have considered that their proposals are unattainable for some departments. Appropriate training and capacity building is required.

Mr Donaldson replied that the basic requirements of the new plan are not more sophisticated than what the old plan required. They are only setting out the information in a more sensible way. They avoid committing to accounting standards that cannot be complied with. Working with the provincial treasuries to develop the proposals is an ongoing process. They have recognised that provincial treasuries will adapt to their own circumstances. The National Treasury must provide them with guidelines.

Dr Koornhof (UDM) asked the following questions:
- What is the rationale for the five clusters that the Treasury developed? The clusters he was referring to were the clusters reflected in the memorandum to the 2001 National Medium Term Expenditure Estimates. These are:
1) central government and administration
2) financial and administrative services
3) social services
4) justice and protection services
5) economic services and infrastructure development
- Is Treasury flexible to postpone the implementation date or is the date fixed?
- Would Treasury's proposal make overspending or underspending in the Departments apparent?

Mr Donaldson replied that the rationale for the clustering was simply international trend. Nothing about the clustering is ''written in stone''.
On the April implementation he said that personally he was flexible. The Minister's view and the general view is that implementation will take place by that date. The views of this committee will weigh on the Minister's decision.
Publishing adjustments estimates and the revised estimate of spending is already done in the Budget Review and the National Expenditure Survey.

Dr Woods commented that the document has its advantages in that it captures the essence of the White Book and the National Expenditure Survey (NES). However the potential that this document could have will be compromised unless they take it a step further by defining outputs. There also has to be more guidelines from the Treasury to the Departments. He noted that the issue of section 27(4) of the PFMA will come up at the workshop that they are going to have. It is an item of contention between the Committee and the Treasury.

Mr Nair (ANC) said that there should be interaction between the Treasury and Departments to get their view on outputs. The Treasury has to get expertise on how to measure outputs and inputs.

Dr Woods said that SCOPA has an oversight role for revenue too. Every year there are overruns with revenue collection. They do not question this because it means more money for the fiscus. They never ask where the money is coming from but it may mean that SARS estimation process is primitive.

This marked the end of this part of the meeting.

Appendix 1:
Proposed Budget Formats 2001

Presentation to SCOPA
27 September 2000

Budget reform - key steps
· RDP Fund - reprioritisation of expenditure
· Medium term expenditure framework - focus on policy shifts and sustainability
· Medium Term Budget Policy Statement - transparent budget framework
· Interdepartmental expenditure reviews
· National Expenditure Survey

Revised budget formats - accounting for service delivery
· Proposed National Medium Term Expenditure Estimates (NMTEE) and Estimate of Revenue comply with:
- Section 215 of the Constitution
- Section 27 of the Public Finance Management Act

National Medium Term Expenditure Estimates
· Proposed format of NMTEE integrates the White Book and NES:
- Reduces duplication in budget documentation
- Strengthens link between planning and prioritisation, budgeting and service delivery

Advantages of revised format
· Extends and deepens multi-year budgeting
· Strengthens link between policy planning, budgeting and service delivery
· Trend information enables comparative analysis
· Improves accountability by providing performance information for budget managers
· More comprehensive source documentation for researchers and the public

Strengthened acountability
· Meets Constitutional requirements
· Enhances accountability to Parliament
· Improves compliance with international reporting obligations
· Code of Conduct on Fiscal Transparency
· Special Data Dissemination Standard

What reforms are included
· Integration of White Book and NES
· Move towards improved accounting standards: GRAP and GFS
· Greater focus on programme structure
· Extension of medium-term information
· New economic classification
· Inclusion of policy planning, performance and service delivery information

Process for 2001 Budget
· Detailed database with programme and sub-programme information
· Departments to use this to classify information
· Submit to Treasury to consolidate
· Treasury to work with departments on text information, incl. service delivery information
· Tabled in Parliament on Budget Day, 21 February 2001

Estimates of Revenue
· Proposed format compatible with:
- International data classification standards
- Revised format of statistical tables in Budget Review
· Integrated SARS revenue accounts
· Multi-year revenue estimates (similar to NMTEE accounts)

Further design challenges
· Improved reconciliation with Appropriation Accounts
· Accounting for consumption of capital
· Revision of programme structure
· Refinement of distinction between "appropriation" and "estimates"
· Accounting for multi-year commitments
· Statutory commitments vs discretionary outlays

And implementation challenges...
· Coordination of departmental inputs
· Integration of national and provincial budget reforms
· Revisions to financial system capabilities
· Adoption of new accounting standards
· Strengthening compliance and performance reporting and auditing

National Treasury

Appendix 2:
NATIONAL TREASURY OF THE REPUBLIC OF SOUTH AFRICA
STANDING COMMITTEE ON PUBLIC ACCOUNTS
(September, 2000)

PROPOSED CHANGES TO THE 2001 BUDGET FORMATS: INTEGRATION OF
THE ESTIMATES OF EXPENDITURE (WHITE BOOK) AND NATIONAL
EXPENDITURE SURVEY

PURPOSE
1. To present to SCOPA the proposed revised budget format for the 2001 Budget. This represents the next step in the National Treasury's budget reform program, and flows from the integration and augmenting of information currently published in the National Expenditure Survey (NES) and Estimates of Expenditure (White Book) into a single new budget document.

BACKGROUND AND SUMMARY
2. Section 215 of the Constitution provides for national legislation to prescribe budget formats for national, provincial and local government. This is given effect in section 27(3) of the Public Finance Management Act, 1999 (PFMA).

3. Part of the National Treasury's budget reform program includes the development and publishing of integrated budget information, meeting the requirements of transparency and accountability specified in the Constitution and PFMA.

4. The Estimates of Expenditure has been integral to government's budget and planning process for many years, providing information on the various spending programmes of government departments according to the Programme Planning Budgeting System, per economic and standard items of expenditure classification.

5. The National Expenditure Survey, published for the first time during the 1999 Budget, provides meaningful information on departmental spending trends and outputs. This enables political decision makers to make informed decisions on budget allocations in relation to policy priorities and service delivery outputs, thereby enhancing accountability and service delivery itself.

6. However, a substantial level of duplication of information exists between the two documents. Expenditure classification in the budget documentation is also not in accordance with international information classification requirements.

7. In order to reduce the level of duplication, to strengthen the link between planning, budgeting and service delivery, and to ensure that the Budget meets international expenditure classification requirements, a task team within the National Treasury has developed the proposed format reflected in Annexes A to C.

DISCUSSION
National Medium Term Expenditure Estimates
8. It is proposed that the combined and future budget document be called the National Medium Term Expenditure Estimates (NMTEE). The first budget to be published in the revised format will be the 2001 Budget, and will be published in English only.

Summary Tables
9. The Appropriation Bill has been amended to included budgetary information to a greater extent, in order to meet PFMA requirements.

10. Summary tables in the NMTEE were developed to enable valuable reflection on previous years expenditure outcomes (actual and estimated) and future budget requirements. As a result the summary tables differ substantially from those published in the White Book and NES.

11. Annexure A contains proposals on the summary of budgeting information for all votes. Examples of these summary tables are included in Annexure C.

Information published per Vote
12. Generic information, set out and discussed in Annexure B, will be published per Vote. An example of such information is indLided in Annexure C.

Introduction to the NMTEE
13. Provision has been made or a short introduction to the NMTEE by the Director General of the National Treasury, as the NMTEE will reflect the intentions of National Treasury to enhance financial management and control by means of publishing transparent budget information.

Explanatory Memorandum
14. A standardised memorandum, providing information on the purpose, contents and information published in the NMTEE is included, assisting the reader in understanding amongst others the economic classification of expenditure as well as programme, output and service delivery information.

Grouping of Votes according to Function
15. It is proposed that Votes be grouped together to provide valuable insight and strengthen government initiatives that cuts across votes, such as within the justice and protection, as well as social services Votes. An overview of these cross-cutting initiatives will be provided to convey spending trends and successes I challenges facing the delivery of these initiatives.

16. An alphabetic list of the Votes will however also be provided for quick reference.

Trading accounts
17. Trading account information will be published in a similar manner as that of a programme within a vote, except that accountability arrangements for such accounts will be set out where necessary, and trading account specific information published additionally.

Land, Buildings and Structures
18. Expenditure for acquisition, rent and maintenance of land, buildings and structures were previously reflected on the Public Works Vote. In future provision for such expenditure will be made on individual votes, as a sub-programme on Programme 1 Administration. For the MTEF period 2001102 to 2003/04 although these funds are voted on individual votes - it may only be spent according to an agreement with Public Works.

Template of NMTEE with Summary Tables and Vote Information
19. Annexure C provides extracts from the proposed new NMTEE.

Impact on National Treasury and Departments
20. Departments will be required to provide the budget information on sub-programme level for the relevant years. Historical information will be obtained by means of Vulindlela, and MTEF information from current budget submissions and planning data.

Virement
21. The information published in the NMTEE will facilitate virement arrangements in terms of the PFMA and Treasury Regulations.

IMPLEMENTATION PROCESS
22. A project team consisting of the National Treasury, SA Reserve Bank, StatsSA and Vulindlela developers has made significant progress with the classification and mapping of historical spending information according to GFS requirements

23. Due to the envisaged impact on departments and FMS/BAS and other transversal systems of government, it is not advisable to immediately change from the current standard items to full GFS classification. FMS and BAS project leaders are currently investigating the full impact of future changes to expenditure classification on the FMS and BAS systems.

24. For National Treasury the new formats necessitate the establishment of a database to simplify and negate the need for annual revision of figures. The Budget Office is currently developing a database that will capture actual and estimated spending by departments, enabling National Treasury to determine departmental spending trends and model the effect of future spending and allocations on departments.

25. Once approval for changes to the budget format has been obtained, the database will be finalised. Consultation with role players will be by way of a workshop, at which occasion departments will be requested to provide the required information for this database to Treasury electronically.

26. Providing information for the years stated per sub-programme will initially require a big effort from National Treasury and departments. However, this requires a once-off effort - once the database has been established and maintained, amendments and shifts between programmes will be effected and spending trends monitored with little effort.

CONCLUSION
27. When the proposals for a new budget format that integrates information currently published in the White Book and NES were developed, it was the objective to support and expand on the information published in the Appropriation Act.

28. Future budget reform initiatives were considered as well as the implications for departments, officials within National Treasury and the impact on transversal systems.

RECOMMENDATION
29. It is recommended that the Standing Committee on Public Accounts take note of and discuss the proposed changes to budget information to be published in future budget documentation, as set out in the Annexures.