On 28 October 2002, the official terms of reference for the Joint Budget Committee were tabled. The very brief period between then and the close of the Parliamentary session put great time pressure both on the Committee and on those giving evidence to it, which limited its ability to carry out its mandate. The terms of reference mandate the Committee to:

• Consider proposed allocations in the Medium-Term Expenditure Framework (MTEF) and the Appropriation Bill and whether these allocations are broadly in keeping with the policy directions of Government;
• Make proposals regarding the processes Parliament should follow with regard to its role in the developing of budgets in accordance with constitutional requirements;
• Consider, when tabled, the Medium-Term Budget Policy Statement, with the exception of those sections dealing with the macro-economic situation and revenue (i.e. Sections 2, 3 and 4);
• Conduct hearings on the Medium-Term Expenditure Framework and the Budget Policy Review Document, with the exception of those sections dealing with the macro-economic situation and revenue;
• Exercise those powers in Joint Rule 32 that may assist in carrying out its functions; and
• Report on the Medium-Term Budget Policy Statement regarding the matters referred to above.

This report is accordingly submitted in terms of the above.

These sections deal with:

• The macroeconomic forecasts, global and national, according to which the 2003 Budget will be framed. These are cautiously optimistic.

• Fiscal policy, trends and goals; revised estimates and the fiscal framework for the 2003 MTEF. Declining debt costs enable increased social spending.

• Revenue trends and projections, medium term estimates, and tax policy for budget 2003. Revenue is estimated to remain at about 24.5% of GDP.

The 2003 MTEF has the following priorities:

• Poverty reduction and development by extending social assistance, health and education
• Enhanced investment in municipal infrastructure and basic services
• Expanded capacity in the safety and security sector, with particular focus on court administration
• Higher education restructuring
• Accelerated land reform and restitution
• Better services to citizens provided by Home Affairs
• South Africa's growing international role, notably in NEPAD and the AU

The preliminary budget framework proposes R84,9 billion in additional allocations over the 2002 MTEF baseline amounts. Social and basic service delivery is prioritised, with provinces receiving the largest adjustments – a further R12,3 billion in 2003/4 rising to R20,8 billion in 2005/6. In relative terms, local government receives the largest increase, at 18,4 percent, compared with 9 percent for provinces and 7,3 percent for national departments.

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The supplementary allocations to provinces will support the broadening and deepening of social services. Increased financial support to provinces focuses on:

• Social grants will continue to be adjusted to compensate for inflation;
• A progressive roll-out of HIV/AIDS prevention and treatment programmes and renewed focus on sexually transmitted infections, TB and malaria treatments;
• Investment in hospital buildings and facilities, schools and clinics;
• Spending on learning support materials in schools and medical supplies in health facilities will be stepped up; and
• Steady increases in investment in the provincial road network will be supported.

Capacity development enabling institutions to disburse allocations with increased effectiveness is an important element. Allocation to local government continues the emphasis on municipal infrastructure investment and the broadening of access to free basic water and electricity. Government rural development and urban renewal strategies provide a coordinating framework for creating jobs and extending development of communities.

MTEF policy priority for the cluster: poverty reduction and human capacity building.

The Joint Budget Committee requested the social services cluster of departments - Education, Social Development, Health, and Provincial and Local Government, to give evidence on their progress in delivering on their policy priority.

Both the Minister and the Department of Education agreed that the 2002 Adjustments Estimate and the 2002 MTBPS enable the department to give effect to educational priorities. In particular: An adjustment of R2.2 billion to provincial budgets for 2002/03.

Government’s strategic objectives for poverty reduction through education are twofold, namely:

• To improve adequacy of education funding for poor communities and achieve greater equity in educational outcomes.
• To implement the wide-ranging Human Resource Development Strategy that is directed towards improving the skills capacity of the South African economy.

• Learner Support Materials
• Higher education restructuring
• The National School Nutrition Programme (previously called the Primary School Nutrition Programme): Cabinet has decided to shift the function to the Department of Education in 2004, and the departments have agreed that they will manage the programme jointly next year in 2003 and Education in 2004.

• The school building programme

• Prevention, care and support of people infected and affected by HIV/AIDS, especially via the conditional grant to provinces.

• Accelerated roll-out of Early Childhood Development (Grade R) provision.
• Adult Basic Education and Training (ABET) introduction.

In conclusion, the Department noted the importance of ensuring that the 2003 MTEF allocations are realised in the provincial budgeting processes.

• Poverty reduction, especially targeting the vulnerable: children and those affected and infected by HIV/AIDS. Reviewing laws relating to children, expanding home/community-based care programmes and increasing social assistance (foster care). Mitigating the impact of HIV/AIDS in a national integrated plan and developing policy, legislation and capacity building at all levels.

• Improvement of the social security system. The extension of the Child Support Grant to children between 7-14 is being evaluated for fiscal sustainability. Cabinet is considering the recommendations of the Taylor Commission and is reviewing the social security system as a whole.

• Replacement of the Grant Payment System (SOCPEN) and strengthening of the monitoring, evaluation and compliance of grant payments.

• Tabling the Child Justice Bill in Parliament. The Bill has been costed and the additional allocations proposed in the 2003 MTBPS provide for its implementation.
• Implementation of the child abuse and neglect strategy. The Department also intends implementing victim empowerment measures that focus on the anti-rape strategy and its strategy on shelters for abused women and children.

• Transformation of welfare services, focusing primarily on review of the funding provided to NGOs, and the development of an appropriate financing policy.
• The implementation of recommendations of the Ministerial Committee on Elderly Abuse which entails the formulation of new policies and legislation, audit and inspection of old-age homes and the development of norms and standards.

The Department's presentation focused on system and administrative challenges. The proposed 2003 MTEF projects substantial budgetary increase for the health sector, averaging 10 percent a year for the sector over the next three years. Priority areas are HIV/AIDS, personnel, infrastructure, and a general health sector adjustment.

• Health inflation. The Department requested a general adjustment in the context of higher than expected health/medical inflation.

• Strengthening the Enhanced Response to HIV/AIDS. Strategy in respect of the roll-out of the Prevention of Mother-to-child Transmission programme and provision of Post Exposure Prophylactics to survivors of sexual assault, in accordance with the recent Constitutional Court decision.

• Personnel concerns, including community service provision to additional categories of medical personnel; inflation adjustments to rural and scarce skills allowances; and mid-level posts to relieve medical professionals from administrative duties.

• Health infrastructure – while there is increased spending on the Hospital Revitalisation Programme, additional resources are required.
• Provincial role: Strengthened interaction between provincial health departments and treasuries is needed to ensure that funding reaches priority health areas.

The strategic priorities of the Department of Provincial and Local Government are to:

• Provide leadership and guidance to the process of local government transformation;
• Provide direct technical and material support to provinces and municipalities in fulfilling their constitutional roles and functions;
• Coordinate the implementation of the Integrated Sustainable Rural Development Programme (ISRDP) and the Urban Renewal Programme (URP);
• Establish a policy framework for government-wide integrated development planning.

In respect of basic services and infrastructure provision, the Department is focusing on:

• The Consolidated Municipal Infrastructure Programme (CMIP),
• Consolidating capital grants to municipalities, and
• Strengthening provision of free basic services to poor communities.

The redemarcation of 843 municipalities into 243 by December 2000 calls for an intensive programme targeted towards consolidating local government. The Department is following a three-phased approach to building developmental local government in terms of its establishment, consolidation and sustainability.

The Urban Renewal Programme is aimed at promoting and facilitating sustainable development in the 8 (initial) urban nodes by implementing an innovative model of integrated planning, budgeting, delivery and governance across the three spheres of government.

Progress to date includes:

• Establishment of basic institutional arrangements across all three spheres
• Identification of, and mobilisation of support for anchor projects in each node
• Finalisation of a national implementation framework
• Finalisation of a national urban policy

The complementary Integrated Sustainable Rural Development Programme focuses on promoting and facilitating sustainable development in the 13 (initial) rural nodes.

Progress to date includes:

• Establishing institutional arrangements, in particular the supportive role that the Independent Development Trust plays in implementation;
• Identification of 120 anchor projects in the 13 nodes
• Allocation of additional funds through the CMIP and local government equitable share funding stream
• Finalisation of a national implementation framework

MTEF cluster priority: Strengthen the fight against crime.

The Joint Budget Committee requested the departments in the Integrated Justice Sector – Safety and Security, Justice and Constitutional Development and Correctional Services – to appear before the Committee.

The Department of Safety and Security welcomed the 2003 MTBPS, noting that it addresses key policy priority areas, such as expanding capacity in the safety and security sector to prevent and combat crime, additional resources to address crimes against women and children, supplementary infrastructure allocations, the adoption of more localised (sector) policing and the increase of policing personnel.

The main spending pressures and policy priorities in the policing sector over the next three years relate to addressing infrastructure shortcomings and the issue of personnel shortages. Additional allocations enable the department to:

• Maintain implementation of the departmental strategic plan that is focused on the prevention and combatting of crime, and improvement of service delivery.
• Fully resource the units of the South African Police Service (SAPS) that are responsible for the investigation of cases involving crimes against women and children.
• Increase the SAPS personnel contingent by an additional 28 560 personnel over the period 2002 -2005. This is an increase of 16 200 police officers and 12 360 civilian employees. The additional civilian employees will further enable trained police officers currently involved in administrative duties to be released to active policing.
• Strengthen local policing through implementation of the sector policing approach, which will specifically address violence against women and children.
• Improve conditions of police stations, and build new stations in areas that are underserviced. An additional station for Inanda is also planned for 2003.
• Modernise the police vehicle fleet and information technology infrastructure.
• Together with partners in the Integrated Justice Sector, implement the sector modernisation strategy that integrates relevant systems and links the information technology systems of SAPS, the Departments of Justice and Constitutional Development, Correctional Services and Social Development.
• Provide for payment of death benefits for police officers who are murdered, in accordance with Cabinet’s recent decision. The family of such members will receive a once-off cash payment of R200 000 in addition to whatever other benefits they may be entitled. The death benefit compensates for the high risk rating of police personnel by the private sector insurance companies.

The Department noted that due to high prevalence of crime in South Africa, there will always be spending pressures in the sector. However, the Department believes that the balanced approach of the 2003 MTBPS will enable adequate service provision in combating crime over the medium term.

The Department noted that it would be recruiting and training 16 200 police personnel over the next three years. This is the maximum capacity of the police training institutions. It is also important to ensure that capacity is balanced across the integrated justice sector.

The Committee raised the question of the adequacy of Child Protection Units (CPUs), given the high and rising incidence of crimes against children. The Department responded that there are currently 45 CPUs located in areas where the incidence of crimes against children is higher. To expand this service, SAPS is moving towards an approach where police units are not overspecialised, and is therefore focusing on training

The 2002 MTBPS directs additional funding over the next three years to the Department of Justice and Constitutional Development targeting improvement of court efficiency in order to reduce the case backlog in the system.

To address this, a series of mutually reinforcing measures have been introduced specifically aimed at improving court efficiency and reducing court case backlogs:

• Saturday and Additional courts have been introduced as a temporary measure to reduce the number of cases on the court roll;
• A new policy has been introduced which specifies more clearly the criteria applicable for judging if a case is fit for trial. This will in lead to a decrease in the number of cases withdrawn;
• On a pilot basis, 26 semi-automated IJS court centres have been established with a focus on improved management and coordination of court processes;
• A Diversion programme provides alternative sentencing for juvenile offenders, in keeping with the principles of the Child Justice Bill;
• Phased implementation of the special sexual offences courts;
• Enhanced financial and budget management procedures. Key projects include the PPP cash-hall management project and increased forensic audits. The cash-hall management project refers to the Department’s intention to outsource its central cash management function to reduce fraud and corruption and improve service delivery, particularly as regards payment of maintenance to single parent families;
• Capacity building and upgrading of the Masters Office. (Magistrates previously did the administration of Black estates. With the separation of functions between the judiciary and administrative personnel, this has now become the sole responsibility of the Masters Office.)

The Chief Financial Officer addressed problems with the management of the Department's deposit trust fund. The Department agreed with the Auditor General's summary that here were "huge losses" from this fund, which manages inter alia child maintenance money. The Department had requested R100 million to speedily outsource management to a Public-Private Partnership. However, Treasury regulations require private sector transaction advisors to investigate the feasibility of the project, while the Department is concerned about delays.

The Department of Correctional Services manages the output of the criminal justice system, being responsible for detaining prisoners in safe custody following their arrest and conviction.

• Develop a Green Paper on Correctional Services;
• Create a culture of good governance to combat corruption, crime, malpractice, and maladministration;
• Improve the skills capacity of lower level staff and the retention of skilled personnel;
• Improve prison management;
• Take appropriate measures to adequately address the special needs of targeted prisoner categories, including the youth, females, the aged, pregnant females and mothers with infants, terminally-ill prisoners the mentally challenged and prisoners with disabilities;
• Enhance rehabilitation programmes;
• Enhance prisoner peer-educator programmes;
• Improve the maintenance and repair of facilities;
• Increase prison accommodation to reduce overcrowding;
• Develop criteria for implementation of public private partnerships within the context of correctional services.

The Committee was concerned about personnel expenditure. The Department indicated that 80% of its core budget is spent on personnel, and that high workloads were still a key concern.

The need for new prisons was a subject for debate, one view in the Department being that focusing budgetary resources on social and economic development rather than building new prisons would reduce the pressure on prison populations in time. Meanwhile, the Department responded that about 70 percent of South Africa’s prisons are more than 50 years old. The Department has divided maintenance and upgrading of these prisons into 2 phases: the first comprising 33 prisons and the second comprising 146 prisons. The Department also intends to build, rather than rent, head office accommodation.

• Black economic empowerment of procurement awards: The department noted its difficulty in validating black economic empowerment credentials of tender applicants. It requested the Committee’s assistance in this regard.
• In response to questions regarding the high incidence of HIV/AIDS and TB among prisoners, the Department responded that HIV/AIDS may be contracted prior to imprisonment and that deterioration of affected prisoners may be accelerated through the overcrowded conditions in prisons.

The Economic Services cluster of departments is pivotal in realising two of the sets of priorities which structure the MTBPS, namely:

• Employment Creation and Black Economic Empowerment (BEE)

• Land reform and agricultural development.

The budget committee invited six of the Departments in this cluster to give evidence. In the event, only the Public Works Department (PWD) and the Department of Trade and Industry (DTI) did so, although written submissions were received from the Department of Minerals and Energy, the Department of Labour, the National Department of Agriculture, and the Department of Land Affairs.

The DTI's presentation focused on incentives for small business development through its programme of support for Small, Medium and Micro enterprises. (SMMEs), and associated employment creation. It then reviewed a range of its industrial development support programmes.

Key strategies for SMME sector development are:

• Greater coordination across government departments, with the DTI taking the lead role.

• Partnership between different sheres of government, provincial, local and metropolitan councils, with metropolitan councils playing a particularly important part in improving the environment for small business to thrive. The DTI is already at work on this.

• Improved access to finance by a better coordination of the various financing instruments within the DTI Group of Institutions. There will be a targeted, project centred focus which is further informed by the Integrated Manufacturing Strategy, or initiatives such as Industrial Development Zones (IDZs) and Spatial Development Initiatives (SDIs), and with a new emphasis on co-operatives.

Khula and Ntsika, the DTI-linked agencies that provide access to finance and training, are being restructured to work more closely under common direction. The DTI is also setting up a call centre for immediate access to advice.

• The Motor Industry Development Programme (MIDP), highly successful and to be extended
• The Strategic Investment Programme (SIP)

• Industrial Development Zones (IDZs)

• Customised support for targeted sectors under the Industrial Management Strategy (IMS).

• The National Research and Development Strategy, notably the key technology platforms of Biotechnology and ICT; Advanced Manufacturing and developing new knowledge based industries from the resource-based industries.

The committee was concerned about the company registration process, and its costliness and inaccessibility to informal sector operators. The DTI undertook to provide details. Modes of monitoring BEE also demand clear definition and criteria.

The NPWD's task is management of national departments' accommodation, housing, land and infrastructure. It aims to develop a transformation framework for the property and construction sectors. The NPWD's MTEF budget increases slightly in 2003, after having dropped due to underspending. However, this year the Department expects to overspend.

In its presentation to the Committee, the NPWD focused on its own system challenges, and shortcomings of the MTEF in terms of its needs.

Primary issues were:

• The NPWD is finding it extremely difficult to retain skilled personnel
• It needs uniform guidelines for public immovable asset management
• Its information systems need upgrading and integration

• The NPWD felt the National Treasury had allocated insufficient funds for costs on leased and rented state property which it was obliged to pay
• The increasing diversion of poverty alleviation funds to the Municipal Investment Fund is causing concern within the NPWD in relation to its poverty alleviation projects. These are also being reviewed by Treasury.

Achievements included BEE in construction projects, in property disposed of, and contractors and consultants preferred in terms of the Preferential Employment Policy Framework Act. The Department has also been active in poverty relief and human capacity development projects.

In response to committee questions, however, the NRWD was unable to quantify the budgetary shortfall in lease and rental costs, or to specify the number of persons benefited by its poverty alleviation projects.

The Department of Minerals and Energy provided the Joint Budget committee with a written submission. It reported on elements of its activities relevant to employment creation and BEE, on developments in the energy sector, and on challenges facing it.

• The Broad-based Socio-economic Empowerment Charter sets targets for black equity in the industry, provides for empowerment contracting, and intensive skills development.

• The Oil Charter, voluntary at present, provides for 25 percent black equity by 2010, empowerment contracting, and skills development.

• The Integrated National Electrification Programme (INEP) is providing accelerated delivery of infrastructure. 30 percent of contracts have been awarded to empowerment groups, and maintenance will be done affirmatively.

• Restructuring the electricity industry for global competitiveness, and efficiency also includes provision for free basic electricity and BEE participation in the electricity sector.

• Fostering women’s and children’s participation in the mineral and energy sectors.

The submission of the Department of Labour endorses the MTEF's emphasis on employment creation and black economic empowerment as core issues for a poverty eradication strategy.

The Minister of Education and the Director General of Labour have jointly been appointed to head the national human Resources Development (HRD) Strategy. Its four key strategies are:

• Improving the foundations for human development through the programmes for Early Childhood Development; Adult Basic Education and Training, and General Education.

• Improving the supply of quality and scarce skills, incorporating Higher and further education transformation and bursary schemes.
• Increasing employer participation in lifelong learning in both public and private sectors. Sector Education and Training authorities (SETAs) are expected to signal the learning needs of the economy to the education and training sector.
• Industrial policies, support for innovation and research and development are essential to employment growth, and are rightly prioritised in the MTBPS.

The National Department of Agriculture's submission indicates that it is developing a sector plan to address disparities and success elements in the sector. An initial workshop was held in August 2002.

The plan's key objectives are: growth; competitiveness; wealth redistribution; strong leadership; and sustainability. Also identified were challenges; opportunities; and leverage points. A discussion paper is being drafted to form a basis for broader consultation, with individual stakeholder consultations scheduled from January/February 2003. Internal management discussions are also in progress.

The first draft of a BEE policy acceptable to all stakeholders within agriculture is to be finalised at the end of March 2003.

Consultation to develop sub-sector strategies which include BEE and growth components is under way with:

• The red meat industry
• The cotton industry, and
• Grain SA

Empowerment project proposals worth R16 851 295 are under consideration, including:

• A wool improvement project by the Mineworkers Union
• Potato participation by Potato SA project
• Bull improvement and database projects by NEPRO
• A cooperative development initiative linking small co-operatives to big business and an investigation into piloting empowerment; and
• A Goat Value Chain in the north-west, covering Limpopo, Mpumalanga and Gauteng provinces.

A database of service providers is being continuously developed to support promotion of BEE in the sector plan implementation.

The Department of Land Affairs' written submission comprised an overview of activities, and tables exerpted from its strategic plan for the MTEF period. The MTEF points out that almost half of land restitution claims have been settled, with more complex and larger claims now becoming the focus.

The Department’s strategy is to accelerate the settlement of land restitution claims, with a focus on rural claims and sustainable projects aimed at poverty alleviation. The Department estimates that 80 percent of the claims to be settled during the MTEF period will be rural. Some 28 percent of the settled claims will be targeted for sustainable development under the following programmes:

• Urban Renewal Programme (URP);
• Ownership in nature conservation and biodiversity;
• Land Redistribution for Agricultural Development (LRAD); and
• Stock and game farming.

Validation of approximately 40 000 outstanding claims is planned for completion in 2002/2003. This will be followed by the verification of all claimants to be finalised by December 2004. During this MTEF period approximately 205 000 households will benefit from the settlement of 24 932 claims representing 1, 4 million hectares.

To achieve a more equitable distribution of land ownership, the Department will step up the implementation of the following programmes:

• The Land Redistribution for Agricultural Development (LRAD) programme;
• Land redistribution for commonages, equities and other related projects;
• The acquisition of land for settlement;
• Land delivered to Labour Tenants; and
• Land acquired in support of the Urban Renewal Programme.

For the MTEF period it is estimated that 76 902 households will benefit from the implementation of the above programmes, which will yield 2 708 projects representing 896 299 hectares.

A further 287 812 hectares of state land will be disposed of in the MTEF period.

MTEF priority: administrative upgrading.

The Department's presentation focused mainly on system challenges to service delivery. The major problem areas were highlighted and then steps to improve service delivery were discussed.

The Departments main focus is enhanced capacity to maintain an effective population register and identification system. The Home Affairs National Identification System (HANIS) will receive increased funding over the MTEF period to complete the current digitisation of population records, and to begin the production of an electronically readable smart card to replace the present ID booklets.

The Department has obtained allocation of funding for key projects, but feels however that these are underfunded. The critical areas of under funding are:

• Rural areas: the department wants mobile services to expand into rural areas. The Committee noted that this was of extreme concern and the dept responded that they were acutely aware of this need.
• Centre for illegal aliens: The question was raised by the Committee as to whether this centre was functioning well and managing to assist people coming in. The department responded that the number of refugees is increasing, and therefore expenditure at this centre will also increase. In addition, immigration officers need vehicles to perform their functions.

• Screening: Persons seeking entry into the country are not properly screened from a security viewpoint, before being admitted. Poor facilities create loopholes enabling persons to enter the country without reporting to an immigration officer for the necessary checks and controls.
• Personnel: Some 1100 posts remain vacant. The Committee pointed out that surely this was one area the department should prioritise in trying to achieve its goal of better service delivery. Understaffing leads to longer queues. In response to a question, the department said that they mainly used consultants in the area of IT to assist with the HANIS project, and only spend about R16 million on consultants.

The department is moving from manual processes to electronic systems. The department is implementing an electronic document management system within civic services which will improve business process and efficiency, and will make Home Affairs records immediately available both nationally and internationally.

It is investigating the devolution of the delivery of civic affairs functions to municipalities, so that citizens will be able to obtain identification documents, registrations of birth, deaths and marriages and related certificates from a variety of points, using the municipal infrastructure, which is already in place. In the meantime, the department has embarked on a process of negotiating with local and rural authorities for co-operation in the rendering of services. The department wishes to establish multi-purpose community centres to integrate service delivery at community level, especially in rural areas.

Identity system: The Committee expressed concern that the original contract price for the first stage of the HANIS project (AFIS) had increased from 930 million to approximately 1.5 billion. The Committee raised the point that the initial contract was based on an exchange rate of the R6 to the dollar and was now very out of date and inaccurate. The projected cost for the second stage of HANIS, namely SENIC amounts to 2 billion. The Committee noted the discussions between National Treasury and the department to explore the restructuring of the next phase of HANIS as a PPP.

The Financial and Fiscal Commission (FFC) has a statutory mandate to recommend on the Division of Revenue in the main budget and to comment on all money bills.

Section 214(2)(a) – (j) of the Constitution sets out factors in terms of which the FFC should asses the division of revenue. In its presentation, which reflected an earlier assessment at this stage in the cycle, the FFC focused on:

• Provisions for national debt and obligations;
• National government’s needs and interests;
• The ability of provinces and municipalities to provide basic services;
• Fiscal capacity of provinces and municipalities;
• The developmental needs of provinces and municipalities;
• Stability and predictability of revenue shares.

In its presentation to the Committee, the FFC reviewed its comparative analysis of the 2002/3 budget and 2002 MTEF. It summarised the proposals it had made to feed into the 2003 MTEF, which were presented to Parliament in May 2002:

• Build creditworthiness in municipalities with little capacity to access debt through infrastructure grants, institutional capacity building programmes and clarified accountability between the three spheres of government;
• Further consider of the division of functions between local and district municipalities noting existing local government policy and the primary role of national government in redistributing resources. Local governments should in the longer term deliver services to residents;
• Incorporate considerations of councillor remuneration in the I-element of the LES;
• Consider the relationship between regional and municipal electricity distributors, noting the option of a levy to compensate distributing municipalities for asset transfer losses and to enable inter-municipal revenue sharing. National grants could be used to provide free basic electricity and overcome capital backlogs for the poor.

• Conditional grant funding mechanisms for Early Childhood Development should continue until they can be incorporated into the Provincial Equitable share (PES) mechanism.
• A conditional grant was considered the most appropriate mechanism for targeting the impact of HIV/AIDS whilst a suitable information base is established.

• The FFC offered guidelines for reviewing the Taylor Report (Comprehensive Social Security Review) and proposed the establishment of a national social security agency to administer the payment of pension and child support grants over the medium to long term. National government announced that this was under way.
• The FFC proposes that it, with Parliament and Government, review the inter-governmental fiscal system in the light of the Bill of Rights and section 214(2)(a) to (j). Particular note is to be taken of data collection and inter-governmental fiscal capacity building requirements.
• A tiered system of municipal, provincial and national funding thresholds was proposed for various aspects of disaster management.
• Finally, the FFC proposed that a legal basis be established to enable contingency reserves to accommodate disaster management, macro-economic shocks and new policy priorities.

1. The national budget

This year’s adjusted macro-economic projections reflect the impact of the (nearly) 40 percent depreciation of the rand last year. These include expectations of higher (export-led) economic growth and a nearly 3 percent increase in expected inflation for 2003/4.

Trends relating to spending include:

• As a proportion of GDP, government spending is projected to rise faster than revenue. This may reflect additional spending pressures and/or the approach of capacity limitations in revenue collection. The result is that the deficit is expected to rise sharply next year, but will fall in the following two years.
• Tax room of approximately 2.5 percent of GDP is targeted for other "general government" bodies including provincial and municipal governments.
• The national deficit is projected to rise sharply next year.
• Over the medium to long-term, a higher national deficit impacts on debt-servicing costs. Debt servicing costs are expected to decline, as a proportion of government expenditure, over the medium-term between 16 percent and 15 percent.
• Debt servicing costs displace funds otherwise available for division between the 3 spheres to deliver services.
• Real growth of funds available for division is projected to grow to nearly 6 percent next year and 4 percent over the medium-term. This enables growth in per capita spending on constitutionally mandated basic services.
• The projected vertical division of revenue reflects a counter-shift from the national to the provincial sphere and a continued shift to the local sphere. This may reflect the demands on the social security and health systems and the consolidation of the new local government system.

• Unconditional Equitable share funding continues to be preferred over conditional grants as a mechanism for funding provincial governments.
• Significant differences in the recent past and projected real growth of social security, health and education spending for the 2002 MTEF have been narrowed.
• Healthy real growth of 8.3 percent is projected for infrastructure capital grants over the medium-term.
• Both the Integrated Nutrition Programme and HIV/AIDS conditional grants have been substantially consolidated.

• Evidence from the recent past reflects that 89 percent of municipal revenue is collected from own sources. However, most of this is collected by Metropolitan authorities. Many rural local and district councils are heavily reliant on funds from national government.
• Municipal deficits have been rising in the recent past to an average 2.5 percent of municipal budgets in 2000/1.
• Real annual growth of 15 percent for LES allocations is projected. This will enable growth in per capita spending on basic municipal services.

FEDUSA - a labour-based body - and People's Budget (representing views of COSATU, SANGOCO and the SACC) were civil society inputs to the Budget Committee.

FEDUSA acknowledges that the 2003 MTBPS and MTEF already contain aspects that will foster growth and development and therefore employment, though they would like to see looser deficit controls and even more infrastructure expenditure.

As there is no short-term solution to this problem, in the short term it is necessary to provide for the unemployed and the poor by way of a safety net. FEDUSA Welcomes the provision for social services of more than 57 percent of consolidated non-interest spending (education, health, social security and other social services) in 2002/3 that will increase by 3.6 percent in real terms over the MTEF period. They also welcome the increased provision of basic services such as water and electricity to households, especially in the rural areas.

1. Investment

Welcome steps include:

• A continuation of accelerated depreciation allowances for manufacturing assets
• Extended tax relief for small businesses
• Increasing support for national research and development strategy
• Increased expenditure on safety and security, to create a climate conducive to investment
• Increased government expenditure in real terms over the MTEF period.

FEDUSA feels that private savings should be encouraged and that retirement savings should not be liable for personal income taxation. The minister is urged to give serious consideration to an increase in the tax exemption level of savings, and to lowering the retirement fund tax rate substantially. Both will directly and indirectly benefit our levels of savings.

VAT zero-rating should be extended to include basic services such as electricity and water, regardless of the amount used. This would be a means of offering relief to lower income groups.

A portion of the equitable share allocation could be used for the purpose of meeting debt demands. A concern is that there is infrastructure development with no upgrading of existing services. Infrastructure maintenance should not just focus on roads, but should also prioritise water purification and sanitation.

FEDUSA is concerned that no figures have been provided for the restructuring. It questions the capacity of the higher education sector to manage all the proposed mergers while sustaining ongoing delivery. They referred the committee to a report by their affiliate, South African Parastatal and Tertiary Institution Union (SAPTU), The Transformation and Reconstruction of the Higher Education System – Labour Perspective.

FEDUSA feels that a basic income grant is not a practical solution to the problem of high food prices. When asked by the Committee to provide more detail on this, they felt that the basic income grant system would be fraught with fraud and corruption in that the money would not go to the people it needs to go to.

The success of the fund should be publicised, since a perception exists that the fund is not spending in line with its original intent.

FEDUSA fully supports this.

The People’s Budget did not appear before the committee, but furnished written submission setting out its responses to the MTBPS. The responses relevant to MTBPS sections 5 and 6 are as follows:

• The trend to increased spending is welcome, but an even more expansionary budget could be devised by avoiding tax cuts and increasing expenditure-to-GDP rations.
• Allocations between national, provincial and local government spending should be revised, with greater increases to local government service delivery.
• They welcome the modest real growth in spending on social services, but observe that, in many areas, expenditure continues to fall short of the expectations outlined in the People’s Budget.
• Education, while welcoming the real growth in education spending, and planned Early Childhood Development and Adult Basic Education and Training commitments, People's budget urges proposals to reform the school fees system.
• Increased allocations for health care are encouraging but they will be thinly spread over additional personnel, HIV/AIDS prevention and treatment, hospital buildings and rising medical supplies costs.
• More alarming is the modest growth in welfare spending over the cycle of the MTEF, especially in view of government’s constitutional obligations and policy commitments. Government should be planning for dramatic growth in welfare spending to accommodate extension of the Child Support Grant and preparations for the roll-out of a Basic Income Grant.
• They applaud declining defence expenditure but call for reallocation of funds to support job creation and peacekeeping.
• They support plans to extend electricity and free basic services and sanitation.
• They express concern about the lack of resources available for land redistribution. They wish to see redistribution of assets coupled to a Basic Income Grant. Housing increases are also not sufficient, in their view.

In administration expenditure, the People's Budget welcomes the earmarking of funds for the roll-out of HANIS, the 2004 elections, and efforts to improve government’s effective spending capacity.

They reiterate their call for the introduction of a multiple-tier VAT system over the medium-term, coupled with measures to prevent retailers from profiteering. They affirm the work of SARS in encouraging tax morality and compliance.

On capacity to spend: They endorse the some of the successes which the Minister cited in the MTBPS, but point to the need to avoid easy recourse to "capacity problems" to explain failure to spend. It is vital to conduct more thorough analysis of the obstacles to spending, as well as good planning and implementing practices that facilitate the efficient use of public resources. They raised concerns about the admission that almost R6 million in infrastructure development funds were unused because they had not been properly allocated.

Budget Documentation and Indicators: They call on departments to develop a system of indicators to facilitate tracking of progress in achieving targets and combating poverty. Data should be collected in a manner that permits disaggregation by gender, income level, race and province.

SUBMISSIONS ON MTBPS

The National Treasury

The National Department Public Works

Department of Education

Department of Social Development

Department of Provincial and Local Government

Department Health

Department of Safety and Security

Department of Correctional Services

Department of Justice and Constitutional Development

Department of Home Affairs

Financial and Fiscal Commission

FEDUSA

Department of Trade and Industry

Department of Minerals and Energy

National Department of Agriculture

Department of Labour

Department of Land Affairs

People’s Budget