Report of the Joint Budget Committee on first quarter National Expenditure 2006/07 Financial Year, dated November 2006:

This report provides a brief analysis of National Departments’ expenditure for the first half of the 2006/07 financial year. The report is divided into four main sections. The first section provides an analysis of National Departments’ total expenditure. The second section focuses on current expenditure by National Departments. The third section of the report provides an analysis of transfer expenditure. The final section provides an analysis of capital expenditure. Each section includes the five highest and lowest spenders.

1. Total Expenditure

By the end of the second quarter of the 2006/07 financial year, Departments spent an average of 46.24% of their total budgets. During the first quarter Departments spent 21.44% of its total budget and during the second quarter they spent 24.80%. This translates into a R8.8 billion increase in expenditure during the second quarter in comparison to the first quarter. Departments’ spent on average 10.06% of their budget during July, 7.31% during August and 7.43% during September. To date Departments spent R120.2 billion.

The cash flow projections provided by the National Treasury indicate that departments had planned to spend R127.4 billion by the end of the second quarter of the financial year but were R7.2 billion below that target, which is indicative of a slow expenditure pattern resulting in significant under expenditure by certain departments.

Table 1 Highest expenditure Departments at the end of the second quarter.

	Total Budget	Total Expenditure to date	% Total Expenditure to date	Cash Flow Projections to date	Variance	Expenditure as % of Projected Expenditure
R'000
Public Enterprises	683457	623995	91.30%	518723	105272	120.29%
Education	14129233	10313965	73.00%	10667779	-353814	96.68%
Public Service and Administration	325610	201633	61.92%	144082	57551	139.94%
Environmental Affairs and Tourism	2018053	1242988	61.59%	1085652	157336	114.49%
Government Communications and Information Services	288037	162729	56.50%	151761	10968	107.23%

1.1
The Department of Public Enterprises was by far the highest spending Department. It spent 91.30% of its total budget by the end of the second quarter. The Department spent 42.02% of its current budget, 99.82% of its transfer budget and 243.35% of its capital budget during the first half of the financial year. It’s important to note that the department had spent 91.3% of its total budget of R683 million as at the second quarter. The main increase in the Departments’ budget is in the Corporate Strategy and Structure programme, is linked to the once off payment to the Pebble Bed Modular Reactor. The R580 million spent by the Department thus far was transfer payments to public corporations and private enterprises.

The Department of Education at 73% spent the second highest portion of its budget. Even though the Department spent almost two thirds of its budget during the first half of the financial year it does not appear that they will overspend their budget based on the cash flow projections provided to National Treasury. Expenditure in the first six months of 2006/07 increased by 10,6% compared to the same period of the previous financial year. According to National Treasury the main reasons are because transfers to provinces grew by 63,3% due to inflation related increases to conditional grants, and due to the introduction of a new conditional grant, as well as FET college recapitalisation.

Transfers to foreign governments decreased by 99,2% because the major transfers to the UN Educational Scientific and Cultural Organisation and to the Commonwealth of Learning (accounting for 98 per cent of transfers to foreign governments), will only be made in January 2007. Payments for capital assets decreased by 58,1% compared to the first half of the previous financial year. This is due to delays on the new building and the resulting moratorium on purchasing machinery and equipment, the roll-over for machinery and equipment, and the packing and distribution machine which was delivered in 2005/06. Of the R10.3 billion spent by the Department of Education R8.5 billion was transfer expenditure going to universities and technikons.

The Department of Public Service and Administrations expenditure during the first half of the financial year was R202 million ie 61.92% of the main appropriation of R326 million. The Management of Compensation programme of the Department increased by R70 million. Expenditure in the Administration Programme, in the first six months of 2006/07, increased by 58,9% compared to the same period in the previous financial year. The main increases relate to additional capacity and relocating the Department to new premises.

The Department of Environmental Affairs and Tourisms expenditure during the first half of the financial year was R1.243 billion which is 61.59% of the main appropriation. Of the R1.243 billion spent by the Department R969 million was transfer payments to departmental agencies and households.

Government Communications and Information Services expenditure during the first half of the financial year was R163 million which is 56.50% of the main appropriation compared to 54.6% during the first six months of the 2005/06 financial year. The full transfer to the Media Development and Diversity Agency was made in April 2006, while the International Marketing Council’s allocation is done quarterly.

Of the top five spending Departments, four spent more than the cash flow projections 2006/07 provided by National Treasury.

Table 2 illustrates Departments with the lowest expenditure at the end of the second quarter.



Table 2: Lowest Total Expenditure to date

	Total Budget	Total Expenditure to date	% Total Expenditure to date	Cash Flow Projections to date	Variance	Expenditure as % of Projected Expenditure
R'000
Land Affairs	4852196	1191927	24.56%	2418354	-1226427	49.29%
Transport	12870458	4229519	32.86%	6528310	-2298791	64.79%
Communications	1280194	434126	33.91%	614988	-180862	70.59%
Provincial and Local Government	24903440	8496062	34.12%	9462594	-966532	89.79%
Water Affairs and Forestry	4476545	1706900	38.13%	2142721	-435821	79.66%

1.1.1
The Department of Land Affairs at the end of the second quarter, spent only 24.56% of its budget, making it the lowest in the expenditure pattern. The department spent only half of what they had planned to spend by the end of the second quarter. At the end of the second quarter of the 2005/06 financial year the Department actually spent more of its total budget, i.e. 27.71%. The current pattern of expenditure if not addressed may lead to the same problem of under expenditure reflected in the previous financial year when the department spent only 73.15% of its total budget. The slow spending in both years has been attributed mainly to the Restitution and Land Reform programmes.

Given that this is one of the core priorities of Government and linked to a timeframe the Committee believes that this gives rise to significant concern. The Department spent less than 40% on six of its seven programmes. The Department should develop urgent measures to arrest these problems.

The Committee will be engaging the Department on its third quarter expenditure report to evaluate the degree of impact this under expenditure will have on the achievements of stated targets.

The Department of Transport spent R4.2 billion or 32.86% during the first half of the financial year of its budget. The allocation for Gautrain is scheduled for expenditure in October 2006. According to the ENE the tender for the scrapping allowances related to the taxi recapitalisation project was scheduled to be finalised in the last month of the previous financial year. However, this has been delayed. Further under expenditure is due to the large number of vacant posts which remain unfilled. Therefore it is imperative that the department addresses this issue of vacant posts expeditiously so as to avoid its negative impact on the achievement of its stated targets.

The Department of Communication spent R434 million or 33.91% during the first half of the financial year. Expenditure is lagging behind the allocated budget due to the low level of expenditure related to transfers. Only R300 million of the R1 billion transfer budget has been spent. According to the National Treasury this is due to fewer transfers to entities, following improved monitoring and control.

The Department of Provincial and Local Government spent R8.496 billion or 34.12% of its budget of R24.9 billion during the first half of the financial year. This slow down of expenditure is due to transfer schedule of the equitable share which is now paid every four months instead of every three months, and because of delayed expenditure following the completion of a contractual commitment for municipal profiling. Of the R8.496 billion spent thus far by the Department R8.341 billion was transfer expenditure going to provinces and municipalities.

The Department of Water Affairs and Forestry spent R1.707 billion or 38.13% of its budget during the first half of the financial year. There has been a shift of functions of the Water Services Programme, and appropriate water services institutions to Local Government. The Committee intends in the next quarter to clarify with the department whether the funds have followed the programme shift. Progress on the De Hoop Dam will also be pursued in relation to expenditure.

All five departments referred to above spent less than they had planned to spend by the end of the second quarter. The second quarter expenditure report alerts departments to the need to develop and to take measures to avoid significant under expenditure.

Table 3 represents Departments total expenditure at the end of the second quarter.

Table 3: Departmental Expenditure to date

	Total Budget	Total Expenditure to date	% Total Expenditure to date	Cash Flow Projections to date	Variance	Expenditure as % of Projected Expenditure
R'000
Voted Amounts	260025664	120230899	46.24%	127368242	-7137343	94.40%
Central Government Administration	34864231	12910430	37.03%	14547572	-1637142	88.75%
The Presidency	255923	99484	38.87%	131621	-32137	75.58%
Parliament	782133	300998	38.48%	319460	-18462	94.22%
Foreign Affairs	3042149	1230319	40.44%	1508906	-278587	81.54%
Home Affairs	2800405	1095530	39.12%	1354348	-258818	80.89%
Provincial and Local Government	24903440	8496062	34.12%	9462594	-966532	89.79%
Public Works	3080181	1688037	54.80%	1770643	-82606	95.33%
Financial and Administrative Services	18074778	8124093	44.95%	9022705	-898612	90.04%
Government Communications and Information Services	288037	162729	56.50%	151761	10968	107.23%
National Treasury	15547945	6653497	42.79%	7640415	-986918	87.08%
Public Enterprises	683457	623995	91.30%	518723	105272	120.29%
Public Service and Administration	325610	201633	61.92%	144082	57551	139.94%
Public Service Commission	96328	44424	46.12%	47905	-3481	92.73%
S A Management Development Institute	58918	28041	47.59%	28684	-643	97.76%
Statistics South Africa	1074483	409774	38.14%	491135	-81361	83.43%
Social Services	90588067	51200582	56.52%	48544378	2656204	105.47%
Arts and Culture	1318476	648041	49.15%	681300	-33259	95.12%
Education	14129233	10313965	73.00%	10667779	-353814	96.68%
Health	11269996	5491866	48.73%	5653768	-161902	97.14%
Labour	1512749	637497	42.14%	781214	-143717	81.60%
Social Development	62005460	33961939	54.77%	30564518	3397421	111.12%
Sport and Recreation South Africa	352153	147274	41.82%	195799	-48525	75.22%
Justice and Protection Services	73354334	31059169	42.34%	33024490	-1965321	94.05%
Correctional Services	10630712	4116451	38.72%	4883854	-767403	84.29%
Defence	23830105	9504239	39.88%	9797599	-293360	97.01%
Independent Complaints Directorate	65906	30111	45.69%	33011	-2900	91.22%
Justice and Constitutional Development	6269880	2581599	41.17%	3001049	-419450	86.02%
Safety and Security	32557731	14826769	45.54%	15308977	-482208	96.85%
Economic Services and Infrastructure Development	43144254	16936625	39.26%	22229097	-5292472	76.19%
Agriculture	1957648	948210	48.44%	1043072	-94862	90.91%
Communications	1280194	434126	33.91%	614988	-180862	70.59%
Environmental Affairs and Tourism	2018053	1242988	61.59%	1085652	157336	114.49%
Housing	6860883	3494759	50.94%	3430841	63918	101.86%
Land Affairs	4852196	1191927	24.56%	2418354	-1226427	49.29%
Minerals and Energy	2548272	1066116	41.84%	1323416	-257300	80.56%
Science and Technology	2614093	1181462	45.20%	1460018	-278556	80.92%
Trade and Industry	3665912	1440618	39.30%	2181725	-741107	66.03%
Transport	12870458	4229519	32.86%	6528310	-2298791	64.79%
Water Affairs and Forestry	4476545	1706900	38.13%	2142721	-435821	79.66%

Table 3 illustrates that 28 Departments spent less than they had projected and 6 spent more than what they had planned to spend by the end of the second quarter of the 2006/07 financial year. Three Departments spent less than 70% of their total budgets based on the cash flow projections provided by National Treasury as at the end of the second quarter. These are the Departments of Land Affairs, Transport and Trade and Industry. Trade Industry spent R1.4 billion but planned to spend R2.2 billion, which is 40% of its budget. Clearly this slow expenditure gives cause for concern.

The Joint Budget Committee will be engaging with these departments again at the end of the third quarter to ascertain what measures have been adopted to arrest this pattern.

2. Current Expenditure

Table 4 represents departments’ overall Current Expenditure for the second quarter of the 2006/07 financial year. Departments spent on average 43.61% of their Current budgets by the end of the second quarter. They spent on average 7.78% of their Current budgets during July, 7.61% during August and 8.53% during September. At the end of the second quarter of the 2005/06 financial year departments spent on average 43.81% of their current budgets. This shows that there’s been a slight decrease in the average percentage expenditure by departments.

In the Committee’s opinion averages by their nature can be misleading and obscure issues of significant under and over expenditure.

Table 4: Current Expenditure to date

	Total Current Budget	First Quarter Current Exp	% Current Exp for 1^st Quarter	Second Quarter Current Exp	% Current Exp for 2^nd Quarter	Current Exp to date	% Current Exp to date
R'000
Voted Amounts	81424542	16036692	19.70%	19473113	23.91%	35509805	43.61%
Central Government Admin	6401952	1271229	19.86%	1689221	26.38%	2960450	46.24%
The Presidency	223239	38247	17.13%	47008	21.06%	85255	38.19%
Parliament	601352	107989	17.96%	189368	31.49%	297357	49.45%
Foreign Affairs	2158818	426813	19.77%	565208	26.18%	992021	45.95%
Home Affairs	1844348	366758	19.89%	471596	25.57%	838354	45.46%
Provincial and Local Government	322600	60475	18.75%	70042	21.71%	130517	40.46%
Public Works	1251595	270947	21.65%	345999	27.64%	616946	49.29%
Financial and Admin Services	4205417	731172	17.39%	862220	20.50%	1593392	37.89%
Government Communications and Information Services	192937	41084	21.29%	46546	24.13%	87630	45.42%
National Treasury	2427774	413499	17.03%	467523	19.26%	881022	36.29%
Public Enterprises	101905	19873	19.50%	22951	22.52%	42824	42.02%
Public Service and Administration	323027	62213	19.26%	61326	18.98%	123539	38.24%
Public Service Commission	94654	20235	21.38%	23830	25.17%	44065	46.55%
S A Management Development Institute	33466	6913	20.66%	8283	24.75%	15196	45.41%
Statistics South Africa	1031654	167355	16.22%	231761	22.47%	399116	38.69%
Social Services	3189475	555031	17.40%	701628	22.00%	1256659	39.40%
Arts and Culture	232999	105578	45.31%	72331	31.05%	177909	76.36%
Education	575864	70024	12.16%	113651	19.74%	183675	31.90%
Health	808864	107793	13.33%	155739	19.25%	263532	32.58%
Labour	1117202	202077	18.09%	259613	23.24%	461690	41.33%
Social Development	277304	52856	19.06%	78139	28.18%	130995	47.24%
Sport and Recreation South Africa	177242	16703	9.42%	22155	12.50%	38858	21.92%
Justice and Protection Services	59801679	12143545	20.31%	14421959	24.11%	26565504	44.42%
Correctional Services	9234476	1776857	19.24%	2044134	22.14%	3820991	41.38%
Defence	14896326	2845356	19.10%	3705361	24.88%	6550717	43.98%
Independent Complaints Directorate	64034	13838	21.61%	15436	24.11%	29274	45.72%
Justice and Constitutional Dev	5007839	833783	16.65%	1099312	21.95%	1933095	38.60%
Safety and Security	30599004	6673711	21.81%	7557716	24.70%	14231427	46.51%
Economic Services & Infrastructure Dev	7826019	1335715	17.07%	1798085	22.97%	3133800	40.04%
Agriculture	882202	127615	14.47%	175630	19.90%	303245	34.37%
Communications	304320	62031	20.38%	69831	22.95%	131862	43.33%
Environmental Affairs and Tourism	615129	117131	19.04%	142948	23.24%	260079	42.28%
Housing	373512	33535	8.98%	45482	12.18%	79017	21.16%
Land Affairs	990648	149290	15.07%	223584	22.57%	372874	37.64%
Minerals and Energy	534923	88601	16.56%	110433	20.65%	199034	37.21%
Science and Technology	180770	46010	25.45%	44886	24.83%	90896	50.28%
Trade and Industry	769869	113610	14.76%	147309	19.13%	260919	33.89%
Transport	538852	105194	19.52%	184614	34.26%	289808	53.78%
Water Affairs and Forestry	2635794	492698	18.69%	653368	24.79%	1146066	43.48%

1.1.1.1.1.1.1.1.1
Table 5 illustrates Departments with the highest current expenditure at the end of the second quarter.

Table 5: Highest Current Expenditure to date

	Total Current Budget	First Quarter Current Exp	% Current Exp for 1^st Quarter	Second Quarter Current Exp	% Current Exp for 2^nd Quarter	Current Exp to date	% Current Exp to date
R'000
Arts and Culture	232999	105578	45.31%	72331	31.05%	177909	76.36%
Transport	538852	105194	19.52%	184614	34.26%	289808	53.78%
Science and Technology	180770	46010	25.45%	44886	24.83%	90896	50.28%
Parliament	601352	107989	17.96%	189368	31.49%	297357	49.45%
Public Works	1251595	270947	21.65%	345999	27.64%	616946	49.29%

The Department of Arts and Culture spent 76.36% of its Current budget which in comparison is by far the highest spending department. Current expenditure during the first half of the financial year was R178 million. As at the end of the second quarter the department spent R62 million of its R95 million budget for compensation of employees (65.2%). This is 52.6% higher than expenditure at the end of the second quarter of the 2005/06 financial year. At the end of the previous financial year the Current budget expenditure stood at 109.24% .

There is a risk of over expenditure by the Department on its current budget given this expenditure pattern in this financial year. The Committee noted that this is a repetition of the previous financial years pattern and believes measures should, if they have not already, be taken to address this pattern of over expenditure.

The second highest spending department is Transport (53.78%). Current expenditure during the first half of the financial year was R290 million. The Department spent R52 million of its R144 million budget on compensation of employees and R236 million of its R581 million budget on goods and services. Given the current expenditure pattern there is a significant risk of under expenditure by the Department on its current budget which could lead to a similar pattern as noted in the previous financial year when only 70.4% of the budget was spent.

The Department of Science and Technology’s current expenditure during the first half of the financial year was R91 million which is 50.28% of its current budget. This indicates that expenditure is on track with planned line budgeting.

Parliament’s current expenditure during the first half of the financial year was R297 million or 49.45%. A risk of under expenditure is statistically insignificant at this point of the expenditure cycle. However, given the previous financial years expenditure of only 94%, this second quarterly pattern should alert Parliament to track its expenditure pattern more closely.

The Department of Public Works current expenditure during the first half of the financial year was R617 million or 49.29% of their budget. This expenditure pattern would appear to give no cause for concern however given the previous financial years expenditure of 103% the Department should track all line expenditure more closely.

Table 6 illustrates Departments with the lowest current expenditure at the end of the second quarter.

Table 6: Lowest Current Expenditure to date

	Total Current Budget	First Quarter Current Exp	% Current Exp for 1^st Quarter	Second Quarter Current Exp	% Current Exp for 2^nd Quarter	Current Exp to date	% Current Exp to date
R'000
Housing	373512	33535	8.98%	45482	12.18%	79017	21.16%
Sport and Recreation South Africa	177242	16703	9.42%	22155	12.50%	38858	21.92%
Education	575864	70024	12.16%	113651	19.74%	183675	31.90%
Health	808864	107793	13.33%	155739	19.25%	263532	32.58%
Trade and Industry	769869	113610	14.76%	147309	19.13%	260919	33.89%

The Department of Housing is the lowest spending department with expenditure at 21.16% of the Current budget. Current expenditure during the first half of the financial year was R79 million. Of the R176 million allocated to the line item on goods and services the Department spent only R42 million. This expenditure pattern is similar to the previous financial year at the end of the second quarter. This under expenditure in the previous financial year resulted in only 89.9% of expenditure.

It is this recurring pattern that gives cause for concern in the current financial year. The Committee is of the opinion that stronger measures should be implemented by the Department to arrest this pattern.

The Department of Sport and Recreation current expenditure during the first half of the financial year was R29 million or 21.92% of its current budget. The reason for the slow expenditure is because the Department spent only R24 million of its R136 million budget available for goods and services. In addition the Department spent only 37.5% of its budget for compensation of employees. There is a risk of under expenditure by the Department on compensation of employees as well as goods and services. During the 2005/06 financial year the Department spent only 79.5% of its current budget.

In the Committee’s opinion the current pattern of expenditure reflects the under expenditure pattern of the previous financial year and therefore gives cause for concern. Measures should be developed and implemented to arrest this under expenditure pattern.

The Department of Education’s current expenditure during the first half of the financial year was R184 million, or 31.9% of the current budget. The reason for the slow expenditure is because the Department spent only R85 million of its R365 million budget available for goods and services. Reasons given by the Department for its slow expenditure includes outstanding tender processes as well as the national departments involvement in the national examinations. During the 2005/06 financial year the Department spent 91.5% of its current budget. The line item on goods and services includes consultants, contractors, maintenance repairs and running costs, operating leases, travel and subsistence, and printing and publications. However the major portion of the line allocation goes to consultants and contractors.

The current financial year’s expenditure pattern in Education is similar to that of the previous financial year. Therefore the Committee is of the opinion that the department should examine the cause for this pattern and take appropriate measures.

The Department of Health’s current expenditure during the first half of the financial year was R264 million or 32.58%. The reason for the slow expenditure is because the Department spent only R149 million of its R539 million budget available for goods and services. This is 24.9% lower than the previous financial year’s expenditure at the end of the second quarter. During the 2005/06 financial year the Department spent only 81.8% of its goods and services budget. According to Chief Financial Officer of Health the major portion of this slow expenditure is the delay in the delivery of back orders of condoms.

The recurring under expenditure pattern in the line allocation to goods and services is significant therefore the Department should study the pattern and develop measures to arrest this under expenditure.

The Department of Trade and Industry’s current expenditure during the first half of the financial year was R261 million, or 33% of the budget. During the 2005/06 financial year the Department spent only 77.5% of its goods and services line allocation. During the first six months of the 2006/07 financial year the Department spent only R133 million or 27.3% of its R487 million goods and services budget.

In the Committee’s opinion there is a risk of recurring under expenditure given the previous financial year’s pattern. Measures should be taken by Department to arrest this expenditure pattern in the current budget.


3. Transfer Payments

Table 7 represents Departments’ Transfer expenditure for the half of the 2006/07 financial year. Departments spent on average 48.26% of its Transfer budgets during the first six months. Monthly expenditure patterns show an average expenditure of: July 11.40%; August 7.26%; and September 6.95%.

Table 7: Transfer Payments to date

	Total Transfer Budget	First Quarter Trans Exp	% Trans Exp for 1^st Quarter	Second Quarter Trans Exp	% Trans Exp for 2^nd Quarter	Trans Exp to date	% Trans Exp to date
R'000
Voted Amounts	172625097	39111755	22.66%	44194094	25.60%	83305849	48.26%
Central Government Administration	26832308	1668539	6.22%	8127379	30.29%	9795918	36.51%
The Presidency	26407	7371	27.91%	4897	18.55%	12268	46.46%
Parliament	158061	0	0.00%	0	0.00%	0	0.00%
Foreign Affairs	485579	170064	35.02%	20609	4.25%	190673	39.27%
Home Affairs	361169	129109	35.75%	76575	21.20%	205684	56.95%
Provincial and Local Government	24574782	886638	3.61%	7477791	30.43%	8364429	34.04%
Public Works	1226310	475357	38.76%	547507	44.65%	1022864	83.41%
Financial and Administrative Services	13806165	2997448	21.71%	3513538	25.45%	6510986	47.16%
Government Communications and Information Services	93083	34278	36.83%	39150	42.05%	73428	78.88%
National Treasury	13107620	2833028	21.61%	2936831	22.41%	5769859	44.02%
Public Enterprises	581086	120041	20.66%	459996	79.16%	580037	99.82%
Public Service and Administration	409	3918	957.95%	71783	17550.85%	75701	18508.80%
Public Service Commission	92	41	44.57%	23	25.00%	64	69.57%
S A Management Development Institute	23063	5850	25.37%	5750	24.93%	11600	50.30%
Statistics South Africa	812	292	35.96%	5	0.62%	297	36.58%
Social Services	87328400	28035327	32.10%	21885096	25.06%	49920423	57.16%
Arts and Culture	1080681	218649	20.23%	251483	23.27%	470132	43.50%
Education	13546832	6629915	48.94%	3497409	25.82%	10127324	74.76%
Health	10433090	2525565	24.21%	2693736	25.82%	5219301	50.03%
Labour	372945	125585	33.67%	41277	11.07%	166862	44.74%
Social Development	61722516	18475028	29.93%	15353557	24.88%	33828585	54.81%
Sport and Recreation South Africa	172336	60585	35.16%	47634	27.64%	108219	62.80%
Justice and Protection Services	9846694	861374	8.75%	2602396	26.43%	3463770	35.18%
Correctional Services	32348	11311	34.97%	6403	19.79%	17714	54.76%
Defence	8635529	545663	6.32%	2320840	26.87%	2866503	33.19%
Independent Complaints Directorate	72	24	33.33%	13	18.06%	37	51.39%
Justice and Constitutional Development	803017	221208	27.55%	199752	24.87%	420960	52.42%
Safety and Security	375728	83168	22.14%	75388	20.06%	158556	42.20%
Economic Services and Infrastructure Development	34811530	5549067	15.94%	8065685	23.17%	13614752	39.11%
Agriculture	1042387	209338	20.08%	400263	38.40%	609601	58.48%
Communications	968884	68788	7.10%	231332	23.88%	300120	30.98%
Environmental Affairs and Tourism	1388862	551151	39.68%	418217	30.12%	969368	69.80%
Housing	6483438	1398014	21.56%	2016801	31.11%	3414815	52.67%
Land Affairs	3806189	317423	8.34%	486845	12.79%	804268	21.13%
Minerals and Energy	2008633	264688	13.18%	600420	29.89%	865108	43.07%
Science and Technology	2299469	474141	20.62%	605540	26.33%	1079681	46.95%
Trade and Industry	2887190	330237	11.44%	839873	29.09%	1170110	40.53%
Transport	12293670	1745837	14.20%	2190766	17.82%	3936603	32.02%
Water Affairs and Forestry	1632808	189450	11.60%	275628	16.88%	465078	28.48%

1.1.1.1.1.1.1.1.2
Table 8 illustrates Departments’ with the highest Transfer expenditure at the end of the second quarter.

Table 8: Highest Transfer Expenditure to date

	Total Transfer Budget	First Quarter Trans Exp	% Trans Exp for 1^st Quarter	Second Quarter Trans Exp	% Trans Exp for 2^nd Quarter	Trans Exp to date	% Trans Exp to date
R'000
Public Service and Administration	409	3918	957.95%	71783	17550.85%	75701	18508.80%
Public Enterprises	581086	120041	20.66%	459996	79.16%	580037	99.82%
Public Works	1226310	475357	38.76%	547507	44.65%	1022864	83.41%
Government Communications and Information Services	93083	34278	36.83%	39150	42.05%	73428	78.88%
Education	13546832	6629915	48.94%	3497409	25.82%	10127324	74.76%

1.1.1.1.1.1.1.1.3
The department reflecting the highest percentage of transfer payments is Public Service and Administration. The Department transferred R70 million to the Government Employees Medical Scheme to enable GEMS to meet their financial obligations. A further transfer of R5 million was made to Public Corporations and private enterprises. National Treasury informed the Department of a further allocation of R75 million to be made in the adjusted budget.

The Department of Public Enterprises transfer budget is R581 million. In the budget speech the Minister of Finance announced that State owned Enterprises are eligible for capitalisation funds which would be deducted from the Contingency Reserve which was established in the new financial year 2006/2007. The Department would receive an additional R1.736 billion which had not yet been allocated. Transfer expenditure during the first half of the financial year was R580 million or 100% of the transfer budget. At the end of the second quarter of the 2005/06 financial year the Department spent only 0.5% of its transfer budget. However at the end of the previous financial year the Departments transfer expenditure had escalated to 99.9% of its transfer budget.

The Department of Public Works transfer budget is R1.226 billion. The Transfer expenditure during the first half of the financial year was R1.02 billion or 83.4%. This is a significant improvement on the previous financial year’s performance in transfers when the Department spent 45.7% of its transfer budget.

Government Communications and Information Services transfer budget is R93 million. Transfer expenditure during the first half of the financial year was R73.4 million, or 78.88%. This is a significant improvement on the previous financial year’s performance when the Department spent 54.6% of its transfer budget.

The Department of Education’s transfer budget is R13.5 billion. Transfer expenditure during the first half of the financial year was R10.1 billion, or 74.76%. This compares favourably with the pattern in the first six months of the previous financial year’s performance when the Department spent 75.6% of its transfer budget. At the end of the previous financial year the Department had transferred 99% of its budget.

Given this pattern, significant over or under expenditure of the transfer budget by the Department is statistically insignificant.


Table 9 illustrates Departments’ with the lowest Transfer expenditure at the end of the second quarter.

Table 9: Lowest Transfer Expenditure to date

	Total Transfer Budget	First Quarter Trans Exp	% Trans Exp for 1^st Quarter	Second Quarter Trans Exp	% Trans Exp for 2^nd Quarter	Trans Exp to date	% Trans Exp to date
R'000
Parliament	158061	0	0.00%	0	0.00%	0	0.00%
Land Affairs	3806189	317423	8.34%	486845	12.79%	804268	21.13%
Water Affairs and Forestry	1632808	189450	11.60%	275628	16.88%	465078	28.48%
Communications	968884	68788	7.10%	231332	23.88%	300120	30.98%
Transport	12293670	1745837	14.20%	2190766	17.82%	3936603	32.02%

1.2
Parliament’s transfer budget is R158 million. The amount for transfer to provinces and municipalities of R172 thousand had not yet been transferred. In addition an amount of approximately R157 million had not yet been transferred to non-profit institutions. This falls under Programme Three which allocates funds to deepen participatory democracy. Effectively then at the end of the second quarter no transfers had been made by Parliament.

The Department of Land Affairs transfer budget is R3.8 billion. Transfer expenditure during the first half of the financial year was R804 million or 21.13%. The reasons given by the Department for low levels of expenditure include: protracted negotiations with landowners, which delay the settlement of claims and land purchases; community and traditional leadership disputes which contribute to delays in deciding the restitution option and in processing claims; high staff turnover resulting in capacity constraints; and development planning taking longer than the settlement process. During the first six months of the 2005/06 financial year the Department spent 24.8% of its transfer budget and at the end of the financial year it spent 69.5%.

In the Committee’s opinion there is a significant risk of under expenditure and the Department should take urgent measures to arrest this pattern in transfer budget.

The Department of Water Affairs and Forestry’s transfer budget is R1.6 billion. Transfer expenditure during the first half of the financial year was R465 million, or 28% of the transfer budget. The functions in the Water Services programme have been shifted to Local Government and appropriate water service institutions. However the Committee has not yet been able to ascertain whether the funds have followed this shift. A further engagement with this department will be conducted during the next quarter. Clarity on the construction time frames for De Hoop Dam will also be sought during this engagement.

The Department of Communication’s transfer budget is R969 million or 30.98% of the budget which is R300.1 million. The low rate of transfer expenditure is linked to fewer transfer payments to entities, as a result of improved monitoring and control.

The Department of Transport’s transfer budget is R12.294 billion. Transfer expenditure during the first half of the financial year was R3.937 billion, or 32.02% of the budget. In the first half of the previous financial year the transfer expenditure was R3.1 billion or 30% of the budget. The current transfer budget reflects a slight increase compared to the first half of the 2005/06 financial year. At the end of the 2005/06 financial year the Department spent 98.3% of its Transfer budget. The possibility of significant over or under expenditure is therefore statistically insignificant.

4. Capital Expenditure (capex)

Table 10 represents departments’ overall Capital expenditure at the end of the second quarter of the 2006/07 financial year. Departments’ spent on average 23.68% of their Capital budgets at the end of the second quarter. They spent on average 2.52% of their Capital budgets during July, 7.26% during August and 6.95% during September. Average departmental expenditure on Capital budgets is much lower than Current 43.81% and Transfer expenditure which is 48.26%.

In the Committee’s opinion this gives rise for concern as the budget committed itself to using capex to promote economic growth, employment and so contribute to poverty reduction.


Table 10: Capital Expenditure to date

	Total Capital Budget	First Quarter Capital Exp	% Capital Exp for 1^st Quarter	Second Quarter Capital Exp	% Capital Exp for 2^nd Quarter	Capital Exp to date	% Capital Exp to date
R'000
Voted Amounts	5976025	589412	9.86%	825833	13.82%	1415245	23.68%
Central Government Administration	1629971	80876	4.96%	73186	4.49%	154062	9.45%
The Presidency	6277	126	2.01%	1835	29.23%	1961	31.24%
Parliament	22720	2384	10.49%	1257	5.54%	3641	16.03%
Foreign Affairs	397752	14178	3.56%	33447	8.41%	47625	11.97%
Home Affairs	594888	21766	3.66%	29726	5.00%	51492	8.66%
Provincial and Local Government	6058	477	7.87%	639	10.55%	1116	18.42%
Public Works	602276	41945	6.96%	6282	1.05%	48227	8.01%
Financial and Administrative Services	63196	9116	14.42%	10599	16.78%	19715	31.20%
Government Communications and Information Services	2017	704	34.90%	967	47.95%	1671	82.85%
National Treasury	12551	1066	8.49%	1550	12.35%	2616	20.84%
Public Enterprises	466	234	50.21%	900	193.14%	1134	243.35%
Public Service and Administration	2174	1163	53.50%	1230	56.57%	2393	110.07%
Public Service Commission	1582	170	10.75%	125	7.90%	295	18.65%
S A Management Development Institute	2389	891	37.30%	354	14.81%	1245	52.11%
Statistics South Africa	42017	4888	11.63%	5473	13.03%	10361	24.66%
Social Services	70192	7391	10.53%	16109	22.95%	23500	33.48%
Arts and Culture	4796	0	0.00%	0	0.00%	0	0.00%
Education	6537	1757	26.88%	1209	18.49%	2966	45.37%
Health	28042	3255	11.61%	5778	20.60%	9033	32.21%
Labour	22602	667	2.95%	8278	36.63%	8945	39.58%
Social Development	5640	1639	29.06%	720	12.77%	2359	41.83%
Sport and Recreation South Africa	2575	73	2.83%	124	4.82%	197	7.65%
Justice and Protection Services	3705961	414991	11.20%	614904	16.59%	1029895	27.79%
Correctional Services	1363888	79995	5.87%	197751	14.49%	277746	20.36%
Defence	298250	37303	12.51%	49716	16.67%	87019	29.18%
Independent Complaints Directorate	1800	578	32.11%	222	12.33%	800	44.44%
Justice and Constitutional Development	459024	131400	28.63%	96144	20.94%	227544	49.57%
Safety and Security	1582999	165715	10.47%	271071	17.12%	436786	27.59%
Economic Services and Infrastructure Development	506705	77038	15.20%	111035	21.92%	188073	37.12%
Agriculture	33059	16403	49.62%	18961	57.35%	35364	106.97%
Communications	6990	1317	18.84%	827	11.83%	2144	30.67%
Environmental Affairs and Tourism	14062	6540	46.51%	7001	49.78%	13541	96.29%
Housing	3933	527	13.40%	400	10.17%	927	23.57%
Land Affairs	55359	2486	4.49%	12299	22.22%	14785	26.71%
Minerals and Energy	4716	308	6.53%	1666	35.33%	1974	41.86%
Science and Technology	133854	9880	7.38%	1005	0.75%	10885	8.13%
Trade and Industry	8853	1429	16.14%	8160	92.17%	9589	108.31%
Transport	37936	767	2.02%	2341	6.17%	3108	8.19%
Water Affairs and Forestry	207943	37381	17.98%	58375	28.07%	95756	46.05%

1.2.1.1.1.1.1.1.1
Table 11 illustrates Departments’ with the highest Capital expenditure at the end of the second quarter.

Table 11: Highest Capital Expenditure to date

	Total Capital Budget	First Quarter Capital Exp	% Capital Exp for 1^st Quarter	Second Quarter Capital Exp	% Capital Exp for 2^nd Quarter	Capital Exp to date	% Capital Exp to date
R'000
Public Enterprises	466	234	50.21%	900	193.14%	1134	243.35%
Public Service and Administration	2174	1163	53.50%	1230	56.57%	2393	110.07%
Trade and Industry	8853	1429	16.14%	8160	92.17%	9589	108.31%
Agriculture	33059	16403	49.62%	18961	57.35%	35364	106.97%
Environmental Affairs and Tourism	14062	6540	46.51%	7001	49.78%	13541	96.29%

1.2.1.2
The Department of Public Enterprises spent the highest percentage of its Capital budget by the end of the second quarter. Capital expenditure during the first half of the financial year was R1.134 million, or 243.35% of the capex. In the budget the Minister indicated a further allocation for capex. The bulk of this money was spent on the upgrading of the security systems and audiovisual systems. At the end of the 2005/06 financial year Public Enterprises spent 88.3% of its Capital budget.

The Committee intends engaging the department in the next quarter to clarify the expenditure patterns.

The Department of Public Service and Administration’s capital budget is R2.174 million. Part of the increase will be used for finalising the Departments relocation. Capital expenditure during the first half of the financial year was R2.393 million, or 110.07% of the capex budget. During the 2005/06 financial year the Department overspent its capital budget by 87.8% or R3.7 million.

The Department of Trade and Industry’s capital budget is R8.853 million. Capital expenditure during the first half of the financial year was R9.589 million, or 108.31% of the capex budget. The Department spent 32.9% of its capital budget at the end of the 2005/06 financial year.

It would seem as if the under expenditure has been arrested through strategic planning however the Committee will request a full explanation from the Department in the next quarter.

The Department of Agriculture’s capital budget is R33 million. Capital expenditure during the first half of the financial year was R35 million, or 106.09%. The Department spent 222.1% of its capital budget at the end of the 2005/06 financial year. It overspent its R44 .6 million budget by R56 million.

In the Committee’s opinion the department’s pattern of capital expenditure will echo the previous year’s over expenditure. In the next quarter the Committee intends engaging the Department to clarify the reasons for this pattern.

The Department of Environmental Affairs and Tourism’s capital budget is R14.062 million. Capital expenditure during the first half of the financial year was R13.5 million, or 96.29% of the budget. The Department spent 100.1% of its capital budget by the end of the 2005/06 financial year.

The current expenditure pattern at the end of the second quarter gives rise for concern as there is a risk of over expenditure. The Committee intends engaging with the Department in the next quarter to clarify this pattern.

Table 12 illustrates Departments with the lowest Capital expenditure at the end of the second quarter.

Table 12: Lowest Capital Expenditure to date

	Total Capital Budget	First Quarter Capital Exp	% Capital Exp for 1^st Quarter	Second Quarter Capital Exp	% Capital Exp for 2^nd Quarter	Capital Exp to date	% Capital Exp to date
R'000
Arts and Culture	4796	0	0.00%	0	0.00%	0	0.00%
Sport and Recreation South Africa	2575	73	2.83%	124	4.82%	197	7.65%
Public Works	602276	41945	6.96%	6282	1.05%	48227	8.01%
Science and Technology	133854	9880	7.38%	1005	0.75%	10885	8.13%
Transport	37936	767	2.02%	2341	6.17%	3108	8.19%

·
The capital budget of the Department of Arts and Culture is R4.8 million which remained unspent at the end of the second quarter. The Departments entire capital budget is intended for machinery and equipment. The Department spent 100.3% of its capital budget at the end of the 2005/06 financial year. In the Committee’s opinion there does not appear to be any significant risk of under expenditure however an explanation will be sought in the next quarter.

The Department of Sport and Recreation South Africa capital budget is R2.575 million. Capital expenditure during the first half of the financial year was R197 thousand, or 7.65% of the budget. The Departments’ entire capital budget is intended for machinery and equipment. The Minister, in his budget speech indicated that the budget included the government’s investment commitments for the 2010 Soccer World cup. He added that “details of project allocations (had) not yet been finalised.”

The Committee intends engaging with the department in the next quarter in view of the envisaged increase in capital expenditure.

The Department of Public Works capital budget is R602 million. Capital expenditure during the first half of the financial year was R48 million, or 8.01% of the budget. The Department has spent only R34 million of R493 million allocated to buildings and other fixed structures. During the first six months of the 2005/06 financial year the Department had not utilised its capital budget. However, at the end of the previous financial year the Department reflected an over expenditure of R96 million or 36.7%.

In the Committee’s opinion this expenditure pattern gives rise for concern because in the first half of the previous financial year significant expenditure was overtaken by 36.7% over spending at the end of the financial year. The Committee intends to engage with this department on this issue in the next quarter.

The Department of Science and Technology’s capital budget is R134 million. Capital expenditure during the first half of the financial year was R10.9 million, or 8.13% of the budget. The R133 million under the line item of buildings and other fixed structures has been allocated to the Department for the construction of a new head office.

The Department of Transport’s capital expenditure during the first half of the financial year was R3.108 million, or 8.19% of the budget. The Department has spent R2.8 million or 8% of R34.8 million allocated to buildings and other fixed structures. During the first six months of the 2005/06 financial year the Department spent R1.7 million or 11.7% of its R14.5 million capital budget. At the end of the previous financial year the Department spent R25.4 million, over spending by R10.9 million or 75%.

In the Committee’s opinion this expenditure pattern gives rise for concern because in the first half of the previous financial year significant expenditure was overtaken by over expenditure of 75% at the end of the financial year. The Committee intends engaging with the department on this issue in the next quarter.

5. Conclusion

Departments spent on average 43.61% of their current budgets, 48.26% of their transfer budgets and 23.68% of their capital budgets by the end of the second quarter of the 2006/07 financial year. This translates to a total expenditure of R120.2 billion or 46.24%. Based on the cash flow projections provided by National Treasury 28 Departments spent less than their projections and six over spent on their planned projections for the spend during the second quarter. As pointed out earlier in this report averages can be misleading. Having studied the expenditure patterns the analysis conducted by the Committee has identified several areas of concern.

The Committee is of the opinion that the slow expenditure on capex by Departments, while there my be valid reasons, is an unacceptable pattern given its priority in promoting economic growth, employment and so contribute to poverty reduction. The Committee feels that there is a need for Departments to develop far more robust measures to track its expenditure. The Committee notes that transfers while technically reflected as expenditure out, it is important to conduct oversight to ascertain whether money transferred was actually spent. In the third quarter the Committee will be doing far more detailed analysis in this area and engaging the respective departments on this issue.

The second quarterly expenditure patterns provide an early warning alert to those departments that are running the risk of either under or over expenditure. This enables departments to take corrective action. It also enables Parliament to conduct more effective oversight which is intended to increase accountability and transparency in the budget process.

Sources

Budget Speech of Minister Trevor Manuel 2006/2007
Statements of National and Provincial Revenue, Expenditure and Borrowing, July 2006, National Treasury.
Statements of National and Provincial Revenue, Expenditure and Borrowing, August 2006, National Treasury.
Statements of National and Provincial Revenue, Expenditure and Borrowing, September 2006, National Treasury.
Cash Flow projections 2006/07 financial year.
Estimates of National Expenditure 2006