Report of the Joint Budget Committee on 2007/8 National Budget, dated 09 March 2007:

1. INTRODUCTION
The Minister of Finance tabled the Budget for 2007/8, including the MTEF for the 2008/9 and 2009/10, on 22 February 2007.The Committee’s mandate regarding the Appropriation Bill requires it to consider the allocation of available financial resources against government policy. This mandate is distinct from that of the Portfolio and Select Committees on Finance, which deliberate on the macro-economic, fiscal and intergovernmental dimensions of the Appropriation Bill respectively.

The Committee has interpreted its mandate to mean that it should consider the following:
The expected impact of expenditure allocations on the effectiveness and efficiency with which departments can respond to government’s stated policy priorities; and
Whether departments are making the tough choices required, tailoring their planned expenditures to priorities, choosing effective strategies and seeking efficiency in implementation.

After studying tabled documents and conducting hearings the Committee also reviewed earlier processes on the Budget, including the Medium Term Budget Policy Statement during it’s deliberations on the Appropriation Bill.

2. THE PROCESS
The Joint Budget Committee, the Portfolio and Select Finance Committees held joint hearings on the budget that started with the briefing by the Minister, the Director General and the Commissioner of Revenue Services (SARS). Between 27 February and 5 March 2007 the Committee received further submissions from National Treasury and SARS, economists and a tax specialist, organised labour and business as well as the Department of Transport and Department of Health. Due to changes in parliament’s programme the Departments of Sport and Recreation and Public Service and Administration were unfortunately unable to attend. These submissions dealt with the full range of issues raised in the Appropriation Bill 2007/8, as well as other related issues. Specific emphasis was given to issues of expenditure, infrastructure, capacity/skills and human resources as these have been identified as the major focus areas for governmental spending.

The capital expenditure budget in government has seen a sharp increase over the recent period. Capital expenditure, which is currently directed towards massive infrastructure development, provides government with the opportunity to grow the economy at a higher scale to reduce poverty and create jobs. As such, the 2010 World Cup provides government with a valuable opportunity to invest in development, to address the priority of poverty alleviation.

Having applied the mandate to the Appropriation Bill and after applying its mind, the Committee has made several recommendations.

3. MACRO-ECONOMIC ISSUES
Although macro-economic issues do not fall within the mandate of the Joint Budget Committee, their impact on financial management and expenditure requires the JBC’s consideration. Increasing efficiency of revenue collection has caught up with the State’s capacity to spend. The present surplus results from revenue collection outstripping projections as reflected in the Budget Review of 2006. This development provides an opportunity for allocating more funds to infrastructure, social services and crime prevention. The committee is of the opinion that the current capacity challenges may constrain the efficient, effective and economical expenditure of these increased funds.

4. SUBMISSIONS TO THE JOINT BUDGET COMMITTEE
Briefing by the National Treasury
The Minister of Finance and the Director-General (DG) of the National Treasury briefed the Committee on the 2007/08 Budget on 22 February 2007.

The minister and his team highlighted the key aspects of the Budget 2007/08. He noted that increased revenues and steadily improving economic growth enabled greater expenditure in key policy areas, which included investment in social and economic infrastructure, improvement in the education and health services, the modernisation of justice and administration services as well as long-term investment in social security. Critical concerns raised by members included the design of the social security reform, methods to improve the current shortage of skills needed for economic growth and the need to improve export performance. Concerns were also raised over the continued inaccessibility and lack of integration of transport services, despite existing and planned improvements in transport infrastructure.

National Treasury stated that government expenditure had grown by 9% in real terms, due to the steady growth in revenue collection. This led to an improved fiscal position and a recorded surplus for the current financial year. The committee welcomes this improved position resulted in a net tax relief of R12.4 billion and the abolition of retirement fund tax. Greater investments in health and education to improve the skills capacity and improved remuneration of teachers and health workers are also welcomed.

The new reforms would need to include unemployment benefits, disability and death benefits, and savings and pension would be based on a standard payment log of 15 to 18% percent of income of all workers in the formal employment sector. A wage subsidy would be introduced for low-income earners to encourage employment creation and the improvement in the working and living conditions of low-income earners. This would offset the social security contribution of this group. The total cost of this system would be around R20 to R30 billion.

The Impact of the Allocations of the Division of Revenue
The recommendations by the FFC, and the responses thereto by the National Treasury, were considered by the JBC in respect to the Division of Revenue 2007 and taken into account as they related to the Appropriation Bill. The Division of Revenue aim to strike two critical balances: one between executive authorities and administration and the other between executive authorities across spheres. The JBC also noted the recommendations that government did not implement. The JBC believes it is critical that the confusion over the concurrent functions and responsibilities of provincial governments and municipalities should be speedily resolved. There is also a need for greater coordination between spheres of government as well as an improvement in the monitoring and spending of conditional grants.

National Treasury briefed the Committee on the DoR and the 2010 FIFA World Cup Stadiums Development Grant, and the Bulk Infrastructure Grant. Clauses were also refined to facilitate the project registration of the Municipal Infrastructure Grant.

Efficiency Group Briefing
The Efficiency Group’s submission focussed on taxation, which is being dealt with by the Portfolio Committee on Finance. The Efficiency Group highlighted that the increase in social expenditure in health, social development, education and housing stood at 43% in real terms in 1994 and has increased to 50% in this budget, which represents a significant increase. it further noted that this increase with the significant reduction in debt has increased funds available for public expenditure.

Bureau for Economic Research (BER) briefing
Bureau for Economic Research stated that there were sound fiscal finances and there were generally stable expenditure and tax ratios, implying that there were no dramatic fiscal effects. Attention was being given to the issue of savings and Government’s own savings were positive. There was some evidence of delivery in terms of infrastructure spending, but it needed to be stepped up. On the downside, the combination of a ‘dovish’ monetary policy and a ‘stable’ fiscal policy at this point may not be enough to address macro-economic imbalances reflected in the current account, which implied risk.

Industrial Development Corporation (IDC) Briefing
The Industrial Development Corporation stated that domestic demand had been a key driver behind the sector’s recovery in the past three years, mainly due to buoyant consumer spending and manufacturers had increasingly switched to the lucrative domestic market. The remarkable recovery in South Africa’s overall economic performance since 1994 had not translated into significant job creation in the formal non-agricultural sectors of the economy. The economy had become less labour-intensive over the years, although some reversal in this trend had been observed in more recent years.

The Impact of Issues of Taxation
The Portfolio Committee on Finance is dealing with the briefing made by Mallinicks and BUSA due to its focus on macro-economic issues. In the Committee’s opinion the resulting increased revenue arising from economic growth and robust collection will be utilised by government to increase expenditure in prioritised areas.

Department of Transport
The Department stated that the economy is growing and as part of a concerted commitment towards the 2010 World Cup and the expansion of public transport, a sharp increase in capital expenditure has been planned. The department placed an emphasis on the revitalisation, maintenance and expansion of existing and new infrastructure. The committee stressed the importance of ensuring that the infrastructure development creates a lasting legacy beyond 2010. In order to address commodity price concerns, the department has, together with the Department of Trade and Industry put macro-economic processes in place around the acquisition of materials. Other strategies include improving local manufacturing to circumvent some costs; local assembling; as well as securing up-front commitments where bulk purchases are to be made.

On the issue of the alignment between government departments to maximise the utilisation of funds, the department confirmed that interdepartmental coordination and the cluster system is followed. These measures have brought about much closer cooperation between various departments, although this must be done at an accelerated pace. The committee raised its concern around the low integrated approach between departments in service delivery.

Key policy areas of the Department of Transport regarding infrastructure
World Cup support: public transport infrastructure
Scaling up of EPWP in the road sector with a budget
Improvement of strategic secondary road network
Regional road infrastructure development
Passenger rail
South African National Road Agency

The department expressed its satisfaction with the budget, which shows a 54% increase. Furthermore it raised the issue of the lack of the skills needed in order to implement some of its key priorities.

The JBC considered the following:
In terms of transfer expenditure the department is doing reasonably well and outcomes are dependent on the implementing agencies such as provinces, municipalities among others
In this regard JBC is concerned about the lack of capacity of the implementing agencies to spend
The JBC further observed that the monitoring of implementing agencies by the national departments are minimal
The pace to meet the deadlines, in particularly the 2010 deadlines, may be hindered by lack of capacity
The EPWP are indeed labour intensive and as such creates jobs and develops skills

After considering the above observations the JBC believes it is important to monitor the expenditure challenges monthly, where possible and otherwise quarterly and when necessary obtain departmental briefings to assist in the committee’s oversight in these areas.

The Department of Health
The committee did not share the Department of Health’s optimism in regards to the pattern of accelerated expenditure in the last quarter, which led to a possible problem of fiscal dumping, notwithstanding the department’s point that March transfers have been moved to December.

The department stated that though hospital revitalization has improved in totality, funds allocated to revitalization are only sufficient to spend on projects that have already been awarded tenders. Among the challenges they face, are rollovers that are awarded too late for, as the DG stated, effective expenditure, this includes provincial transfers. Furthermore, the department assumed that the presentation of business plans would lead to the required allocation of funds; given the emphasis placed on providing business plans in previous years. The committee believes that the increase of funds without the capacity to spend effectively and efficiently is not the solution.

The JBC intends scrutinising the processes that led to these problems raised by the department, in a joint engagement with Department of Health and National Treasury, so that corrective measures can be taken to avoid a recurrence of these problems.

The department noted an increase in a conditional grant allocation for HIV/AIDS that led to more than 245 106 patients being treated in 2006/07 compared to the 28 393 treated in December 2004. The committee welcomed this improvement. The department made it clear that this figure is small, relative to the challenge the country is facing and pointed out that the demand for resources is greater than the supply and noted that the time will come when the system will not cope. The current policy requires that the department provide treatment to all those patients who present themselves and the DG noted the impact that the increasing numbers will have on the department’s medium term expenditure projections. However the department did indicate the role poverty plays and the importance of supporting medication with proper nutrition.

GENDER CONSIDERATIONS IN THE BUDGET
The JBC also considered how far women, who are the greater percentage of poor people, are directly taken into account in department’s allocations. In this respect the submission from the Community Agency for Social Enquiry was also considered when deliberating on the budgets. The Committee agrees that there are weaknesses in making linkages between the various steps of the planning, budgeting and monitoring processes.

The Department of Justice and Constitutional Development’s budget makes no mention of maintenance in the 2007/08 ENE. The sexual offences courts are not mentioned in the 2007/08 ENE apart from a target conviction rate, as in 2006/07, of 70%. The JBC believes that all departments and the EPWP, which is one of government’s key programmes to address poverty alleviation, should consider increasing their focus on women. The Department of Health vote in the 2007/08 ENE states that 7 795 caregivers were trained in HCBC in 2005/06, but does not state whether this was done as part of the EPWP. The Department of Social Development, which also supports HCBC as part of the social sector EPWP, provides no budget or performance figures on delivery in this area in the ENE.

The JBC identified two aspects of the 2007/08 budget which are particularly supportive from a gender perspective. Firstly, the increased attention to bursaries and increased salaries for teachers, nurses and social workers will benefit women because these areas of work are female-dominated. To date, the salaries paid to these workers have been far lower than for other jobs that require equivalent education and training. Secondly, the above-inflation increases in the social security grants will benefit women because it is they, disproportionately who benefit from the grant system. However the JBC remains concerned at the lack of gender disaggregation of targets and indicators in the Estimates of National Expenditure.

6. RECOMMENDATIONS
The recommendations focus on infrastructure and capacitation in its broadest sense.
Infrastructure
The national departments should strengthen their monitoring strategies on provinces, municipalities and the agencies
Parliament should prioritise oversight in all departments with significant infrastructure allocations which should furnish parliament with detailed plans with spending projections that are linked directly to timeframes and monitor and evaluate monthly expenditure trends and conduct robust on site oversight function particularly on the major projects

Capacitation
DPSA should monitor and evaluate the government’s current general personnel retention guidelines. It should also identify the existing limitations in addressing the current challenges that exist in obtaining and retaining strategic professional scarce skills
Departments should adopt innovative approaches within the parameters of the conditions of service
National Departments must provide uniform norms and standards and service delivery plans to monitor
Parliament welcomes increased allocations. The critical responsibility is for parliamentary committees to strengthen their oversight with a focus on value for money, sustainability of projects and impact on communities.

BRIEFINGS & SUBMISSIONS RECEIVED

National Treasury
Financial Fiscal Commission
Efficiency Group
Bureau for Economic Research
Industrial Development Corporation
Community Agency for Social Enquiry

Report to be considered