JOINT BUDGET COMMITTEE
REPORT ON THE MEDIUM-TERM BUDGET POLICY STATEMENT (MTBPS) NOVEMBER 2007
“The
purpose of the MTBPS is to invite Parliament to comment on and influence the
shaping of the budget” - The
Hon. T Manual: Minister of Finance (Presentation to the Joint Budget Committee
3110007)
The Minister of Finance, the Hon. Trevor Manuel, tabled the
Medium-Term Budget Policy Statement (MTBPS) in Parliament on 30 October 2007.
The MTBPS contains the broad economic outlook for the coming three years,
provides information on budget allocations and priorities over the same period
and indicates how intended expenditure will be financed. In tabling the MTBPS,
government met its obligation under Section 28 of the Public Finance Management
Act (PFMA), which requires Treasury annually to table multi-year budget
projections, the Medium-Term Expenditure Framework (MTEF).
The
Joint Budget Committee (JBC) is mandated to consider and report on the MTBPS
with the exception of those sections dealing with the macro-economic framework.
The Committee therefore considers the distribution of available resources
against stated government priorities.
The
JBC has interpreted its mandate to mean that it should consider:
I.
The
likely impact of expenditure allocations in the MTBPS and whether they
adequately respond to government’s stated policy priorities and;
II.
Whether
departments are making the tough choices required: tailoring their planned
expenditure to priorities, choosing effective strategies and seeking efficiency
in implementation.
In
conducting oversight the JBC has attempted to examine spending proposals across
government. Time constraints this year required the Committee to focus on
national departments with specific budgeting challenges as identified in recent
Committee proceedings and those that were expected to receive substantial
increases over the medium-term. These include the Departments of Education,
Sports and Recreation, Transport, Housing, Public Enterprises, Provincial and
Local Government, Agriculture and Land Affairs.
The
JBC accordingly arranged hearings with these departments on the following
themes:
I.
Expenditure
trends and audit outcomes
II.
Mandate
and medium-term policy priorities
III.
Significant
MTEF allocations: planning and risk assessments
IV.
Personnel
establishments and vacancy ratios
V.
Skills
development and training programmes
VI.
Infrastructure
and maintenance budgets
VII.
Transfer
and grant management
VIII.
Monitoring
and evaluation systems
In
preparation for the MTBPS hearings departments were requested, to make written
submissions to the Committee on the aforementioned themes, with the exception
of the additional allocations announced in the MTBPS (Item III above). In
addition, the Committee requested that the Parliamentary Research Unit submit a
brief on the financial performance of each of the departments. The JBC also
invited inputs from various public interest organizations on the government
expenditure and projections.
Following
the introduction of the MTBPS and an engagement with the Minister of Finance
and National Treasury, the Committee held departmental hearings from Wednesday
31 October to Friday 02 November. In
keeping with JBC practices, Members of relevant portfolio and select committees
were invited to attend and participate in the hearings. The participation of
committees remains fundamental to Parliament’s engagement with the MTBPS as
they are able to bring detailed knowledge of departmental policies and
practices to proceedings and thereby ensure a comprehensive review.
This
report
is divided into three sections. The first reflects on the broad emphasis and
revisions to the MTEF as announced in the MTBPS, the second focuses on specific
departments while the third sets out the JBC’s recommendations.
National Treasury has continued to improve the transparency
of the budget process which is shown in the revised format of departmental
budget bids, costing and departmental implementation plans. However recurrent
and non-recurrent expenditure should be clearly identified and steps taken to
improve the allocation and monitoring of conditional grants.
The Committee has also taken
cognizance of progress with Performance Information Framework as part of the
Government-Wide Monitoring and Evaluation System (GWM&E). In the
Committee’s view, optimal allocative efficiency can only be achieved if policy
outputs, outcomes and impacts are identified and continuously assessed. Consideration
should therefore be given to fast-tracking the implementation of the framework.
SECTION
ONE: MEDIUM-TERM EXPENDITURE FRAMEWORK 2007-2011
The
MTBPS indicates that government remains committed to combating unemployment and
poverty through accelerating the rate of economic growth and enhancing service
delivery. To achieve this, medium-term priorities focus on the implementation
of government’s Accelerated and Shared Growth Initiative (AsgiSA) and the Joint Initiative on Priority Skills Acquisition (Jipsa). Specific
national and crosscutting priorities include:
·
Investing in both economic and social infrastructure to facilitate
economic growth and access to basic services;
·
Improving education, health and other services to reduce poverty;
·
Enhancing job creation by supporting labour-absorbing industries and expanding
employment-intensive government programmes;
·
Improving the efficacy of police services and the justice system; and
·
Enhancing the effectiveness of economic and sectoral interventions
through the regulation of and support for business.
The JBC had previously asked for departmental baselines to
be reviewed. This has now been achieved. The 2007 MTBPS proposed that, together
with the R1.7 trillion already included in the departmental and provincial
baseline allocations, an additional R81.4 billion be added to the national
budget over the next three years. Of the additional R81.4 billion, R20 billion
is made available to compensate social grant recipients and government
employees for inflation, leaving R61 billion for new policy initiatives and
enhanced service delivery. These resources are mainly allocated in the final
year of the MTEF.
While the JBC recognizes the prudence
of allocating funds in the outer years of the MTEF appropriate support should
also be given to addressing short term needs. The impact of high inflation on
the poor is also of concern. Although the proposed adjustments to the social
grants and salaries will partially address this issue, the Committee is of the
view that additional measures are required to protect the poor from current
inflationary pressures.
The
MTBPS reflects a gradual moderation in public spending from over 9 per cent a
year to approximately 6.4 per cent – which remains above estimated economic
growth. Given the moderation in public spending the JBC stressed that resources
are directed to those departments and programmes which have the highest social
returns and which have the greatest impact on reducing unemployment and
poverty. In terms of the proposed allocation, the Committee remains concerned
about the persistent under-spending by certain key departments. In the last
financial year, the national and provincial departments under-spent by
approximately R7 billion. If this level of under-spending is not addressed,
government will only manage to spend half the additional funds proposed for
2008/09.
The
JBC supports the planned efficiency savings of R2.3 billion over the next three
years although the Committee considers this a conservative target. The Committee
was disappointed that many departments found it difficult to identify avoidable
expenditure or provide details of how they aimed to achieve savings. Given the
targets indicated in the MTBPS, the Committee also expects National Treasury to
develop a mechanism for tracking progress with this initiative.
Infrastructure and Capital Investment
Public infrastructure and capital
investment are fundamental to meeting government’s economic and poverty
reduction objectives, specifically AsgiSA and the hosting of a successful 2010
World Cup. The MTBPS reveals a strong emphasis on capital and infrastructure
investment over the medium-term, with economic services the fastest growing sector at 11.7
per cent and capital the fastest category of expenditure at 16.7 per cent.
As
indicated, some infrastructure investments will be supported through the budget
while others are financed directly by the State-Owned Enterprises (SOEs). A
large share of intended public investment has been earmarked for the built
environment to support much-needed housing development and the upgrading of
transport systems. The funds for the development of health and education
facilities will also assist in addressing backlogs although further investment
in these sectors will be required. The
MTBPS also highlighted the need for the construction of additional power
generating and distribution capacity. The JBC believes that sustainable energy
supply is critical for industrial expansion and economic growth and therefore
considers this a priority.
While
expanded infrastructure is a prerequisite for sustained growth, the challenge
for a developmental state will be to raise the labour-intensity component of
infrastructure projects to create jobs and transfer skills. It is imperative that the relatively high
risks and hidden costs in infrastructure are reduced and more effectively
monitored with adequate provision made for maintenance. Departments which
continue to experience difficulties in maintaining asset registers and capital
assets, as highlighted in audit reports, should implement corrective steps. In
line with other delivery targets, government should establish timeframes to
eliminate this chronic performance deficit.
Public Service Capacity and
Skills Development
The
JBC believes that while the expansion of the fiscus is positive, expanded and
improved service delivery is only possible if the public service develops
capacity to absorb and spend these resources effectively. It is therefore
important to ensure that departmental strategic plans include detailed yet
pragmatic steps to fill vacancies and address human resource challenges within
a particular period. In addition, the Committee urges departments to develop
specific and innovative training measures as well as safeguard against the loss
of institutional memory. Such measures should be reflected in annual
reports. Departments should also
reconcile the actual vacancies against the records of PERSAL.
The JBC noted the additional
financial resources allocated to the South African Management and Development
Institute (SAMDI) over the MTEF. It is impetrative that SAMDI complete its
transformation process and focus on a full roll-out of its training programmes.
However, the underperforming Sector Education and Training Authorities (Setas) must
be identified and the financial performance and functioning improved so that
the Seta system can progressively meet the skills deficit and thereby improve
government capacity.
SECTION
TWO: MTEF SELECTED NATIONAL DEPARTMENTS
The Department of Education (DoE) has generally managed to
spend within budget. The DoEs budget has grown over recent years and this trend
was again evident in the MTBPS. Together with growth in the Higher Education Programme,
provincial education departments are also expected to receive a further R8
billion. The infrastructure conditional grant is also revised upward by R2.7
billion and the NSNP allocated a further R1.5 billion.
In its engagement with the JBC, the DoE indicated that it
was positive about additional MTBPS allocations, especially in terms of the
R2.7 billion made available for capital infrastructure. The Committee
nevertheless implores the Department to address the challenges faced with
infrastructure spending, the monitoring of funds transferred to the Higher
Education Institutions, and the financing of Learner Teacher Support Materials
(LTSM).
The proposed R2.7 billion made available for school
infrastructure might involve significant risks. Constraints and escalating
costs within the construction industry and the limited planning and
implementation capacity in the some provinces may constrain delivery. In
addition, the Department was unable to utilize donor funds provided for the
construction of new schools and the reasons for this must be submitted to the
relevant parliamentary committees.
The JBC expressed serious concerns about the ongoing
problems with the implementation and discriminatory nature of the no-fee school policy among
the poor. There is a need to address
the disparities in the policy as well as consolidate funding arrangements and
monitoring systems in the short term. Given the sustained financial support,
Higher Education Institutions must also ensure that they prioritize the tuition of
scarce skills and thereby contribute to the economic development.
The DoE should develop innovative ways of reaching out to
more beneficiaries with the resources allocated e.g. the centralization of LTSM
provisioning with decentralization of certain budgeting aspects like printing.
Implementation of monitoring systems and enhanced co-ordination with other
departments and spheres of government must also be prioritized.
Department of Sports and Recreation
The
Department of Sports and Recreation (SRSA) has had ongoing problems with
spending its operational budget, mainly due the high vacancy rate of 50 per
cent. The low expenditure rate for the Mass Sport and Recreation Grant, at 27
per cent for April-August of the current financial year, was also recorded. In
addition, the Department has experienced problems with financial management
including a lack of documentation and records for capital assets and payments
for performance bonuses without the requisite job evaluations as prescribed by
the Public Service Regulations.
Due to the construction of the World Cup stadiums and
certain functional shifts during the last financial year, the SRSA’s budget has
risen dramatically. Although the MTBPS
does not propose any specific increases, the Committee noted the additions
proposed for the Municipal Infrastructure Grant (MIG), a part of which the
Department would prefer to have ring-fenced for the development of sports
facilities.
The
Department highlighted reforms to the Joint Mass Participation Programme and
the establishment of a Monitoring and Evaluation Sub-Directorate,
designed to improve expenditure management. The JBC looks forward to a report
on the effectiveness of these initiatives. The Committee also noted the current
assessment of sporting facilities across the country which should assist the
Department in understanding the extent and cost of the infrastructure backlog.
Measures to ensure the sustainability of the World Cup
Stadiums after 2010 should be incorporated in the project planning. In addition,
the privately owned stadiums must have contractual obligations to ensure
maximum public returns. The Committee requested the Department to submit the details of these
contracts to the relevant parliamentary committees.
The JBC believes that disciplinary action should be taken
to address the irregular payment of bonuses which did not comply with the Public Service Regulations.
The Committee was not convinced that the portion of the Mass
Sport and Recreation Grant allocated for the month of December, when the
schools are on holiday, would be effective. The Department’s resources must be
used and directed to achieve optimum benefit.
In the Committee’s opinion the current lack of capacity and
robust monitoring systems may constrain effective and inefficient expenditure
by the Department.
Department of Transport
The Department of Transport (DoT) has experienced ongoing
problems with spending its operational budget over the past two financial
years. Under-expenditure during 2006/07 was attributed to delays in the
implementation of the Taxi Recapitalisation programme and continuous vacancies.
In accordance with government priorities, the DoT’s budget
has grown strongly from R6 billion in 2003/04 and is estimated to reach R21
billion by 2010. The Department was allocated R15.8 billion for the 2007/08 of
which 95 per cent was allocated to transfers and subsidies which included
support for various public entities and the other spheres of government.
The Department indicated that its current focus was on developing
infrastructure and systems associated with the World Cup but that it intended
to reprioritise after 2010 to improve rural transport systems. The
Department was of the view that freight transport was important for economic
growth and should therefore remain a priority. The JBC
emphasized that adequate provision for rural road networks must be provided at
provincial level through the equitable share. The
Committee was surprised to learn that the less than five kilometre rail link
between Khayelitsha and
The JBC
noted the development of a Public Transport Strategy and Action Plan designed
to progressively integrate the different transport modes but stressed that this
must be accompanied by measurable objectives, enhanced capacity, monitoring and
intergovernmental co-operation. In addition, although
progress with the Taxi-Recapitalization programme has been recorded,
further efforts are required to integrate the taxi industry with the transport
framework. The Committee also noted the current uncertainty
surrounding the oil price and calls on government to accelerate the integration
of the transport system to reduce any negative impacts this may have on the
poor and the economy.
Regarding
DoT operations, the JBC expressed concern at the absence of clear strategies to
realize cost efficiencies and spending on activities such the October Transport
Campaign, which where not included in the budget. Given government’s
medium-term priorities and the importance of transport for economic
development, the Committee feels that further measures are required to address
the vacancy rate and capacity constraints.
The
budget of the Department of Public Enterprises (DPE) has grown strongly over
the past several years due to the recapitalization of the State Owned
Enterprise (SOEs). Although the Department’s operational expenditure has
generally been within budget, the JBC has noted ongoing concerns over the
financial risks and sustainability of certain enterprises.
In 2007/08 the Department was allocated R1.06 billion,
of which R933 million was for transfers. This was increased by R2 billion through
a Special Adjustments Appropriation for Denel, Alexkor and the Pebble Bed
Modular Reactor (PBMR). The DPEs transfer budget is expected to decline over
the medium-term although further state investments in the SOEs are expected.
The
JBC recognized the serious implications of the financial sustainability
challenges which continue to hamper the SOEs and the difficulties associated
with aligning SOE recapitalization bids with the budget process. The Committee
believes that the Department must enhance its risk management systems to
determine the long-term viability of the enterprises and their value to the
developmental state and policy priorities. The Committee is also of the view
that certain entities could be profit-making and self-sustaining but continue
to rely on government support. Furthermore the Committee feels that SOEs have
an important role to play in providing technical training and aims to seek
clarity of their contribution to meeting the national skills deficit.
The
DPE confirmed its recent restructuring into six programmes to improve
operational efficiency and delivery. The Department also has an active training
and internship programme. The JBC established that an analysis of departmental
vacancies had recently been concluded and progress had been made in recruiting
staff. However, the Committee identified continuing difficulties in attracting
and retaining scarce skills in a competitive environment and the impact this
has on the Department’s performance.
Department of Agriculture
The
Department of Agriculture (DoA) was allocated R2.2 billion for the current
financial year but has spent only R968 million in the first six months. Yet the
MTBPS proposes an additional R500 million for the Comprehensive Agricultural
Support Programme (CASP) Grant over the next three years. The JBC wishes to
encourage the Department to ensure more effective expenditure of these funds.
The
Department acknowledged that agriculture’s contribution to GDP should be
between 9 and 12 per cent of GDP but was currently only 3 per cent. Given this
underperformance the JBC calls on the Department to take urgent steps to
reverse this trend to ensure food security and accelerate job creation.
The
Department explained that its ability to support new entrepreneurs relied on
the provision of appropriate extension services. The norms and standards
developed will assist in overcoming constraints but the lack of capacity
remains a concern. The JBC therefore recommends that the Department implement
innovative measures, including the establishment of training centres and
mentorship programmes, to address this issue.
The JBC has
questioned the ability of the Department to prioritize its budget given the
considerable under-spending and shifting of funds from compensation of
employees. The Committee also noted that there is very little correlation
between the Department of Agriculture and the Department Land Affairs to
achieve food security, alleviate poverty and create employment in rural areas.
The JBC remained
unconvinced that the DoA was adequately addressing its mandate specifically in
terms of contributing to the economy and ensuring food security. The Committee
requested a submission on these matters which was not made within the required
timeframe.
Department of Land
Affairs
The Department of Land Affairs (DoLA) has
experienced various budget challenges over recent years. . The DoLA’s budget
has grown significantly from R3.8 billion in 2005/06 to R5.6 billion for the
current year but expenditure is projected to slow over the MTEF.
Despite the adoption of a proactive new
redistribution policy, the Department confirmed its inability to meet the 30
per cent redistribution target by 2014. The JBC believes that drastic steps should
be taken to overcome this challenge and the Department should employ the full
power of the relevant legislation.
The
JBC also established
that significant funds were required to finalize all 5 122
outstanding land claims. The Department indicated that it had exceeded its
planned budget and argued that if additional assistance was not provided it
would not meet its target date of March 2008. While the Committee recognized
that additional financial resources may be required, the Department should also
make every effort to finalize these claims. The JBC further asserted that, for
the resettlement programme to meet its objectives, post settlement support must
be intensified and expedited. In the Committee’s opinion foreign funds have
unfortunately heated up the speculative land market.
Despite
land programmes being prioritized, the Committee questioned the ability of the
DoLA to achieve operational efficiency given the AGs qualifications, the
vacancy rate and the shifting of funds. The Department received a qualified audit for
the past financial year due to deficiencies in asset management and lease land
revenue and the lack of an approved human resource plan
The
Committee requested an additional submission on various matters which was not
made within the required timeframe.
Department of Housing
The Department of Housing (DoH) budget has grown
strongly in recent years from R5.2 billion in 2005/06 to R8.8 billion for the
current financial year. In accordance with government
priorities, the MTBPS reveals a strong emphasis on the Housing and Community
Development over the medium-term with growth of 14.6 per cent. The MTBPS
specifically proposes an additional R2.2 billion for the Integrated Housing and
Human Settlement Development Grant. The DoH explained that, in addition to the R2.2 billion proposed for the Integrated Housing and Human
Settlements Grant, the Department planned to spend R35 billion on the housing
subsidies over the medium term.
The
JBC believes that the lack of capacity in municipalities and certain provincial
departments e.g. Eastern Cape and Mpumalanga, will inhibit spending and housing
delivery. The DoH must therefore focus on increasing its monitoring capacity
over the medium-term. Specifically, the Department must distinguish between
units under construction, units finalized and subsidies approved. The Municipal
Infrastructure Grant and subsidy allocations must also be clearly linked.
The DoH intends to use large
construction companies to accelerate housing delivery. The JBC pointed out that
the Department had previously failed to pay some smaller contractors within the
agreed time and this had constrained delivery. The JBC therefore recommends
that the Department include, in their contractual agreements with large
companies, an obligation to include smaller businesses.
The JBC also
noted significant shifting of funds and virements, especially from compensation
of employees. The Department explained that these adjustments occurred due to
restructuring. The Committee observed that such shifting should not then
reoccur. The lack of human resource plan was also a very serious matter
especially in light of the capacity constraints and vacancies.
The
Department failed to adequately respond to the Committee’s concerns and was
consequently requested to prepare and submit a written response.
CONCLUDING REMARKS
The JBC looks forward to strengthening its oversight
engagement with departments on the MTBPS and other budget processes. All
departments had been asked to submit written responses where the time allocated
for the hearings was insufficient or where they had not responded adequately. Unfortunately
the Departments of Sports and Recreation, Transport, Agriculture and Land
Affairs did not submit written responses as requested.
The Co-Chairpersons wish to thank the staff, Members of the
Committee and the Parliamentary portfolio committees of the departments engaged
who participated in the hearings. The participation of portfolio committees has
contributed to a more robust oversight process.
The Joint Budget Committee, having deliberated on the MTBPS,
makes the following recommendations:
6.
Medium-term policy priorities
necessitate improved planning and capacity in the public service. Departments
should therefore develop innovative recruitment, retention and training
strategies. This should include:
§
The institutionalization of
departmental apprenticeships and learner programmes to employ unemployed
graduates;
§
The further alignment of
tertiary institution curricula to meet the skills required by the economy in a
developmental state;
§
The provision of technical
training by the SOEs and state agencies to both the public and private sectors.
7.
The JBC believes that such
measures should help overcome the skills shortages and vacancy rate and improve
public service capacity.
Report to be
considered.
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LL Mabe (NA) Mr
BJ Mkhaliphi (NCOP)
8 November 2007