1. Report of the Joint Budget
Committee on Expenditure for the Second Quarter of the 2007/08 Financial Year,
dated 7 March 2008
The Joint Budget Committee, having considered government expenditure for the
second quarter of the 2007/08 financial year, reports as follows:
introduction
The Estimates of National Expenditure (ENE) of 2007 states that ...
“Medium-term budgeting is more than just numbers – it is about policy
prioritisation, planning and reaching agreement on spending plans that support
government’s objectives”.[1]
The Joint Budget Committee (JBC) hereby presents its “in-year” oversight report
in assessing the executive authorities and accounting officers’ actions of
implementing the allocated budgets to meet government objectives for the second
financial quarter of 2007/08: from 01 July to 30 September 2007.
“In-year” oversight is conducted through the interrogation of national
expenditure as published by National
Treasury in the monthly “Statement of the National Revenue, Expenditure and
National Borrowing” The statements are published by the National Treasury so as
to comply with the Section 32 reports of the Public Finance Management Act
(PFMA). The JBC expenditure review is intended to draw attention to spending
patterns of the national departments. It is important to note that the
underlying expenditure review is brought together prior the adjustments
allocation that were tabled by the Minister of Finance on
a
review of spending according to government clusters
The expenditure review below is arranged according to the functional
groupings of government departments, namely the (1) Central Government
Administration, (2) Financial and Administration Services, (3) Social Services,
(4) Justice and Protection Services, and (5) Economic Services and
Infrastructure Development.
central
government administration cluster
In the second quarter of 2007/08 financial year, it was observed that
the departments’ grouped under the Central Government Administration cluster
increased their total spending relative to the first quarter of the year under
review. This is reflected in Figure 1 below:
Figure 1 indicates that the most increased spending was achieved by the
Department of Provincial and Local Government (DPLG), which managed to spend
49.67 percent of its budget in the second quarter (relative to 5.41 percent
total spending in the first quarter) of 2007/08. The Department of Public Works spent 44.51
percent of its allocated budget in the second quarter (relative to 23.73
percent in the first quarter).
The second quarter spending in this cluster has much increased in relation to
the first quarter. The total spending of the cluster was 46.11 percent in the
second quarter (relative to 9.09 percent in the first quarter). However, the Committee was not satisfied with
the uneven spending pattern and the significant variations between the first
quarter and second quarters.
financial
and administration services cluster
Most of the departments in the Financial and Administration Services
cluster increased their total spending in the second quarter except for the
Government Communications and Information Systems (GCIS): GCIS spending
decreased from 30.69 percent in the first quarter to 25.68 percent in the
second quarter. The GCIS is primarily responsible for setting up and
consolidating a government communication system that ensures that the public is
informed about government’s policies, plans and programmes.
The total spending of the cluster nevertheless increased to 35.03 percent in
the second quarter (relative to 21.87 percent in the first quarter). This is
illustrated in Figure 2 below:
social
services cluster
Half of the departments grouped under the Social Services cluster
managed to increase their spending in the second quarter of 2007/08 as
reflected in Figure 3 below:
The three departments that increased their spending include the Department of
Arts and Culture (from 25.07 percent in first quarter to 34.79 percent in
second), the Department of Health (from 23.81 percent the first quarter to
34.04 percent in the second) and lastly the Department of Social Development
(from 26.68 percent in the first quarter to 33.18 percent in the second). The
remaining departments (Education, Labour, and Sport and Recreation South Africa)
decreased their total spending. In particular, the Department of Education
reduced its spending from 48.91 percent in the first quarter to 25.34 percent
in the second. This is predominantly due to the transfers in the first quarter
to tertiary institutions and Provincial Departments.
The total spending of the cluster has improved to 30.91 percent in the second
quarter (relative to 29.94 percent in the first quarter). Despite the
improvement in expenditure, however, the Committee’s ultimate focus is on
whether spending has achieves its intended impact and outcome or not.
justice
and protection services cluster
The Department of Correctional Services, the Independent Complaints
Directorate, and the Department of Safety and Security spent above the 20 percent
average in both the first and second quarters of the year under review. The two departments that sequentially
increased their total spending are the Department of Defence (from 16.01
percent in first quarter to 37.13 percent in the second quarter), and the
Department of Justice and Constitutional Development (from 18.96 percent in the
first quarter to above 34.68 percent in the second quarter). This is reflected in Figure 4 below:
The
total spending of the cluster amounted to 34.63 percent in the second quarter
(relative to 19.54 percent in the first quarter). Spending has therefore
improved in line with national objectives of promoting public safety
and security. The question remains, however, whether the resources allocated to
the cluster, and specifically the Department of Safety and Security, achieve
the desired outcomes and satisfactorily reduce the levels of crime. Although
there is increased spending and additional personnel and capacity, the public
still find it difficult to access police services at crucial times.
ECONOMIC
SERVICES AND INFRASTRUCTURE DEVELOPMENT cluster
The quarter-to-quarter total spending of the departments grouped under this
cluster reflect inconsistency as Figure 5 below illustrates:
The Department of Public Enterprises overspent in the first
quarter with 98.84 percent of its budget. The JBC highlighted in the First
Quarter Expenditure Review the anomaly of excessive spending and requested an
explanation. National Treasury revealed that contingency reserves of R2 billion
were guaranteed and committed to the Department. The JBC was not satisfied with
commitment of the contingency reserves for certain departments.
All other departments increased their spending in the second quarter. The total spending of the cluster has
improved to 35.15 percent in the second quarter (relative to 22.15 percent in
the first quarter).
a
review of spending according to economic classification of expenditure
The ENE groups the economic classifications of expenditure into three
categorises, namely the current payments, transfers and subsidies, and capital
expenditure (CAPEX).[2] A review of economic classification
expenditure is conducted below:
a
review of Year-To-Date current payments
Current Payments is a
fiscal provision for spending on compensation of employees, goods and services
of not more than R5 000 per unit and rent on land. Figures 6, 7, 8, 9 and 10
reflect year-to-date-current payments.
Central
government administration cluster
Apart from Parliament, the lowest expenditure on current payments was recorded
by the Department of Home Affairs (41 percent). The Department of Provincial
and Local Government, the Department of Foreign Affairs and the Presidency
spent 42 percent of their allocated budgets (and are left with 58 percent to
spend in the third and fourth quarter).
This expenditure is clear indication of vacancies.
financial
and administrative services cluster
Statistics South Africa and National Treasury were the lowest spending
departments of Current Payments (both spent 38 percent) by the end of the
second quarter. The two departments will
have to spend about 62 percent of their Current Payments Budget in the third
and fourth quarter.
social
services cluster
To date, the Department of Sport and Recreation SA utilised the lowest Current
Payments (31 percent) followed by the Department of Health and Social
Development (both spent 34 percent). The Department of Sport and Recreation SA
was the third lowest spending department out of all the 34 Budget Votes of
2007/08.
justice
and protection services cluster
The Department of Justice and Constitutional Development (42 percent spending)
and the Department of Defence (44 percent spending) were the lowest Current
Payment in the Justice and Protection Cluster at the end of the second quarter.
The two departments will have to spend considerably more than 50 percent of
their allocated budget in the remainder of the year.
economic
services and infrastructure development cluster
The Department of Transport recorded the lowest spending on Current Payments
(of 24 percent) out of all the 34 Budget Votes.
This is followed by the Department of Housing at 25 percent. The two departments will have to spend about
75 percent of their current budgets in the final two quarters.
a
review of the Year-to-date (ytd) transfer and subsidies
Transfers and subsidies include all unrequited
payments made by Government departments or entities. A payment is unrequited if
the Government department or entity does not receive anything directly,
financial or otherwise, in return from the recipient party. Both current and
capital transfers are included in this item. Notably at R202 billion, transfers
and subsidies represented the single largest economic classification and it is
therefore imperative that Parliament is able to monitor and
oversee the manner in which these funds are utilized.
CENTRAL GOVERNMENT
ADMINISTRATION CLUSTER
The Department of Foreign
Affairs (DFA) had the lowest Transfer Payments (of 24 percent) followed by the
DPLG (37 percent spending on Transfers and Subsidies) at the end of the second
quarter.
financial
and administrative services cluster
The Public Service Commission was allocated R27 000 for transfers and subsidies
and ended up spending R297 000 (1 100 percent) at the end of the second
quarter. This is a clear indication of
shifting of funds from one programme to another (virements).
social
services cluster
The Department of Labour (DoL) recorded the
lowest transfer expenditure of 42 percent at the end of the second
quarter. It is noted that the national DoL is responsible for the programme of national skills
development strategy to meet the skills shortage, the acceleration of broad
based black economic empowerment (BBBEE) and better alignment between the
further education and training sector, business and the sector education and
training authorities (SETAs).
3.2.4 justice and protection services
cluster
The Independent Complaints Directorate was allocated an amount of R48 000 for
transfers and subsidies and ended up spending R49 000 (equivalent to a negative
2 percent overspending) at the end of the second quarter. On the other hand, the Department of Defence
(DoD) only utilised 35 percent of its allocated budget. The DoD will therefore
have to utilise about 65 percent of its budget in the last two quarters.
3.2.5
economic services and infrastructure development cluster
The Department of Agriculture (42 percent), Transport (43 percent), Housing (44
percent), Communications and Water Affairs and Forestry (which both spent 45
percent) had the lowest spending of transfers and subsidies in this
cluster. All of these departments will
be required to spend considerably more than 50 percent of their allocated
budgets in the last two quarters.
3.3
a review of year-to-date capex
CAPEX is comprised of five main categories, namely
buildings and other fixed assets, machinery and equipment, cultivated assets,
software and other intangible assets and land and sub-soil assets. Expenditure
on goods, such as items worth less than R5000, are not included under capital
expenditure but categorised as goods and services. It is also important to
highlight that capital and specifically infrastructure spending, is a key
driver of economic development and job creation. Under-spending during the
first half of the financial year therefore reflects serious problems. Figures 16, 17, 18, 19 and 20 highlight CAPEX in the various government
clusters.
3.3.1 Central
government administration cluster
Parliament and the Department of Home Affairs recorded the lowest spending on
CAPEX over the first two quarters with 5 and 9 percent respectively. Apart from these institutions, the lowest
spending on CAPEX is the Department of Public Works (20 percent) and the DPLG
(24 percent). .These departments will be
required to spend 80 percent of its CAPEX Budget only in the third and fourth
quarter.
3.3.2
financial and administrative services cluster
SA Management Development Institute (SAMDI) was allocated R1.617 million for
CAPEX and spent R2.588 million (thus overspending by a considerable percent) at
the end of the second quarter. The low CAPEX spending in National Treasury (32
percent) and the Public Service Commission (24 percent) are also cause for concern.
3.3.3
social services cluster
The Department of Arts and Culture only spent 2 percent (R108 000 out of R5.142
million) of its allocated CAPEX budget over the first two quarters. This is
followed by the Department of Labour 8 percent), the Department of Health (20
percent) and the Department of Social Development (29 percent). The Department
of Sport and Recreation South Africa was allocated R980 000 and actually spent
R1.47 million. This is equivalent to 150 percent overspending.
3.3.4
justice and protection services cluster
The first two quarter CAPEX spending in this cluster was below 40 percent. All the departments that are grouped under
this cluster will be required to spend over 60 percent of their budgets for in
the last two quarters of the financial year.
The most notable underspending of CAPEX was
recorded by the Independent Complaints Directorate which spent R850 000 of its
R4.316 million CAPEX Budget (equivalent to 20 percent actual spending).
3.3.5
economic services and infrastructure development cluster
The Department of Transport only spent 5 percent of its CAPEX budget, followed
by the Department of Minerals and Energy which spent 14 percent. The two departments will be required to spend
the remaining 85 percent in the third and fourth quarter. The Department of Housing and the Department
of Water Affairs are also in the red, with 24 percent and 36 percent spending
over the first two quarters.
findings
and recommendations
Many
national departments have not implemented previous Parliamentary resolutions as
recommended by the JBC. Consequently the same general weaknesses prevail in
expenditure and financial management across government. In this regard, the
Committee re-issues the following recommendations:
Departments must ensure that they spend their budgets in line with the national
priorities and their strategic plans, and avoid the current ad hoc utilisation
of virements;
National Departments should report to Parliament on spending, including
transfers to provinces and public entities in meeting the national
priorities. Such reports should
routinely include non-financial performance information;
Departments should accelerate the establishment of sound administrative and
financial systems to create an environment for effective and efficient
financial management. The development of realistic key performance indicators
should be included in this exercise;
To effectively reduce the high vacancy rates, affected departments should
establish specific timeframes and furnish Parliament, on quarterly basis, with
the progress in the filling of funded vacant posts
Report to be considered.