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FINANCIAL AND FISCAL COMMISSION

SUBMISSION FOR THE DIVISION OF

REVENUE 2008/09

June 2007

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Structure of the Submission for the Division of Revenue 2008/09

Part A: 2008/09 Division of Revenue

Recommendations

Part B: Supplementary Submission

Part C: Progress Reports on ongoing

research at the FFC

Annexures

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National School Nutrition Programme (NSNP)

It is feasible to extend the NSNP from primary schools to secondary schools.

The Northern Cape is already providing for some needy learners in secondary schools with funding from both the conditional grant and the main departmental budget.

All Provincial Education Departments (PEDs) should adopt and entrench the NSNP as their full responsibility.

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NSNP cont.

Before the NSNP can be extended to secondary schools, Government should address the following:

PEDs should engage the necessary personnel with appropriate skills levels for the implementation of the Programme on a full-time basis.

Budget allocations for the NSNP in primary schools should be increased in order to cover learners who are presently excluded from deriving the benefits of the Programme.

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NSNP cont.

PEDs should implement the NSNP in schools that have been declared “no-fee-schools” by the Minister of Education.

The National Department of Education should develop national norms and standards to guide the implementation of the Programme throughout the country in a uniform and consistent manner.

Presently, there are no uniform norms and standards for the NSNP, which creates problems in terms of its application throughout the provinces.

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NSNP cont.

The National Department of Education should ensure that the quality of information is improved upon. The information obtained would be useful in the planning

and budget processes of the NSNP.

Where necessary, PEDs should supplement the NSNP conditional grant with funds from their respective budgets. Presently, this is the case in the Northern Cape.

Where necessary, improvements in procurement procedures should be undertaken.

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NSNP cont.

Kitchen equipment and infrastructure in all provinces should be upgraded.

Improvements in capacity for the monitoring and evaluation of the NSNP are vital, in order to address difficulties that arise during the course of its implementation.

Consideration should be given to increasing the number of feeding days beyond the current prescribed minimum.

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Review of Financing of School Infrastructure and Educational Outcomes

The framework for conditional grants that fund educational infrastructure, particularly the Provincial Infrastructure Grant (now the IGP), should ensure that funds allocated to provinces are used in a way that supports the development of infrastructure in areas most in need, and where it is most likely to improve school outcomes.

The effective coordination of planning should be instituted with immediate effect, so as to ensure that complementary resources and infrastructure are set in place, to derive optimal results from the school infrastructure investment.

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Financing of Learner Support Materials (LSMs) and No-Fee Schools

LSMs should be defined to mean stationery, textbooks, learner and teacher aids In line with international trends

There is a need for a separate budget for textbooks,

stationery, learner and teacher aids

A separate budget is also needed for maintenance,

repairs and equipment. This would assist in monitoring and identifying how much

was budgeted and spent in each area.

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Financing of Roads and Transport Infrastructure All provinces must put in place effective road management

systems, in order to gather accurate data on road conditions. This information can be used in their road spending priorities.

The impending review of the PES should consider provincial

road expenditure needs and should be configured in a

manner that enables provinces to fund their maintenance

needs. Unless ongoing needs of provinces, in terms of

roads/transport infrastructure, are explicitly considered in the

review of the PES, the condition of roads will continue to

worsen, with the required costs rising exponentially.

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Financing of Housing Delivery

A process for the collection of data on homelessness should be initiated.

Such data should, in future, be included in the housing formula, as part of the indicators of housing need.

Housing surveys in other countries collect data on

homelessness as part of indicators of housing need.

Housing supply shortage is considered to be one of the

causes of homelessness.

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Economic Impacts of the 2010 Fifa World Cup

Positive impact on imports, which might lead to balance of payment deficit and hence inflationary pressure.

It is estimated that owners of capital will benefit more than labour.

On household income – high-income earners will benefit most.

It is estimated that, on the whole, household income will increase by 0.42%.

It is estimated that National government will receive the bulk of the revenue generated by hosting the World Cup, followed by local government.

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2010 Fifa World Cup cont.

The Commission identified two types of legacy effects:

Legacy effects of a national character: In this regard, the Commission suggests the

appointment of a national agency to oversee these effects.

Location-specific legacy effects: To be handled and managed by authorities of host cities.

On project management, there is a risk of cost overruns and project delays.

Finally, fiscal policy should be focused on long-term objectives by that the ensuring budget deficit does not exceed 3% of GDP.

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Windfall ProfitsTax

The FFC welcomes the proposal of taxing abnormal profits deemed higher than expected world oil prices.

Recognises that taxing oil windfalls could generate substantial revenue, without threatening fuel supply.

The windfall profits tax will have, in the short-term, little impact on prices.

Macroeconomic repercussions of the tax on the oil sector are likely to be minimal.

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Windfall ProfitsTax cont.

Tax could have negative incentive effects, which

would lead to economic distortions over time.

The FFC discourages the use of a revised subsidy regime.

Investment-linked tax and subsidy could be a positive venture, if coupled with environmental policy objectives.

The Commission will undertake further research on the matter.

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Performance of Provincial Govts Introduction The basis of recommendations = analyses of the fiscal

and financial performance of provincial government departments

Fiscal performance & capacity were measured on the basis of the evaluative criteria in Section 214(2) a-j of Constitution e.g. national interest, developmental needs, stable and predictable revenue shares.

Quantitative aspects of analyses involve comparing budgeting/spending trends over the past three FY’s (2003 to 2005), the current FY with MTEF period (2007 to 2009).

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Performance of Provincial Govts Introduction

Alignment of budget/spending trends with stated policy priorities was important consideration in analyses as was relationship between spending and budgets. Non-financial indicators used to gauge progressive realisation and delivery output performance also used to inform analyses and recommendations.

Social sector, infrastructure and governance departments were analysed, hence the cross cutting nature of five recommendations.

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Performance of Provincial GovtsRecommendations

Stable & Predictable Growth Paths To ensure stable and predictable allocations of revenue

shares between different programs/categories of spend, national/provincial treasuries should aim for stable budget growth paths over a 7-yr period - from the recent past 3 yrs through to the forthcoming medium term budgeting and planning cycle.

Rationale and Examples Often with smaller programmes - trend of policy

prioritisation, over-budgeting, under-spending, followed by cut-backs in the following year’s budget or vice versa.

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Performance of Provincial GovtsRecommendations

This is especially true of budgeting for infrastructure and skills training despite being priorities established by AsgiSA and JipSA. Particular examples include ABET, FET, ECD, welfare, farmer support and road construction.

Result = cycle of erratic acceleration, deceleration, even declines in budgets/spending. Unpredictable funding flows delay effective planning, implementation and service delivery.

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Performance of Provincial GovtsRecommendations cont.

Prioritised programmes to show above-average growthThe policy prioritisation of a department, programme, or category of spending should be supported by higher than average annual budget growth

Rationale and ExamplesTo ensure alignment between policy objectives/goals and budgets/spending, identified priority areas should grow by a higher than average growth rate and vice versa.

In accordance with AsgiSA and JipSA, most provinces have prioritised infrastructure and skills training. However, this does not apply to FET, ABET, conditional grants for health professional training.

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Performance of Provincial GovtsRecommendations cont. Entrenchment of best practice

The further institutionalisation of best practice project planning & budgeting methods (which separate planning from implementation and align them to the fiscal year) should be encouraged.

RationaleUnder-spending caused by excessive adjustments, late disbursements and end-of-year fiscal dumping is more pronounced when different spheres or departments are responsible for budgeting and delivery.

National Treasury has projects in place to strengthen technical ability in provinces (Infrastructure Delivery Improvement Programme).

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Performance of Provincial GovtsRecommendations cont.

Reporting of service delivery programmes Every departmental service delivery programme should be

defined by and reported in the Provincial Budget and Expenditure Review, according to:

- actual and targeted beneficiaries - personnel numbers and budgets by occupational skills

level - current items & capital assets used in service delivery Provincial departments should report on these non-financial

indicators on behalf of their service delivery agents.

Rationale To facilitate an assessment of performance i.t.o progressive

realisation, efficiency and effectiveness, non-financial data is required.

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Performance of Provincial GovtsRecommendations cont.

A measure for determining socio-economic impacts A methodology to measure the socio-economic impact

of government capital/current spending should be standardised across government departments/programmes.

Rationale Without a measure of impact, it is impossible to

determine whether what is being delivered is positively changing the intended recipients’ lives.

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Performance of Provincial GovtsConclusion

To note the observations and recommendations, particularly the:

time-lags for adjusting budget allocations despite prioritisation of policies

uniform reporting and definition of programs especially in the infrastructure and governance sectors

further institutionalisation of best practice project planning and budgeting methods.

Use of non-financial indicators to enable monitoring and evaluation.

methodology to measure socio-economic impact of expenditure.