Ffc briefing on 2015 appropriations bill 12_may2015

BRIEFING ON THE 2015 APPROPRIATION BILL

For an Equitable Sharing of National Revenue

12 May 2015

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Briefing on the 2015 Appropriation Bill

PRESENTATION OUTLINE• 1. General overview of the 2015 Appropriations Bill

• 2. An assessment of the composition of the 2015 Appropriation Bill with respect to:

• baseline changes across votes and service delivery implications• Given the 2014/15 preliminary spending outcomes, risk areas and

possible oversight responses

3. Assessment of 2015 Appropriations Bill with respect to:• effecting government’s priorities, especially economic growth and

job creation programmes• Infrastructure • Efficiency gains

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FFC RESPONSE TO THE APPROPRIATIONS BILL


BACKGROUND

• The Submission made in terms of S4(4c) of MBPARMA (Act 9 of 2009) – Requires Parliamentary Committees to consider any

recommendations of FFC during their deliberations on Money Bills

• Also made in terms of FFC Act of 1997– Requires that FFC responds to any requests any

organ of state on any financial and fiscal matter

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1. GENERAL OVERVIEW

• The 2015 budget was tabled within a fiscally constrained environment

– At the time when the 2014 Medium Term Budget Policy Statement was tabled, it was anticipated that economic growth would reach 2.5 and 2.8% for 2015 and 2016 respectively

• Despite growth rates being revised down to 2.0 and 2.4% over the next two years, Government has managed to achieve a delicate balance in terms of :– Ensuring that allocations are aligned with priorities outlined in both the

medium term strategic framework (MTSF) and National Development Plan (NDP),

– Protecting funding for social grants whilst directing cuts at non-performing programmes, and

– Striving for a balanced approach to funding new infrastructure (in support of infrastructure-led growth) relative to caring for the existing asset base5


1. GENERAL OVERVIEW [CONT.]

• The key message of the Commission’s submission on the 2015 Appropriations Bill is that Government has tabled a budget that maintains fiscal stability and balances contending priority areas

• Key risk areas that may serve to unsettle the balance attained in the 2015 Budget: – Public sector wage bargaining process outcome, particularly if the outcome significantly

exceeds inflation

– Implementation of the National Health Insurance (NHI)

– Social security reforms alluded to by the Minister of Finance in the 2015 Budget Speech

• The Commission is of the view that a multipronged approach focussing on building and strengthening the capability of the state to implement government programmes alongside rooting out inefficiencies such as fruitless and wasteful expenditure, corruption can take South Africa closer to realising its socioeconomic goals and objectives as outlined in the National Development Plan (NDP)

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2.1 ASSESSMENT OF BASELINE CHANGES AS PER 2015 APPROPRIATION BILL

• Real growth rates for most votes have declined, although still positive

• Given tight fiscal environment, government should be commended for maintaining real overall real growth rate of 2.5%, equivalent to the average growth in the previous three years

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Selected Key National Votes

2012/13 2013/14 2014/15 2015/16 Appropriation

Baseline Change (A)

Annual Avge Real Growth (B)

Difference between (A)

and (B)

11. Public Works -3.6% -22.2% -5.4% 1.5% -7.4% 8.9%14. Basic Education 5.9% 8.5% 9.5% 5.1% 7.3% -2.2%

15. Higher Education and Training 5.9% 2.9% 1.6% 2.5% 3.2% -0.7%16. Health 2.3% 1.1% 5.7% 3.7% 3.2% 0.5%

18. Correctional Services 0.8% 2.2% -0.1% -0.3% 0.7% -0.9%21. Justice and Constitutional Development 6.8% 0.2% 6.1% -2.1% 2.8% -4.8%

23. Police 3.4% 3.1% -0.2% 0.5% 1.7% -1.2%24. Agriculture, Forestry and Fisheries 12.5% -0.7% 3.9% -9.4% 1.6% -11.0%

25. Economic Development 11.0% 8.7% -15.2% 22.3% 6.7% 15.6%26. Energy 2.3% -8.5% 8.6% -3.6% -0.3% -3.3%

38. Human Settlements 2.8% 7.6% 0.5% 1.5% 3.1% -1.6%39. Rural Development and Land Reform 5.9% 0.2% -6.6% -4.5% -1.3% -3.3%

Total appropriation by vote 2.3% 2.4% 2.7% 2.5% 2.5% 0.0%

2.2 ASSESSMENT OF 2014/15 SPENDING OUTCOMES

• Most votes spent on par with the national average (97%) in 2014/15, although uneven spending patterns are noticeable

• National average spending for 2014/15 marginally below average spending for the period 2011/12 -2013/14, largely due to underspending in social development as a result of the clean-up in the social grants system

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2.3 PERFORMANCE OF DEPARTMENT OF LABOUR (DOL) AND COMPENSATION

FUND• Compensation Fund received disclaimers in the past two years and overspent

its transfer allocation from DoL by 87% in 2014/15

• Underspending by DoL is partly due to unfilled vacancies in the main. This could be undermining its service delivery and fiscal oversight role over Compensation Fund entity

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2011/12 2012/13 2013/14 2014/15

Spending and deviation from final budget (%)

Department of Labour 99% 95% 97% 94.9%*

Compensation Fund 100% 100% 100% 186.8%*

Audit Outcomes

Department of Labour Unqualified Unqualified Unqualified Not available

Compensation Fund Qualified Disclaimer Disclaimer Not available

2.4 RISKS AND OVERSIGHT RESPONSES IN 2015

• Weaker than expected economic growth likely to continue in 2015/16– Commission welcomes efforts to manage this risk by providing for lower spending

ceilings, freezing non-essential spending areas at 2014/15 levels and making provision for unallocated reserves over the medium term

– Commission calls on government to continue to cushion poor and vulnerable by maintaining efficient and effective social spending

• The public sector wage agreement– Government has attempted to slow the growth of the public sector wage bill through

reviewing funded vacancies, cleaning up personnel numbers and working to ensure sustainable cost of living adjustment

– Commission welcomes efforts to find long-term sustainable solution to wage bill issue, especially recent establishment of the Presidential Public Service Remuneration Review Commission

• Poorly performing and inefficient entities and fiscal risk– Contingent liabilities

– Government is working with entities by focusing on stabilising finances in the short-term and improving liquidity position

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ASSESSMENT OF 2015 APPROPRIATION BILL

3.1. PROMOTING ECONOMIC GROWTH

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• The percentage of gross fixed capital formation by economic infrastructure increased from 68% in 2010 to 73% in 2013, while that of social infrastructure declined from 32% in 2010 to 27% in 2013.

• Investment in infrastructure by public sector institutions has increased by 4.8% (or R9.7 billion), from R202.8 billion in 2012 to R212.5 billion in 2013.

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

10

20

30

40

50

60

70

80

90

Percentage-Economic Percentage-Social

3.2 ASSESSMENT: EDUCATION

• Overall budget allocation for Education reflects MTSF and NPG goals – Basic education accounts for 16.7 % of total expenditure

• Key basic education priorities over the 2015 MTEF includes inter alia – Improving curriculum delivery and school infrastructure

– Training teacher

• The bulk (77%) of education budget goes to payment of salaries – Better management of the wage bill is required to free up resources to

finance other important education inputs

• There is need to distribute resources equitably at school level Briefing on the 2015 Appropriations Bill

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3.3. ASSESSMENT: HEALTH

• Health remains a key priority in the 2015 MTEF

• The budget prioritise – Expansion of HIV/AIDS treatment and prevention

– Revitalisation of health care facilities

– Provision of specialised tertiary hospital services

• Health allocations are projected to grow at 7.1% over the MTEF

• This represent the third fastest growing expenditure program

Briefing on the 2015 Appropriations Bill 14


3.4. ASSESSMENT: JOB CREATION AND ECONOMIC TRANSFORMATION

Government’s strategy for job creation is multi-pronged: Expanded Public Works Programmes (EPWP) and Community Works

Programme (CWP) Employment tax incentives Jobs Fund

The Jobs Fund has been allocated R4 billion in the 2015 Budget for facilitating access to finance and the scaling up of small and medium-scale enterprises.

The Commission welcomes the strategy which intends to seek partnerships with larger intermediaries and ensure proper monitoring and evaluation processes as well as the commitments to ensure that 30% of government’s procurement is sourced from small and medium scale enterprises.

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3.5. ASSESSMENT: IMPROVED PUBLIC SERVICE

• Capable State required to achieve goals in the NDP– Among measures adopted include improving investigative abilities of institutions to

combat corruption, recent release the Supply Chain Management Review, ongoing cost containment measures and various capacity building programmes

– What is required is support for these initiatives and implementation from whole of government

• Measures aimed at improving capability to implement infrastructure projects– Built environment performance plans introduced to incentivise integrated planning

and implementation across built environment functions located in municipalities.– The focus should be on a more holistic approach to capacity building if

infrastructure projects are going to succeed (E.g. single capacity support programme per municipality)

• Various proposals in the Bill to fund research to identify future skills gaps in the labour market

– Should not neglect demand-side factors to encourage uptake of labour, especially among youth and the forecasting of future skills required in the public sector

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3.6. ASSESSMENT: INFRASTRUCTURE INVESTMENT AT THE NATIONAL LEVEL

• As a result of lower than anticipated economic growth and the need to contain expenditure, public infrastructure investment has been revised downwards by R34.2 billion, bringing total infrastructure investment to R813.1 billion over the next three years

• In 2015 Budget Speech, Minister of Finance emphasised Government’s reliance on cost recovery as an important avenue for funding infrastructure development, thus bringing into focus the issue of user fees - the extent to which revenue can be derived from infrastructure utilisation, will be dependent on the willingness of consumers to pay.

• Of the total R813 billion allocated in respect of public infrastructure over the next three years, 77% is in respect of the transport (R339 billion), energy (R166 billion) and water and sanitation (R117 billion) sectors

• Over the 2015 MTEF period, state-owned companies (SOCs) and local government are responsible for just under 70% of all public investment in infrastructure

– Will SOCs and municipalities be able to effectively drive South Africa’s infrastructure-led growth

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3.6 ASSESSMENT: INFRASTRUCTURE INVESTMENT AT THE NATIONAL LEVEL [CONT.]

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Proposition of Infrastructure Spending by Type, 2012-2017/18

Source: Commission calculations based on Budget Review (2014)

New Infrastructure Assets Maintenance and Repairs Upgrading and Additions Rehabilitation and Refurbishment0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

45.2%

2.1%

39.1%

13.6%

55.1%

5.2%

28.3%

11.3%

2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

• 55% of resources allocated in respect of infrastructure investment will be for new infrastructure with the balance allocated to existing infrastructure in terms of repairs, rehabilitation and upgrading

• The Commission thus welcomes a more balanced approach to infrastructure development that attaches priority to caring for existing assets and developing new infrastructure where applicable


3.7 MEASURES TO STIMULATE COST EFFICIENCIES

• Achieving cost-efficiency in this fiscally constrained environment is key to inclusive and sustainable growth

• Section 195(1) (b) of the Constitution and Section 38 (b) of the PFMA requires the promotion of efficient, economic and effective use of public resources by every sphere of government, organ of state and public enterprises.

• In suggesting measures to improve efficiency, the Commission is aware that there is real no blueprint for improving public sector efficiency, but diverse approaches can be adopted.

Public sector wage bill and productivity: • The Commission wishes to reiterate its previous views that public expenditure

growth can be contained through curtailing the public sector wage bill, something that can be done without compromising growth.

• The Commission is of the view that norms for frontline versus administrative staff to total expenditure per sector and/or by specific occupational categories are established.

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3.7 MEASURES TO STIMULATE COST EFFICIENCIES [CONT.]

Unproductive and inefficient Spending

• Budget execution in South Africa has challenges of monies that are appropriated not spent as expected or as budgeted. All these issues require vigilant oversight by those responsible and strengthening of ongoing efforts to build capacity of the departments.

• It is also important that policies and plans are connected to budgets.

• The Commission believes current government procurement reforms being undertaken through the procurement office will improve cost efficiency in the public sector.

ICT Roll-out:

• ICT is known to improve access to service quality and responsiveness to citizens; reduces operational costs and improve efficiencies in the delivery of services.

• The Commission urges the government to prioritise the roll out of ICT infrastructure.

Accurate cost estimates:

• To ensure that all spheres of government achieve greater efficiencies in the use of scarce public resources, it is important that more accurate cost estimates for services being delivered are found.

• The Commission, working with SALGA is properly cost in basic services in the local sphere. The model, will assist in matching budgets and the actual costs of providing services

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4. CONCLUSION

• The Bill keeps within the spending ceilings set by the 2015 Budget Review• The Commission is pleased that despite the constrained resource envelope, the

2015 Appropriations Bill indicates a continued commitment to funding MTSF and NDP activities

• The Commission commends government in balancing the need to protect social grants, while targeting non-core and non-performing programmes as areas where expenditure can be cut.

• The Commission calls on Government to continue trend in growth of contribution of gross fixed assets to infrastructure and application of cost reflective tariffs and general user pay principle to underpin the provision of infrastructure.

• The Commission welcomes measures being taken to reign in the wage bill, but notes that for the compensation projections to be realistic a wage bargaining agreement will be required, where salaries are pegged close to inflation rate. 21

THANK YOU.

Financial and Fiscal CommissionMontrose Place (2nd Floor), Bekker Street,

Waterfall Park, Vorna Valley, Midrand,Private Bag X69, Halfway House 1685

www.ffc.co.zaTel: +27 11 207 2300Fax: +27 86 589 1038

Economy & Finance

Ffc briefing on 2015 appropriations bill 12_may2015