Budget Reform and Policy Implementation

General Course on Good Governance

Centre for Human Rights

8 July 2002

What is the MTEF?

• MTEF sets out 3-year rolling spending and revenue plans

for national and provincial government

• 2002 Budget is the 5th MTEF budget tabled in Parliament

Advantages of a MTEF• Greater certainty for depts to plan and budget

for services in line with policy priorities

• Affordable spending in the medium term

• Strengthened political decision-making and accountability

• Greater transparency of budget and service delivery information for the public

• Improved management of public finances

Key players in process

• Cabinet

• Parliament

• Ministers’ Committee on the Budget

• Budget Council

• Budget Forum

• FOSAD

• Supporting technical committees

Policy priorities

Budget documentation

Division of Revenue

Bidding process (MTEC)

Cabinet approval

Budget Day

Fiscal framework

Political scrutiny of departmental

allocations (MinComBud)

Main steps in budget process

MTBPS

MTEF process and reforms• Early discussion by the Ministers’ Committee on the Budget & Cabinet on

policy priorities (May- July)

• Preparation and submission of departmental MTEF budgets (May to Aug)

• Review of departmental budget submissions (Aug)

• Division of revenue & medium term priorities (July-Aug)

• National & provincial MTEC allocation process (Sept-Nov)

• Medium Term Budget Policy Statement (Nov)

• Preparation of budget documentation (Nov-Feb)

• Tabling of Budget in parliament (3rd week of Feb)

Tax Revenue

Borrowings

Expenditure

Debt ServicingContingency reserve

Available Expenditure

Policy discussions at Cabinet

Fiscal framework

Available Expenditure

National Share

Provincial Share

Local Share

Policy discussions at Budget Council, Cabinet

Policy discussions at Cabinet

Division of Revenue

Budget documentation

• Intergovernmental Fiscal Review (Sept)

• Medium Term Budget Policy Statement (Oct)

• Budget Review and Budget Speech (Feb)

• Estimates of National Expenditure (Feb)

• Provincial Budget Statements (Feb – March)

New national and provincial budget formats developed in line with s215 of Constitution & s27 of PFMA

New formats aim to:

– Reduce duplication in budget documentation

– Move to Government Financial Statistics

(GFS) in the new economic classification

– Strengthen link between planning and

prioritisation, budgeting and service delivery

Key Budget format reforms

Key Budget format reforms...• Extension of medium term information

• 7-yr trend information enables comparative analysis

• Service delivery information - specifying outputs and output measures and indicators

• Emphasises ‘value for money’

• Move towards quantity, quality, timelines and cost measures and indicators in subsequent Budgets

• Tracking and making progress in service delivery is key message

• Helps departments plan, budget and manage

programmes better

• Improves accountability and control

• Informs policy- and decision making

• Provides information to the public about what

goods and services government ‘buys’

Budgeting for service delivery

Policy priorities reforms• Strengthening link between Govt policy

priorities and public expenditure is key message of MTEF budgeting

• Spending plans translate policies into service deliverables - a key tool for public goals

• Budget reform aims to strengthen political oversight of policy and budget prioritisation

• Facilitates policy priorities for sustainable development

Budgeting and policy choices

• Budget prioritisation – policy choices and trade-

offs against resource constraints, contributing to

Government’s strategic goals, incl:

– Reducing poverty and vulnerability

– Increasing employment

– Increasing investment

– Lowering the costs of economic activity

– Improving safety and security of citizens

Strengthens MTEF Budgeting..

• Strategic set of budget priorities strengthens credibility of MTEF budgeting:– Guides resource allocation decisions in budget

process

– Strengthens political oversight of budget process

– Reinforces link between policies, spending & service delivery

– Advances public goals of social and economic development

Building on 2001 & 2002 Budgets• In 3-year rolling MTEF:

– Priorities decided on in 2001 & 2002 Budgets form basis for review of priorities for 2003

– Existing priorities evident in forward estimates of 2002 MTEF (i.e. year 2 & year 3 estimates)

– Review of priorities is about guiding resource allocation at the margin within the new MTEF

– Additional available resources through economic growth, increased revenue collection and economic growth

Existing Budget priorities• Budget priorities reflected in 2001 & 2002

Budgets include:– Investment in new infrastructure and rehabilitation

& maintenance of existing infrastructure– Deepening the skills capacity of the economy– Reducing poverty and vulnerability among our

citizens– Encouraging partnerships with communities to

improve access to basic services– Strengthening capacity to combat crime

Infrastructure allocationsInfrastructure related public expenditure

2002/03 2003/04 2004/05Medium-term estimatesR million

National departments18,124 9,191 9,435

Provincial departments 12,765 14,308 15,792 Municipalities 12,402 13,084 13,672 Public private partnerships2

966 2,846 2,226 Extra-Budgetary institutions2,818 3,143 3,380 Non-financial publicenterprises3 20,622 22,998 24,730 Total 56,731 62,724 67,008 percentage GDP 5.2% 5.3% 5.2%

GDP 1 082 800 1 178 900 1 277 500

Priorities reflected in DoR

• Budget priorities & choices reflected in Division of Revenue to 3 spheres:– Strengthening capacity to fight crime increases

the national share– Extending coverage and raising the value of

social security grants adds to the provincial share

– Improving access to basic services (water, sanitation, electricity, refuse removal) raises the local government share

2002 Division of Revenue

Division of Revenue 2002/03 - 2004/052002/03 2003/04 2004/05

R million Medium-term estimatesMain budgetNational allocation 96,106 103,307 109,911 Provincial allocation 132,420 142,844 152,363 Local government allocation 8,580 10,235 10,854 Total allocations 237,106 256,386 273,128 Interest on debt 47,503 49,845 52,434 Contingency reserve 3,300 5,000 9,000 Main budget expenditure 287,909 311,231 334,561 Percentage increase 9.6% 8.1% 7.5%Percentage sharesNational 40.5% 40.3% 40.2%Provinces 55.8% 55.7% 55.8%Local government 3.6% 4.0% 4.0%

Process of prioritisation….• Review of priorities for 2003 to evaluate:

– How policy options and priorities contribute to Government’s strategic social and economic goals?

– What factors should be taken into account in assessing trade-offs against resource constraints?

– How do various kinds of economic and social policy concerns complement each other or compete for resources?

– What should the sequencing of policy implementation be for sustainable economic and social development?

Looking ahead to 2003 ….

• Looking ahead to the 2003 MTEF:

– The correct budget priority choices may be to

deepen and strengthen existing priorities rather

than introducing new priorities

– Questions often arise on how to implement – these

choices are just as NB as they determine how

successful policy choices are in practice

Policy & implementation challenges• Increase capacity to spend on infrastructure

– Lever private sector finance and expertise

• Enhance environment for step up in private sector investment– Further tax reform

• Strengthen employment creation incentives– Reinforce labour-based infrastructure and service

delivery– Address regulatory impediments to increased formal

sector job creation– Enhance support services to SMMEs and informal

sector

Policy & implementation challenges• Reduce poverty and vulnerability

– Improve access to services for the poor– Extend coverage and improve quality of basic & social

service delivery• Reinforce crime prevention capabilities

– Implement sector policing– Improve prison management– Rationalise courts

• Harness information & communication technology improvements– Options to complement telecommunications growth &

competition

Budget Reform and Policy Implementation

General Course on Good Governance

Centre for Human Rights

8 July 2002