COMMENTS ON THE APPROPRIATION BILL COMMENTS ON THE APPROPRIATION BILL 20112011

STANDING COMMITTEE OF APPROPRIATIONSSTANDING COMMITTEE OF APPROPRIATIONS

13 APRIL 2011

For an Equitable Sharing of National RevenueFor an Equitable Sharing of National Revenue

INTRODUCTIONINTRODUCTION

• This submission is made in terms of Section 4 (4) (c) of the Money Bills Amendment Procedure and Related Matters Act 2009 which requires the Committee to consider any recommendations of the Commission when processing money bills in terms of the Act.– The Standing Committee on Appropriations specifically invited the

Commission to comment on the 2011 Appropriations Bill with respect to the Constitutionally Mandated Services (CMS).

• The Commission has already made its submissions on the Division of Revenue Bill and the on the Fiscal Framework and Revenue Proposals for 2011.

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AppropriationsAppropriations

APPROACH TO THIS APPROACH TO THIS SUBMISSIONSUBMISSION

• The submission focuses on the following– The Commission’s Interpretation of CMS in relation to the

Appropriations Bill

– Analysis of specific and special funding of priorities over the period 2007 to 2011.

– Assessing the extent to which appropriations have addressed the issue of CMS among the three spheres of government over the past five years

– Analysis of within-spheres’ financing of CMS

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COMMISSIONS DEFINITION OF COMMISSIONS DEFINITION OF CMSCMS

• Commission’s 2004-2007 MTEF submission identifies selected services listed under the Bill of rights as Constitutionally Mandated Basic Services (CMBS)

• The identified CMBS represent the core of what key programmes should be targeted within the broader CMS.

• Another set of funded services within the CMS create an enabling environment for the achievement of the core CMBS. These include economic and infrastructure development

• The Categorisation of services into CMS and non CMS should in no way be interpreted to imply that the other functions assigned to all spheres are less important

• CMSs per sphere include• National: Justice, Crime Prevention and Policing, Higher Education, Social Protection

• Provinces: basic school education, primary and secondary health care , housing, regional transportation

• Local Government: housing, potable water, electricity, public transport, sanitation and refuse removal

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AppropriationsAppropriations

RELATIONSHIP BETWEEN THE RELATIONSHIP BETWEEN THE APPROPRIATIONS BILL AND CMSAPPROPRIATIONS BILL AND CMS  

• The sharing of nationally raised revenue needs to be balanced against the assigned Constitutional roles– There is a link in the amount to be appropriated and the constitutional

mandates of various spheres

– A need to balance the share of additional funding across spheres in line with the identified outcomes and priorities through the Bill

• The need to ensure that funds are utilised for the purposes indicated– Complexity in identifying services by spheres

– Setting norms and standards and

– Ensuring a clear delineation between which roles are played by different spheres

• Spending programmes receiving special preferential funding from additional raised revenue are analysed

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CMS TARGETINGCMS TARGETING

• Of these funded priorities close to 70% of the appropriated amount for the period 2007 to 2011 went to CMS.– 46 percent of this CMSs spending was appropriated to

CMBS.

– 54 percent to other CMS that enable achievement of progressive realisation of CMBS in areas of Economic and Infrastructure Investment

• This has laid a foundation to some extent for government’s new growth path of accelerating growth and job creation

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CMS PRIORITISED OVER AND ABOVE CMS PRIORITISED OVER AND ABOVE BASELINES FOR THE 2007-2011 MTEF BASELINES FOR THE 2007-2011 MTEF

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AppropriationsAppropriations

CMS CMS PRIORITISEDPRIORITISED OVER AND ABOVE OVER AND ABOVE BASELINES BETWEEN 2007 AND 2011BASELINES BETWEEN 2007 AND 2011

• Priorities or Programme that receive additional funding over and above the general baselines adjustments include;– Economic infrastructure development (R48.8 billion)

– Education (R8.9 billion)

– Health (R6.1 billion)

– Social development (R8.4)

– Housing and built environment (R11.5 billion)

• The least prioritised include:– Rural development (R1 billion)

– Productive capacity of the economy (R3.2 billion) and

– Industrial development, science and technology (R1.6 billion).

– The most substantial appropriation to a programme was for R30 billion to ESKOM in 2009

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APPROPRIATIONS : 2007 TO APPROPRIATIONS : 2007 TO 20112011

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Table 1: Appropriations and funded priorities 2007 to 2011 MTEFR million 2007/08 2008/09 2009/10 2010/11 2011/12 Total 2007-2011Provincial equitable share 3 570 5 903 5 585 15 058 Education 342 495 1 131 4 150 2 807 8 925 Health 600 1 100 404 3 121 918 6 143 Social Security and Social development 270 2 705 2 510 1 785 1 164 8 434 Housing and community development 6 623 1 004 2 119 100 1 634 11 480 Local government Equitable Share 1 114 491 900 2 505 Total CMBSs 11 405 12 321 12 240 10 056 6 523 52 545 Job Creation 567 2 301 2 868 Justice ,crime prevention and policing 1 636 400 750 1 180 100 4 066 Economic Infrastructure 1 943 2 492 37 988 2 872 3 532 48 827 Industrial development, science & technology 1 052 561 1 613 Productive capacity of the economy 3 180 3 180

Rural development 1 010 1 010 Total CMBSs Enablers 4 631 6 072 39 299 5 629 5 933 61 564

Public administration capacity 444 478 8 159 2 058 11 139

International relations and defence 508 474 766 1 748

Compensation of employee adjustments 10 000 11 413 21 413

Other adjustments 844 4 652 7 743 2 145 5 185 20 569 Total Non CMBSs 1 796 5 604 16 668 12 145 18 655 54 868 Grant Total 17 832 23 997 68 207 27 831 25 927 168 978

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APPROPRIATIONS SHARES: 2007 TO APPROPRIATIONS SHARES: 2007 TO 20112011

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Appropriations and Finance Workshop

Table 1. 2: Prominance of priority over timeR million 2007/08 2008/09 2009/10 2010/11 2011/12 Average SharesProvincial equitable share 31% 48% 46% 0% 0% 25% 9%Education 3% 4% 9% 41% 43% 20% 5%Health 5% 9% 3% 31% 14% 13% 4%Social Security and Social development 2% 22% 21% 18% 18% 16% 5%Housing and community development 58% 8% 17% 1% 25% 22% 7%Local government Equitable Share 0% 9% 4% 9% 0% 4% 1%Share of CMBSs 64% 51% 18% 36% 25% 31%Job Creation 0% 0% 0% 10% 39% 10% 2%Justice ,crime prevention and policing 35% 7% 2% 21% 2% 13% 2%Economic Infrastructure 42% 41% 97% 51% 60% 58% 29%Industrial development, science & technology 23% 0% 1% 0% 0% 5% 1%Productive capacity of the economy 0% 52% 0% 0% 0% 10% 2%Rural development 0% 0% 0% 18% 0% 4% 1%Share of CMBSs Enablers 26% 25% 58% 20% 23% 36%Public administration capacity 25% 9% 49% 0% 11% 19% 7%International relations and defence 28% 8% 5% 0% 0% 8% 1%Compensation of employee adjustments 0% 0% 0% 82% 61% 29% 13%Other adjustments 47% 83% 46% 18% 28% 44% 12%Share of Non CMBSs 10% 23% 24% 44% 72% 32%

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NATIONAL GOVERNMENT AND FUNDING NATIONAL GOVERNMENT AND FUNDING OF CMSOF CMS

• Additional funding to national functions are important to facilitating attainment of constitutional rights– Justice, Crime Prevention and Policing

• construction of courts, upgrading of information technology infrastructure and additional Police personnel

– Higher Education• Additional funding was appropriated to higher education subsidies to cater for

increases in higher education costs and enrolments

• However concern remains the high number of unemployed graduates as results of a less than optimally functioning system in the sector

– A need to increase student equity, graduation rates and enrollment rates in scarce skills

– A need to improve the number of students who complete their studies and graduate.

– Social Protection• Has shown to be effective in reducing poverty

• However, extension of grants should be coordinated with developmental social welfare services aimed at rehabilitation and integration of persons back into social and economic life

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PROVINCIAL GOVERNMENT AND FUNDING PROVINCIAL GOVERNMENT AND FUNDING OF CMSOF CMS

• Basic education and health are prioritised respectively contributing to human capital investment, improved life expectancy and healthy society

• Provinces also receive additional funding towards social infrastructure in the form of housing

• Economic infrastructure to provinces would lead to improvement and increment in both the efficiency and network of infrastructure.

• The challenge for provinces remains over expenditure in both personnel and under-spending in infrastructure without the parallel outcomes including within EPWP and housing

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LOCAL GOVERNMENT AND FUNDING LOCAL GOVERNMENT AND FUNDING OF CMSOF CMS

• CMS in the LG include potable water, electricity, public transport, sanitation and refuse removal

• Even though annually the share of allocations from the nationally raised revenue is low it must be noted that the LG generates its own revenues to fund the CMS to an extent

• Where there is targeted funding through LES, it needs to be sustained to avoid disruption in the eradication of backlogs– Funded priorities include municipal infrastructure, transport and water

schemes, public transport roads and rail infrastructure and Regional bulk infrastructure grants

– These funding windows have played a critical role in improving the provision of basic services and creation of jobs

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CONCLUSIONCONCLUSION• Having analysed the past 5 years inclusive of the

2011 Bill of appropriations, the Commission concludes that:– There has been some significant funding of Constitutionally

Mandated Services from additional revenue collected by the state

– There is a need to improve technical efficiency with which resources are utilized across and within the three spheres of government

– National departments that own conditional grants should support the recipient governments where under-spending is due to capacity in order to reduce the increasing incidence of withheld resources

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