national treasury spending trends briefing standing committee on appropriations july 7, 2009

National Treasury Spending Trends Briefing

Standing Committee on Appropriations

July 7, 2009

2

Agenda

• Introduction• Improving monitoring and reporting

– In year spending reports– Functionality of programme budgeting– Standing Committee on Appropriations briefings

• Consolidated spending overview • Spending efficiency issues and spending pressures in

selected government sectors:– Education and related services– Urban development and infrastructure services

INTRODUCTION

4

Introduction

• Briefing design– Public Finance division officials:

• Julia de Bruyn, Chief Director - Education and related services

• Mahesh Fakir, Chief Director - Urban development and infrastructure services

• Robert Clifton, Project Coordinator - Technical Assistance Unit (TAU)

– Inform committee on current & planned improvements to in-year spending reports and programme budgeting

– Seek recommendations on structuring Treasury’s ongoing interactions with the committee

5

Introduction

• Briefing design– Overview of 4th quarter 2008-09 consolidated

spending • Totals and selected department programme

over/under spending– Sector-specific discussion

• Allow committee to focus on two areas of service delivery linked to government priorities

• Hone in on spending efficiency issues and spending pressures for take-up with departments and public entities

IMPROVING MONITORING AND REPORTING

7

Improving monitoring & reporting

1. In year spending reports– Format and contents of the “JBC” report– Explanations of over/under spending per programme

and economic classification categories– Planned improvements include making the report

more departmentally customized and aligned to the appropriation bill including all subsidies and grants, conditional grants to provinces and transfers to public entities. See example next page.

8


• In year spending reports– Format and contents of the “JBC” report– Explanations of over/under spending per programme

and economic classification categories– Planned improvements include making the report

more departmentally customized and aligned to the appropriation bill including all subsidies and grants, conditional grants to provinces and transfers to public entities

9


2. Functionality of programme budget – Public Finance has started a process to review the

programme budget structures of all national departments (i.e., votes)

– Aim is to improve the management, accountability and monitoring of spending and service delivery

– Focus on strategic goals, mandated functions and main divisions. The review will take account of:

• Programme and subprogramme objectives and activities• Performance indicators and targets• Short and medium-term projects• Role of the programme manager• Public entity oversight

10


2. Functionality of programme budget – The expected output of the project:

• Confirmed or revised budget programme structures for each vote based on vote specific recommendations relating to the format and content of the appropriations bill.

• Recommendations will be contained in a series of brief reports to the Ministers Committee on the Budget (MinComBud). The Presidency and Parliamentary will also be consulted

– Current status: Draft Programme Budgeting Guideline is being tested for understandability and applicability with 4 national departments

11


3. Standing Committee on Appropriations– Please consider how to structure these engagements

with the Treasury in terms of:• Spending trends briefings• Reviewing changes to the programme budget

structure

CONSOLIDATED SPENDING OVERVIEW

13

Consolidated spending overview

• What this report provides is some pointers for assessing national departmental performance

• What this report doesn’t tell us as much about:– Spending efficiency (i.e., value for money)

• Lack of comprehensive performance indicators• Value of money assessments are as much as

about evaluation as routine monitoring– Expenditure detail to programme level but not

subprogramme, activity or project level

14


• Trends shown by performance indicators can be tell just part of story. For any indicator we must ask if:

– Is it reliable – Is it clear what’s being measured– Is it verified and accurate– Is it cost-effective– Is it causing intended consequences– Is it relevant to service delivery

15


– Service delivery • In certain sectors spending and service delivery

takes place in the provinces and by public entities that receive fiscal transfers and grants from national departments

– Provincial spending is monitored closely although each provincial treasury and legislature write/pass budgets

– PFMA does not cover public entities in the same way as national and provincial departments. Over 300 entities, not on Basic Accounting System, autonomous of the Public Service Act, Use accrual accounting, budget differently (i.e., not programme budgeting)

16


• National & Provincial 2008-09 adjusted budget = R637.4 – R370.2 appropriated (e.g., dept. budgets, conditional

grants, subsidies & transfers to public entities)• Of which R101.6 is for current payments, R10.2 is

for capital assets, R258.7 is for transfers mostly conditional grants and public entities

– R267.2 direct charges (e.g., R257.9 for equitable share transfer)

• National government departments are directly responsible for R121.8 or 19% of spending for direct service delivery

• R79.6 is transferred to households mostly through social grants

Note: All numbers in billions of Rands

17


• In total 99.82% of appropriated and direct charges funds were expended or transferred including:– 100.3% for current payments = R101.3– 99.54% for transfers & subsidies = R258.7– 93.5% for capital payments = R10.2– 100.14% for direct charges = R267.2

Note: All numbers in billions of Rands

18


• In terms of select department spending against budget:

Foreign Affairs = 97.68% Mainly dues to delay in construction of Pan African Parliament

Home Affairs = 96.88% This is up from 92.07% in 2007-08. Mainly due to delays in Smart ID card roll-out and an Advance Passenger Processing System (Roll-over has been requested)

Public Works = 97.39% Mainly due to delays in infrastructure delivery, vacancies

Health = 97.56% Mainly due to Hospital Revitalization monies being withheld due to slow delivery. Nurses OSD salary adjustments caused overspending in provinces, not shown in this report.

Labour = 94% Mainly due to Programme 2 – Service Delivery aimed ensuring compliance via inspection with Labour policies. High vacancy rates up to 49% for inspectors and slow spending by Public Works on department Labour Centers.

19


• In terms of select department spending against budget:

Correctional Services = 103.9% Mainly due to overtime payments to compensate for the non-implementation of an Correctional Officer OSD

Agriculture = 96.9% Mainly due to R60m not transferred to DBSA for Ilima/Letsema food production projects

Housing = 99.93% Up from 95.6% in 2007-08

DWAF = 92.82% De Hoop Dam construction delays: Parts of the project (bulk distribution of raw water from the dam; construction of water treatment works; bulk distribution of potable water; and reticulation of potable water to consumers) were stalled for approx.15 months due to delays associated with environmental approvals and compliance with environmental conditions. Department also progressed slower than expected with the relevant feasibility studies as well as TCTA directives.

SECTOR-SPECIFIC FOCUS - EDUCATION AND RELATED

SERVICES

21

Sector-specific focus – Education and related services

• The budgets and expenditure of the departments of Labour, Education, Arts and Culture and Sport and Recreation are dominated by transfer payments:– Arts: transfers to public entities (museums, arts councils, Freedom

Park etc.) and provinces (Community Libraries CG) comprised 68% of the department's total expenditure for 2008/09 (R1.4 bn out of R2.1 bn).

– Sports: transfers to municipalities (the 2010 FIFA World Cup CG) and provinces (Mass Participation CG) comprise 95% of the department's total expenditure for 2008/09 ( R4.6 bn out of R4.9 bn)

– Education: transfers to higher education institutions and the NSFAS and provinces (NSNP, FET recap and Life skills CG’s) compromise 93 % of the department's total expenditure for 2008/09. (R18.4 bn out of R19.7 bn)

– Labour: transfers to public entities (SETA’s; NSF; CCMA; UYF NEDLAC; Productivity SA) comprise 80.5% of the department's total expenditure for 2008/09 (R7.23bn out of R8.98bn)

22


• Selected conditional grants:

– Vote 12: Arts and Culture - The Community Library Services

• R344.4 million was transferred to provinces to strengthen and improve the provision of library services, of which 89.8% was spent. Biggest under spenders were Northern Cape (76.2%: mainly due to delays in procuring container libraries for which tenders had to be re-advertised) and Mpumalanga (78.6%: mainly due to delays in the building of two of the planned three libraries where the selected sites were found to be unsuitable)

– Vote 13: Education - NSNP:

• R1.9 billion transferred to provinces to ensure that all quintile 1 – 3 primary school learners are fed on all school days. Provinces spent R1.6 billion (83.5%) of funds received, with the preliminary outcomes for Gauteng (55.2%) and KZN (68.7%) indicating the lowest spending. Underspending was mainly as a result of delays in the procurement of equipment for the roll-out of the programme to secondary schools.

23


• Selected conditional grants:– Vote 17: Sport - 2010 FIFA World Cup Stadiums Development Grant

• R4.3 billion transferred to the municipalities for the construction and upgrading of 10 stadiums for the 2010 FIFA World Cup. 95% of this was spent by municipalities by 31 March 2008/09.

24


• Selected public entities – Umalusi– Umalusi is the quality assurer in general and further education and

training bands of the NQF. The revised NQF has given them additional responsibilities, including quality assuring new and existing qualifications and curricula. They received a grant of R16 million from the DoE and collected revenue of R27 million, mainly for certification fees, in 2008/09.

– Umalusi had a surplus of R5 million for 2008/09. The surplus is mainly due to additional income received from certification fees and investment income of R2.8 million.

– Section 53(3) of the PFMA allows PE’s to retain their surpluses with Treasury approval – accumulated funds can be spent on items within the PE’s mandate

– Umalusi has an accumulated surplus of R25 million. They intend to utilise R21 million of this surplus to fund their additional responsibilities over the current MTEF. R2.5 million will be used for the Adult Matric Project (to research and pilot an alternative for adults and out of school youth to gain an equivalent to the National Senior Certificate) and the balance of R1.5 million to be used to ensure that cash flow requirements are met when revenue collected in a month is insufficient to cover the expenses for that month.

25


• General spending efficiency issues

– Each Ministry with significant numbers of PE’s or a PE with a substantial budget should have a unit that conducts the oversight and support function of these PE’s on behalf of the Minister

– Similarly for CG’s – each department should have dedicated personnel to undertake the functions as specified in the DORA for the transferring accounting officer of any conditional grants

– Where Ministries and departments see underspending by PE’s and on CG’s they should withhold the following transfer tranche until spending improves using the rules in the PFMA and DORA

– Tracking of vacancy rates: where these are 20% and greater – departments will be requested to abolish the non-essential posts within these vacancies

– Generally there is an underestimate of the time it takes to hire more personnel, to run a tender procedure and plan a capital project. This affects both the ability to spend and quality of any spending

26


• General spending pressures– Restructuring of the department of Education into Basic Education and

Higher Education and Training (HE&T) as well as the transfer of the SETAs and related functions from department of Labour to HE&T

– On the NSNP – more learners ito the rollout to secondary schools and a possible increase in the number of needy learners in both primary and secondary schools as well as increases in the cost of food

– On the Higher Education subsidy and NSFAS - as institutions increase their student intake, more poor learners require financial assistance

– On the Employment Services System at Labour centres – with the recession the number of work seekers needing to use these services is increasing

SECTOR-SPECIFIC FOCUS: URBAN DEVELOPMENT AND

INFRASTRUCTURE SERVICES

Transport (approx. R77 bn over 2009 MTEF)

Transport

0

5

10

15

20

25

30

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Year

Bu

dg

et

(R B

illi

on

)

Year 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

R billion 10.41 13.36 16.33 24.14 23.73 25.48 27.92

29

Sector specific focus: Urban Development & Infrastructure

Vote 33: Transport: Over-expenditure of R325.098 million

– Programme 6: Public Transport:– Over-expenditure (R840.853 million or 6.8% of adjusted allocation) on bus

subsidies due to legal action taken against the Department on the payment of bus subsidies. Restricted scope to address over-expenditure due problem arising in 4th quarter and large amount of funds specifically and exclusively earmarked. To prevent the situation from arising in the future the National Treasury as created a supplementary Schedule 4 grant to provinces

– Programme 3: Transport Regulation & Accident & Incident Investigation:– Over-expenditure (R32.3 million or 7.6 % of adjusted appropriation) AFIRAN

Aviation conference due to insufficient departmental budgeting

– Programme 1: Administration:– Under-expenditure (19.1 million or 7.6% of adjusted appropriation) due to

delays in procurement for various projects

– Programme 2: Transport Policy & Economic Regulation:– Under-expenditure (R13.6 million or 29.5% of adjusted appropriation) has

become systemic. The programme has a 40% vacancy rate and the appointment of consultants to do policy work has repeatedly been delayed


Vote 33: Transport continued:

Programme 5: Transport Logistics & Corridor Development:– Under-expenditure (R13 million or 37.3% of adjusted appropriation) has

become systemic and is partly due to weak planning and coordination.

– Programme 7: Public Entity Oversight & Border Operations & Control:– Under-expenditure (R11.8 million or 0.9% of adjusted appropriation). Under-

expenditure due to delays in invoicing from Justice on legal support for the Road Accident Fund Amendment Act, 2005 and delays in the appointment of consultants on the policy work for a no-fault road accident benefit scheme

– Programme 4: Integrated Planning & Intersphere Coordination:– Under-expenditure (R476.9 million or 5.4% of adjusted appropriation) was due

to delays in signing a MOU with PRASA fro 2010 World Cup fund which was allocated in the 2007 budget, R250 million was not transferred to the City of Tshwane after the National Treasury stopped the allocation due to persistent under-expenditure of the PTIS grant funding. These funds have as yet not been reallocated.

Some Spending Pressures

• Calls for increased Public transport subsidies (incl taxi’s) on existing poorly defined subsidy system

• New systems in Public transport e.g. BRT

• More rail infrastructure extension projects e.g. Moloto

• Improving our aging rail fleet, perway, stations and signalling systems

• Increased road deterioration and congestion and damage due to trucking, e.g. Coal Haulage Roads

• Road Accident Fund pressures due to slow change in system

Housing (approx. R48 bn over 2009 MTEF)

Housing

0

5

10

15

20

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Year

Bu

dg

et (

R B

illi

on

)

Year 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

R billion 5.25 7.17 8.59 10.63 13.59 16.14 18.41


Vote 26: Housing:

• Under-spent by R6.4 million or 0.1 per cent of adjusted appropriation

– Under-spending due to personnel and personnel related costs due to vacancies

– Expenditure on the Housing and Human Settlement grant increased from 95.6% to 100.9% (over-expenditure in Mpumalanga and North West)


• Need for larger and more houses

• Non-alignment with MIG, and refusal to include township establishment infrastructure in housing grant

• Formation of HD Agency with no clear operating rules and funding model

• Push for more nationally led projects rather than accreditation of capable municipalities

DWAF (approx. R25 bn over 2009 MTEF)

DWAF

0

2

4

6

8

10

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Year

Bu

dg

et (

R B

illi

on

)

Year 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

R billion 3.8 4.31 5.39 6.47 7.89 8.29 9.46

36


Vote 34: Water Affairs and Forestry:Programme 2: Water Resources Management:

De Hoop Dam Construction – Under expenditure• more earthworks than anticipated• higher stream flow than expected making work in the river section

originally very difficult• inability to attract and retain experienced staff in underdeveloped part of

RSA and construction boom in industry • lengthy procurement processes • poor service and maintenance support from plant companies.

– De Hoop Dam Social Component (Bulk Distribution to Communities and Mines) – Under expenditure

• Very slow progress because this phase of the overall project is dependent on the dam construction

Programme 3: Water Services: over expenditure – This relates to late submission of invoices – indicative of poor coordination

between regional offices and Head officeProgramme 4: Forestry: over expenditure – relates to late submission of invoices - indicative of poor coordination

between regional offices and Head office


• Need for more dams• Need for more bulk pipelines and treatment facilities in order to

enable local reticulation and connection to unserviced households

• Need for rehabilitation to address widescale leakage and wastage

• Eradication of schools and clinics backlogs for water & sanitation

• Sanitation backlogs

DPLG (approx. R126 bn over 2009 MTEF)

DPLG

0

10

20

30

40

50

60

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Year

Bu

dg

et (

R B

illi

on

)

Year 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

R billion 15.98 24.58 30.03 34.87 35.61 42.54 47.75

39


Vote 29: Provincial and Local Government:

– Programme 1: Administration:

– over expenditure due to new staff appointments and related expenditure due to new Ministry

– Programme 6: Provincial and Local Government Transfers:

– R287 million was withheld from non-performing municipalities


• Need to address small municipalities, may be unviable from a large project perspective – formula based MIG allocations need review

• Although MIG allocation is large, the ability to plan and deliver in a coordinated and efficient way, needs improvement and oversight

• MIG needs better targeting and alignment with housing delivery

DME (approx. R15 bn over 2009 MTEF)

DME

0

1

2

3

4

5

6

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Year

Bu

dg

et (

R B

illi

on

)

Year 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

R billion 2.19 2.61 2.95 3.68 4.65 5.11 5.44


Vote 28: Minerals and Energy:– Underspent by R33.26 million

– Programme 7: Associated Services:

– R6.5 million conditional grant payments on the Integrated National Electrification Programme (INEP) not made due to delays in service agreements

– Savings realised from vacancies due to high staff turnover, delays in capital assets payments and transfer to other entities

– lack of spending of the non-grid electrification allocations (R84m) due to no resolution on the contracting of service providers in the last 3 years


• INEP (electrification) grant pressures – due to the need for substations and bulk connector infrastructure

• Overall power shortage issues and Eskom financing pressures on large build programme in lowest price environment

• Push for energy efficiency and demand side management to be paid by taxpayers rather than electricity users

• Possible EDI restructuring (RED’s) pressures• IPP support• Possible Nuclear generation requirements

Communications (approx. R6.6 bn over 2009 MTEF)

DOC

0

0.5

1

1.5

2

2.5

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Year

Bu

dg

et (

R B

illi

on

)

Year 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

R billion 1.03 1.32 1.91 2.33 2.27 2.26 2.12


Vote 24: Communications:• Underspent by R2.89 million

• R1.1 million saving realised, and

• Another R1.797 million savings realised from the devolution of Public Works funds from the Emergency call centres.


• SABC sustainability problems• TV digitisation infrastructure• Possible Set-top box subsidies• Universal ICT access infrastructure• Undersea telecommunications cables

national treasury spending trends briefing standing committee on appropriations july 7, 2009

Documents

monitoring of spending

spending pressures

programme budget structures

consolidated spending

monitoring reporting2

monitoring reporting1

ministers committee

conditional grants