Using Budget Analysis Using Budget Analysis to Scrutinise the Public to Scrutinise the Public

Enterprises VoteEnterprises Vote

A Presentation by IDASAA Presentation by IDASA

7 March 20077 March 2007

Purpose of the Presentation Purpose of the Presentation

►To clarify some basic budget analysis To clarify some basic budget analysis techniques techniques

►To show how these techniques can To show how these techniques can facilitate analysis of the DPE budget by facilitate analysis of the DPE budget by making budget figures more revealingmaking budget figures more revealing

Basic Uses of Budget Basic Uses of Budget AnalysisAnalysis

Quantitative information regarding:Quantitative information regarding:1)1) PriorityPriority2)2) ProgressProgress3)3) EquityEquity4)4) AdequacyAdequacy

This presentation emphasis the first twoThis presentation emphasis the first two

Manner in which Figures are Manner in which Figures are Organised in the ENEOrganised in the ENE

►Allocations by ProgrammeAllocations by Programme►Allocations by Economic ClassificationAllocations by Economic Classification

Current Payments (Salaries and Current Payments (Salaries and Goods/Services)Goods/Services)

Transfers and SubsidiesTransfers and Subsidies Payments for Capital AssetsPayments for Capital Assets

(Each Programme Allocation is further (Each Programme Allocation is further broken down by economic classification)broken down by economic classification)

ENE Allocations ContinuedENE Allocations Continued

► Thus a large/interesting programme Thus a large/interesting programme allocation can be analysed further by allocation can be analysed further by looking at:looking at:

1)1) The economic classification of The economic classification of functions in the programmefunctions in the programme

2)2) The descriptive information provided The descriptive information provided for each programmefor each programme

Technique 1: Share of Total Technique 1: Share of Total (Priority)(Priority)

►Purpose 1: Relative Priority of Functions / Purpose 1: Relative Priority of Functions / Programmes at a Point in TimeProgrammes at a Point in Time

►Purpose 2: Trends in relative priority over Purpose 2: Trends in relative priority over timetime

►Purpose 3: Priority (and trends) of Purpose 3: Priority (and trends) of Departmental allocations as share of Departmental allocations as share of total public spending and as share of total public spending and as share of GDPGDP

►Calculation: (Share / Total) * 100Calculation: (Share / Total) * 100

The budget figures…The budget figures…

(R Thousand) 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010

Administration 37114 40177 46311 51705 59260 59577 61187

Energy, Broadband Infrastructureand Mining Enterprises 32360 13817 21146 722561 10374 12543 13289

Legal, Governance and Risk 7946 17208 14799 16642 22676 19201 20219

Manufacturing Enterprises 5848 606430 2587912 2063136 946852 13341 13625

Transport Enterprises 698 1054 1315 4470 10126 13304 15296

Joint Project Facility 0 0 0 11409 14678 22737 26294

TOTAL 83 966 678 686 2 671 483 2 869 923 1 063 966 140 703 149 910

DPE Budget as a % of DPE Budget as a % of Total Voted Funds and % of GDPTotal Voted Funds and % of GDP

(R Thousand) 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010

DPE Total 83966 678686 2671483 2869923 1063966 140703 149910

GDP 1288952000 1430673000 1580119000 1755340000 1938934000 2141747000 2379299000

Total Expenditure 328709000 368541000 416760000 470614000 533873000 594198000 650301000

DPE Budget as % of GDP 0.007 0.047 0.169 0.163 0.055 0.007 0.006

DPE Budget as % of Total Expenditure 0.026 0.184 0.641 0.610 0.199 0.024 0.023

Share of Total (%) and Share of Total (%) and Trends in Share of TotalTrends in Share of Total

(R Thousand) 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010

Administration 44.2 5.9 1.7 1.8 5.6 42.3 40.8

Energy, Broadband InfrastructureAnd Mining Enterprises 38.5 2.0 0.8 25.2 1.0 8.9 8.9

Legal, Governance and Risk 9.5 2.5 0.6 0.6 2.1 13.6 13.5

Manufacturing Enterprises 7.0 89.4 96.9 71.9 89.0 9.5 9.1

Transport Enterprises 0.8 0.2 0.0 0.2 1.0 9.5 10.2

Joint Project Facility 0.0 0.0 0.0 0.4 1.4 16.2 17.5

TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Visually…Visually…DPE Programmes: Share of Total

0.0

20.0

40.0

60.0

80.0

100.0

120.0

2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010

Administration

Energy, Broadband Infrastructure and Mining Enterprises

Legal, Governance and Risk

Manufacturing Enterprises

Transport Enterprises

J oint Project Facility

Totals and Share of Total Totals and Share of Total (Economic Classification)(Economic Classification)

2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010

Current Payments 74613 67219 76537 101336 129421 139678 149155

Transfers and Subsidies 8571 609032 2593997 2766752 933620 650 680

Payments for Capital Assets 782 2435 949 1835 925 375 75

2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010

Current Payments 88.9 9.9 2.9 3.5 12.2 99.3 99.5

Transfers and Subsidies 10.2 89.7 97.1 96.4 87.7 0.5 0.5

Payments for Capital Assets 0.9 0.4 0.0 0.1 0.1 0.3 0.1

Share of Total and Trends Share of Total and Trends Excluding Manufacturing Excluding Manufacturing

EnterprisesEnterprises

(R Thousand) 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010

Administration 47.5 55.6 55.4 6.4 50.6 46.8 44.9

Energy, Broadband InfrastructureAnd Mining Enterprises 41.4 19.1 25.3 89.6 8.9 9.8 9.8

Legal, Governance and Risk 10.2 23.8 17.7 2.1 19.4 15.1 14.8

Transport Enterprises 0.9 1.5 1.6 0.6 8.6 10.4 11.2

Joint Project Facility 0.0 0.0 0.0 1.4 12.5 17.9 19.3

TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Technique 2:Real Percentage Technique 2:Real Percentage Growth Rates (‘Progress’)Growth Rates (‘Progress’)

► Important to calculate trends in allocations to particular Important to calculate trends in allocations to particular programmes/functions over time: ‘progress’ if you think the programmes/functions over time: ‘progress’ if you think the trend is the right onetrend is the right one

► Problem that budget allocations present Problem that budget allocations present nominal nominal allocationsallocations► Simple example:Simple example: 19991999 R 2 000 000R 2 000 000 2000 2000 R 2 500 000R 2 500 000 2001 2001 R 2 600 000R 2 600 000

It is tempting to argue that the 2000 calculation was 25% It is tempting to argue that the 2000 calculation was 25% more than the 1999 allocation, but is this true? Nominally yes, more than the 1999 allocation, but is this true? Nominally yes, but in real terms maybe, maybe not. It is but in real terms maybe, maybe not. It is notnot necessarily the necessarily the case that 25% purchasing power was allocated to the functioncase that 25% purchasing power was allocated to the function

► Real means adjusted to reflect actual purchasing power: this Real means adjusted to reflect actual purchasing power: this is determined by the interaction of allocation changes and is determined by the interaction of allocation changes and inflation changesinflation changes

Nominal % Change Nominal % Change CalculationCalculation

►(New Value – Old Value) / Old Value * (New Value – Old Value) / Old Value * 100100

►Thus: (2 500 000 – 2 000 000) / 2 000 Thus: (2 500 000 – 2 000 000) / 2 000 000000

* 100* 100

= (500 000 / 2 000 000) * 100= (500 000 / 2 000 000) * 100

==25%25%

InflationInflation

19991999 20002000 20012001

Allocation Allocation 2 000 0002 000 000 2 500 0002 500 000 2 600 0002 600 000

Nominal % Nominal % ChangeChange

/ / 25%25% 4%4%

ButBut

►To get the real change, that is whether To get the real change, that is whether the purchasing power of the allocation the purchasing power of the allocation has increased or decreased, we need has increased or decreased, we need to first deflate the allocations and then to first deflate the allocations and then do the same calculationdo the same calculation

►We use a deflator to express the We use a deflator to express the values in terms of the value of the values in terms of the value of the Rand in a particular year (also called Rand in a particular year (also called constant Rands)constant Rands)

Real Percentage ChangesReal Percentage Changes

►1999 2000 2001

2000000 2500000 2600000

Nominal Change (%) 25 4

Inflation Rate 19% 11%

Index value (e.g. CPII) 100 119 132.09

Real Value (1999 Rand) 2000000 2100840 1968355

Real Percentage Change 5.0 -6.3

Summarising the ProcessSummarising the Process

►Get deflators / price indicesGet deflators / price indices►Select base yearSelect base year►Convert nominal allocations to real Convert nominal allocations to real

allocationsallocations►Calculate percentage changeCalculate percentage change

FormulaFormula

► Nominal Allocation * (Base Year Index/Current Year Nominal Allocation * (Base Year Index/Current Year Index)Index)

► Ie the nominal allocation is multiplied by the ratio of Ie the nominal allocation is multiplied by the ratio of base year price to price in the year of the allocationbase year price to price in the year of the allocation

► Thus R 2 500 000 was multiplied by 100 / 119 to Thus R 2 500 000 was multiplied by 100 / 119 to get the real allocation of R 2 100 840: in real terms, get the real allocation of R 2 100 840: in real terms, as expected, the allocation is less than the nominal as expected, the allocation is less than the nominal R 2 500 000R 2 500 000

Deflating using DPE figures: Deflating using DPE figures: Nominal % ChangeNominal % Change

Nominal Percentage Change 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010

(R Thousand)

Administration 8.3 15.3 11.6 14.6 0.5 2.7

Energy, Broadband InfrastructureAnd Mining Enterprises -57.3 53.0 3317.0 -98.6 20.9 5.9

Legal, Governance and Risk 116.6 -14.0 12.5 36.3 -15.3 5.3

Manufacturing Enterprises 10269.9 326.7 -20.3 -54.1 -98.6 2.1

Transport Enterprises 51.0 24.8 239.9 126.5 31.4 15.0

Joint Project Facility 28.7 54.9 15.6

TOTAL 708.3 293.6 7.4 -62.9 -86.8 6.5

Real % ChangeReal % Change

► Given the following price indices, 1) calculate the Given the following price indices, 1) calculate the real percentage change in the total allocation to real percentage change in the total allocation to administration from 08/09 to 09/10administration from 08/09 to 09/10

► 2) What is the estimated inflation rate over this 2) What is the estimated inflation rate over this period?period?

► 03/0403/04 -- 8484► 04/0504/05 -- 8787► 05/0605/06 -- 9191► 06/0706/07 -- 9595► 07/0807/08 -- 100100► 08/0908/09 -- 105105► 09/1009/10 -- 109109

Real Percentage ChangesReal Percentage ChangesReal Percentage Change 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010

Administration 4.5 10.2 6.9 8.9 -4.3 -1.1

Energy, Bband, Mining -58.8 46.3 3173.1 -98.6 15.2 2.1

Legal, Governance and Risk 109.1 -17.8 7.7 29.4 -19.4 1.4

Manufacturing Enterprises 9912.3 308.0 -23.6 -56.4 -98.7 -1.6

Transport Enterprises 45.8 19.3 225.6 115.2 25.1 10.8

Joint Project Facility 22.2 47.5 11.4

TOTAL 680.4 276.3 2.9 -64.8 -87.4 2.6

ApplicationApplication

►The same techniques can be used with The same techniques can be used with individual programme budgets to individual programme budgets to determine priorities and trends and determine priorities and trends and generate questions to the Departmentgenerate questions to the Department

Comments / Questions based on Comments / Questions based on the ENE informationthe ENE information

►Clearly the transfers to various SOE’s Clearly the transfers to various SOE’s have made the budget figures a roller have made the budget figures a roller coaster ride: it is worth conducting the coaster ride: it is worth conducting the analysis with these transfers removed analysis with these transfers removed to focus on longer-term funding for the to focus on longer-term funding for the Department’s key functionsDepartment’s key functions

Comments / Questions Comments / Questions ContinuedContinued

► Nominal allocations for ‘Consultants, contractors and special Nominal allocations for ‘Consultants, contractors and special services’ go from R 21 331 000 to R 34 670 000 from 06/07 to services’ go from R 21 331 000 to R 34 670 000 from 06/07 to 07/08: a nominal percentage increase of 62.5%. 07/08: a nominal percentage increase of 62.5%. Compensation of employees goes up by a significant but Compensation of employees goes up by a significant but comparatively small nominal percent of 19.2%. The increased comparatively small nominal percent of 19.2%. The increased allocations for this function is not limited to a specific allocations for this function is not limited to a specific programme, but reflects increased allocations in all the programme, but reflects increased allocations in all the programmes to this function. The increase is, in other words, programmes to this function. The increase is, in other words, significantly in excess of the departmental budget increase as significantly in excess of the departmental budget increase as a whole. a whole. Two questions: Two questions: 1) Is it not possible to retain greater expertise in the 1) Is it not possible to retain greater expertise in the Department, that is rely more on employees and less on Department, that is rely more on employees and less on consultants and similar services?consultants and similar services?2) How does the Department ensure that it is getting value for 2) How does the Department ensure that it is getting value for money in contracting these and related services?money in contracting these and related services?

Comments / QuestionsComments / Questions

►Allocations to capital assets for the Allocations to capital assets for the department itself decline rapidly over the department itself decline rapidly over the MTEF, from R 1 809 000 in 2006/2007, to R MTEF, from R 1 809 000 in 2006/2007, to R 925 000 in 2007/2008, and down to R 75 000 925 000 in 2007/2008, and down to R 75 000 in 2009/2010. Is this adequate for future in 2009/2010. Is this adequate for future departmental capital needs?departmental capital needs?

►Can the DPE explain the basis on which the Can the DPE explain the basis on which the travel and subsistence allocations are travel and subsistence allocations are calculated? Recent trends appear somewhat calculated? Recent trends appear somewhat random as well as including huge percentage random as well as including huge percentage changeschanges

Travel and Subsistence Travel and Subsistence Allocations Allocations

to Programmesto Programmes

Programme ( R ‘000) 2006/2007 2007/2008 Nominal % Change

Administration 2950.0 5710.0 93.6

Energy, Broadband and Mining Enterprises 156.0 855.0 448.1

Legal, Governance and Risk 1382.0 715.0 -48.3

Manufacturing Enterprises 2941.0 5724.0 94.6

Transport Enterprises 46.0 508.0 1004.3

Joint Project Facility 466.0 550.0 18.0

►Thank youThank you