FFC Briefing on the 2015 Appropriation Bill

1. BRIEFING ON THE 2015
APPROPRIATION BILL
For an Equitable Sharing of National Revenue
12 May 2015
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2. 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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3. Briefing on the 2015 Appropriation Bill
FFC RESPONSE TO THE APPROPRIATIONS
BILL

4. Briefing on the 2015 Appropriation 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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5. Briefing on the 2015 Appropriation Bill
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 base 5

6. Briefing on the 2015 Appropriation Bill
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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7. Briefing on the 2015 Appropriation Bill
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%

8. 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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9. 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

10. 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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11. ASSESSMENT OF 2015 APPROPRIATION
BILL

12. 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.
0
10
20
30
40
50
60
70
80
90
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Percentage-Economic Percentage-Social

13. 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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14. 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

15. Briefing on the 2015 Appropriation Bill
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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16. Briefing on the 2015 Appropriation Bill
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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17. Briefing on the 2015 Appropriation Bill
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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18. 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)
45.2%
2.1%
39.1%
13.6%
55.1%
5.2%
28.3%
11.3%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
New Infrastructure Assets Maintenance and Repairs Upgrading and Additions Rehabilitation and
Refurbishment
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

19. Briefing on the 2015 Appropriation Bill
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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20. Briefing on the 2015 Appropriation Bill
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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21. Briefing on the 2015 Appropriation Bill
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.
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22. THANK YOU.
Financial and Fiscal Commission
Montrose Place (2nd Floor), Bekker Street,
Waterfall Park, Vorna Valley, Midrand,
Private Bag X69, Halfway House 1685
www.ffc.co.za
Tel: +27 11 207 2300
Fax: +27 86 589 1038