BUDGET PROCESS 2005/06 TO 2007/08 BUDGET PROCESS FOR 2005/06 OPTIONS

1. BUDGET PROCESS 2005/06 TO 2007/08 BUDGET PROCESS FOR 2005/06 OPTIONS PRESENTATION TO BUDGET COMMITTEE (July 2004) CALCULATION OF BASELINE PRESENTATION TO BUDGET COMMITTEE (November 2004)

2. Annual Report 2005/06 Financial Year 2005/06 Estimates of National Expenditure Submission Budget process June 2004 Minister of DCS table in Parliament together with his Budget Speech the Strategic Plan for 2004/05-2006/07. Strategic Plan/Budget 2004/05- 2006/07 for 2005/06 August 2006 Report on achievements and expenditure trends May 2004-July 2004 DCS submit Medium Term Expenditure Framework proposals which includes 5 year forward estimates 2005/06-2009/10 & Options for additional funding. Submission of Annual Report 2003/04 MTEF Budget Proposals 2005/06- 2009/10 August / September 2004 Negotiation process between DCS & Medium Term Expenditure Committee. Submission of the Adjustment Estimate for 2004/05 Medium Term Budget Negotiations 01 April 2005- 31 March 2006 New financial year September 2005 Submission of the Adjustment Estimate for 2005/06 Operational Plan • November 2004-February 2005 • Cabinet/ Parliament take final decision on budget allocation for DCS. (Mid November) • DCS Review Strategic Plan and compile a costed Operational Plan (2005/06). • DCS Submit Estimates of National Expenditure Submission 2005/06-2009/10.

3. Preparing five-year strategic plans and budgets Departments are required to develop a five-year strategic plan to be tabled in Parliament soon after the tabling of the 2005 Budget in February next yearthat informs their 2005 MTEF budget proposals. These proposals will have a five-year outlook that includes detailed numbers for the first three-years (the MTEF budget); and proposed non-recurrent expenditure for years 4 and 5. The budget process will facilitate discussion and agreement between the National Treasury and departments on revisions to the 2004 MTEF baseline (2004/05 and 2005/06).

4. Preparing five-year strategic plans and budgets Cabinet’s approval of the 2005 MTEF will indicate to departments which of their new policy proposals will be funded and can be incorporated into their five-year plan. Appropriations to spending programmes are voted by the legislature, followed by the tabling of five-year departmental strategic plans in February/March 2005. This means that departments will no longer be required to produce a strategic plan every year. Instead, the preparation of Annual Reports will be used to inform the budget process and also revise the five-year strategic targets if necessary.

5. Reviewing of performance or service delivery results • In preparing the budget proposals and annual reports, departments will need to review performance or service delivery results of the previous period. ( MTEC will also use the Annual Report of 2003/04 as a basis for discussion with Department) • Undertaking an assessment of service delivery performance targets and examining departmental strategic objectives against broader Government priorities, will lead to the following queries: • Are planned outputs and deliverables still relevant? • Have service delivery commitments and targets been met? • Are departmental strategic objectives and planned outputs aligned with the core functions and mandates of the department?

6. Alignment between Government priorities and departmental objectives If there is a high degree of alignment between Government priorities and departmental objectives and outputs, Service delivery performance against targets: The department should propose revisions to those aspects of their strategic plan and objectives that will improve service delivery and better achieve the desired results over the next five years. If there is a low degree of alignment: The department will have to take a much more extensive review of its delivery plans in relation to Government’s medium-term policy and spending priorities.

7. Focus of the Medium Term Expenditure Committee • The proposed revisions to the department’s medium-term plans and the link to Government’s broad policy priorities and key challenges identified for each of the sectors. • The credibility of the costing and affordability of the new proposals. • The department’s ability to implement their new proposals over the MTEF period based on past performance and expenditure trends. • The outputs to be achieved in support of measurable objectives.

8. Report of the Medium Term Expenditure Committee It is the purpose of MTEC to discuss each of the above areas and formulate a report, in consultation with the Department, to the Ministers Committee on the Budget and Cabinet. The Ministers Committee on the Budgetwill consider each of the new policy proposals and their funding implications, in conjunction with the Treasury’s analysis.

9. Cabinet’s Decision Cabinet’s decision on changes to the MTEF programme allocations to national votes, will be communicated through Treasury allocation letters to departments in mid November. However, the equitable share allocations are communicated earlier. These detail the rationale and conditions of the final allocations to national votes for the new MTEF period. Once final allocations letters have been received, departments are required to revise their plans for the 2005- 2010 period, and to pay particular attention to priority policies and strategies and to the affordability of their planned outputs.

10. Due date at the Directorate Management Accounting and National Treasury • For the 2005 Budget, departments are expected to prepare their new spending proposals by 2 August 2004. • Due date at the Directorate Management Accounting: 14 July 2004.

11. Requirements for the 2005 MTEF budget proposals. • Alignment between Government’s priorities, departmental plans, existing medium-term allocations and expected service delivery milestones and targets. • Reviewing the programme structure, purpose and measurable objectives. • Accommodating new priorities within the baseline allocation through reprioritisation. • 2% saving on administration budgets over three years. • An indication of five year spending projections. The 4th and 5th years will only cover estimated non-recurrent expenditure. • Considering Public Private Partnerships as a possible delivery mechanism for infrastructure and other large projects. • Submission of policy options to change the Departments’ medium-term baseline allocation.

12. Responsibilities of Directorate Management Accounting together with Directorate Strategic Planning. • Obtain spending priorities from government ( SP). • Finalize the programme structure, purpose and measurable objectives (SP). • Specify outputs and identify changes to the 2004 Strategic Plan. • Obtain management information from Branches and compile costing schedules (MA). • Management Accounting will request Branches for: • (a) Inputs on savings for reprioritization exercise • (b) Additional information on options • (c) Non-recurrent expenditure (once –off exp over a definite period) • (d) Information on contingent liabilities and donor funding • (e) Information on Infrastructure • (f) Information on skills development programmes • Compiling Accounting Officers covering letter.( MA & SP)

13. OPTIONS If new policy developments could not be accommodated within the budget allocation of DCS through re-prioritisation (saving or down scaling) an option should be compiled and included in the Medium Term Expenditure Committee (MTEC) budget proposal to National Treasury. An option must propose changes to the Department’s medium-term budget allocation that are related to the strategic priorities of the Department. A maximum of four options could be submitted. Each option should include the implementation plan, costing method, and alternative strategies that can achieve the same results.

14. Presentation to Budget Committee-July 2004 The Budget Committee must consider the following issues: The key strategic objectives and output targets that were achieved during the 2003/04 financial year together with the new objectives and targets that have been decided upon for the medium term. The Budget Committee should review whether the existing programme structure for the 2005/06 financial year will still fulfill the need. Branches were requested to review their financial needs according to draft baseline allocations and are requested to supply information on activities, policies projects etc, to be scaled down or discontinued during the 2005/06 - 2007/08 financial years together with the financial implications. Budget Committee take note and amend if necessary the Baseline allocations to Programmes and take a decision on the options that will be included in the 2005 Medium Term Budget proposal.

15. CALCULATION OF BASELINE

16. SUMMARY OF CALCULATIONS USED TO DETERMINE DRAFT ALLOCATION OF OF BASELINE BETWEEN ACTIVITIES AND ECONOMIC CLASSIFICATION. CURRENT PAYMENTS Compensation of Employees Basic salary Actual filled posts per Persal per activity per salary level x average historical notch per that salary level Vacant posts as per personnel plan x average historical notch per applicable salary level

17. Annual salary adjustment 1 July Basic salary x inflator provided by National Treasury / Department of Public Service Administration X 9/12 Pensions Basic salary x 15% Notch increase Basic salary x 1% Overtime Establishment as provided by personnel planning x Applicable shift hourly tariff before Improvement in Conditions of Services x no weekend days before 1 July x 8 hours Applicable shift hourly tariff after Improvement in Conditions of Servicesx no weekend days post 1 July x 8 hours

18. Goods and Services Where expenditure can be directly related to cost driver use (historical unit cost + inflator provided by Treasury) x no units ( cost driver) Cost Driver = Personnel or Prisoner or Supervision case Alternatively In the case of indirect expenditure Estimations ( Business plan, quotation etc.) Interest and rent on land Eastern cape: radio mast ground rental + exhibit stalls

19. Transfer and subsidies Prisoner gratuity based on estimations Regional Service Council levies Basic salary x 0.55 PAYMENT ON CAPITAL ASSETS Buildings and other fixed structures As provided by Department of Public Works and verified by Director Building Services Machinery and equipment Estimations ( Business plan, quotation etc.)

20. Presentation to Budget Committee- November 2004 The Budget Committee must consider the following issues: The funding of new policy developments and structures in DCS. Branches were requested to review their financial needs on National level, and are requested to supply information on activities, policies projects etc, to be scaled down or discontinued during the 2005/06 - 2007/08 financial years. Budget Committee take a decision on the final Baseline allocations to Programmes in the new financial year.