Briefing to the Joint Budget Committee by the National Treasury

1. Briefing to the Joint Budget Committee by the National Treasury August 1, 2008

2. Agenda • Responses to JBC recommendations • Format of JBC quarterly report • National department spending trends • Overall spending trends • Current • Transfers • Capital • Significant over/under spending by programme/econ classification per vote

3. Responses to JBC recommendations

4. 2007 MTBPS JBC report • The period for parliamentary oversight should be increased • National Treasury (NT) welcomes such a proposal and will work with the JBC to ensure such time is afforded • Government should consider measures to alleviate the impact of inflation • The 2008 Budget did make significant adjustments for inflation, the 2009 framework will make further adjustments, including to deal with high food prices

5. 2007 MTBPS JBC report (continued) • NT should develop a monitoring system to measure efficiency savings • Since it was up to departments to allocate the savings, such measurement is limited • NT is monitoring to see that virements are not utilised to allocate funds to particular items where efficiency savings have been identified • NT will be issuing a directive to the effect that national departments must report on efficiency savings in their annual reports • Regarding virements, treasury should consider revising PFMA to limit such shifts • Draft PFMB does limit virements

6. 2007 MTBPS JBC report (continued) • Resources proposed for provincial and local government must be complemented by improved cooperative governance and intergovernmental co-ordination • Various forums (10x10’s, President’s Co-ordinating Council, Joint MinMecs, Budget Forum & Budget Council) used to co-ordinate policy, ensure that national priorities filter through to other levels of government and for monitoring purposes • Provincial governments should co-fund priorities • This issue is on the agenda with Provincial treasuries

7. 2007 MTBPS JBC report (continued) • SOEs should be encouraged to train more people and use labour-intensive procurement methods • Proposals to reform the Expanded Public Works Programme (EPWP) includes utilising SOEs for training • Create an environment for SA to become an important industrial power • With Presidency, EPWP Phase II proposal deals with this issue • Tax incentives discussion with DTI for Industrial Policy Framework

8. JBC report on the 2008 budget and MTEF • Departments should spend in line with national priorities and avoid ad-hoc virements • NT monitors this through monthly In-Year Monitoring reports • National departments should report to Parliament on spending including transfers to entities and sub-national govt’s, and covering non-financial information • The ENE provides the basis for departments to report on performance information • The development of realistic KPIs should be included • The ENE raises the bar on performance indicators

9. JBC report on 3rd quarter spending • Departments with high vacancy rates must develop measures to fill these posts to reduce the need for virements • The amounts identified for efficiency savings in the 2009 Budget will explicitly take account of vacancy rate and the spending trend on personnel • Compliance with supply chain policies and developing appropriate expertise • NT issues Practice Notes and Guidelines on Supply Chain Management and Procurement policies and also supplies training on these

10. JBC report on 3rd quarter spending (continued) • Departments to improve budgeting for capital projects • This matter is the subject of discussions in the capital budget committee within the NT • Spending on transfers to provinces should be covered in national departmental reports • Section 32 (PFMA) reports published cover this in detail

11. JBC report on 4th quarter spending • DPSA should set specific timeframes to fill vacant posts, treasury should monitor this more stringently • NT report on first quarter spending takes account of this recommendation • Regarding transfers to provinces and municipalities, reporting should be consolidated at national level • Section 32 (PFMA) reports published • Section 71 (MFMA) reports published • Develop an in-year reporting system for mega-projects and ensure the infrastructure is adequately monitored • Chart of accounts changed to provide for project specific reporting

12. Format of JBC quarterly report

13. Format of JBC quarterly report • Quick index • Summary level • Per vote comparing actual spending, available budget (i.e., total appropriated) and percentage spending year-to-date (YTD) for current as well as previous fiscal year • Per economic classification • Cashflow information – Pay Master General (PMG) account total balance • Vote level • Per budget programme and per specifically and exclusively appropriated item comparing YTD actual spending, available budget, percentage spending, spending benchmark (i.e., projection), variance and reasons • Per economic classification YTD actual spending, available budget, percentage spending • Departmental receipts • Cashflow information comparing monthly changes in the PMG account balances, actual drawings (i.e., deposits), actual expenditures

14. Format of JBC quarterly report • This is a first step in providing the JBC with more useable spending information on a regular basis • Use the Excel tool and let us know how we can improve it for your purposes • Currently formatted for data analysis purposes, next version will also be designed to ensure better presentation including hardcopy and will be password protected

15. National department spending trends

16. Overall spending trends • Overall budget • R345.3 billion appropriated for 2008/09 • R259.8 billion for direct charges • Total: 605.1 billion • Expenditure for April – June 2008: • R76.8 billion or 22.2% of appropriated amount • R62.5 billion or 24% of direct charge • Total: R139.2 billion or 23.01%

17. Overall spending trends • The following departments spending “missed” their YTD spending benchmark (i.e., projection) by more than 8%: • Foreign Affairs – 17.24% • DPSA – 8.53% • Agriculture – 13.72% • Communication – 21.05% • Land Affairs – 8.28% • DPE – 21.17%

19. Overall spending trends • Current payments • Appropriation for full fiscal year: R100 billion • 1st quarter spending: R20.8 billion or 20.8% • Compensation of employees (22.6%) • Goods and services (18.0%) • Interest and rent on land (8.3%) • Year-on-year spending is similar for compensation (22.72% - 2007/08 and 22.57% - 2008/09) and goods and services (16.50% - 2007/08 and 18.04% - 2008/09)

20. Overall spending trends • Transfers and subsidies • Appropriation for full fiscal year: R238 billion • 1st quarter spending: R54.6 billion or 23.0% • Provinces and municipalities (17.6%) • Departmental agencies and accounts (21.6%) • Universities and tecknikons (50.9%) • Public Corporations and private enterprises (26.3%) • Foreign governments and international organisations (6.8%) • Non-profit institutions (14.9%) • Households (23.9%) • Year-on-year spending is similar across most categories except transfers to public entities (11.67% - 2007/08 and 26.29% - 2008/09) and transfers to foreign governments and institutions (30.32% - 2007/08 and 6.84% - 2008/09)

21. Overall spending trends • Payments for capital assets • Appropriation for full fiscal year: R7.5 billion • 1st quarter spending: R1.3 billion or 17.6% • Buildings and other fixed structures (20.0%) • Machinery and equipment (11.1%) • Cultivated assets (222.6%) • Software and other intangible assets (1.5%) • Land and subsoil assets (29.1%) • Year on year spending shows increases in capital spending capacity (9.5% - 2007/08 and 19.95% - 2008/09)

22. Significant over/under spending Foreign Affairs has spent 13.5% of its total budget as at the end of Q1 of 2008/09 against a projection of 03.75%. While it appears that little spending has taken place and the Pay Master General (PMG) indicates a large balance of R748 million, this is not a true reflection of what is actually in the account. Advances paid to foreign missions for their monthly expenditure are paid from suspense accounts (technically the cash flows out), however the expenditure is only recorded once mission accounts interface with BAS at head office. The balance for the PMG account if all payments through suspense accounts are included is R181 million for June 2008. For April and May, no mission accounts interfaced and in June, only 55 mission accounts (out of 117) interfaced with BAS.

23. Significant over/under spending DPW has spent 16.6% of its total budget as at the end of Q1 of 2008/09. Spending was slow in the quarter due to claims for transfers from its public entities and the Common Wealth War Graves Commission that were not paid during July 2008. The first payment to provinces for the conditional grant for property rates is only scheduled for August 2008 when the municipalities start claiming from the provinces. The anticipated second payment for the Parliamentary Villages Board did not occur and this has resulted in the variance in Prog 4. In Prog 2, expenditure on infrastructure has been particularly slow and stood at 10.6% of the allocation of R1.031bn.The Re Kgabisa Tshwane Project is still in the process of purchasing land although the contractual obligations are in the final stages of completion. The department predicts that payment for this purchase will still occur in the present financial year. The EPWP reported an expenditure of R38.6m (or 31%) of the R124.7m provision due to increased capacity, spent on the employment of national youth service candidates, as well as subsidised the training of new contractors through the Construction SETA.

24. Significant over/under spending

25. Significant over/under spending NT has spent 22.5% of its total budget as at the end of Q1 of 2008/09. Slower than anticipated spending at the end of Q1 was experienced due to: vacancies; lower spending on transversal systems maintenance and the Integrated Financial Management System; lower than anticipated spending on training initiatives; delayed invoicing on accommodation charges; slow uptake on the NDPG grant due to capacity constraints at municipalities; and lower transfers on the Common Monetary Area payment.

26. DPSA has spent 15.4% of its total budget as at the end of Q1 of 2008/09. No transfer payments were made to PSETA as projected. Projects: Expenditure relating to the following projects has been slower than anticipated: HR Connect project (invoices were received but will only be processed during July 2008); Single Public Service (preparatory work is currently in progress and expenditure is expected to take place during the 3rd and 4th quarters); PILIR (invoices for Health Risk Managers were rejected due to a large number of invoices having compliance and authenticity problems);and CabEnet (currently a simplified CabEnet system is being investigated, so expenditure will be delayed until a solution provider is appointed to implement the system).

27. Stats SA has spent 16.6% of its total budget as at the end of Q1 of 2008/09. Stats SA has been experiencing a lack of capacity which has resulted in delays in appointing staff (a major reason for their slow spending). There are still concerns around vacancy rates, slow spending on the Dwelling Frame project and accommodation (particularly the costing of the new building project and its proposed funding model).

28. Education has spent 46.06% of its budget, 1.5% below their projected expenditure to June 2008. The department has spent 15.9% of their budget for Programme 1, which is 26.5% below their projected expenditure to June. This slow spending is mainly due to the delayed payment of a R40 million unitary fee related to a variation order for the department’s new office building. The department received the required permission for the variation order to their PPP agreement in June and payment in this regard will thus be made in July.

29. Health has spent 24.25% (R3.6 million) of its budget by the end of June 2008.The department has spent 0.72% (R108.551) less than the approved projections. All the programs are within the acceptable variance of 8% except for Programme 1 (Administration) and Programme 6 (Health Product Regulations) Funds are over spent in Programme 1 (Administration) by -6.84% (R14 million). This is because the transport expenditure is paid from Programme 1 and journalized to different cost centers afterwards. Journals for the period April to June 2008 were outstanding on the reporting date. Funds are under spent in Programme 6 (Health Product Regulations) by 8.42% (R6 million).This is the new programme that was established when the department change the budget structure in 2007/08.The department will only be able to comment on this under expenditure when all the outstanding transport journals have been processed. The journals for period April to June 2008 were outstanding on the reporting date

30. Labour has 4% under spending by Programme 2 can be attributed to the 13% vacancy rate within this Programme whilst the delay in the submission of invoices by DPW for RAMP contributes to the poor spending on Goods and Services. Spending on Capital Assets remains consistently poor due to delays in the receipt of invoices from DPW for Capital projects such as the building of the new Labour Centre in Rustenburg. 5% under spend by Programme 3 is due to a 15% vacancy rate as well as delays in the receipt of invoices from DPW for renovations to INDLELA. The slight overspend by Programme 4 on the allocated budget resulted from an adjustment to the drawdown agreement by the Sheltered Employment Factories during May bringing forward R4m to meet financial shortfalls being experienced as well as R3m which was vired from Programme 1 to Programme 4 for payment to Labour Federations for May Day celebrations. Programme 5 has consistently under spent due to the low number of claims raised by civil servants for injuries sustained whilst on duty which has been decreasing year-on-year. Slow spending on Statutory funds is due to the fact that the SETAs and NSF receive exactly what SARS collects for the month which is then transferred to the National Revenue Fund requested by the Department and transferred to the SETAs and NSF.

31. Social Development:Payments to loveLife were delayed as a result of delays experienced in the finalisation of the Service Level Agreement between the Department and loveLife. First payment of R68,133 million (50% of allocation) was transferred to the National Development Agency. Transfer payments consist of the delayed April transfer and the transfer for July 2008 that has been brought forward.

32. Sports and Recreation has spent 48.2% of its budget, which is 5.3% below their benchmark for the period to June. The variance of 15.6% in respect of the spending benchmark to June in Programme 2 is mainly due transfers to Boxing SA and loveLife not being made in June as planned. This is due to the late submission of their Annual Financial Statements to SRSA before they transfer funds to these organisations. Activities in Programme 4, which include the Zone VI Games and Olympic Games, are scheduled to take place in August and September, hence the slow spending. The department has not transferred funds to Tshwane and Mbombela municipalities in the first quarter as projected as part of the 2010 FIFA World Cup Stadiums Development Conditional Grant. These municipalities indicated that they had sufficient fund for the first quarter and did not require additional funds. This is mainly responsible for the department’s cashflow balance of R187.5 million.

34. Significant over/under spending Agriculture has spent 22.04% of their budget by the end of the first quarter. Reasons for variance larger than 8%: • Programme 2: Livelihood and Business Development: - Funds for Mafisa and AgriBEE have not been transferred to the Land Bank as it was initially planned. The Department has decided to postpone the payment dates – this will be reflected in the July report. • Programme 3: Bio-security and Disaster Management -At the end of first quarter the Department has not yet started spending any money towards appointing inspectors citing the fact that these posts are classified as scare skill and candidates for such posts are difficult to recruit. The Department has however indicated that they will start spending the funds in September 2008.

35. Commumications has spent R175.25 million of its available funds in the first quarter of 2007/08, which represent a 10.1 per cent of its total allocation of R1.73 billion. Programme 4: ICT Enterprise Development: The programme’s actual expenditure as at end of May 2008 reporting month amounted to R44 million which is 3.3 per cent of the total R1.3 billion allocated funds. The department’s approved drawings up to end of this month were R308.6 million whilst actual expenditure amounted to R44 million, resulting in underspending of R264.6 million (20 per cent deviation). This was due to the fact that funds were not transferred to Sentech and USAF as scheduled by the department. During June 2008, the drawings were revised to align the projections from the SOE's with the department's projections. The funds for Sentech and SAPO were once again not transferred. The department requested these entities to submit a more detailed cash flow projection and requested a service level agreement from Sentech during the month of June 2008 leading to an under expenditure on this programme culminating in only a 7.1 per cent of approved June 2008 allocations being spent.

36. DEAT has spent R933 million of 32.4% of its available funds, which is 0.26% more than projected expenditure up to the end of June 2008. With regard to Programme 4: Tourism spending for the first quarter amounts to 49% of available funds, this is due the transfer payments made to SA Tourism and the National Business Trusts. Transfer payments are made early in the year to SA Tourism to enable them to take advantage of international marketing opportunities when they arise. There is a negative balance of R7.814 million or -3.88 per cent as a percentage of actual drawings on the PMG account due to the payment to the National Business Trust being made earlier than anticipated Spending with regard to EPWP projects to date amounts to R241 million or 31.3 per cent of the total R769 million earmarked for the current year, but this is in line with projections.

37. Housing has spent 22.68 per cent of its budget against a drawings benchmark of 22.60 per cent for the first quarter of 2008/09. The faster than expected expenditure is related to payments made on the Integrated Housing and Human Settlement Development Grant to provinces. Despite the robust spending on the department’s budget, spending in Programmes 2 and 3 are outside the drawings benchmark. The under-spending in Programme 2 is as a result of the delay in signing the service level agreement with SITA on the housing information management systems. In the absence of a service level agreement, the funds could not flow. Spending in Programme 3 is 10.15 per cent below its drawings benchmark. This is related to payments to GCIS for a communications campaign. GCIS policy is that department’s make advanced payments which means that the advances are recorded in a suspense account and cannot be classified as expenditure until the supporting documents are received. The department has not received the invoices from GCIS that would allow for the payment to be recorded as expenditure.

38. Land Affairs has spent R1.323 million or 19.87% of its available funds which is 8.28% or R551.397 million below the drawings benchmark of 28.15%. The main reason for the this is under-expenditure in Programme 5: Land Reform. For the first financial quarter, expenditure for Programme 5: Land Reform amounted to R404.825 million or 14.02% of its allocated funds, which is 14.67% or R423.738 million below the drawings benchmark of 28.69%. The Department stated the under-expenditure is due to land reform projects being referred back to the department by conveyances and/or the deeds office. For the first financial quarter, expenditure for Programme 7: Auxiliary and Associated Services amounted to R160 000 or 1.21% of its allocated funds, which is 20.86% or R2.759 million below the drawings benchmark of 22.07%. The Department stated the under-expenditure is due to outstanding invoices from DPW for building management services..

39. Minerals and Energy has spent R647.753 million or 18.03% of its available funds which is 6.74% or R242.331 million below the drawings benchmark of 24.75%. The main reason for this is under-expenditure in Programme 7: Associated Services. For the first financial quarter, expenditure for Programme 4: Mineral Policy and Promotion amounted to R30.840 million or 53.60% of its allocated funds, which is 40.79% or R23.468 million above the drawings benchmark of 12.81%. The Department stated the over-expenditure is due to a payment of R24.033 million made to Industrial Development Corporation of South Africa. For the first financial quarter, expenditure for Programme 7: Associated Services amounted to R474.717 million or 16.34% of its allocated funds, which is 9.95% or R288.986 million below the drawings benchmark of 26.30%. The Department stated the under-expenditure is due to an unrealized anticipated transfer payment of R83 million to Eskom in respect of the Integrated National Electrification Programme (INEP).

40. DPLG’s spending for the first quarter of 2008/09 is R1.8 billion. The spending is 0.15 per cent above the department’s drawings benchmark. The only programme where spending is outside the 8 per cent benchmark is Programme 7: Fiscal Transfers, where funds were not transferred to the Municipal Demarcation Board as the department had not received a request for the funds nor the compliance certificate from the entity. The department anticipates receipt of these documents in the second quarter of this financial year.

41. DPE has spent 30.77% against its approved budget In Programme 1 spending was 21.66% of budget compared to 38.6% projected. This is primarily due to late invoicing issues. The under-spending in programme 3 is due to lower than expected transfers. The department will make a larger transfer to Alexkor and SAX later in the year. A total amount of R318 million has been moved from other months to April 2008 in order to meet Infraco’s cash-flow requirements. Payments to PBMR is done on a monthly basis and reporting is monitored by a joint monitoring committee between DPE, NT and PBMR.

42. Science and Technology’s total spending to date amounts to R972 million or 26.2 per cent of the total allocation of R3.704 billion for the 2008/09 financial year. Spending on Programme 3: International Cooperation and Resources amounts to 18.4% of available funds which is 20.99% below projected expenditure. The low spending is on the Global Science due to additional progress reports still required from projects before the transfer of funds. Funds for the Framework Programme (6 and 7) are delayed as agreements are still being negotiated by the programme managers and their international counterparts.

43. DTI spent R426 million or 19.9 per cent of its total earmarked funds amounting to R2.2 billion. R11 million has been transferred to the Competition Commission, R220.903 million to the Small and Medium Enterprise Development Programme, R1.881 million to the Film & Television Production Incentive Scheme, R158 million to the Coega Development Corporation for the IDZ, R14.311 million to the Business Process Outsourcing Programme, R5.340 million to the Black Business Supplier Development Programme and R15.381 million to the Small Enterprise Development Agency Technology Programme. The department reported expenditure amounting to R883.8 million or 17.3 per cent of its total allocation of R5.1 billion until 30 June 2008. Taking the department’s current spending rate of 17.3 per cent in comparison with a year progress of 25 per cent into account, it can be noted that the department’s spending rate for the first three months under almost all programmes, except Programme 7, are below the year progress rate. It is expected that the spending trend will increase as the year progresses and as soon as the compliance documentation are in place for transfer payments to be effected to various public entities and incentive schemes.

44. Transport has spent 27.6 per cent of its budget, 3.8 per cent below the projected expenditure till end of June 2008. The variance from projected expenditure per programme has generally been below the benchmark of 8 per cent. However, the Public Entity Oversight and Border Operations and Control programme spent 17.7 per cent below the projected expenditure. The explanations for the high under-spending are the outstanding payments to the Road Traffic Management Corporation, the Railway Safety Regulator and the Ports Regulator for the first two quarters and three projects whose tendering processes were delayed. The payments to the RTMC and the Railway Safety Regulator will be made in August. As the Ports Regulator has not been set up yet the payment date is unclear. The three projects relate to the Performance Management System, ACSA restructuring and the RAF. The cashflow balance of R791 million is mainly due to this programme. Low expenditure on the Public Transport Infrastructure and Systems (PTIS) grant results from slow project implementation in the municipalities and corresponding delayed transfers to them. A payment amounting to 48.2 per cent of the budget was made on the Gautrain in the first three months of the current financial year. This high expenditure was expected because it was agreed that the grant money would be spent within the first six months of the financial year. Thereafter, the Gautrain allocation to the province will be used.

45. THANK YOU