Post-Budget Briefing by Parliamentary Budget Office

NCOP Appropriations

12 March 2014
Chairperson: Mr T Chaane (ANC, North West)
Share this page:

Meeting Summary

The Committee met to be briefed by the Parliamentary Budget Office (PBO) on a post-budget analysis. The interesting presentation covered factors influencing revenue and expenditure estimates – this area looked at National Treasury forecasts for GDP growth and Consumer Price Index levels from now until 2016. The presentation also covered the consolidated framework decision, and the fiscal framework decisions where expenditure vs. debt ceilings were discussed. Also touched on in the presentation was a country comparison of the budget deficit, expenditure by economic classification, infrastructure spending, expenditure by function, the division of revenue to the provinces and local government and efficiency, effectiveness and economic spending of funds before concluding with a summary.

Members were pleased with the PBI in that the presentation was simple, easy to understand and enriched the work of parliament. Members questioned the conservative expenditure ceiling vs. being disciplined and how this relationship would decrease the budget deficit or possibly restrict government performance. Members enquired about the reasoning behind inflation, provinces and municipalities not spending their budgets, compensation of government workers and growth level of other, particularly African, countries. Questions were also raised around the National Development Plan (NDP) and its achievements in the 2010 Soccer World Cup and what lessons could be drawn from the private sector.

The Committee also adopted four sets of minutes, namely, minutes from 28 January 2014, 19 February 2014, 28 February 2014 and 13 November 2013, without amendments.
 

Meeting report

Post-Budget Briefing by the Parliamentary Budget Office (PBO)

Mr Rashaad Amra, Economist, PBO and National Treasury: Economic Policy Division, presented the 2014 budget analysis to the Committee noting that the presentation would cover factors influencing revenue and expenditure estimates, the consolidated fiscal framework, the fiscal framework decision, the budget deficit country comparison and expenditure by economic classification. The presentation would also look at infrastructure spending, expenditure by function, division of revenue, efficiency, effectiveness and economic spending of funds before moving onto a summary.

Looking at the factors influencing revenue and expenditure estimates, it was noted that various factors influence revenue. Gross Domestic Product (GDP) growth determined revenue. National Treasury’s (NT) forecast for GDP growth was:

-       2.7% in 2014

-       3.2% in 2015

-       3.5% in 2016

Although NT forecasts were usually conservative, these NT forecasts were generally higher than other organisations. Slower GDP meant slower growth in revenue and the National Development Plan (NDP) targeted 5.4% growth to reduce unemployment which was a gap in terms of what the Plan sought to achieve.

Mr Amra turned to Consumer Price Index (CPI) forecasts noting that CPI drove expenditure. The NT forecast for CPI was:

-       6.2% in 2014

-       5.9% in 2015

-       5.5% in 2016

Here again the NT forecasts were generally higher than other organisations but it was important to note that as inflation reduced the scope for real expenditure increased. The main drivers of expenditure were the public wage bill (at around 35%) and transfers and subsidies.

Moving on to the consolidated fiscal framework, it was noted that estimated growth in revenue collections as slightly lower than the forecasted GDP growth, revenue growth was not tracking GDP growth in the outer year, estimated expenditure increases were higher than the increase in the CPI or inflation, expenditure growth was slower than revenue growth due to the expenditure ceiling or limit maintained over the Medium Term Expenditure Framework (MTEF) since 2012 and the budget balance/deficit was declining over the MTEF as there was an aim toward smaller debt. It was highlighted that government expenditure did not cause inflation nor was government spending one of the drivers of inflation.

Mr Amra explained the fiscal framework decisions stating that NT had committed SA to an expenditure ceiling of R1.03 trillion in 2014/15, R1.1 trillion in 2015/16 and R1.18 trillion in 2016/17. The objective of the expenditure ceiling was to reduce the budget deficit and debt levels. Placing a ceiling on expenditure would maintain or reduce the debt level. SA was not doing too bad compared to other countries in terms of marinating the deficit. Developing countries should perhaps look at not being as conservative as there could be benefits in increasing expenditure. It was also mentioned that SA’s budget deficit was moderate and the budget deficit was projected to narrow from 4% in 2014/15 to 2.8% in 2016/17. Compared to other countries, SA’s debt levels were relatively low and net debt was projected to stabilise at 44.3% in 2016/17. However putting a ceiling on spending was conservative as good budgeting was about fiscal discipline but also about allocation and distributive efficiency. Enhancing the institutional framework within which spending decisions were made should be a priority. It was here that the issue of transparency was important and it needed to be clear where the money was going. The questions that remained were – what principle or fiscal rules determine the ceiling? What methodology was used to determine the ceiling? Was this an indication ceiling that can succumb to economic and political pressures?

Mr Amra then explained why there was an expenditure ceiling and not a debt ceiling noting that the Expenditure ceiling was a limit on government spending. A debt ceiling on the other hand was a cap on government borrowing. Finland, Sweden and the Netherlands set expenditure limits governed by fiscal rules while the US and Denmark imposed debt ceilings. The U.S. national debt ceiling was conceived almost a century ago to borrow money to finance their expenditure while Denmark sets the ceiling so high that they never approach it.

Looking at infrastructure spending, total expenditure on infrastructure increased from R252.6 billion in 2013/14 to R286.6 billion in 2016/17. However, total expenditure on infrastructure as a percentage of total expenditure decreased from 22.0% in 2013/14 to 19.7% in 2016/17. Total expenditure on infrastructure as a percentage of GDP also decreased from 7.3% in 2013/14 to 6.3% in 2016/17. The NDP stressed the need to improve economic and public infrastructure and targeted gross fixed capital investment of 30% of GDP by 20130 to improve growth, of which 10% of GDP was for the public sector.  The largest proportion of infrastructure expenditure went to public enterprises, local government and provincial departments. In 2012/13, municipalities spent 84.6% of infrastructure grants. Low spending was due to poor planning, lack of project management skills and inadequate oversight. The reviews of the effectiveness of grants were also important in this regard.

Mr Amra then turned to expenditure by function noting that the percentage share of total allocations towards functions remained constant over the 2013/14 MTEF and reprioritisation was not visible. The average annual growth in allocated expenditure over the 2014 MTEF was 8.1%.

For the division of revenue and transfer to the provinces, the Provincial Equitable Share (PES) was made up of 80% of total transfers over the MTEF. Direct grants made up 18% over the MTEF. Indirect transfers were comprised of small portions of 0.64%; 1.20%; 1.04% and 0.81% mainly for School and National Health infrastructure and Human Settlements. The Division of Revenue (DOR) Bill however was not clear on the indirect portion of allocations and a breakdown of provincial expenditure per economic classification was required to get the full picture.

For transfers to local government, the PES made up 45% of total transfers over the MTEF. Direct grants made up 38% in 2013/14 to under 36% over the MTEF. Indirect transfers ranged from 6% in 2013/14 to almost 9% in 2016/17 mainly for infrastructure, the integrated national electrification programme, neighbourhood development partnership, regional bulk infrastructure, municipal water infrastructure, rural households infrastructure and other indirect grants. The DOR Bill not clear on the indirect portion of the allocation but in 2012/13 municipalities only spent 84.6% of infrastructure grants due to capacity constraints. The PES formula updated with 2011 Census data resulted in significant changes in the shares - Gauteng and Western Cape population numbers were under estimated and to give provinces time to adjust to their new allocations, the Census updates were phased in over three years.

Mr Amra discussed efficiency, effectiveness and economic spending of funds, stating that slower growth on specific items was acknowledged. The actual amounts should be reflected as well as the per capita spend to determine efficiency gains. This measure should be extended to larger line items.

In summary, revenue growth was tracking GDP growth except for the outer year of the MTEF. However, real growth in expenditure was slower than revenue. The expenditure ceiling will assist in reducing the budget deficit but fiscal rules should be considered. Infrastructure spending as a percentage of GDP was declining over the MTEF and there was no noticeable reprioritisation between functional groups. Outputs for the indirect transfers were not clear and efficiency, effectiveness and economic spending should be implemented on all levels of expenditure.

Discussion

The Chairperson remarked that the work of the PBO would enrich the work of Parliament and the Committee.

Mr M Makhubela (COPE, Limpopo) asked for an explanation was to why if the commodity was scare, the price of the commodity increased. He questioned the reasoning that putting a ceiling on spending was conservative because he thought being conservative was trying to block an issue with policy. He asked how one could relate being conservative and being disciplined. He also sought a clearer explanation as to how the ceiling on expenditure would assist a decrease in the budget deficit.

Mr Amra replied that inflation was linked to money supply. There were economic theories to explain inflation but basically there was monetary supply and monetary policy. If there was lots of money in the economy then inflation would increase but if inflation was low, money needed to be removed from the economy. The SA Revenue Service (SARS) did this by selling bonds. But if one was running a business, one would not drop prices. The theory of money supply said that if an amount of money doubles, inflation doubles. The socialist school of thought took other factors into account such as poverty, unemployment etc.

There was a link between being conservative and being disciplined – everyone knew that if you earn R10 do not spend R11. However, if you wanted to be an entrepreneur you would make that R10 into R10 million.

Mr D Joseph (DA, Western Cape) thought there was a different view on the increase in inflation. He thought that if the petrol price increased there should be a ripple effect but the question in the communities was why inflation did not increase with the petrol price increase. Turning to the NDP, he thought the NDP could not just be seen as business as usual but that a new development model needed to be created otherwise there would be a huge gap.

He said that billions were not spend on infrastructure but he saw no reason why at least 80% could not be spent. It must be established as to why budgets could not be spent.

On the compensation of government workers, he asked if there was value for money. For the private sector to compensate workers then people needed to work like the private sector as well.

Mr C De Beer (ANC, Northern Cape) thought people needed to think more like the private sector did which was why the 2010 World Cup worked out. If there were deadlines, they must be met otherwise people were fired and it was such lessons one could learn from the private sector. He thought the PBO was a good idea which could help the Committee and it was unfortunate that this was the last meeting of the Committee. Over Africa, growth was 5% and he asked what SA could do to get to that level of growth. He thought there should be an emphasis on monitoring and evaluation and perhaps something for the new Parliament to look it would be to teach people how to analyse budgets.

He asked what caused money not be spent as this was an important point to focus on. Did this come down to a lack of planning? This was one of the primary reasons as to why municipalities were failing because they were not talking or communicating these struggles. He asked how people could be trained to go outside and deliver.

Mr Amra said that although African countries were growing at 5%, they were starting from a low base and SA was very cautious about this. He added that government was not a business but there were two ways for governments to make money – (1) through raising tax and (2) borrowing money. These two options do have ramifications for debt and the debt deficit. The government would have to look at reprioritisation and make some hard decisions such as – can we only spend 10% of capital expenditure? Can we raise tax? Can we spend more?

Mr R Less (DA, KZN) noted that when government spent money this was not inflationary because the government was using money which was already available. It was when the SA Reserve Bank (SARB) created more money that it became inflationary. In the analysis presented by the PBO, debt was going to peak at 44% but last year the Committee was told it would be 40% - was the PBO comfortable with 44%? He agreed with the sentiments that more of the money budgeted needed to be spent. He was becoming concerned about indirect transfers which was growing dramatically and questioned if this was not a constitutional issue as well. He asked if it was a problem that departments or provinces who were not able to spend their money was giving it to other entities like Eskom. He also questioned if three years was not too long to be phasing in the Census when by the time the information was phased on, a new Census was being done.

Mr B Mashile (ANC, Mpumalanga) asked what the current process was that the NT was using to put a ceiling on expenditure because if this ceiling was too low it could restrict the performance of government.  He questioned if the PBO had any response on the provincial budgets as he wanted to understand how the provinces were going about their budgets. He also sought clarity on certain points in the presentation particularly around the link between expenditure growth being slower than revenue growth and the budget deficit decrease – he was confused as to what this meant and thought more context should be given to these points.

Ms Mwapula Sekatane, PBO Analyst, responded that the NT was not saying how the debt ceiling should be determined. Other countries had a fixed, even legal, process but in SA it was no documented anywhere. This might be something for the new Parliament to look into.

The Chairperson asked why NT’s forecast would be higher than other organisations. He noted that certain departments compromised certain projects because of decreased spending and asked what the situation would have been if all the departments had executed all their plans for the projects. He asked for calcification on what was meant by indirect grants.

Ms Nelia Orlandi, PBO Analyst, responded that with indirect grants there was a concern that local governments were not spending so “in kind” the NT allowed for national government to spend on behalf of local governments or to hold money for them. However this was not entirely clear as local government could not provide outputs if the money was not included in their main budget.

The Chairperson said it seemed as if national government would be spending on behalf of local government.

Mr De Beer thought it would have been supportive if the Committee received the briefing before the meeting and it would have allowed them to think about certain things. Before the Committee met the Minister or when the new Parliament came, they should meet with the PBO. He also thought the SARB should come before Parliament to take Members through the thinking of the Bank – this was a neglected area. He recommended this be put in the legacy report of the Committee.

Mr Makhubela said he was learning so much and asked why it took so long for the PBO to appear before the Committee.

Mr Joseph did not think anyone had an analysis for why the World Cup was such a success. Perhaps it was because for the first time SA had one vision to ensure the event was a success. This proved that a common vision drove success. When people did not trust each other the income inequality gap became bigger and in SA people did not trust each other. He thought that for a new MP, if the Select Committee or Joint Standing Committee could focus on the NDP then things would happen.

The Chairperson noted the PBO was for Parliament and the Committee would get to engage with them in the future. He did not think they have the capacity to go out to the provinces.

Mr Amra said that if the Committee instructed the PBO to do so they would go out the provinces. They could do a narrative report. It was the mission of the Office to make these matters understandable to everyone and they would like the Committee’s input on this.

The Chairperson was pleased that when the PBO presented it was in a very simple manner. However if MPs needed more information or advice they should go to the PBO.

Adoption of Minutes

Minutes dated 28 January 2014

The minutes were adopted without amendments.

Minutes dated 19 February 2014

The minutes were adopted without amendments.

Minutes dated 28 February 2014

The minutes were adopted without amendments.

Minutes dated 13 November 2013

The minutes were adopted without amendments.

The meeting was adjourned. 

Audio

No related

Present

  • We don't have attendance info for this committee meeting

Download as PDF

You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.

See detailed instructions for your browser here.

Share this page: