Chairperson, the Minister of Finance tabled the Medium-Term Budget Policy Statement, the MTBPS, on 25 October 2011, outlining the budget priorities of government for the medium-term estimates. The MTBPS was tabled together with the Division of Revenue Bill, Bill 17 of 2011, and the Adjustments Appropriation Bill, Bill 18 of 2011.
In terms of the Money Bills Amendment Procedure and Related Matters Act, Act 9 of 2009, committees on appropriations are required to consider and report on the sections of the MTBPS dealing with spending matters. Among its responsibilities, as per section 68 of the Act, the Select Committee on Appropriations is required to consider and report on the following issues: the spending priorities of national government for the next three years, the proposed division of revenue between the different spheres of government and between arms of government within a sphere for the next three years, and the proposed substantial adjustments to the conditional grants to provinces and local government, if any.
The Minister tabled the MTBPS in an uncertain and volatile global context. The global environment poses risks to the world economic recovery as well as to the outlook for our South African economy. Even the Eurozone deal will have to be followed by a plan to generate growth in Europe. Fears about out-of-control government debt in America and Europe swept across financial markets on 21 November 2011, with stocks sharply lower and purchasing prices of bonds deemed to be safer havens. This also affected South African shares. The countercyclical fiscal approach being followed by National Treasury is crucial to both long-term growth and sustainability in public finances.
Medium-term spending prioritises its resources in the following areas: job- creation initiatives and realigning support to business to enhance employment opportunities, enhancing the quality of education and skills development, improving the provision of quality health care, driving a more comprehensive rural development strategy, and intensifying the fight against crime and corruption.
In order to afford these priorities, the rate of growth in public spending must be moderated. Difficult decisions include the review of priorities and realignment of current budget baselines to maximise the achievement of government's targets.
The Select Committee on Appropriations and Standing Committee on Appropriations conducted hearings jointly on 9 November 2011. Submissions were received from the following organisations: the Ceasefire Campaign, the SA Local Government Association, the Finance and Fiscal Commission and the People's Budget Coalition.
We welcome the priority shift in government expenditure towards infrastructure investment as a critical vehicle through which to generate jobs. However, to prevent the underexpenditure of funds earmarked for capital projects, it must be emphasised that adequate capacity is a critical concern for municipalities and provincial government. Greater focus needs to be put on project management, external auditing of budget expenditure, greater involvement of the private sector through public- private partnerships, the establishment of budgeting norms and standards, and lifecycle project management.
With regard to revenue, the projected revised estimates of the tabled tax revenue for the 2011-12 financial year amount to R728,6 billion compared to the 2011 national budget estimates. The estimated gross tax revenue is revised downwards by R13 billion as a result of a downward revision of VAT receipts to R187,5 billion. The revenue collection for 2012-13 reflects weaker economic conditions. The overall budget has been revised downwards by R10,3 billion in the 2011-12 financial year and by R18,8 billion in the 2012-13 financial year.
With regard to expenditure, the 2011-12 government expenditure is expected to exceed revenue by R146,6 billion, creating a budget deficit of 5,5% as a percentage of the gross domestic product. The MTBPS marks R1,1 trillion available for spending in the 2012-13 financial year, in order to support key spending priorities, namely job creation and economic transformation along the New Growth Path.
Regarding debt financing, while revenue as a percentage of GDP has declined when compared to previous years, government spending, on the other hand, has been increasing. In the 2011-12 financial year, the budget deficit as a percentage of GDP is projected to be 5,5%, increasing from 4,6% in the 2010- 11 financial year.
In terms of the division of revenue, after a net adjustment of R2,9 billion in the 2011-12 financial year, the total expenditure grows from a revised R888 billion in the 2011-12 financial year to R1,2 trillion in the 2014-15 financial year. The share of national allocations remains stable over the MTEF period at an average of 46,7% in the 2012-13 financial year, in spite of the economic downturn.
The local government fiscal framework remains buoyant, growing at a real ratio of 3,4% in the 2012-13 financial year, and 3,6% in the 2014-15 financial year. Provincial baselines grow by 1,1%, while local government baselines will grow by 4% in real terms over the medium term. The latter is important in assisting municipalities in the provision of free basic services to the poor and emphasising the elimination of waste, corruption and inefficiency. The equitable share formula makes allowance for an expected rise in basic service costs over the medium term to enable municipalities to maintain and extend free basic services to poor households.
Having considered the 2011 MTBPS and the submissions by the interested parties, the Select Committee on Appropriations made the following observations: Firstly, we have concerns around capacity issues in local and provincial government in terms of increased spending on infrastructure stemming from the underexpenditure of capital, conditional grants and imperfect performance monitoring mechanisms. Secondly, a number of stakeholders have called on National Treasury to provide clarity on the financing mechanism of the National Health Insurance Scheme. Thirdly, the People's Budget Coalition has repeatedly requested clarity on the progress of the parliamentary budget office as per the requirements of the Money Bills Amendment Procedure and Related Matters Act, Act 9 of 2009.
The Select Committee on Appropriations, having considered the 2011 MTBPS and having received comments and recommendations from interested parties, recommends as follows: Firstly, all government departments should ensure that capacity issues, especially in provincial and local government, are resolved urgently if the 2011 MTBPS goals in respect of infrastructure investment, education, health, rural development and others are to be achieved.
Secondly, National Treasury should provide details regarding the financing of the National Health Insurance pilots and the overall National Health Insurance financing mechanism. It is critical that the process of choosing the most viable financing mechanism is transparent from the beginning of the process, in order to secure buy-in from stakeholders, namely taxpayers.
Thirdly, Parliament should provide the committee with a progress report regarding plans to establish a parliamentary budget office over the 2011-12 MTEF, as indicated in the Estimates of National Expenditure published in February 2011. I so move.
Debate concluded.
Question put: That the Report be adopted.
IN FAVOUR: Eastern Cape, Free State, Gauteng, KwaZulu-Natal, Limpopo, Mpumalanga, Northern Cape, North West, Western Cape.
Report accordingly adopted in accordance with section 65 of the Constitution.