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					Budget Reform and Policy

General Course on Good Governance
     Centre for Human Rights
           8 July 2002
        What is the MTEF?
• MTEF sets out 3-year rolling spending and
  revenue plans for national and provincial
• 2002 Budget is the 5th MTEF budget
  tabled in Parliament
       Advantages of a MTEF
• Greater certainty for depts to plan and budget
  for services in line with policy priorities
• Affordable spending in the medium term
• Strengthened political decision-making and
• Greater transparency of budget and service
  delivery information for the public
• Improved management of public finances
      Key players in process
• Cabinet
• Parliament
• Ministers’ Committee on the Budget
• Budget Council
• Budget Forum
• Supporting technical committees
Main steps in budget process

 Policy priorities       Political scrutiny of
Fiscal framework

   Division of            Cabinet approval

 Bidding process           documentation
                             Budget Day
       MTEF process and reforms
• Early discussion by the Ministers’ Committee on the Budget
  & Cabinet on policy priorities (May- July)
• Preparation and submission of departmental MTEF budgets
  (May to Aug)
• Review of departmental budget submissions (Aug)
• Division of revenue & medium term priorities (July-Aug)
• National & provincial MTEC allocation process (Sept-Nov)
• Medium Term Budget Policy Statement (Nov)
• Preparation of budget documentation (Nov-Feb)
• Tabling of Budget in parliament (3rd week of Feb)
              Fiscal framework

discussions       Borrowings
                 Debt Servicing
at Cabinet        Contingency reserve

                  Tax Revenue
            Division of Revenue
discussions at                      discussions at
Budget           National Share
                  Available         Cabinet
Council,         Expenditure

                 Provincial Share

                   Local Share
      Budget documentation
• Intergovernmental Fiscal Review (Sept)
• Medium Term Budget Policy Statement (Oct)
• Budget Review and Budget Speech (Feb)
• Estimates of National Expenditure (Feb)
• Provincial Budget Statements (Feb – March)
      Key Budget format reforms
   New national and provincial budget formats
    developed in line with s215 of Constitution & s27
    of PFMA
   New formats aim to:
    – Reduce duplication in budget documentation
    – Move to Government Financial Statistics
      (GFS) in the new economic classification
    – Strengthen link between planning and
      prioritisation, budgeting and service delivery
     Key Budget format reforms...
• Extension of medium term information
• 7-yr trend information enables comparative
• Service delivery information - specifying outputs
  and output measures and indicators
• Emphasises ‘value for money’
• Move towards quantity, quality, timelines and cost
  measures and indicators in subsequent Budgets
• Tracking and making progress in service delivery
  is key message
   Budgeting for service delivery

• Helps departments plan, budget and manage
  programmes better
• Improves accountability and control
• Informs policy- and decision making
• Provides information to the public about what
  goods and services government ‘buys’
     Policy priorities reforms
• Strengthening link between Govt policy
  priorities and public expenditure is key message
  of MTEF budgeting
• Spending plans translate policies into service
  deliverables - a key tool for public goals
• Budget reform aims to strengthen political
  oversight of policy and budget prioritisation
• Facilitates policy priorities for sustainable
    Budgeting and policy choices
• Budget prioritisation – policy choices and trade-
  offs against resource constraints, contributing to
  Government’s strategic goals, incl:
  – Reducing poverty and vulnerability
  – Increasing employment
  – Increasing investment
  – Lowering the costs of economic activity
  – Improving safety and security of citizens
 Strengthens MTEF Budgeting..
• Strategic set of budget priorities strengthens
  credibility of MTEF budgeting:
  – Guides resource allocation decisions in budget
  – Strengthens political oversight of budget process
  – Reinforces link between policies, spending & service
  – Advances public goals of social and economic
Building on 2001 & 2002 Budgets
• In 3-year rolling MTEF:
  – Priorities decided on in 2001 & 2002 Budgets
    form basis for review of priorities for 2003
  – Existing priorities evident in forward estimates of
    2002 MTEF (i.e. year 2 & year 3 estimates)
  – Review of priorities is about guiding resource
    allocation at the margin within the new MTEF
  – Additional available resources through economic
    growth, increased revenue collection and
    economic growth
      Existing Budget priorities
• Budget priorities reflected in 2001 & 2002
  Budgets include:
  – Investment in new infrastructure and rehabilitation
    & maintenance of existing infrastructure
  – Deepening the skills capacity of the economy
  – Reducing poverty and vulnerability among our
  – Encouraging partnerships with communities to
    improve access to basic services
  – Strengthening capacity to combat crime
     Infrastructure allocations
Infrastructure related public expenditure
                        2002/03     2003/04       2004/05
R million                     Medium-term estimates
National departments1      8,124             9,191       9,435
Provincial departments 12,765               14,308      15,792
Municipalities            12,402            13,084      13,672
Public private partnerships 2 966            2,846       2,226
Extra-Budgetary institutions
                           2,818             3,143       3,380
Non-financial public
enterprises3              20,622            22,998      24,730
Total                     56,731            62,724      67,008
 percentage GDP               5.2%             5.3%        5.2%
GDP                    1 082 800      1 178 900       1 277 500
    Priorities reflected in DoR
• Budget priorities & choices reflected in
  Division of Revenue to 3 spheres:
  – Strengthening capacity to fight crime increases
    the national share
  – Extending coverage and raising the value of
    social security grants adds to the provincial
  – Improving access to basic services (water,
    sanitation, electricity, refuse removal) raises the
    local government share
      2002 Division of Revenue
Division of Revenue 2002/03 - 2004/05
                          2002/03 2003/04 2004/05
R million                    Medium-term estimates
Main budget
National allocation         96,106 103,307 109,911
Provincial allocation     132,420 142,844 152,363
Local government allocation 8,580     10,235  10,854
Total allocations         237,106 256,386 273,128
Interest on debt            47,503    49,845  52,434
Contingency reserve           3,300    5,000   9,000
Main budget expenditure 287,909 311,231 334,561
Percentage increase            9.6%     8.1%    7.5%
Percentage shares
National                      40.5%    40.3%   40.2%
Provinces                     55.8%    55.7%   55.8%
Local government               3.6%     4.0%    4.0%
      Process of prioritisation….
• Review of priorities for 2003 to evaluate:
  – How policy options and priorities contribute to
    Government’s strategic social and economic goals?
  – What factors should be taken into account in
    assessing trade-offs against resource constraints?
  – How do various kinds of economic and social
    policy concerns complement each other or compete
    for resources?
  – What should the sequencing of policy
    implementation be for sustainable economic and
    social development?
    Looking ahead to 2003 ….
• Looking ahead to the 2003 MTEF:
  – The correct budget priority choices may be to
    deepen and strengthen existing priorities rather
    than introducing new priorities
  – Questions often arise on how to implement – these
    choices are just as NB as they determine how
    successful policy choices are in practice
Policy & implementation challenges
• Increase capacity to spend on infrastructure
   – Lever private sector finance and expertise
• Enhance environment for step up in private sector
   – Further tax reform
• Strengthen employment creation incentives
   – Reinforce labour-based infrastructure and service
   – Address regulatory impediments to increased formal
     sector job creation
   – Enhance support services to SMMEs and informal
Policy & implementation challenges
• Reduce poverty and vulnerability
  – Improve access to services for the poor
  – Extend coverage and improve quality of basic & social
    service delivery
• Reinforce crime prevention capabilities
  – Implement sector policing
  – Improve prison management
  – Rationalise courts
• Harness information & communication technology
  – Options to complement telecommunications growth &
Budget Reform and Policy

General Course on Good Governance
     Centre for Human Rights
           8 July 2002

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