Intergovernmental System in South Africa PMIG Meeting 7 December 2005.

Intergovernmental System in South Africa

PMIG Meeting

7 December 2005

2

Overarching role of treasuries

• Establish and enforce:– Aggregate fiscal discipline

• Budgets must be respected like all laws• Fiscal aggregates stay within set limits

– Allocative efficiency• Resource allocation in line with priorities• Good programmes get more and vice versa

– Operational efficiency• Delivering more outputs for less resource

outlays

Fiscal Responsibility in South Africa

4

Introduction

• SA is not a federal country, but a unitary country that is highly decentralised administratively and fiscally since 1994

• Three spheres of government, with local government distinct sphere, not a creature of provinces

• Focus of presentation is on initial lessons after only 11 years of democracy – Too early to draw conclusive lessons– Lessons apply to SA, and cannot be applied to

another country

5

System of Governance in SA

• National, 9 Provinces, and 284 Municipalities • Provinces

– School education, health, social grants (Social services)– Housing, Provincial Roads, Agriculture– Poor fiscal capacity (own revenue 4%, national grants 96%)

• Local government– Water, electricity, refuse removal, housing infrastructure,

municipal roads– Significant fiscal capacity, but varies between municipalities

(Urban metros over 95% own revenue, Rural 30%)

• National government– Over half actual spending on defence, justice (courts),

prisons and police– Other: higher education, admin, policy, regulatory

6

Fiscal capacity and functions

• Non-interest R362,6 bn out of R417,8 bn budget for 2005/06– Servicing debt at R53,1 bn, contingency reserve R2bn

• Provinces receive R209,3bn (57,7%)– 9 provincial budgets aggregate to R215 bn– Own Revenue only 4% : Motor car license fees, gambling

• Local Government receives R17,1bn (4,7%)– Only one third of spending on public goods (no revenue)– Two thirds spending user charge services (water/electricity)– Taxes: Property taxes, regional levies (to be phased out)– Own revenue around R90bn

• National Govt budget is R109bn (37,6%)• Revenue-sharing system (Constitution)

– Size of grant depends on functions & fiscal capacity

7

Division of revenue2003/04 2004/05 2005/06 2006/07 2007/08

Prelimin. Estimate

R million outcome

National departments 108 459 121 101 136 262 146 800 157 817

Provinces 161 494 185 354 209 273 229 282 248 236

Equitable share 144 743 164 084 134 706 146 757 157 678

Conditional grants 16 751 21 270 74 567 82 525 90 558

Local government 12 396 14 757 17 159 19 708 21 461

Equitable share 6 350 7 678 9 643 10 515 11 371

Conditional grants 6 045 7 080 7 516 9 193 10 090

Non-interest allocations 282,349 321,212 362,694 395,790 427,513

Percentage increase 15.4% 13.8% 12.9% 9.1% 8.0%

State debt cost 46,313 48,901 53,125 56,603 59,381

Contingency reserve – – 2,000 4,000 8,000

Main budget expenditure 328,662 370,113 417,819 456,393 494,894

Percentage increase 12.7% 12.6% 12.9% 9.2% 8.4%

Percentage shares

National departments 38.4% 37.7% 37.6% 37.1% 36.9%

Provinces 57.2% 57.7% 57.7% 57.9% 58.1%

Local government 4.4% 4.6% 4.7% 5.0% 5.0%

Percentage growth

National departments 11.7% 12.5% 7.7% 7.5%

Provinces 14.8% 12.9% 9.6% 8.3%

Local government 19.1% 16.3% 14.9% 8.9%

Medium-term estimates

8

Constitution of SA

• Section 214 requires annual Division of Revenue Act

• One national law applies to all provinces and municipalities– No need for each province or municipality to have

separate legislation on fiscal responsibility– PFMA applies to all national and provincial govts,

and MFMA applies to all municipalities– How do we get consistency in fiscal responsibility

objectives between states and between national govt?

• Uniformity and precedence of national economic policy, taxes etc

9

Tax Assignment

• National govt has 4 biggest taxes– Personal Inc Tax, Corporate Tax, VAT, fuel levy

• Provinces can legally impose a surcharge on PIT and fuel levy, but do not as prefer revenue-sharing arrangement

• Provinces have motor car license fees• Municipalities have property taxes and

surcharge on electricity/water• National legislation can regulate exercise of

taxation powers of sub-national govts, given need for tax harmonisation and national economic policy objectives

10

Borrowing Powers

• Provinces and municipalities can only borrow for capital beyond a financial year

• Provinces and municipalities can borrow for bridging purposes within a financial year

• Provincial borrowing regulated by legislation • Provinces have non-revenue generating

activities, and minor tax powers– Should they really borrow?

• We are open to giving more tax and borrowing powers in future, but need to ensure expenditure efficiency first

11

Intervention powers

• Specified and narrow intervention powers where a province or municipality fails to exercise its powers or responsibilities

• National govt can intervene in a province in terms of section 100 of Constitution

• Province can intervene over municipality ito section 139 of Constitution

12

Key Fiscal legislation in SA

• Constitution– Chapter 13 of Constitution

• National Acts of Parliament– Intergovernmental Fiscal Relations Act– Provincial Tax Regulation Process Act– Borrowing Powers of Provincial Govt Act– Public Finance Management Act (PFMA)– Municipal Finance Management Act (MFMA)

• Annual Budget Acts of Parliament– Annual Division of Revenue – explanatory

memorandum & extensive tables– National and provincial appropriation Act– Tax legislation (Taxation and Revenue Laws

Amendment Acts)

Fiscal Responsibility in SA

14

How do we understand fiscal responsibility in SA?

• Rules and legislation are necessary but not sufficient– Can easily get around (ex-ante or ex-post?)– Budget a plan at start of fin year, and actual may

be significantly different

• Co-operation and buy-in are more important – Budget preparatory process must be DEEPLY

consultative process• Between national and sub-national governments• Between departments in each government

• Budget is a POLICY process, driven by policy priorities and spending pressures

15

Transformation in first 5 years of democracy 1994-

1999• SA in a fiscal mess in 1994, with deficit close

to 10% and inflation around 20%• First priority of new Mandela government was

to get macroeconomic policy right– Achieved with stunning success but low growth

• Second priority was to make the budget process more transparent and consultative– Key budget reform was introduction of 3 year

budgeting, debt management reforms– Had to transform and modernise a bean-counting

treasury with antiquated practices into a SMART treasury with policy assessment capacity

16

Budget Reforms since 1994• Three-year budgeting system

– National and provinces (1998/99 Budget), Municipalities

• Budget decentralisation and CERTAINTY– Own budgets by provinces and Local Govt, grant certainty– Division of Revenue Act and schedule of all national allocations per

province, per municipality for each of three coming years

• Public Finance Mgt Act and Mun Fin Mgt Act– modernising financial management in public sector– Minister responsible for outcomes and policy, administrative head of

dept responsible for implementation and outputs

• No bail-out/guarantees for provinces/LG– Up-front allocation certainty, no ad-hoc in-year allocations

• Development of provincial/local fiscal framework

17

Low inflation and interest rates

0

2

4

6

8

10

12

14

16

18

20

1998 1999 2000 2001 2002 2003 2004

Pe

r c

en

t

Repurchase rate

CPI

CPIX

18

Debt service costs as per cent of GDP

Debt service costs

5.6%

5.3%

4.9%

4.5%

3.9%

3.2%3.4%

3.5%3.5%3.6%

4.7%4.9%

5.2%

5.5%

3%

4%

5%

6%

As %

of G

DP

19

Debt to GDP

0

100

200

300

400

500

600

700

R b

illio

n

0

10

20

30

40

50

60

70

Per

cen

t GD

P

Foreign debt

Domestic debt

Total net loan debt as % of GDP (right axis)

20

Medium term outlook

-6

-4

-2

0

2

4

6

8

10

Pe

r c

en

t

GDP growth

Current account (% of GDP)

CPIX inflation

21

Three year budgeting

• In 1998 shifted from one-year incremental budgets to three-year rolling budgets

• Publish 3 year budgets, but appropriate only for one year only

• Use outer 2 years as baseline for next budget, and allocate only additional funds from contingency reserve and new revenue

• We ignored nay-sayers who said not possible• Lays basis for better planning, more

consultative budget processes and better intergovernmental fiscal relations

22

Intergovernmental Budgeting

• SA has grant certainty– Three year allocations per province, per

municipality, for EVERY grant

• Equitable share allocation main allocation to provinces (64%)– Clear formula to divide funds– Provincial formula linked to key social sectors– Local govt formula linked to poor households

• Conditional grants – Social grants (27%, previously from eq share)– Infrastructure, tertiary hospital services– Different formula for each conditional grant

• Annexure E in Division of Revenue Bill

23

Budget is a policy process

• Budgeting is at heart of policy-making, and needs to be consultative– Budgets require prioritising of policies, which is

essentially a POLITICAL process– Minister of Finance requested Cabinet to form-

• a Ministers Committee on the Budget (sub-com of Cab)• Budget Council and Budget Forum, for provinces and

municipalities

• Compulsory consultations for Division of Revenue process and exercise of sub-national fiscal powers

• No outside or independent agency can determine budget or allocations

24

Budgeting harder under decentralised system

• Need to co-ordinating policy, planning, budgeting processes– National depts responsible for policy, prov/LG for

implementation– Setting up of sectoral Ministerial forums (MinMECs)

between Ministers of national and provincial governments for education, health, welfare, housing

– Challenge of co-ordinating sectoral and budget forums, as each sector wants to maximise its funds

– Reducing sectoral collusion and allegations of unfunded mandates

• How do we link Budgets to PERFORMANCE?

25

Performance and Accountability challenges

• We are still striving to get more performance accountability– Budget reforms to facilitate greater performance

in public sector as a whole– Has 3 year budgeting reached lower down to the

level of project or facility?

• How do we get better customer accountability?

• How can we get better political accountability through legislatures – Does pol failure increase risk of service delivery

failure?

26

Budget preparation process: pre-year

• Independent FFC makes (advisory) proposals • Consultations with provinces and LG

– Budget Council of national/provincial Ministers of Finance

– Budget Forum incorporates local govt

• National Cabinet makes final allocations to 3 spheres of govt in October– Equitable share formula used to divide funds between provinces and

local govt (also conditional grant formulae)

• Pre-budget in Nov, followed by Budget in Feb– Division of Revenue Bill tabled, to be passed by Parliament

• Contains memo explaining formulae• Contains or ensures up-front payment schedule for transfers

– Provinces table own three year budgets in Feb/March

• National govt publishes Intergovernmental Fiscal Review in April

27

Key Budget documents• Budget Review and Division of Revenue (DoR) Bill all

part of National Budget– contains memo explaining formula– contains/ensure upfront payment schedule for transfers

• Intergovernmental Fiscal Review– 1x month after national and provincial budgets tabled– discusses 9 provincial budget trends for 7 years

• in year (2002/03), three years to follow, three years past– covers LG information for current financial year

• Quarterly and monthly budget info on provinces– 30 days after end of each quarter

• Strategic plans of departments tabled with budgets• Annual reports of departments in Sept• NT website www.treasury.gov.za

Initial Lessons from SA

29

First Lesson from SA

• Budget reform goes with fiscal decentralisation– It is even more important for fiscally decentralised– Co-ordinating policy and sector interests across

tiers of government is really difficult but necessary– Ignore the nay-sayers and implement 3 year

budgets – Budgets should not require line-item political and

legislative approval• Reserve line-item budgets (to the extent they are even

necessary) for internal management purposes only

30

Budget Reforms and Fiscal Decentralisation

• Budget reforms are even more important for fiscally decentralised countries– Are budgets sustainable?– Is consolidated tax to GDP stable or declining?– Is consolidated borrowing or deficit sustainable (ie

consolidated debt to GDP stable or declining)– Are provincial budgets comparable with each

other?• Standard chart of accounts, uniform budget formats etc

– How quickly can we produce consolidated budget information?

• How much are we spending on school education?• Need to aggregate school budgets from 9 provinces

31

Second Lesson: Intergovernmental Grants

• Money is fungible, so unconditional grants work better than conditional grants, focusing on broad priorities related to entire budget

• Resist sectors who prefer conditional grants– Cond grants for social grants and infrastructure

• Horizontal equitable share formula is redistributive between provinces – How do we achieve equalisation?– Needs versus performance?

• Data problems– is it possible to get comparable usage and cost data for all provinces or municipalities?

32

Third Lesson: Transparency, Information

and Accountability • It is a continual struggle to get all levels of

government to publish information• Start with budget implementation

information, through monthly reports• Opens up possibilities for greater

accountability by Parliament, public etc– Information delayed is accountability denied!

• Culture of publishing ALL relevant info on website on same day

• How quickly do we collect and publish information?

33

Regular reporting

• Financial management improves dramatically if we start – Publishing of monthly in-year reports on budget

implementation– Requiring financial statements from all

departments and entities to submit for audit within 60 days of end of fin year, and audited and tabled in Parliament within 6 months

• Many benefits follow from above, including in-year accountability, better management and a further feedback mechanisms to improve budget allocation process

34

Fourth Lesson: Build Treasury capacity

• Fourth lesson is to reform all treasuries to play a leadership role in budget process

• Budgeting is too important to leave to accountants! It is positively dangerous

• National Treasury must develop its policy assessment capacity to inform budget allocation process

• National Treasury also needs to create an enabling framework for better governance, management and accountability

35

National Treasury capacity

• In a decentralised country, National Treasury in SA has dedicated unit for intergovernmental fiscal relations– Dedicated unit to work with provinces and municipalities– Assessing credibility of provincial budgets (informal and

perhaps to publish such assessment)– Printing Intergovt Fiscal Review (IGFR) and consolidated

budgets– Ensure each (nat, prov or mun) treasury prepares quarterly

reports for its Cabinet or Exco– Ensure that national Treasury do a consolidated quarterly

report for all provinces?

36

Key challenge is to ensure Budget Credibility

• National Treasury assesses provincial budgets as an advisory service to provide an independent perspective, and point out budget risk– Is tabled budget credible?– Are projections realistic? – Is the deficit fully funded? Focus on a balanced

budget rather than a deficit target?

• Continual challenge is to ensure implementation is according to planned budget

37

Fifth lesson:One collection agency

• Success of one national collecting revenue agency (SARS) for the major taxes

• You cannot spend or divide revenue that you fail to collect!

• We divide revenue ANTICIPATED to be collected before the start of the financial year

38

Last lesson: Check relevance of Conventional

Assumptions• To what extent does conventional theory of

fiscal decentralisation really work in a developing country?

• Does greater tax capacity lead to better accountability? – Do developing countries have effective

accountability and auditing mechanisms?

• How can we get better financial or service accountability when we have a shortage of auditors, doctors etc?

39

Theory and practice• SA has clear expenditure and tax

assignment, and GRANT CERTAINTY• Why are provinces fiscally more

responsible than municipalities?– Provinces have weak tax powers,

municipalities have strong tax powers

• What further taxes do we devolve?– Why should be move away from one tax collector?– Why should we prioritise tax rate autonomy over other

taxation reforms?

• What need for borrowing if govts struggling to spend on capital?

40

Other factors also impact: Public Service

• Subnational governments tend to have personnel intensive functions like teachers, nurses, and personnel expenditure a high proportion of their budget (e.g. in education 80%)

• Bargaining system for public service – centralised or decentralised?

• Mobility and uniformity in conditions of service between states?

• Are public servants under one pension fund? Is it a benefit fund? How do you share burden of funding shortages?

41

Local Government

• We are still implementing our reforms with municipalities, so not as developed as with provinces

• Have undergone three major transitions (including change in boundaries) since 1993

• Provincial govt should do unto municipalities what they want central govt to do unto them!– Every govt has a propensity to be gate-keeper

over funds they control– Need three year grant certainty, predictability etc

for local govt as well, and also for projects that you control

42

Conclusion

• Has decentralisation worked in SA?– Don’t know, too early to tell– Reform process still not completed – Short-term assessment vs medium to long-term

• Has decentralisation led to better delivery?– Would delivery have been better if centralised?– No, if national depts with delivery responsibilities are

taken into account– Not clear if provinces or local govt would do better!

• Mixed story of early successes and failures• No easy solutions to complex problems

Budget Reform

44

Budget Reforms in SA

19971998

1999

2000

2001

2002

2003

2004

2005

Intergovernmental System

Medium Term Expenditure Framework

National Expenditure Survey & IGFR

Public Finance Management Act

Estimates of National Expenditure & Provincial Budget Statements 1 & 2

SPP tabled

Measurable objectives

Improving operational & allocative efficiency

AR tabled

Publication of Quarterly Performance Information

Publication of Section 32 & CG information

MFMA

• Accounting Reform• Procurement Reform

SCOA

45

StrategicPlan

Year 1

MediumTerm

Budget

Individual Performance

Plans

Monthly/QPRReports

AnnualReports

AnnualReview

5 yearsUpdated annuallyIncludes budget informationCovers critical areas for department

Detailed focus on first year of strategic planIncludes output and service delivery information

Expenditure trends3 year forward estimatesStrategic direction explainedPrevious year outcome incorporated when deciding resource allocation

Staff have performance contracts & individual development plansLinked to departmental key objectives and outputsIndicate individual contribution towards achieving departmental objectives

Progress against budget & implementing strategic planHighlights departmental performance (financial & non-financial) against targets

Environmental changesExpenditure outcomes and new budget allocationsStrategic direction changes

Performance against budget and

strategic planMeeting reporting

requirements - Treasury & PS

Regulations

ACCOUNTABILITY CYCLE

Budget Process

47

Chapter 13 of Constitution

• Chapter 13 sets fiscal framework• SA government system a revenue

sharing one– Fiscal powers of provinces and municipalities

(taxation and borrowing) s228-230– s214 on division of revenue between three

spheres of govt (national, provincial, local)

• Sections 215 and 216 on budget transparency and fin management

• Establishment and mandates of National Treasury, FFC, SA Reserve Bank

48

Legislative context

• Public Finance Management Act (PFMA)– Covers national and provincial depts and entities

• Municipal Finance Management Act (MFMA)• Intergovernmental Fiscal Relations Act

– Gives effect to consultative processes on division of revenue

– Establishes Budget Council and Budget Forum

• Other chapter 13 legislation on provincial/LG taxes, borrowing, FFC, SARB

• Numerous pieces of financial sector legislation (banks, fin institutions etc)

49

Budget Process

• Budget process at the heart of government– Guided by policies, priorities & making trade-offs – Not a bean-counting process– Co-ordination between planning, budgeting, policy

development and implementation

• Budget Preparation– Collectively agreed in Cabinet / EXCO– Involves consultation with provinces and LG through

Budget Council, Budget Forum and Extended Cabinet (Premiers and SALGA)

• Budget approval after tabling– Role of finance portfolion and standing committees,

Joint Budget Committee– Role of all portfolio committees

50

MTEF budget process

Medium term policy review

Preparing budget submissions

Macroeconomic framework, fiscal

policy & DoR

MTBPS

Preparation of MTSF

MTEC – review & recommendations

to Cabinet

Preparation of Budget

Documents

May Aug Nov Feb 2004

Cabinet lekgotla

Cabinet lekgotla

Departmental and agency planning & budgeting

Jan April July Oct 2003

51

MTEF budget process

Jan 04FebMarchAprilMayJuneJulyAugSepOct

NovDecJan 05Feb

Medium-term policy review

Departmental and agency planning and budgeting

Consider new

spending priorities and

trade-offs

Revise framework,

fiscal policy and

DoR

Table MTBPS

Cabinet approves new MTEF

Cabinet Lekgotla

Budget Speech

State of Nation

Departments prepare budget

preparations

Evaluate budget

proposals

MTEC hearings

Prepare budget documentation

National and provincial budgets tabled

52

How 3 year budgeting works

2004/05

2005/06

2006/07

2004 MTEF

2005/06

2006/07

2007/08

2005 MTEF

Additions to baseline

• Revised macroeconomic and fiscal framework

• Drawdown on contingency reserve

• 3rd year = forecast inflationary increase on 2nd year

53

Fiscal policy and the budget framework

MTEF Baselinecomprises

• Fiscal policy and macroeconomic framework of prevous year

• Years 2 and 3 of previous MTEF

Additional allocationDraw down of contingency reserve and revised macroeconomic forecast

New spending plans, policy priorities and framework determines increase to baseline

New spending plans based on baseline (resource envelope)

54

Factors affecting fiscal policy

• Level of taxation– Rise in tax burden may impede economic growth

– Slowdown in tax burden may require higher borrowing or less spending

• Level of borrowing– Borrowing for investment may boost longer-term

growth

– Interest costs may crowd out other expenditure in the long term

– Too much Govt. borrowing pushes up interest rates

• Balance between capital and recurrent spending

55

0%

5%

10%

15%

20%

25%

30%

35%

1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03

per

cent

GD

P

0%

2%

4%

6%

8%

10%

12%

14%

per

cent

GD

P

Deficit (right axis) Total expenditure (left axis)

Non-interest expenditure (left axis) Total revenue (left axis)

Key indicators of fiscal policy

56

Policy priorities and public expenditure

• Budget decisions informed by: – Priorities– Evaluation of service delivery achievements– Credible spending plans

• Annual reports on outputs and targets inform budget decisions

• Medium-term outlook allows greater policy and planning certainty

Child support grant extended to poor children under 14 – phased in over the 2003 MTEF period. Priority is to reduce poverty and vulnerability

MTEF budget process strengthens link between policy priorities and expenditure

57

Political oversight of the budget process

• Executive responsible for early policy prioritisation and trade-offs

• MTEF budget process ensures political oversight

• Manage the tension between competing policy priorities and budget realities

Trade-off between extending child support grant to children up to 14 years or increase spending on school books, or can both be accommodated within approved fiscal framework

58

Budgeting for service delivery

• MTEF deepens medium to long-term certainty – Budget certainty supports policy for the phasing-in of CSG– Allows for medium-term reprioritisation

• Legislative reforms provide manager with greater flexibility – accountability for use of resources

• Budget documents contain service delivery commitments

• Measurable objectives and output targets included in national and provincial budgets Goal is to ensure that Thandi receives the Child Support Grant, possily till the age of 14 years

59

MTEF budget process

Jan 04 February March April May June July August September October November December Jan 05 February March

Medium term policy review Departmental and agency planning & budgeting

MTEC hearings

Departments prepare budget

proposals

Prepare budget documentation

Cabinet lekgotla

Consider new spending priorities

Revise framework, fiscal policy and

DoR

National Budget and provincial budgets tabled

Cabinet lekgotla

Cabinet approves new MTEF

Table MTBPS

60

Medium Term Expenditure Framework

Based on four principles

1. Fiscal policy and the budget framework

2. Policy priorities and public expenditure

3. Political oversight of the budget process

4. Budgeting for service delivery

61

Budget Process Stages

• Four periods / stages:– Period One: 1 March to 31 May

(Preparation and Reprioritisation)

– Period Two: 1 June to 31 August(Division of Revenue)

– Period Three: 1 Sept to 30 November(Allocation of Resources)

– Period Four: 1 Dec to 31 March(Finalisation of Documentation)

62

Key Role Players

• Parliament / Provincial Legislatures• Cabinet / Provincial Exco• FFC• MinComBud• Treasury Committee• Extended Cabinet• Budget Council• Budget Forum• TCF• Spending Agencies

63

Important Intergovernmental Fora

• Sector Specific CFOs Fora (Quarterly)• 10 x 10’s• 4 x 4’s• Joint MinMecs • TCF (Six times a year)• Budget Council (Quarterly)• Budget Council Lekgotla (Annually)• Budget Forum• Technical PCC• PCC

64

Major Budget Events

• Bi-laterals with departments (April to May)• 10 X 10 (June)• 4 X 4’s (July)• Cabinet Lekgotla (July)• Provincial Visits (End July) • Budget Council Lekgotla (End August)• National and Provincial MTEC (September)• Division of Revenue Workshop/Peer Reviews• Joint Minmecs (October)• Extended Cabinet (20 October)• MTBPS (27 October)• Budget Day (23 Feb 2005)• Provincial Budgets (within two weeks)

65

Budget documentation• Budget legislation

– Division of Revenue Bill– Appropriation Bill– Revenue laws

• Budget documentation– Budget Speech– Budget Review– Estimates of National Expenditure– Estimates of National Revenue

• Provinces have own budget documents• Intergovernmental Fiscal Review (post-budget)• Adjustments Appropriation Bill (post-budget)• MT budget policy statement (pre-budget)

66

Departmental budget documents

• Portfolio committees can use budget docs to improve oversight over depts

• Strategic and performance plans and ENE– Outputs and measurable objectives and targets – In-year quarterly and end-financial year performance

targets

• Annual report requires reporting against these measurable objectives– Many depts provide poor performance info

• Section 32 PFMA monthly and quarterly reports allow for in-year monitoring

67

Budget process challenges• Deepen political oversight• Focus on credibility of second and third year of

MTEF • Information overload (SPP, BS, IYM, OPR, AR) and

alignment of all tables in documentation • Unresolved policy issues• Poor programme costing• Unfunded policy mandates• Long budget cycle• Weak interdepartmental coordination• Inadequate policy analysis• Quarterly Performance Information• Alignment between Planning Cycle, Budget Cycle

and Project Cycle

Provincial Strategic and Performance Plans“A five year perspective”

69

Planning, Budget andReporing Cycle

Performance Agreements

of Year 0

Annual Budgetof Year 0

Quarterly Performance

Reportsof Year 0

Annual Performance Plan

of Year 0

Annual Reportand annual

financial statementsof Year 0

Five -year Strategic & Performance Plan

Monthly Financial Reports

of Year 0

Annual Review & Oversight Processes of

Year 0

Update ofStrategic &

Performance Plan for Year +1

Three-year Medium Term

Expenditure Framework

Third Quarter Financial and Performance

Reportsof Year 0

Update of Strategic & Performance Plan

for Year +2

Year 0Year 0

Year 1Year 1

70

Planning, budgeting and reporting cycle for 2005-2010

Policy priorities and strategic planning

Preparation of medium to long-term plans

Budget evaluation and trade-offs

Prepare budget documentation and Appropriation

Monthly, quarterly and annual reporting

Revise output targets

Finalise Estimates of

Expenditure and revise draft

strategic plan

Planning and budgeting

informed by policy priorities

71


of Year 0



Reportsof Year 0


of Year 0



Five -year Strategic & Performance Plan


of Year 0

AnnualReview &Oversight

Processes ofYear 0


Performance Planfor Year +1




Reportsof Year 0

Update of Strategic& PerformancePlan for Year +2


of Year 1



Reportsof Year 1


of Year 1




of Year 1

AnnualReview &Oversight

Processes ofYear 1






Reportsof Year 1



of Year 2



Reportsof Year 2


of Year 2




of Year 2

AnnualReview &OversightProcessesof Year2






Reportsof Year 2


Year 1Year 1

Year 0Year 0

Year 2Year 2Information in the third quarter Monthly Financial Reports and

the Quarterly Performance Reports

feeds into planing process of the following year

Recommendations emerging from Annual Review and Oversight Process feeds into planning

process for the following year +1

72

Legal Framework

Treasury Regulations (TR) date 25 May 2002:

• R 5.1 Annual preparation of strategic plans• 5.1.1 Each year, the accounting officer of an institution

must prepare a strategic plan for the forthcoming MTEF period for approval by the relevant executive authority.

• TR 5.2 Submission and contents of strategic plans • 5.2.1 In order to facilitate the discussion of individual

votes, the approved strategic plan must be tabled in Parliament or the relevant legislature at least 7 days prior to the discussion of the department’s budget vote.

73

Legal Framework• TR 5.2.2 The strategic plan must –• TR 5.2.1 The strategic plan must form the basis for the

annual reports of accounting officers as required by sections 40(1)(d) and (e) of the Act

• TR 5.3 Evaluation of performance [Section 27(4) read with 36(5) of the PFMA]

• 5.3.1 The accounting officer of an institution must establish procedures for quarterly reporting to the executive authority to facilitate effective performance monitoring, evaluation and corrective action.

Public Service Regulations:• Treasury regulations require strategic plans to comply

with Chapter 1, Part III B of the Public Service Regulations, 1999, and also include information on the Service Delivery Improvement Plan

74

Strategic Planning as a foundation

• MTEF strengthens link between policy priorities, planning, budgeting, implementation and reporting

• Departmental strategic planning aligned with medium-term policy priorities

• Budget submissions based on strategic and performance plan and policy priorities

• Budgets evaluated by Treasury on basis of Government’s priorities and expected outputs

• Five year perspective to SPP linked to electoral cycle and alignment of Infrastructure Planning through infrastruture delivey toolkit

75

MTEF

Medium Term Strategic Framework

National Spatial Development Perspective Provincial Growth &

Development Strategy

Sectoral Strategies

Local Government IDPs



To

p-d

ow

n L

inkag

es

Bo

tto

m-u

p L

inka

ges

Five-year Strategic & Performance Plan

President’s ‘State of

the Nation’ address

76

MRMR MR MR MRMR MR MR MR MR MR MR MR

MTEF

Budget Budget

MTEF

Budget

MTEF

BudgetBudgetBudget

MTEF

BudgetBudgetBudget

2004 20122006 2007 2008 2009 2010 20112005 2013 2014 2015 2016

5 Year Election Mandate ...

APPs

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

APPs APPs APPs APPs APPs APPs APPs APPs APPs APPs APPs

5 Year Election Mandate

5 year Strategic & Performance Plan

AR AR AR AR AR AR AR AR AR AR AR AR

EPR

...

EPR

10yr

Election Election Election

Electoral Cycle

• Five-year Strategicand PerformancePlans

• Annual PerformancePlans and Budgets(with MTEF)

In-year Reporting

• Annual Reports(with annual financial statements)

• Monthly FinancialReports

• Quarterly PerformanceReports

• End-term PerformanceReviews

• Ten Year Reviews

Fiscal Years

Planning & Budgeting

5 year Strategic & Performance Plan

End-year Reporting

Long-term Reporting

MR MR MR MRMR MR MR MRMR MR MR MRMR MR MR MRMR MR MR MRMR MR MR MRMR MR MR MRMR MR MR MRMR MR MR

77

Reconciliation withBudget

Whole of Department

Sub-programme

Programme

Changes to StrategicGoals

Changes to OverallStrategic Objectives

Measurable Objectives

RevisedSituation Analysis

Situation Analysis

Part A

Part B

Situation Analysis(if required)


Whole of Department

Sub-programme

Programme

Strategic Goals

Overall StrategicObjectives

Measurable Objectives

Situation Analysis

Situation Analysis

Resource Information

Part A

Part B

Part C

Analysis of Service Delivery Environment

Organisational and Institutional Environment

Background Information

Situation Analysis(if required)

Five-year Strategic and Performance Plan

Performance Measures

Performance Targets

Analysis of Changes to Programmes

Part C

78

Proposed Generic Format 2005

• Part A: Strategic Overview of the Dept and Sector– Vision, mission, values, broad policy priorities, goals

and objectives. Focus mainly on service delivery

• Part B: Detailed planning information per programme and sub programme– Measurable Objectives, Performance Measures– Performance targets, Budget information

(reconciliation of budget vs plan)

• Part C: Background information– Analysis of service delivery environ, organisational

and institutional environ, Analysis of challenges

79

Annual Process• First draft SPP & Provincial Budget Statement to be submitted by

31 August– take account of 2004/05 actual outcome contained in AFS and and 1st

quarter actual expenditure for 2005/06 – Section 32– January and July lekgotla– Budget requests beyond baseline– MTBPS - October

• Second draft SPP & Provincial Budget Statement to be submitted by 02 December– take account of 2nd quarter actual expenditure for 2005/06 – Section 32

and final tabled Annual Reports (previous year’s actual performance)

• Provinces table Budget Statements two weeks after National Budget – 15 February 2006

• SPP must be tabled in Parliament or the relevant legislature at least 7 days prior to the discussion of the department’s budget vote– Final allocations available plus 3rd quarterly actual expenditure 2005/06

• 2005 IGFR

80

Progress to date

• All 116 provincial departments have implemented SPP from the 2002 Budget– Measurable objectives– Performance Measures– Performance targets (Quarterly)

• The alignment of SPP and Budget is done through the Budget and Programme Structure

• What appears on the face of budget documentation should reflect the services a department renders to the community in terms of its legal mandate, and not the organisation structure of the department

81

Progress to date

• Uniform Budget and Programme structures for eight provincial sectors– Education; Health; Social Development; Agriculture; Housing;

Local Government; Public Works, Roads and Transport and Sport, Arts and Culture

• Customised and Generic Strategic and Performance Plans for seven provincial sectors

• Target for the 2005 Budget:– Provincial Legislatures, Environmental Affairs;

and– Provincial Treasuries:

– Uniform Budget and Programme Structures– Customised strategic and performance plans– Generic organisational model

In-year Management, Monitoring and Reporting

(IYM or Section 32 of PFMA)

83

Office Of The Premier

Provincial Legislature

Health

Social Development

Roads And Public Works

Education

Housing,Local Government And Traditional Affairs

Agriculture

Economic Affairs,Environment And Tourism

Transport

11

Provincial Treasury

13

Safety And Liaosn

16

17

18

Conditional Grants : Flow of information

Provincial TreasurySubmit a report within 22 days after the end of each month as part of consolidated monthly

report.

National Treasury

National departmentSubmit a report within 20 days after

the end of each month.

Provincial departmentSubmit a report within 15 days after the end of each month.

Legislation

* Public Finance Management Act.

* Division of Revenue Act.

84

• Screen Shots – IYM Model

85

• Screen Shots – Section 32 Publication

86

• Screen Shots – Press Release

87

• Screen Shots – IYM Dataset

Quarterly Performance ReportingThe link between the strategic plans and the annual reports and the

complement to the monthly financial statements

89

Link between plans, budgets and reports

These are in place!

These are in place!

These are in place!

Are these in place?These are in place!

These are next

These are in place!

These are in place!

90

Place of QPRs in Reporting Cycle• State of the Nation Address

• Provide in-year information on performance against measurable objectives and performance targets

• Complement the monthly financial reports by providing a service delivery perspective on performance

• Integral to monitoring, reporting and evaluating the AO’s performance against their performance agreement/contract to implement the department’s operational plan

• Feed into the ‘departmental performance’ section of the annual report

91

Reforms introduced for the 2004 Budget

• Migration to BAS– Single source of truth for users of data

(Reserve Bank, NT and others)– Exceptions: NW and two national

departments

• Standard Chart of Accounts (SCOA)• New Economic Reporting Format• Consolidation of Financial

Statements (after AR for 2003/04)

92

Budgets vs Annual Report

• Budget is FORWARD-LOOKING– Budget is essentially a policy approval process– Pre-financial year document– Sets out policy priorities & trade-offs for coming 3 yrs– Sets performance targets for each of the 3 years

• Annual Reports are BACKWARD-LOOKING– Not a policy approval process, but a performance report

for financial year just ended– Post-financial year document

• 2005 Annual Reports tabled by 30 Sept 2005 report on 2004/05 financial year

– 1 April 2004 to 31 March 2005– Compare to 2004 Budget (NOT 2005 Budget)

93

Commercial• Note:

– all 2005 provincial Budget Statements and Strategic and Performance Plans (SPP);

– 2005 provincial Budget Statements are available on NT Website; and

– 2004/05 Annual Reports to follow soon….

www.treasury.gov.za

Contact Details:

Jan Hattingh

Chief Director: Provincial Budget Analysis

Intergovernmental Relations

National Treasury

Tel No.: (012) 315-5009

E-mail: [email protected]

Intergovernmental System in South Africa PMIG Meeting 7 December 2005.

Documents

national government

sa national

national grants

division of revenue

national law

country slide

regulatory slide

tax assignment national