Budget reform South African experience: 1994 - 2000 October 1999 Department of Finance 1
Budget systems & expenditure management - key tensions • Macroeconomic management – fiscal discipline – promoting growth & development • Allocative efficiency – competition for scarce resources – coordination of public spending • Technical efficiency – fostering managerial discretion – effective regulation & control October 1999 Department of Finance 2
Elements of budget reform • Macroeconomic coordination – economic analysis – medium term planning • Budget process & systems – improved relations with spending agencies • Robust financial management systems • Transparency & public accountability October 1999 Department of Finance 3
South Africa: systems in transition • Apartheid background: – Central control; a fragmented state – Inequality of public services – Stagnant economy • A new Constitutional order – Cooperative governance • Changed priorities: – The reconstruction & development programme October 1999 Department of Finance 4
Budget problems (everywhere the same?) • Unrealistic plans • Institutional complexity; hidden agencies • Weak information systems • Conflicting priorities • Poor planning & management • Unclear political mandates • Unstable budgetary process October 1999 Department of Finance 5
South Africa’s budget reforms • Pre-1994 Activity-based budgeting • 1994-96 RDP Fund • 1995-96 Growth & development plans • 1996 Macroeconomic strategy • 1997 Medium term statement • 1998 Three-year budgets • 1999-00 Wider public sector October 1999 Department of Finance 6
Evolving reform… • New intergovernmental system • Public service management reforms • Public Financial Management Act • Wider public sector coordination • Restructuring public enterprises & agencies Budget reform white paper October 1999 Department of Finance 7
Medium Term Expenditure Framework Re-engineering the planning process October 1999 Department of Finance 8
First MTEF • Treasury analysis: 1994-1996 – “top-down” model – complex spreadsheets – sectoral analysis and identification of cost- drivers – presented to Cabinet – outcome: decision to proceed October 1999 Department of Finance 9
First MTEF But: • No departmental involvement • Inadequate focus on choice • Weak links to budget & expenditure process • Too technical • No political buy-in October 1999 Department of Finance 10
1998 MTEF What is it? • Three year spending plans for each department • A rolling budget planning process October 1999 Department of Finance 11
1998 MTEF How did it work? • Departments asked to submit 3-year projections • Analysis by review teams • 3-year recommendations to Cabinet by MTE Committee • Support for provincial budget planning October 1999 Department of Finance 12
Benefits of multi-year budgets • Links policy design and spending allocations • Promotes medium term planning • Provides context for assessing proposals • Gives credibility to fiscal strategy • Improves understanding of priorities & costs October 1999 Department of Finance 13
Budget process March Baseline National l Provincial allocations April agencies agencies 3 year May plans plans June July Provincial treasury Treasury Review teams August compiles examines analyse plans Sept MTEF budgets October 1999 Department of Finance 14
Budget process (cont.) Draft MTEF Sept compiled October Provincial Council Cabinet review of plans November Budget Council December Cabinet Cabinet finalises budget January February Preparation of budget papers October 1999 Department of Finance 15
Indicative allocations • Baseline allocations provide point of departure: – Division between national, provincial & local authorities – Expenditure ceiling for each department based on previous year’s forward estimates – Standard allowance for increase in 3rd year – Framework agreed by Budget Council & Cabinet October 1999 Department of Finance 16
Treasury review process • Informed by Cabinet priorities • Examination of expenditure & budgets • Focus on changes to baseline allocations • Identify activities to discard • Identify new commitments • Review spending by agencies • Inform Cabinet of risks October 1999 Department of Finance 17
Budget framework R b 1999/00 2000/01 2001/02 Revenue 191,7 207,4 222,3 Expenditure 216,8 230,7 247,3 State debt 48,2 49,8 52,6 Reserve 1,1 3,5 8,0 Allocated 167,6 177,4 186,6 Deficit 25,1 23,4 25,0 October 1999 Department of Finance 18
Division of resources R b 1999/00 2000/01 2001/02 Available 167,6 177,4 186,6 National 78,7 81,1 84,5 Provincial 86,3 92,1 96,8 Local 1,7 2,5 2,6 Supplementary 0,9 1,8 2,7 October 1999 Department of Finance 19
Provincial grants Conditional grants 11% Social grants 18% Equitable Tax share share 7% 64% October 1999 Department of Finance 20
Main spending trends Av. Growth 95/96-98/99 98/99-01/02 Protection 8,7% 4,3% Social services 12,0% 6,3% Economic services 6,0% 3,6% Administration -0,7% 7,8% Interest 12,6% 6,4% Total 10,2% 6,5% October 1999 Department of Finance 21
Main spending trends (cont.) Av. Growth 95/96-98/99 98/99-01/02 Personnel spending 12,2% 5,1% Other current spending 5,0% 4,8% Capital spending 20,4% 6,7% Total 10,2% 6,5% October 1999 Department of Finance 22
MTEF: summary lessons • Political commitment to make it work – emphasis choice; enhancing delivery • Keep framework simple – 3 year plans – changes to baseline • Make it matter – build into budget process – stick to allocations – keep expenditure discipline October 1999 Department of Finance 23
Budget Reform and Service Delivery Next steps in improving the quality of budget information October 1999 Department of Finance 24
Why more change? • Improved service delivery requires: – Ability to reprioritise spending – Linking planning with budgeting – Examining outputs in relation to inputs – Better framework for personnel budgeting – Greater transparency in functioning of government – Transforming finance management Budget reform agenda aims to address these issues October 1999 Department of Finance 25
Budgeting and services • Traditional budgets highlight finance • Measures of service delivery also vital • Consideration of services can be improved using – objectives – service delivery indicators – targets October 1999 Department of Finance 26
Complementary management reforms • Management information & statistics • Improved accounts - allocation of costs • Puts service delivery information alongside financial data to – improve resource allocation – make service delivery better – greater transparency in reporting October 1999 Department of Finance 27
Budgeting for investment • Investment a priority – as it promotes future service delivery – complements private sector investment • Need to ensure – investment planned to meet service objectives – able to operate and maintain assets created... – ...including ability to meet future operating costs so the assets actually deliver services October 1999 Department of Finance 28
Budgeting for personnel • Personnel biggest category of spending • But largely outside managers’ control • New regulations decentralise management • Budgeting also has contribution to make – reviewing ICS vote – improving capacity to forecast pay costs – improving determination of mandates October 1999 Department of Finance 29
Budgeting for the wider public sector • Important flows of revenue & spending outside the budget • Need to manage the PSBR • Oversight role of Treasury & departments • Protocol on corporate governance • Tax & dividend policies • Review of guarantees • Oversight of pay & procurement policies October 1999 Department of Finance 30
Indicators and targets • This Budget’s National Expenditure Survey began to put service information alongside traditional budget material • Plan by 2004/05 to have comprehensive set of objectives, indicators and targets across public services • By 2002/03 aim to reflect indicators and targets in Estimates October 1999 Department of Finance 31
In sum • Sound budget framework & decentralised planning – promotes discipline while identifying priorities for growth & development – balances coordination & competition for funds – encourages management capacity & forward planning within regulated framework October 1999 Department of Finance 32
Budget reform in practice: stronger accountability… …more clearly assigned responsibility October 1999 Department of Finance 33
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