MTBPS workshop 16 September 2014

MTBPS workshop

16 September 2014

Outline Introduction Legislative mandate Responsibilities of Parliament Technical check Macroeconomic outlook Revised fiscal framework Fiscal policy position Spending priorities Division of revenue Consolidated government expenditure Summary

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Introduction In 1997 the medium term budgeting system was introduced, which includes:

The publication of a Medium Term Budget Policy Statement (MTBPS), to enable Parliament and institutions of civil society to participate meaningfully in the budget debate.

The MTBPS includes the Fiscal policy which contains the framework of government to adjust its spending levels and tax rates to monitor and influence a nation's economy.

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Legislative mandate The Money Bills Amendment Procedure and Related

Matters Act, 2009: In terms of Sec 6(1) the Minister must submit to Parliament a

Medium Term Budget Policy Statement at least three months prior to the introduction of the national budget.

Each committee on finance and appropriations must 30 days after the tabling of the Medium Term Budget Policy Statement report to the National Assembly or the National Council of Provinces, as the case may be, on the proposed fiscal framework for the next three financial years and on the proposed division of revenue and the conditional grant allocations to provinces and local governments respectively.

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Legislative mandate (cont.)

The Money Bills Amendment Procedure and Related Matters Act, 2009: In terms of sec 15 (2) the core function of the Parliamentary

Budget Office is to support the implementation of the money Bills Act by undertaking research and analysis for the committees.

In terms of sec 15 (2)(b) PBO must provide advice and analysis on proposed amendments to the fiscal framework, the Division of Revenue Bill and money Bills and on policy proposals with budgetary implications.

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Responsibilities of Parliament

In terms of the Money Bills Act:

Committees must report to the House 30 days after the tabling of the MTBPS.

The committees may consult with any other committee in considering the MTBPS.

Committees must, as the case may be, report on: The proposed fiscal framework (recommend amendments if materially

unchanged when submitted with the budget); The spending priorities of national government for the next three years; The proposed division of revenue between the spheres of government and

between arms of government;

The proposed substantial adjustments to conditional grant allocations to provinces and local governments.

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Technical check In terms of section 6 of the Money Bills Act: The medium term budget policy statement must include:

Yes No Comments

1. a revised fiscal framework for the present financial year and the proposed fiscal framework for the next three years;

√ Comparison with macroeconomic indicators could assist

2. an explanation of the macro-economic position and macro-economic projections;

√ Additional tables could assist to monitor the structural changes

3. an explanation of the fiscal policy position, and the assumptions underpinning the fiscal framework;

√ Revenue and expenditure

4. the spending priorities of national government for the next three years; √ Monitoring system?

5. the proposed division of revenue between the spheres of government over the next three years;

√

6. the proposed division of revenue between the arms of government within a sphere for the next three years;

√ Not on provincial level

7. the proposed substantial adjustments to conditional grant allocations to provinces and local governments, if any;

√ Only totals

8. a review of actual spending by each national department and each provincial government between 1 April and 30 September of the current fiscal year.

√ Ann A

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The macro-economic outlook (Chapter 2:Economic Outlook)

Table 2.3 Macroeconomic performance and projections, 2010/11 – 2016/17Fiscal year 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

Actual Estimate Forecast

Percentage change unless otherwise indicated

Real GDP grow th 3.4 3.1 2.4 2.3 3.0 3.3 3.5

GDP inflation 7.8 5.4 5.5 6.0 5.9 5.8 5.7

Headline CPI inf lation (Dec 2012 = 100) 3.8 5.6 5.6 6.0 5.5 5.4 5.4

GDP at current prices (R billion) 2 735.3 2 973.3 3 213.4 3 483.6 3 799.8 4 153.3 4 545.7

Source: National Treasury

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The macro-economic outlook(Chapter 2:Economic Outlook) Comprehensive Additional information that could assist the Committees:

The assumptions underlying growth projections Compare GDP forecasts (NT with Banks, IMF etc.) Information on all sectors contributing to the GDP to show the

structural changes over time A comparison of growth estimates to potential growth Match identified constraints to growth with the developments that

address them eg: Labour Electricity Business confidence and The widening current account

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Revised fiscal framework (Chapter 3: Fiscal policy and trends) SA Fiscal policy is rooted in the principles of counter

cyclicality Debt/fiscal sustainability Intergenerational equity Public spending is shifting towards:

NDP Improving infrastructure allocations Efforts to combat waste, inefficiency and corruption

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Revised fiscal framework (Chapter 3: Fiscal policy and trends)

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

R billion Outcome Estimate Medium-term estimates

Operating account

Revenue 764.7 843.5 907.6 998.9 1 086.1 1 184.0 1 305.8

Current payments 756.3 837.7 919.1 1 008.6 1 086.3 1 165.7 1 247.6

Compensation 309.9 345.5 375.4 409.0 437.2 466.9 498.9

Goods and services 137.2 153.7 165.1 178.6 188.2 198.1 211.8

Interest and rent on land 75.3 81.8 93.2 106.6 116.6 128.8 141.0

Transfers and subsidies 233.9 256.7 285.4 314.3 344.3 371.9 395.8

Current balance 8.4 5.9 -11.5 -9.6 -0.1 18.3 58.3

Percentage of GDP 0.3% 0.2% -0.4% -0.3% 0.0% 0.4% 1.3%

Capital account

Capital receipts 0.4 0.2 0.3 0.2 0.2 0.2 0.2

Capital payments 55.7 61.2 68.0 75.7 87.9 95.6 101.7

Capital transfers 45.4 49.7 52.5 55.8 63.3 70.1 72.9

Capital financing requirement1 -100.8 -110.6 -120.1 -131.4 -151.1 -165.6 -174.4

Percentage of GDP -3.7% -3.7% -3.7% -3.8% -4.0% -4.0% -3.8%

Financial transactions2 22.3 2.8 3.3 3.6 3.3 3.0 0.0

Contingency reserve – – – – 3.0 6.0 18.0

Budget balance -114.7 -107.5 -135.0 -144.6 -157.5 -156.3 -134.2


Table 3.3 Consolidated fiscal framework, 2010/11 – 2016/17

Link to the adjustments

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Revised fiscal framework (Chapter 3: Fiscal policy and trends)

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

R billion Outcome Estimate Medium-term estimates

Budget balance -114.7 -107.5 -135.0 -144.6 -157.5 -156.3 -134.2


Revenue 765.0 843.8 907.9 999.1 1 086.3 1 184.2 1 306.0

Expenditure 879.7 951.3 1 042.9 1 143.7 1 243.8 1 340.4 1 440.2

Non-interest expenditure 3 804.4 869.5 949.6 1 037.0 1 127.2 1 211.7 1 299.2

Interest payments 75.3 81.8 93.2 106.6 116.6 128.8 141.0

Primary balance 4 -39.4 -25.8 -41.7 -37.9 -40.9 -27.5 6.8

Percentage of GDP -1.4% -0.9% -1.3% -1.1% -1.1% -0.7% 0.1%1. Includes payments for capital assets, receipts from the sale of capital assets and capital transfers2. Transactions in financial assets and liabilities3. All spending except for consolidated interest payments4. Revenue less non-interest expenditure

Table 3.3 Consolidated fiscal framework, 2010/11 – 2016/17

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The fiscal policy position(Chapter 3: Fiscal policy and trends) For the committees to make recommendations on amending the fiscal

framework should it remain materially unchanged when submitted with the national budget the Committees need to:

Determine the changes from the previous fiscal framework Analyse the sustainability of the fiscal framework Assess intergenerational equity Ensure a shift in spending patterns towards the implementation of the

NDP/MTSF Ensure spending on infrastructure

Managing risks to safeguard the sustainability Ensure reduction in waste and inefficiency in government spending

and revenue collection

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The fiscal policy position(Chapter 3: Fiscal policy and trends)

To assess fiscal sustainability an assessment of the following indicators are required: The budget balance measured in terms of a deficit or surplus

Trend analysis on revenue, expenditure and the budget balance over time

Compare trends with the GDP and CPI to indicate the alignment of the revenue and expenditure decisions with the macroeconomic indicators underpinning the numbers

Evaluate debt levels of the country and compare with other countries

Trend analysis on sector spending

Evaluate the current account balance

Monitor the risks to safeguard fiscal sustainability

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The fiscal policy position(Chapter 3: Fiscal policy and trends) Assess intergenerational equity Generations are tied together through humanity and inheritance Intergenerational equity is a values-based concept that future

generations have certain rights It is the belief that what is done today impacts future

generations and that assets and resources belong to those generations

This idea covers many areas, including natural resources and financial security

Future generations should not have to suffer because the current generation did not properly take care of resources

There is a need to determine whether government debt will be a burden for future generations or not

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Monitor the management of risks to safeguard the sustainability of the budgetCurrent risks as identified in the 2013 MTBPS are:

Public sector wage bill Debt Balance sheets of SOC

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The following comparison could also assist Committees: Summary of the consolidated fiscal framework including:

Including growth rates Including real GDP growth rates Including CPI inflation It would be useful for MP's to receive additional information on how

expected changes in growth impact on revenueExample 2012/13 2013/14 2014/15 2015/16 2016/17

R billion/percentage of GDPRevised estimate

Medium-term estimates

Main budget revenue 799.8 886.2 962.8 1 058.1 1 172.6

Growth rate 7.3% 10.8% 8.6% 9.9% 10.8%

GDP growth 8.3% 9.4% 9.5% 9.7%

Main budget expenditure 965.5 1 049.1 1 142.6 1 232.6 1 323.6

Growth rate 8.5% 8.7% 8.9% 7.9% 7.4%

CPI 5.8% 6.2% 5.7% 5.5%

Main budget balance -165.7 -162.9 -179.8 -174.5 -151.0

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The fiscal policy position(Chapter 3: Fiscal policy and trends) Possible additional information that could assist Committees:

Monitoring the risks around the increasing wage bill: A complete break down of current and 3-year estimates of personnel

numbers in terms of sectors as well as managerial and administrative staffing across government

Progress on the enforcement of discipline in hiring new personnel. Monitoring the Debt portfolio: It would be interesting to compare SA long term projections of net

debt with other countries Compare the composition of SA net debt (foreign/local, inflation

linkers/normal bonds, maturities) with its peers Monitoring the balance sheets of public entities and SOC

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Spending priorities: National(Chapter 1: Securing inclusive growth) Public spending are shifting towards:

NDP (fully incorporated into the MTSF) Improving infrastructure allocations Efforts to combat waste, inefficiency and corruption

Additional information that could assist Committees: The MTSF targets The specific departments responsible for the MTSF outputs The level of expenditure per output (if possible) Progress on achieving outputs and outcomes of the MTSF

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Spending priorities: Provincial(Chapter 4: MTEF and division of revenue)

A narrative presents: Proposed changes to provincial funding Proposed changes to provincial conditional grants Proposed changes to local government grants

Additional information that will assist Committees: Current spending on Conditional grants, per grant Estimated spending over the MTEF on Conditional grants

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Division of revenue(Chapter 4: MTEF and division of revenue)

Table 4.1 National and provincial expenditure: 2012/13 outcomes and 2013/14

mid-year estimates

2012/13 2013/14

R billion

Originalbudget

Adjusted estimate

Preliminary outcome

Over(-)/ under(+)

Originalbudget

Adjusted estimate1

Total expenditure 969.4 970.0 965.6 4.5 1 056.0 1 049.6 507.0

less: Extraordinary payments – -2.6 -2.6 – -0.9 -0.2 –

National Revenue Fund Expenditure

969.4 967.5 963.0 4.5 1 055.1 1 049.4 507.0

State debt cost 89.4 88.8 88.1 0.7 99.7 100.5 49.2

Provincial equitable share 309.1 313.0 313.0 – 337.6 338.9 168.8

Other direct charges 21.5 23.3 23.2 0.1 25.0 24.9 10.2

National votes 549.4 542.4 538.7 3.7 592.7 585.0 278.8

of which:

Compensation of employees 101.0 103.4 102.4 1.0 111.9 113.4 55.3

Transfers and subsidies 370.9 371.7 368.6 3.1 402.6 398.2 192.9

Payments for capital assets 15.2 14.3 14.1 0.1 14.3 14.3 4.0

Local governmentrepayment to theNational Revenue Fund

– -0.5 – -0.5 – -0.5 –

Actual spending April to

September

Changes from the previous FF

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Table 4.1 National and provincial expenditure: 2012/13 outcomes and 2013/14

mid-year estimates

2012/13 2013/14

R billion

Originalbudget

Adjusted estimate

Preliminary outcome

Over(-)/ under(+)

Originalbudget

Adjusted estimate1

Actual spending April to

September

Total expenditure 969.4 970.0 965.6 4.5 1 056.0 1 049.6 507.0

less: Extraordinary payments – -2.6 -2.6 – -0.9 -0.2 –

National Revenue Fund Expenditure

969.4 967.5 963.0 4.5 1 055.1 1 049.4 507.0

National votes 549.4 542.4 538.7 3.7 592.7 585.0 278.8

Provincial expenditure 388.5 402.7 395.2 7.5 418.5 n/a 202.8

of which:

Compensation of employees 232.0 236.1 234.1 2.0 251.5 n/a 126.7

Transfers and subsidies 55.6 58.3 57.2 1.1 57.7 n/a 26.8

Payments for capital assets 27.4 30.8 28.9 1.9 29.2 n/a 11.2

1. Provinces will table adjusted estimates during November 2013

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Division of revenue(Chapter 4: MTEF and division of revenue) Table 4.2 Main budget framework, 2010/11 – 2016/17

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

R billionOutcome Revised

estimate Medium-term estimates

State debt cost 66.2 76.5 88.1 100.5 110.4 122.2 135.4

Non-interest expenditure 739.8 813.5 877.4 949.1 1 027.8 1 106.1 1 185.1

Percentage increase 7.1% 10.0% 7.9% 8.2% 8.3% 7.6% 7.1%

Total expenditure 806.0 889.9 965.6 1 049.6 1 138.1 1 228.3 1 320.5

Percentage increase 7.8% 10.4% 8.5% 8.7% 8.4% 7.9% 7.5%

Contingency reserve – – – – 3.0 6.0 18.0

Division of available funds

National departments 355.2 381.3 410.2 452.5 487.9 520.4 550.1

Provinces 322.8 362.5 388.2 415.8 444.7 478.2 507.8

Equitable share 265.1 291.7 313.0 338.9 362.5 388.0 412.0

Conditional grants 57.7 70.8 75.2 76.9 82.3 90.2 95.8

Gautrain loan – – – – – – –

Local government 60.9 68.3 76.4 84.8 91.9 101.4 106.7

Equitable share 30.5 33.2 37.1 40.6 44.5 50.2 52.9

General fuel levy sharing

7.5 8.6 9.0 9.6 10.2 10.7 11.2

Conditional grants 22.8 26.5 30.3 34.6 37.2 40.5 42.6

Total 738.9 812.1 874.9 953.1 1 024.5 1 099.9 1 164.6

Percentage shares

National departments 48.1% 47.0% 46.9% 47.5% 47.6% 47.3% 47.2%

Provinces 43.7% 44.6% 44.4% 43.6% 43.4% 43.5% 43.6%

Local government 8.2% 8.4% 8.7% 8.9% 9.0% 9.2% 9.2%

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Division of revenue(Chapter 4: MTEF and division of revenue) Table 4.3 Division of revenue, 2013/14 – 2016/17

2013/14 2014/15 2015/16 2016/17

R billionRevised Medium-term estimates

National allocations 452.5 487.9 520.4 550.1

of which:

Indirect grants to provinces1 2.7 4.8 4.3 4.6

Indirect grants to local government1

5.7 7.3 9.1 9.7

Provincial allocations 415.8 444.7 478.2 507.8

Equitable share 338.9 362.5 388.0 412.0

Conditional grants 76.9 82.3 90.2 95.8

Local government allocations 84.8 91.9 101.4 106.7

Total allocations 953.1 1 024.5 1 099.9 1 164.6

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2013/14 2014/15 2015/16 2016/17

R billion Revised Medium-term estimates

Total allocations 953.1 1 024.5 1 099.9 1 164.6

Changes to baselineNational allocations – -1.6 -1.4 2.2

of which:

Indirect grants to provinces 1 -0.4 -0.4 -0.7 -0.7

Indirect grants to local government1 0.2 0.1 0.4 0.5

Provincial allocations 1.7 3.0 3.8 4.4

Equitable share 1.4 2.5 4.3 5.1

Conditional grants 0.3 0.5 -0.5 -0.7

Local government allocations 0.1 0.3 -0.1 -0.1

Total 1.8 1.7 2.4 6.5

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Consolidated government expenditure(Chapter 4: MTEF and division of revenue) The distribution of resources over the MTEF is shown according to the

functional groups showing how responsibilities are shared across government

The following analysis could assist the committees to evaluate the implementation of the NDP/MTSF and other government priorities:

Calculation of percentage shares allocated per function/economic classification indicates relative priorities at a point in time

Trends of expenditure shares per functional group over time indicates the direction of expenditure priorities

The evaluation of the trends will also inform the committee of the speed or the cost of the implementation of policies and plans

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Summary The MTBPS enables Parliament and institutions of civil

society to participate meaningfully in the budget debate An analysis of the MTBPS and other in-year reports could

assist committees to provide a review and recommendations for the budget

The role of the PBO is to assist the committees by undertaking research and analysis for the committees

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Thank You

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Documents

MTBPS workshop 16 September 2014