The
Budget Process
A Guide for South African Legislators
The Budget
Process
A Guide for South African
Legislators
Di McIntyre, Jillian Nicholson
Published by
The Health Systems Trust
401 Maritime House
Salmon Grove
Durban 4001
Tel: 031 - 307 2954
Fax: 031 - 304 0775
Email: [email protected]
October 1999
ISBN # 1-919743-37-5
Also available on the Internet:
http://www.hst.org.za
Content researched and conceptualised by:
Di McIntyre, Health Economics Unit, University of Cape Town.
Written in an accessible format for the Health Systems Trust by:
Jillian Nicholson
Illustrations by:
Ian Lusted
Acknowledgements
Thanks are due to Karen Hirt for editing the first draft of this booklet and to
Julia de Bruyn, Luvuyo Msimango and Dirk Besdziek for reading and giving
useful comments.
Every attempt has been made to ensure that the information published here
is accurate. However no responsibility is accepted for any loss or damage that
may arise out of the reliance of any person upon any of the information in
this book.
This publication was supported with grants from the Henry J. Kaiser
Family Foundation (USA), and the Rockefeller Foundation.
Contents
Introduction
1
What is a budget?
2
The nation’s budget
4
Background to the budget process
12
The stages of the budget process
20
Legislators and the budget process
37
Introduction
It takes little more than an hour for the Minister of Finance to present a
new national budget to parliament each February. But it has taken more
than a year to prepare that budget.
This guide for legislators is about the process leading up to that budget
speech, and what happens immediately after it has been presented. The
budget process has changed a lot since South Africa's first democratic
elections in 1994, and further changes are likely. So the budget process,
like South Africa itself, is in a process of transition.
This guide:
◆
looks at the links between the Constitution, policy, equity and the
budget;
◆
explains the stages the budget goes through as it is drafted, negotiated
and approved;
◆
examines how much South Africans, through their parliamentary
representatives, can impact on their budget;
◆
asks whether there is sufficient transparency in the present process.
It is more specifically for national and provincial legislators who have an
interest in the health sector. It aims to help you understand more about
the budget process, and to know about the opportunities that exist for
you to play a more active role in it.
It will also be a useful handbook for people working in civil society
organisations, or in jobs where it is important to have a basic
understanding of the budget process.
As it is for national and provincial legislators, this guide does not deal
with local governments.
1
What is a budget?
Most of us budget in some way. There are three basic steps to budgeting.
If you want a budget for your household, for instance, you would follow
these steps:
1st step :
Work out how much money comes into your household
each month.
Your household income may come from a single source, such
as a wage. Or it may come from several sources, such as
wages; the pension of an elderly person living in your
household; and rent from a room you let out.
2
2nd step:
Once you know your total household monthly income, you
can decide which things you need to allocate money to first.
These are your spending priorities. You might first have to
take off an amount to pay the mortgage on your house - if
you do not, the bank may repossess it. Then you allocate
certain amounts to school fees, rent, transport, food, and so
on. Luxury items usually come low on the list of priorities.
Sometimes you may not estimate your expenses accurately
and run out of money early in the month. You may have
been forced to spend unplanned money on an emergency.
Or someone in your household may put pressure on you to
change your money allocation.
3rd step:
Finally, to check that you do not spend more than you receive,
you monitor your budget against your spending. If you did
spend more than you received, you might have to borrow
from a friend, or the bank, or you might have to dip into
your savings.
Your budgeting involves:
◆
estimating
◆
allocating
◆
monitoring.
Your household spending policy says a lot about your priorities and
choices. These priorities and choices also affect the lives of the people in
your household. On a larger and more complicated scale, a government
budget is the tool that government uses to implement its policies. It can
also be used to monitor the activities of the government to see if enough
money is being spent on prioritised issues.
3
The Nation’s Budget
Government
In this handbook, the word
government means the
legislature, the executive and the
judiciary. Sometimes the word is
used in a narrow sense to mean
only the executive.
The government collects its income from a number of different sources.
In 1996/97 it collected 41% from personal income tax (pay as you earn
(PAYE)) and standard income tax on employees (SITE); 24% from valueadded tax (VAT); 16% from company tax; 12% from tax on goods and
services such as tobacco, alcohol and fuel, and 7% from other taxes.
Goods and
Company
Goods and
Company
Services
Services
Tax
Tax
Other
Other Taxes
Taxes
VAT
VAT
PAYE
PAYE
Sources of government revenue - 1996/97
As you can see, a large amount of the government’s income comes from
citizens who not only pay personal income tax, but also pay VAT on
most goods that they buy.
Revenue
This is all the money government
raises through taxes. It does not
include money raised through
loans. Taxes include income tax
from individuals, value-added tax,
company tax, and taxes on
goods coming into the country.
Just like a household budget, the national budget deals with income –
known as revenue – and expenses. It involves setting priorities,
estimating, allocating and monitoring. The government has to estimate
what revenue it can raise from taxes and loans. It must:
◆
estimate what it will cost to run the country;
◆
allocate amounts to its departments and provinces;
◆
monitor its allocations.
This book mainly covers the process of estimating expenditure and
allocating revenue.
4
The 1999/2000 national budget
South Africa estimates its budget over the twelve-month period running
from 1 April of one year to 31 March of the next year. This is called the
fiscal year.
For the 1999/2000 fiscal year, the government estimated that it would
need R216-billion to run the country. However, its revenue was
estimated to be only R191.7-billion. This meant it would overspend by
R24.3-billion. The overspending is called a deficit. It has to be funded
mainly through loans, which means that the government has to spend
more on interest repayments.
The government's budget is a statement of a nation's priorities. This graph
shows where the South African government's priorities lie. Health is the
third highest expenditure in the budget. The second largest allocation is
for paying interest on money borrowed to help run the country. Some of
this debt is from the previous government's borrowing during apartheid.
Fiscal and fiscal policy
Fiscal is about the collection of
taxes. Fiscal policy deals with
taxation, and government's
spending and borrowing. This
includes a wide range of other
policy issues such as the size of
the state, job creation, social
development and redistribution.
These all have budgetary
implications.
Deficit
When a government spends
more money than the revenue it
has collected, it will have a
deficit - a debt. It will have to
borrow money to meet its
expenses. At present, South
Africa's budget priorities are
influenced by the government's
attempt to reduce its existing
deficit.
Education R 48.5 bn
Debt
Servicing the state debt R 48.2 bn
Health services R24.0 bn
Prisons, Police & Justice R23.5 bn
Welfare & social grants R19.8 bn
Government's five top budget allocations in 1999/2000
5
The South African Constitution and the
budget
The Constitution is the foundation of the laws and policies of
the country. It protects the fundamental rights of all South
Africans. It sets out principles, such as fairness and human
dignity, upon which the country is run. The Constitution also
sets out rules for how the government must operate. No policy
or budget can go against the Constitution.
The Constitution says:
“National, provincial and municipal budgets and budgetary
processes must promote transparency, accountability and
the effective financial management of the economy, debt
and the public sector.”
(Section 215)
On people's health rights, it says:
“Everyone
has the right to an environment that is not
harmful to their health or well being.”
(Section 24)
“Everyone has the right to have access to health care services,
including reproductive health care; sufficient food and
water; and social security if they are unable to support
themselves and their dependants.”
(Section 27)
“Every child has the right to basic nutrition, shelter, basic
health care services and social services.”
(Section 28)
6
The link between government policies and the
budget
In 1995/96 the government spent 10.4% of its total budget on health. In
1999/2000 this had risen to 10.9%. So more is spent on health now, as a
proportion of the total budget, than in the past. This is largely due to
government health policies. These include:
“ To develop a comprehensive and integrated National Health System
which provides accessible services to all South Africans.”
“ To improve the mental health and social well-being of individuals
and communities.”
“ To reduce sexually transmitted diseases and HIV/AIDS.”
These come from the White Paper for the transformation of the health
system in South Africa (Government Gazette No 17910, 16 April 1997).
These policy goals could not be achieved without increasing the amount
of money allocated to health. So, the budget is a tool for implementing
government policy - in this case health policy.
National and provincial functions
Policies affect the way the budget is divided between national and
provincial levels. If, for instance, combating crime is a major government
priority then the national level will get more because the departments of
Safety and Security, Justice, and Correctional Services are all national
functions and financed at the national level. If education and health are
higher priorities, then more will be allocated to the provinces, as these
are provincial functions.
Policies should be linked directly to the needs and priorities of the people
of the country. Legislators, as representatives of the people, have the
final responsibility for making sure this happens. You have to ensure
that the budget allocations enable these policies to be implemented. In
South Africa, where basic needs of people have not been met and where
the budget is tight, decisions about allocation are difficult. These decisions
need to be made in a transparent way so that everybody can know about
them. Both the executive and the legislature should be able to engage
with the budget process to influence allocations.
7
The budget and equity
Equity is about trying to make sure everyone in the country gets a fair
share of its resources. It means those who have the least should be given
more than average, and those who have the most should be given less
than average. This is a way of redistributing the wealth of the country.
Equity is not the same as equality. Equality is when everyone already has
the same share of resources, or when everyone is given an equal share
irrespective of their need.
Equality
Equity
The budget plays a very important role in achieving equity. Government,
through the budget should make sure the poor receive more than average,
and the rich receive less than average. However, in most government
departments a large amount of expenditure goes on staffing. In the
Department of Health, for instance, 70% of expenditure is on staffing.
One of the challenges in achieving equity is to shift staff so that there is a
more equitable spread across the country.
8
Case study: looking more closely at the Northern Province
The Northern Province is one of the most disadvantaged provinces
in South Africa. It is estimated that about 77% of its population are
“poor”, and 37% of residents over the age of 20 years have no
schooling. It has high unemployment - 46% of working age adults
are still seeking employment. Only 18% of households in this province
have a tap in the house, compared with 45% of households nationally.
Only 13% of households have access to a flush or chemical toilet,
compared with 51% nationally. The Northern Province thus has severe
backlogs in basic needs. It has the worst educational status, and the
least access to water and sanitation of all provinces. To try to do
something about this backlog, 13.5% of the part of the budget that
has been set aside for provinces is allocated to the Northern Province
even though this province only accounts for 12.1% of the total
population.
%
50
40
30
20
10
Taps
Toilets
Northern Province
Residents over 20
with no schooling
National Average
There is a lot of debate about whether the budget sufficiently addresses
the issue of equity.
Page 16 describes how the Department of Finance decided on the amount
to be allocated to provinces in the most recent budget.
9
The Constitution, government policies, the principle of equity, and the
budget process are interlinked. The budget should reflect both the
fundamental principles of the Constitution and the government's policy
direction. This direction has to be in accordance with the Constitution.
How does a macro-economic policy affect a
budget and visa versa?
The economic policies of a government affect everyone in the country.
They also affect the country’s budget.
Inflation
Inflation is the increase in prices
of goods in a country.
As the prices of goods go up,
the cash value of money goes
down. Your wages may go up
each year, but if they do not go
up as much as the average
increase in prices in the country,
then each year you will be able
to buy less than you could the
previous year. To see if there has
been an increase or decrease in
the real value of money, we have
to take inflation into account.
There is a formula for doing this.
10
“Macro” means big. Macro-economics looks at the overall economic
picture of the country. Unemployment is a macro-economic issue; so is
the alleviation of poverty. The economic growth of a country is a macroeconomic issue. To tackle these macro-economic problems, our
government has a macro-economic policy called Growth, Employment,
and Redistribution (GEAR). GEAR is the government’s macro-economic
strategy that aims to improve economic growth in South Africa.
GEAR affects the budget because one of its objectives is to reduce the
budget deficit. Through GEAR the government has set deficit reduction
targets. To meet them, overall government spending has to be reduced.
For example, the government spent about R3,960 on each person in the
1995/96 fiscal year. But it plans to spend only R3,720 per person in the
2000/01 fiscal year. (This amount takes population growth and inflation
into account.)
GEAR therefore impacts very strongly on
budget allocations and on what can be spent
on bringing about equity in future.
The budget, in turn, affects macro-economic
policy. The amount of money allocated to,
for instance, job creation or economic
development will affect our country’s
economic growth.
GEAR puts the squeeze on the budget and
reduces the deficit.
Wha
Economic growth occurs when the value of all the goods and services in a country
increases. This should lead to more jobs, more money in circulation and more revenue.
We need economic growth to raise people’s standard of living, and to solve problems
like unemployment and poverty.
t
hi
nk
GEAR: a debatable issue
do you t
Most people would agree the country needs economic growth. But there is a lot of
debate and disagreement about the best way to make this happen. GEAR is just one
strategy for growth. Some people believe deficit reduction should not be given such a
high priority in a country which has so much poverty to overcome.
Economic growth alone cannot solve these problems. Internationally, it has been shown
that unless growth policies are accompanied by strong redistribution policies, the rich
get richer and the poor get poorer.
11
Background to the
budget process
National budgets used to be drawn up for a twelve-month period only.
In 1997, a new way of preparing the budget was introduced, called the
Medium Term Expenditure Framework (MTEF). All budgeting is now
done over a three-year period. This is called a rolling budget. In 1999,
budgets were drawn up for the fiscal years of 1999/2000 to 2001/2002.
Each year the process rolls on to include one more year.
Although parliament is presented with three-year budget plans, it only
votes on the budget for the coming year.
A rolling budget
12
Why budget for a longer period?
Some of the advantages of budgeting over three years are:
◆
It helps provinces and departments plan with greater certainty
because they have a better indication of what their allocations will
be for the next three years.
◆
It encourages departments to set three year priorities and to plan
further ahead than they did in the past and to enter into development
contracts that may go over a number of years.
◆
It gives the public a better picture of how government plans to spend
its money. Reconstruction and development goals can be evaluated
against how much the government plans to spend over the next
three years.
Role players in the budget process
The budget is a plan for raising and spending the money of the people of
the country. Parliament and the Constitution, which sets guidelines for
estimating, allocating and monitoring the budget, represent the people.
But these guidelines are very broad. More direct responsibility for the
budget rests with Cabinet, the Department of Finance (DoF), the
Provincial Executive Councils (Excos), and the following people and
bodies:
The Budget Council
The Budget Council consists of the Minister of Finance and the MECs of
finance for each province. Its function is to co-ordinate the different
interests of national and provincial governments and to make sure that
agreement is reached on how to share the revenue. The national
government and the provincial governments consult the Budget Council
on any matters relating to legislation or policy that have financial
implications for the provinces, or on matters relating to provincial budgets.
13
The Medium Term Expenditure Framework (MTEF)
Committee
This is made up of the Minister and Deputy Minister of Finance, the
Director General of Finance, the Director General of State Expenditure
and other officials of these Departments.
The main role of this committee is to hear what allocations national
departments want and to decide on the final allocations between national
departments.
The Financial and Fiscal Commission (FFC)
This is an independent body, established in the Constitution. Its function
is to advise parliament and provincial legislatures on matters concerning
finance. For instance, it makes recommendations on how to decide on a
fair division of the budget between the national, provincial and local
levels. It is an advisory body and so its recommendations are not legally
binding. It is an observer at Budget Council meetings.
The Minister’s Committee on the Budget (Mincombud)
This consists of the:
Minister of Finance
Deputy Minister of Finance
Ministers of Trade and Industry
Minister of Arts and Culture, Science and Technology
Minister of Health
Minister of Education.
Mincombud sets broad priorities on issues such as the allocation of
resources within the social sectors and economic sector. These priorities
are submitted to Cabinet via the Minister of Finance
The Budget Forum
This consists of everyone who sits on the Budget Council as well as
representatives from the South African Local Government Association
and the Minister of Constitutional Development. It is the only role player
in the budget process that has representatives from local government.
14
Civil servants
Although they do not have real decision-making powers, civil servants
play a very powerful and influential role in the budget making process,
particularly those in the national Department of Finance and the provincial
treasuries. They provide information, administer policies, and assist in
the technicalities of drawing up budgets.
National Portfolio committees and provincial standing
committees
Parliamentarians sit on different portfolio or standing committees, such
as the Joint Portfolio Committee on Finance. These committees can review
any aspect of the budget or anything that may influence the budget, call
for public hearings and make recommendations.
The first broad allocation decisions made by
central government
Top
Top Slice
Slice
23.1%
23.1%
National
Nationalallocation
allocation
32.3%
32.3%
Provincial
Provincial
allocation
allocation43.5%
43.5%
Local
Local government
government
allocation
allocation1.1%
1.1%
The vertical division of the budget allocation
15
First - take off the top slice
As you can see from the diagram, the first amount of money to be set
aside from the total revenue is the “top slice”. This is for things like
repayment of the national debt; an emergency reserve; and a reserve for
meeting specific policy priorities. This 23.1% is not available for sharing
between the different levels of government.
Next - decide on national, provincial and local government
allocations
These are the first broad allocations that are made through a process
called the vertical division.
The Department of Finance has indicated that each year it will try to
keep the proportions allocated to national, provincial and local levels
relatively constant.
Spending agencies
Departments are sometimes
referred to as spending
agencies. This is because not
only departments, but also other
government units or agencies
incur costs and have to estimate
budgets. Statistics South Africa
is an example of a spending
agency that is not a department.
Next - decide on how much each individual province will get
The lump sum allocated for all the provinces has to be divided into nine
parts. This process is called the horizontal division. The new Constitution
made fundamental changes to the way this horizontal division is made.
Previously, the central government decided on amounts for all the different
provincial departments. Now, each province receives a lump sum - called
a “global” allocation. It then decides how to divide this amongst its
departments, or spending agencies. So there has been a move to a more
decentralised system.
How is the horizontal division worked out?
Each province receives an allocation that is largely based on the needs of
each province compared to the others. This is an attempt to try and
correct past inequities. Over the past few years a number of formulas
have been recommended for deciding how to do this. At present the
Department of Finance uses a formula that takes the following factors
into account:
16
Education
The average size of the school-age population and the number of learners
enrolled in public, ordinary schools.
Health
The size of the population that does not have private health insurance,
with a small allowance for those with private insurance who may use
some public sector services.
Social welfare
The estimated number of people entitled to security grants. This is targeted
at the elderly, the disabled and children.
Basic component
Each province’s share of the total population of the country.
Economic activity
The amount of money paid in wages and salaries in each province.
Backlogs
This tries to compensate for backlogs in health and education
infrastructure in the provinces, with extra weight given to provinces with
a large rural population.
When the Minister of Finance presents the budget to parliament, the
Minister must introduce a Revenue Sharing Bill that explains how these
allocations were worked out.
17
Northern
Northern Province
Province13.5%
13.5%
North-West
North
West 8.2%
8.2%
Gauteng 15.7%
Gauteng
15.7%
Mpumalanga 7.1%
Mpumalanga
7.1%
Northern Cape
Northern
Cape 2.4%
2.4 %
Free State 6.6%
Free
KwaZulu-Natal 20.7%
Eastern Cape
Cape 16.8%
16.8%
Western Cape
WesternCape
Cape8.9%
8.9%
Western
13.5%
7.1%
8.9%
16.8%
2.4%
15.7%
8.2%
20.7%
6.6%
Western
Cape
Eastern
Cape
Eastern Cape
Northern Cape
Northern Cape
KwaZulu-Natal
KwaZulu-Natal
Free State
Free State
North-West
North-West
Gauteng
Mpumalanga
Gauteng
Northern Province
Mpumalanga
Northern Province
The Medium Term Expenditure Framework estimates
for provincial allocations for 1999/2000
This graph shows what percentage of the total resources each province is
allocated. This is worked out according to the Department of Finance's
formula.
18
t
hi
nk
Decisions on how the vertical and horizontal divisions of the budget are made are
critically important to the issue of equity. These decisions also affect the speed at which
we move towards equity. There is a lot of debate about this. The Northern Province
case study on page 9 highlights this. The Northern Province is one of the most
disadvantaged provinces in South Africa. The Eastern Cape is another. Some people
believe these provinces should get a much bigger share of the budget than they do; and
that the present moves towards equity are not going far or fast enough.
Wha
Do the vertical and horizontal divisions of the budget promote equity?
do you t
Both the Finance and Fiscal Commission (FFC) and the Department of Finance (DoF)
made recommendations about how the vertical and horizontal divisions should be
made. This year, the DoF's recommendations were accepted. The FFC had different
views. Here they are - which do you agree with?
The vertical division
◆
The DoF recommended the proportional divisions between national and provincial
levels should stay the same for the MTEF.
◆
The FFC said provincial departments are affected by population increases, and for
the next three years the allocation to provinces should go up by 0.5% each year.
◆
The DoF recommended a top slice be taken off before the vertical division is
made.
◆
The FFC recommended that there should be no top slice because this can lead to
more resources actually going into the national level each year.
The horizontal divisions
◆
The DoF's formula for deciding on the horizontal divisions, while attempting to
move towards equity, starts off by using old expenditure patterns on social services
as a base to work towards equity.
◆
The FFC recommended that social services spending should be based on existing
needs and priorities in each province.
◆
The DoF rewards provinces able to bring in a high proportion of revenue through
their economic activities.
◆
The FFC recommends if a province is unable to generate sufficient revenue itself,
the national budget should compensate it by allocating it more.
19
The Stages of the Budget
Process
Estimating a household's budget
Making spending cuts
We have described the broad allocations of money from central
government. But enormous decisions about allocations do not happen
in one meeting. They have to go through a long process. This involves
drawing up estimates, drafting and redrafting, and negotiating. This
section of the guide takes you through all the steps involved in the budget
process, for both national and provincial governments.
It may help you to think back to our earlier comparison of a household
budget. Before you, as head of a household, decide on how much to
allocate towards education, for instance, you might ask the school to
estimate how much schooling will cost each month. You might ask
someone in your household to estimate how much transport costs are
likely to come to. And you might try to work out what you will need for
food and clothes. You would do this with other expected expenditures.
If you put all these estimates together they might easily come to more
than your household income. So you would have to negotiate with
20
everyone about how to make spending cuts.
This is the kind of process that happens with the national budget. There
have to be estimations done of:
◆
how much total revenue the government can expect to raise;
◆
expenditure for each of the national and provincial departments
over the next three years;
And there have to be negotiations to settle differences between the
estimations of the departments and the allocations of the Budget Council.
Laws linked to the budget process
There are several laws that govern the budget process.
Bills and Acts
A Bill is a law that has been drawn up but not passed by the legislators. Bills go through several stages, called
readings before they are finalised. An Act is a Bill that has been passed by parliament and has become a law.
The Constitution
This has already been discussed on page 6 (The South African Constitution and the budget).
Money Bills
This is a general way of describing all Bills that allow for money to be allocated to various departments in national or
provincial government, and for taxes to be levied. Appropriation Bills are Money Bills. They allow departments to take
and use - to appropriate - government money.
The Division of Revenue Bill
This Bill has to go before parliament each year at the same time as the budget is announced. It explains how the
vertical and horizontal divisions have been made. This Bill has to be approved by parliament. There is a move to have
it tabled much earlier in the budget process. This will allow for more discussion before the allocation within
departments starts.
Money Bills Amendment Procedure Act
The Constitution says there has to be law to allow parliament to amend Money Bills. Although the Constitution was
passed in 1996, this Act does not yet exist. When it does, it will give parliament more power over Money Bills.
21
January - March
Setting policies, estimating revenue and setting
an upper limit on spending
The Cabinet sets broad policy priorities so
when the detailed budgets are evaluated, they
can be measured against these policies.
The Department of Finance:
Cabinet sets policies
22
◆
estimates how much the economy will
grow;
◆
estimates how much revenue can be
expected through the collection of taxes
for the next three years;
◆
uses the GEAR deficit reduction targets to
work out how much overspending will be
allowed;
◆
sets the upper spending limit for the total
government budget for the next three
years;
◆
presents this to Cabinet for approval.
This forms the basic framework for the budget.
It is called setting the Medium Term Fiscal
Framework because this part of the process is
about estimating income from taxes (revenue)
not expenditure.
March - May
Departments estimate their expenditure and
submit draft expenditure applications
National and provincial departments go through
strategic planning sessions to identify their
departmental goals and prepare an initial threeyear budget estimate. They need to try to keep
in line with the three-year allocations determined
in the previous MTEF cycle.
Although government makes the important
budget decisions, the actual drawing up of the
budget is done almost entirely by civil servants.
For instance, each health department (provincial
and national) has some form of financial
directorate. It is civil servants in these
directorates or sub-departments who draft the
initial budget estimates. They are meant to
consult with other civil servants in the health
department to find out what their budgetary
needs are. For instance, they would talk to the
person responsible for hospitals; for district level
services; for infectious diseases; and so on, before
preparing a budget for the health department.
Estimating departmental budgets
A range of civil servants in the health department then look at the draft
budget, and suggest changes. This revised draft then goes to the provincial
treasuries or, in the case of national level, to the Department of State
Expenditure.
When these national and provincial departments estimate their threeyear budgets, they do not know what amount the Budget Council is
going to allocate to each province or for national level spending. So it is
a bit like working out what your household expenditure will be before
you know what your wage is.
23
May - June
Guideline estimations are determined for vertical
and horizontal allocations
lice
Top S %
23.1
National
32.3%
The Budget Council meets to work out how to divide the revenue into
three lump sums for national, provincial and local governments. Once
the Budget Council has done this vertical division, it must then work out
the provincial allocations amongst the nine provinces. This is the
horizontal division. This is done according to the formula explained on
pages 16 and 17.
Top Slice
23.1%
National allocation
32.3%
Percentage of provincial allocation
13.5%
7.1%
Western Cape 8.9%
Eastern Cape 16.8%
Northern Cape 2.4%
KwaZulu-Natal 20.7%
Free State 6.6%
North-West 8.2%
Gauteng 15.7%
Mpumalanga 7.1%
Northern Province 13.5%
The vertical and horizontal allocation
24
15.7%
8.2%
6.6%
20.7%
Local
government
1.1%
2.4%
Local government
allocation 1.1%
16.8%
Provincial
allocation 43.5%
8.9%
Provincial
43.5%
June - August
Combining all the departmental estimates into
one sum and matching it with the Budget
Council's allocation
Trying to match department estimates and budget
allocation
Civil servants at the Department of State Expenditure combine the
separate departmental estimates into one national-level estimate.
Civil servants at the nine provincial treasuries combine all their separate
departmental estimates into one provincial estimate. Provincial treasuries
have a further challenge. They have to ensure that at least 85% of their
total provincial budget is allocated to social services.
The provincial treasuries and the Department of State Expenditure now
look at the vertical and horizontal allocations the Budget Council decided
on. They must be sure their combined estimates match the allocations of
the Budget Council. For instance, all the departmental estimates for
KwaZulu-Natal added together must match the lump sum the Budget
Council has allocated to that province.
25
Negotiations take place around this:
◆
Provincial treasuries have to negotiate with their provincial
departments - which defend their estimates.
◆
The Department of State Expenditure negotiates with the national
departments - which defend their estimates. The national MTEF
Committee is like a referee here. It has to make the final decision
about these national budgets.
This is a difficult time. Provincial and national departments often have to
take tough decisions about what budget cuts to make so that their
estimates match the amount allocated to them.
26
September - October
Everyone has a last say
What is a conditional grant?
◆
The national MTEF Committee makes a decision on what budget
allocations to recommend for each national department as part of
the national budget. This recommendation goes to Cabinet.
◆
The Provincial Executive Councils meet to consider their draft,
consolidated provincial MTEF.
◆
Sectorial teams for education, health, social welfare, justice, and
defence also look at the estimates. Their comments are incorporated
into the overall draft budget. These teams are made up of civil
servants, usually from the national Department of Finance. They
include some sectorial representatives from national and provincial
departments.
◆
Proposals for conditional grants to each province are also
developed.
In addition to the allocations to
provinces made through the
horizontal division, a number of
conditional grants are allocated
to provinces. They are often
granted to help fulfil national
priorities such as improved child
nutrition. Provincial departments
have to submit proposals to
show how the money from the
grants will be used. Grants are
approved by the national
parliament and the money for
them must come out of the
budget of the relevant
department. So the money for
conditional grants that are
health related, come out of the
national health budget.
The health sector receives
around half of all conditional
grants, which include the
following:
◆
the Primary School
Nutrition Programme;
◆
research and training of
health professionals;
◆
hospital construction or
rehabilitation
◆
a central hospital grant
◆
a grant to help with the
redistribution of health
services
27
November - December
A draft, overall MTEF is finalised and a
Medium Term Budget Policy Statement is
published.
Once the Cabinet, the Provincial Executive Councils and the sectorial
MTEF teams have reviewed all the national and provincial MTEFs, a
draft, overall MTEF is compiled and submitted to the Budget Council
and the Cabinet. This document:
28
◆
shows how the budget matches the broad policy framework set out
at the beginning of the cycle;
◆
suggests allocations for the three year period;
◆
analyses the implications of these allocations;
◆
suggests alternative expenditure options.
Once the Budget Council and Cabinet have approved the draft overall
MTEF, the vertical and horizontal divisions are finalised. Allocations to
national government and to each province are adjusted to meet the
requirements of this draft.
National departments and provincial treasuries are then told how much
they will be allocated. They then have to finalise their MTEFs to fall into
line with this allocation. This includes finalising how much they will
allocate to different departments, programmes and sub-programmes. They
must take into consideration any recommendations from the Provincial
Executive Councils, Budget Council, Cabinet or sectorial MTEF teams.
A Medium Term Budget Policy Statement is published which sets
out the policies upon which the MTEF is based. It is likely that in future,
the draft MTEF will be released to parliament along with this policy
statement. This is important for legislators as it will give them time to
consider the budget before it is presented to parliament in February.
What is a Medium Term
Budget Policy Statement?
This is published each year, a few
months before Budget Day.
It contains:
◆
a summary of government's
goals and objectives;
◆
information about how the
government expects the
economy to perform over
the next three years;
◆
how much tax is expected
to be collected;
◆
levels of government
spending and government
deficit;
◆
an explanation of the way
revenue will be shared
between national, provincial
and local government;
◆
a summary of the policies
upon which the MTEF is
based.
The objectives in publishing such
a document ahead of the actual
budget are:
◆
to improve transparency;
◆
so debates about the
budget can be informed.
29
January
Final stamp of approval
The final MTEF is submitted to Budget Council and Cabinet for approval.
Detailed national and provincial expenditure estimates for the year
immediately ahead are finalised and documentation prepared.
30
February
Budget Day and follow up discussion
The minister presents the budget to parliament
The national budget is presented to the National Assembly. The Division
of Revenue Bill accompanies it. This outlines how the vertical and
horizontal divisions were worked out. As from 1999, the budget will be
read on the second Wednesday of February, to allow for more extensive
and meaningful parliamentary debate before the start of the next financial
year.
The provincial government budget is presented to the provincial
legislature.
The budget itself is not law. A Bill has to be drawn up to allow the various
departments to spend the money allocated to them. This is called an
Appropriation Bill.
31
March - April
Portfolio committees and provincial standing
committees hold hearings and report to legislators
Portfolio committees hold hearings
After the first reading of the budget, the Appropriation Bill and the
proposed tax amendments go to the National Assembly Portfolio
Committee on Finance. It has seven days to hear responses to the Bill.
The Committee invites submissions from whomever it chooses. They
usually ask for submissions from government departments and the South
African Reserve Bank.
In 1999, they asked a range of civil society groups to make submissions
around social services. These groups were asked to comment on the
budget and say whether they felt it addressed social sector needs and
priorities. The main purpose for this is to hear about different aspects of
the budget from technical experts, as most members of the Portfolio
Committee do not have in-depth knowledge of specific sectors. The
submissions are also to provide some opportunity for civil society groups
32
to air their views. The Portfolio Committee then considers whether they
want to propose anything to parliament arising from these submissions.
The Appropriation Bill is then voted on in the National Assembly.
The budget for each department has to be voted on. At present no
amendments to the overall budget are allowed. Shifts in the allocation of
money from one department to another - for example more to Health
and less to Education - are not allowed either. However, it is possible to
make changes to the way that money has been allocated within a
department - for example if parliamentarians feel that not enough money
has been allocated to HIV/AIDS programmes and too much has been
allocated to subsidies for medical research.
At the provincial level the Appropriation Bill then goes to the National
Council of Provinces. Through its Select Standing Committee on Finance
it may hold public hearings on this Bill.
It is important to note that once the Money Bills Amendment Procedure
Bill is law, the National Council of Provinces will be able to recommend
that the Bill is passed, amended or rejected. If it recommends either to
amend or reject the Bill, the National Assembly will have to reconsider
it.
33
January - March
1. Setting policies, estimating revenue
and setting an upper limit on spending
March - May
March - April
9. Portfolio committees and
provincial standing committees
hold hearings and report to
legislators
2. Departments estimate their
expenditure and submit draft
expenditure applications
May - June
February
3. Guideline estimations are
determined for vertical
and horizontal allocations
8. Budget Day and follow up
discussion
June - August
January
4. Departmental estimates are
combined into one sum and
matched with Budget
Council’s allocation
7. Final stamp of approval
September October
November - December
6. A draft, overall MTEF is finalised and
a Medium Term Budget Policy
Statement is published
5. Everyone has a last say
Month by Month progress of Budget cycle
34
Summary of the national and provincial budget
processes
National departmental budgets
1.
National departments develop their three-year rolling budgets and
submit them to the Department of State Expenditure.
2.
At approximately the same time, the Budget Council determines
the vertical and horizontal divisions and informs the national
departments what the national allocation for will be.
3.
4.
5.
The Department of State Expenditure combines all the estimates of
the national departments into one consolidated amount. It then
compares these to the amount they have been allocated by the Budget
Council.
The national departments negotiate with their relevant programme
officer of the Department of State Expenditure. The Medium Term
Expenditure Committee adjudicates.
The Medium Term Expenditure Committee recommends budget
allocations for each national department as part of a consolidated
national Medium Term Expenditure. This recommendation is
submitted to the Budget Council and to Cabinet for their
consideration.
6.
The Budget Council and Cabinet consider all the submissions and
decide on a final amount for the vertical and horizontal divisions.
The Department of State Expenditure is informed of the final global
national budget allocation.
7.
Based on these allocations, the Department of State Expenditure
prepares a final consolidated national Medium Term Expenditure
Framework. This is once again submitted to the Budget Council
and Cabinet for final approval.
Budget Council and Cabinet
7
5
6
2
DSE, DoF, MTEF
Committee
3
1
4
National spending agencies
National budget process
35
Provincial departments budgets
1.
Provincial departments develop their three-year rolling budgets and
submit them to the provincial treasuries.
2.
At approximately the same time, the Budget Council determines
the vertical and horizontal divisions and informs the provincial
treasuries of their global allocation for the province.
3.
The provincial treasuries combine all the estimates of the provincial
departments into one consolidated amount. They then compare these
to the amount that they have been allocated by the Budget Council.
4.
The provincial treasuries negotiate with the provincial departments
to try and bring their provincial estimates in line with the allocation
from the Budget Council. They then submit their final estimations
to their Provincial Executive Council.
5.
The individual provincial Medium Term Expenditure Framework
estimates are consolidated and then submitted to the Budget Council
and Cabinet for their consideration.
Provincial budget process 6.
The Budget Council and Cabinet consider all the submissions and
decide on a final amount for the vertical and horizontal divisions.
Provincial treasuries are informed of their final budget allocations.
7.
Based on these allocations, the provincial treasuries prepare their
final consolidated provincial Medium Term Expenditure Framework
which is once again submitted to the Budget Council and Cabinet
for final approval.
Budget Council and Cabinet
7
5
6
2
Provincial treasuries
& EXCOs
3
1
4
Provincial spending agencies
36
Legislators and the Budget
Process
Throughout the world, there are debates about how much power governments should
allow the executive and the legislature when it comes to drawing up or amending a
national budget. It is generally accepted that the executive has the information and
knowledge required to prepare a budget. The legislature monitors the process and
gives the executive the authority to raise and spend revenue.
Wha
What do you think about the role of legislators in the budget process at the
moment?
t
hi
nk
When the budget is finally presented to parliament, legislators vote to
accept or reject it. But what part can they play in the process leading up
to this? Most budget decisions are made by the Budget Council, Cabinet
and the Provincial Executive Committees. Initial departmental estimates
are drawn up by civil servants in the respective departments. Can
legislators influence budget priorities and allocations? If so, how?
do you t
Those who think the legislature should be more involved in the process, say this will
mean that the priorities set by the executive can be debated more openly. And the
way revenue is allocated can be checked much more closely.
Those in support of increased legislative power say legislators should be able to make
amendments to the budget instead of just voting for or against it.
Those who think the powers of the legislature over the budget should not increase
and that legislators should not be able to make amendments to the budget, say this
would cause problems for long term planning. They say the legislature does not have
enough research capacity and the executive will always have more information about
the budget and will always be in a better position to make sound, long-term decisions.
37
What is the situation in South Africa at the
moment?
At the moment legislators in South Africa do not have a lot of power to
influence the budget. Their role is restricted to single points in time when
they can debate budgets once they are presented in the National Assembly,
the National Council of Provinces, or Provincial Legislature. What
legislators can do, however, is to prepare in advance for the short window
of opportunity that they do have in the whole process.
The rights of parliamentary committees in money matters
The Constitution gives both national parliamentary committees and
committees of the National Council of Provinces the right to introduce
legislation into their respective parliaments. However, at the moment,
these rights do not extend to Money Bills.
Committees are, however, entitled to call anyone to report to them. They
can receive petitions or submissions on any parliamentary matters, from
interested people or institutions.
Impacting on policy
Important government policy is always debated in parliament. Legislation
putting these policies into practice is passed in parliament. Although
this may seem far removed from the actual budget process, these decisions
by parliament should form the basis for the government priorities
determined by Cabinet (January - March) and by the Minister's Committee
on the Budget (Mincombud) from September to October.
Impacting on the vertical and horizontal divisions
As we have mentioned, on Budget Day the national government budget
is presented to the National Assembly together with the Division of
Revenue Bill. This outlines the method used to work out the vertical and
horizontal divisions. If the National Council of Provinces rejects or
suggests amendments to this Bill, the National Assembly may either pass
the Bill with the suggested amendments of the National Council of
Provinces, or make other amendments that are acceptable. If the National
Assembly rejects the amendments of the National Council of Provinces
altogether, then the Bill goes before a mediation committee.
38
The vertical and horizontal divisions form the basis of the budget. There
is a proposal that the Division of Revenue Bill is presented to parliament
at a much earlier stage so there can be time to debate and settle this
before the details of other allocations are worked out.
Amending the budget
At present legislators can only vote for or against a Money Bill. However,
when the Money Bills Amendment Procedure Act becomes law it will be
possible to make limited amendments to budgets within a particular
departmental vote. A vote is the budget for a specific department.
While parliament will not be allowed to change tax rates or to change
allocations across departmental votes, it will be allowed to suggest changes
to allocations within a particular vote. Parliament would not be able to
suggest reducing the health budget and giving more money to education,
but could suggest changes within the health vote. For example, if
parliamentarians feel the national Department of Health has allocated
too much money to subsidies for medical research and not enough to
HIV/AIDS education programs, they can recommend a re-allocation
between these two.
Provincial parliaments will also be able to suggest and vote on
amendments within provincial departmental budgets.
39
40
This publication, for national and provincial legislators, is
about the process leading up to the budget speech, and what
happens immediately after it has been presented.
This guide:
◆
looks at the links between the Constitution, policy, equity
and the budget;
◆
explains the stages the budget goes through as it is
drafted, negotiated and approved;
◆
examines how much South Africans, through their
parliamentary representatives, can impact on their
budget;
◆
asks whether there is sufficient transparency in the
present process.
It will also be a useful handbook for people working in civil
society organisations, or in jobs where it is important to have
a basic understanding of the budget process.
http://www.hst.org.za
Designed and printed by The Press Gang Durban Tel (031) 307 3240