2007 Adjustments Appropriation Select Committee on Finance 20 November 2007

Content Budget outcome for 2006/07 financial year Spending performance for 2007/08 (April – September) Components of the Adjustments Budget Summary of adjustments Unforeseeable and unavoidable Amounts already announced in 2007 Budget Roll-overs Salary adjustment Self financing 2007/08 Adjusted Budget Conclusion

Context of presentation Presentation does not provide a comprehensive explanation of individual expenditure decisions – details provided in Adjusted Estimates of National Expenditure 2007 Presentation outlines the legal and procedural basis for expenditure included in Adjustments Budget

2006/07 Budget outcome R476.2 billion available for spending in 2006/07 In total 1.3% or R6 billion not spent R1.5 billion not transferred to provinces due to capacity constraints or non-compliance with DoRA Excluding conditional grants: The National Treasury, Correctional Services, Justice and Constitutional Development, Transport, Water Affairs and Forestry and Public Enterprises contributed R2.5 billion of the underspending. R’ billions 2006/07 Under spending Under spending % Main Appropriation 260.0 Adjustments Appropriation 6.2 Total Appropriated Funds 266.2 5.6 2.1% Statutory payments 210.0 0.4 0.2% Total available expenditure 476.2 6.0 1.3% The Department of Provincial and Local Government requested an amount of R817,740 million to be rolled over for the Municipal Infrastructure Grant. The funds were not transferred to municipalities due to time and capacity constraints. The National Treasury did not transfer conditional grants to Local Governments: Restructuring Grant: Municipalities for Nelson Mandela Bay; Cape Town; City of Tshwane (R180 million). In terms of Section 22(1) and 22(2) of the Division of revenue Act, (Act No.1 of 2006) a schedule 5 allocation (including the Further Education and Training College Sector Recapitalisation Grant) that is not spent at the end of the financial year must be surrendered to the National Revenue Fund. National Departments of Education, Health and Housing submitted coordinated requests to the National Treasury for the roll-over of these unspent conditional grants. The request from the Department of Housing (R458,317 million) for the Integrated Housing and Human Settlement Development Grant was not recommended as roll-over funds.

Spending for 2007/08 Departments usually spend slightly less than half in the 1st 6 months Last year 45.2% of total budget had been spent at this point Too early to assess if March ‘spike’ in expenditure will recur R’ billions Adjusted Appropriation April – Sept Spending % Central Government and Administration 42.5 15.8 37.2 Financial and Admin Services 21.9 9.8 44.8 Social Services 105.4 56.2 53.3 Justice and Protection Services 81.7 35.0 42.8 Economic Services 61.7 25.1 40.7 Total appropriation by vote 313.3 141.9 45.3

Components of the Adjustments Budget PFMA , section 30(2), states that adjustments budget may provide for: Significant and unforeseeable economic and financial events affecting the fiscal targets Unforeseeable and unavoidable expenditure recommended by a committee of Cabinet Any expenditure in terms of section 16 of the PFMA Money to be appropriated for expenditure already announced by the Minister during tabling of annual budget The shifting of funds between and within votes f) Utilisation of savings under a main division to be used to defray over-expenditure on another main division g) Roll-over of unspent funds from preceding financial year

Unforeseeable and unavoidable expenditure Definition: Expenditure that was not foreseen at the time of the tabling of the Budget and is now deemed to be unavoidable. The following cannot be considered as unforeseeable and unavoidable expenditure (Treasury Regulation 6.6.1): Expenditure that, although known when finalising the estimates of expenditure, could not be accommodated within allocations; Tariff adjustments and price increases Extensions of existing services and the creation of new services that are not unforeseeable and unavoidable.

Unforeseeable and unavoidable expenditure Of the R3.8 billion recommended for unforeseeable and unavoidable expenditure, R754 million is related to natural disasters and animal disease. Transfers to municipalities Funding for damage related to storms and tidal surges in KwaZulu-Natal in March 2007 (R180.9 million) In-year provision for costs of repairing flood damage occurring in June 2007 on the Cape West Coast (R6.9 million – R4.7 million to the province) Emergency drought relief expenses (R100 million - R14.9 to national Department of Water Affairs and Forestry) Transfers to provincial agriculture departments Uninsurable agricultural losses amounting R300 million as a result of drought, fire or flooding R100 million on the national Department of Agriculture’s vote for compensation to farmers for the culling of pigs to curb the spread of classic swine fewer R46 million of spending by the national Department of Water Affairs and Forestry for remedial work related to flood damage or drought.

Unforeseeable and unavoidable expenditure per department R’million Provincial and Local Government National Disaster funding in respect of Kwa-Zulu Natal, West Coast District, as well as for eradication of the bucket system 387.8 National Treasury Budget pressures in North West province following boundary changes, for increased incidents of MDR and XDR TB and West Coast district flood damage 654.7 Public Service and Administration Communication during public sector strike 13.9 Education National education recovery plan 200.0 Health Comprehensive HIV & Aids care 50.0

Unforeseeable and unavoidable expenditure per department (continued) R’million Defence Support of health sector during the public service strike 45.7 Agriculture Uninsurable agricultural losses and compensation for culling in respect of classic swine fever 400.0 Housing Emergency housing in the North West province 105.0 Land Affairs Restitution in Richtersveld land settlement claim 250.0

Unforeseeable and unavoidable expenditure per department (continued) R’million Public Enterprises South African Airways restructuring 744.4 Trade and Industry Coega IDZ infrastructure commitments and small medium enterprise incentives 524.7 Transport Bus subsidy shortfall 300.0 Water Affairs and Forestry Urgent flood related problems (secondary alien vegetation invasion, river and flow gauging works) and drought relief 161.9 Total 3 838.1

Amounts announced in 2007 Budget There are two items in this category included in the Adjustments Appropriation Bill: R28 million for Alexkor, mainly for restructuring but also for VAT for the last transfer to Alexkor approved in the Special Adjustments Budget. R678.7 million for the Pebble Bed Modular Reactor project of which R307.7 million is for operation and contractual spending for the period January to March 2008 and R371 million is for VAT both for previous transfers in 2006 and 2007 and this current transfer.

Roll-Overs In terms of Treasury Regulation 6.4: Funds appropriated but not spent in previous financial year rolled over to a subsequent year subject to relevant treasury approval Unspent funds on payments for capital assets may only be rolled over to finalise projects or assets acquisitions still in progress. Savings on transfer payments and subsidies may not be rolled over for purposes other than what was originally voted for. Savings on compensation of employees may not be rolled over. A maximum of five per cent of a department’s payments for good and services (excluding compensation of employees) may be rolled over. Funds may not be rolled over for more than one financial year unless approved in advance by the National Treasury.

Roll-Overs per department Funds rolled over from 2006/07 to 2007/08   R'million Presidency 17 Foreign Affairs 263 Home Affairs 206 Provincial and Local Government 818 Public Works 67 Government Communication and Information System 1 Public Service and Administration 13 Public Service Commission 3 South African Management Development Institute 60 Statistics South Africa 57 Education 196

Roll-Overs per department (continued)  Funds rolled over from 2006/07 to 2007/08 continued   R'million Health 385 Labour 5 Sport and Recreation South Africa Correctional Services 513 Defence 83 Justice and Constitutional Development 262 Agriculture 89 Environmental Affairs and Tourism 200 Minerals and Energy 9 Trade and Industry 109 Transport 386 Water Affairs and Forestry 314 Total 4 060

Salary Adjustment Vote R’million Defence Provincial governments Government Communication and Information System Correctional Services Safety and Security Water Affairs and Forestry Public Office Bearers 109 1 185 2 128 469 21 3 Total 1 917

Self-financing Expenditure per Department R’millions Government Communication and Information System   2 Public Service Administration 0.3 Correctional Services 1.1 Defence 132.2 Communications 1.2 Water Affairs and Forestry 45.1 Total 181.9

Adjusted National Budget 2007/08

Conclusion Total additional amounts added to the budget equal R16.7 billion The revised budget framework makes provision for about R5.2 billion in under spending at a national level, in addition to the R3 billion contingency reserve set aside in the budget The total estimated level of spending rises by R8.5 billion, from a budgeted R533.9 billion to a revised R542.4 billion The revised estimate of the budget surplus rises from R10.7 billion to R10.8 billion or 0.5% of GDP