Select Committee on Appropriations 2017 Appropriation Bill Select Committee on Appropriations Presented by: National Treasury 20 June 2017

Contents Context Legal framework and structure of the Appropriation Bill The Budget and government priorities Details of reprioritisation and additions to baselines Expenditure by Economic Classification and Compensation of Employees

Reduction to the spending ceiling The expenditure ceiling for the first two years of the 2017 MTEF period is reduced, by: R10.3 billion in 2017/18 R15.9 billion in 2018/19 The main budget non-interest expenditure baselines, including the contingency reserve, grow at a nominal rate of 7.8 per cent over the 2017 MTEF period. Amount to: R1.25 trillion in 2017/18 R1.34 trillion in 2018/19 R1.45 trillion in 2019/20

Reduction to the spending ceiling, cont. Expenditure ceiling reduction comprises amongst others, general baseline reductions, revised social grant beneficiary estimates, rescinded provisional allocations and drawdowns on the contingency reserve In addition to the baseline reductions, funds were sourced from within programme budgets and reallocated directly from lower-priority areas to those of greater priority within and across functions The contingency reserve was drawn down by R4 billion in 2017/18 and R5 billion in 2018/19 Rescinded provisional allocations amount to R389 million in 2017/18 and R11.1 billion in 2018/19

Reduction to the spending ceiling, cont. General baseline reductions were effected on national and provincial government departments, on conditional grants to provinces and municipalities as well as transfers to other institutions These reductions amount to R7.5 billion in 2017/18, R7 billion in 2018/19 and R6.7 billion in 2019/20 R million 2017/18 2018/19 2019/20 Transfers and subsidies, including on conditional grants -6 035 -5 479 -4 949 Goods and services -699 -712 -845 Compensation of employees -437 -471 -497 Payments for capital assets -350 -332 -372 Total -7 522 -6 994 -6 664

2017 Appropriation Bill The Appropriation Bill is the legislation that provides for the appropriation of money by Parliament from the National Revenue Fund in terms of section 213 of the Constitution, 1996 and section 26 of the Public Finance Management Act (PFMA), 1999 Spending is subject to the PFMA and the provisions of the Appropriation Bill itself For transfers to sub-national government, the 2017 Division of Revenue Bill also contains provisions in terms of which specific spending must take place

2017 Appropriation Bill, cont. The Money Bills Amendment Procedure and Related Matters Act, 2009 requires that after the tabling of a national budget: Section 8(3) - Parliament must within 16 days submit a report to the National Assembly and the National Council of Provinces on the fiscal framework and revenue proposals Section 9(3) – The Division of Revenue Bill must be passed no later than 35 days after the adoption of the fiscal framework by Parliament Section 10(7) – Parliament must pass the Appropriation Bill with or without amendments, within four months after the start of the financial year, namely 31 July 2017

2017 Appropriation Bill, cont. Prior to the 2017 Appropriation Bill being promulgated, departments will incur expenditure in terms of section 29 of the PFMA, which makes provision for spending before an annual budget is passed: Up to end July, expenditure may not exceed 45% of the 2016/17 financial year annual budget After July, monthly expenditure can only amount to 10% of the 2016/17 annual budget Promulgation of the 2017 Appropriation Act is necessary: To allow for monthly expenditure above the transitional provisions contained in the PFMA To ensure expenditure in accordance with the vote and programme purposes as stated in the Act

Structure of the Bill The Bill is divided by vote and by main division within a vote (i.e. by programme) A purpose is set out for each vote and programme Allocations are categorised in terms of: Current payments Compensation of employees Goods and services Interest and rent on land Transfers and subsidies Payments for capital assets Payments for financial assets Allocations marked with a single asterisk refer to specifically and exclusively appropriated allocations, including, but not limited to: all vote compensation of employees appropriations; and conditional grants also listed in the Division of Revenue Bill, 2017

Estimates of National Expenditure (ENE) publications The abridged ENE publication is the explanatory memorandum to the Appropriation Bill A set of more detailed e-publications on each vote are also available online at www.treasury.gov.za The ENE publications contain information on: what institutions aim to achieve over the MTEF, and why how institutions plan to spend their budget allocations in support of this; and what outputs and outcomes the spending is intended to produce how institutions have spent their budgets in previous years performance data and targets detailed expenditure trends and estimates by programme, subprogramme and economic classification for each department and selected entities the institution’s mandate, purpose (and that of its programmes), together with programme- level objectives and descriptions of subprogrammes infrastructure spending personnel spending provincial and municipal conditional grants departmental public private partnerships donor funding expenditure at the level of site service delivery, where applicable

Government spending, the NDP and MTSF targets Government spending is aligned with the objectives of the National Development Plan (NDP) The medium-term strategic framework sets out NDP priorities from 2014 to 2019 In the 2017 Budget, about two-thirds of consolidated spending is allocated to function groups dedicated to realising constitutionally mandated social rights The DPME leads the process of institutions setting their performance indictors and targets, as well as the monitoring and evaluation thereof The ENE publications however do contain a selected performance indicators table for each vote and public entity that shows the institution’s indictors and their link/s to the MTSF’s outcomes. A narrative explanation is contained in the Expenditure Analysis sections of each chapter / e-publication

Spending continues to grow in priority areas

Budget allocations over MTEF period support economic growth and development R3.9 billion for small, medium and micro enterprises and cooperatives R4.2 billion for industrial infrastructure in special economic zones and industrial parks R1.9 billion for broadband implementation R9.3 billion for the Council for Scientific and Industrial Research An additional R494 million for tourism promotion R287 million to support the aquaculture sector and realise the goals of the Oceans Economy Phakisa Operation Spending on agriculture, rural development and land reform amounts to nearly R30 billion by 2019/20

Public investment supports growth and transformation Public-sector infrastructure spending estimated to total R947.2 billion over MTEF Economic infrastructure spending, mainly by state-owned companies, accounts for 77 per cent of total public-sector infrastructure spending A new infrastructure facility is to be launched this year. The facility would address many problems in the existing infrastructure budgeting process

Public investment supports growth and transformation, cont. Of the R947.2 billion, R139.3 billion is included in the 2017 Appropriation Bill

Public investment supports growth and transformation, cont.

Largest positive reprioritisation and funding additions by vote Total Bill appropriation amounts to R767 billion in 2016/17, excluding direct charges such as the provincial equitable share and debt-service costs The following represent the largest reprioritised funding additions to budget baselines, excluding additions for the compensation of employees, over the 2017 MTEF period: Basic Education R478 million (R72 million in 2017/18; R185 million in 2018/19 and R221 million in 2019/20) for the learners with profound intellectual disabilities grant Transport R3 billion (R1 billion in each year) to the Passenger Rail Agency of South Africa for operating mainline passenger services

Largest positive reprioritisation and funding additions by vote, cont. Cooperative Governance and Traditional Affairs R2.1 billion (R1 billion in 2018/19 and R1.1 billion in 2019/20) for the local government equitable share for basic municipal services Health R1 billion in 2019/20 for the comprehensive HIV, AIDS and tuberculosis grant for antiretroviral therapy R650 million (R150 million in 2017/18; R200 million in 2018/19 and R300 million in 2019/20) for the national tertiary services grant for the Nelson Mandela Children's Hospital National Treasury R1.7 billion (R453 million in 2017/18, R525 million in 2018/19 and R676 million in 2019/20) for government’s contribution to medical aid schemes on behalf of retired civil servants Trade and Industry R1.4 billion in 2018/19 for the Economic Competitiveness and Support package

Largest positive reprioritisation and funding additions by vote, cont. International Relations and Cooperation R1.4 billion (R735 million in 2017/18 and R654 million in 2018/19) for Rand foreign exchange related budget pressures Energy R1 billion in 2019/20 for the local government integrated national electrification programme grant for the provision of universal access to electricity by 2025 Defence and Military Veterans R932 million (R201 million in 2017/18; R301 million in 2018/19 and R431 million in 2019/20) for medicine and medical supplies Police R731 million (R213 million in 2017/18; R243 million in 2018/19 and R275 million in 2019/20) for lease payments

Largest positive reprioritisation and funding additions by vote, cont. Environmental Affairs R685 million (R210 million in 2017/18; R230 million in 2018/19 and R245 million in 2019/20) for the Recycling and Economic Development Initiative of South Africa: Waste Management Bureau for tyre recycling initiatives Home Affairs R630 million in 2018/19 for the Electoral Commission for the 2019 national government elections Human Settlements R600 million (R200 million in each year) for the Social and Rental Housing Fund for the institutional subsidy shifted from provinces Social Development R591 million (R182 million in 2017/18, R197 million in 2018/19 and R213 million in 2019/20) for the social worker employment grant

Consolidated expenditure by economic classification Average real growth in consolidated expenditure The reduced expenditure ceiling means that real growth rates decline in aggregate from 2.3 per cent in the 2013/14 to 2016/17 period to 1.9 per cent in the MTEF period Growth in debt-service costs remains the fastest growing area

Compensation of employees Compensation of employees budget limits continue to be specifically and exclusively appropriated in the 2017 Appropriation Bill Departments have to manage personnel establishments within these limits Departments must ensure any decision to change headcount or employee earnings can be sustained over the 2017 MTEF period. For instance, they need to be prudent about filling posts, particularly funded vacant posts, and should take other measures where appropriate to keep personnel spending within approved limits

Thank you