1. Comment on the Appropriation Bill 2010 Standing Committee of Appropriations 20 th April 2010 Financial and Fiscal Commission 1

2. 1- Introduction This Submission is made in terms of Section 4 (4) (c) of the Money Bills Amendment Procedure and Related Matters Act 2009 ◦ Requires the Committee to consider any recommendations of the Commission For the 2010 Budget Process the Commission has already made submissions on the Division of Revenue in terms of the IGFR Act and on the Fiscal Framework in terms of the Money Bills Amendment Procedure and Related Matters Act ◦ The Commission supported the documents as tabled but did highlight certain areas that would need to be monitored going forward and those that could pose some risks The Commission’s position on the Appropriation Bill is similar to the position adopted in respect of the other two Budget documents

3. 2- Analytic Approach The Commission’s submission on this Bill focuses on the allocations to the different priorities that have been identified by government for the 2010 Budget. The approach followed in analysing the Bill includes; ◦ An analysis of the table of Priorities contained in the Budget Review (table W1.1) ◦ Past and Current expenditure per vote and main programme appropriate contained in the:  Estimates of National Expenditure 2010 and  Provincial Budget and Expenditure Review 2009.

4. 2- Analytic Approach (2) Nominal figures are stripped off inflation expressed in real terms in order to determine real annual growth rates. ◦ The relative proportions of national revenue made up the policy or budget priorities is calculated to determine contribution of each policy or budget priority. ◦ Real growth rates of each priority and each component thereof are then compared to the projected growth of national revenue.

5. 3- Government’s policy priorities Government’s top five policy priorities for the 2010/11 financial year and medium-term expenditure framework (as indicated in Budget Review 2010) are: 1.Job creation and infrastructure; 2.Education and skills development; 3.Health care; 4.Rural development; 5.Justice, crime prevention and policing. Budget Review 2010 additionally identifies Human Settlement conditional grants, the Local Equitable Share and social grants as budget priorities.

6. 3.1- Government’s policy priorities Job creation and infrastructure is reflected through conditional grants and public utility subsidies designed to provide regional or municipal water, electricity, road and sanitation infrastructure, public transport and national fuel pipelines, by means of labour-intensive techniques. Also included are subsidies to the clothing and textile and automotive industries to preserve jobs. A change on the text of the Appropriation Bill 2010 allows for subsidies to non-state entities such as private companies.

7. 3.2 to 3.4 - Government’s policy priorities Education and skills development is highlighted through the implementation of the occupational specific dispensation for [provincial] educators as well as provisions for workbooks. Further, higher and special mathematics and science school education is highlighted. Health care is prioritized through the OSD for [provincial] health professionals, the HIV-Aids and Hospital Revitalization grants. Rural development is shown through the establishment of the new department and the recapitalization of the Land Bank.

8. 3.5- Government’s policy priorities Justice, crime prevention and policing is specified as additional policing personnel, an OSD for correctional service workers, and a review of defence force’s remuneration. Also included is the modernization of landward defence; and the implementation of the Children’s, Child Justice and Sexual Offences acts. Included within the budget priorities for their poverty reducing and/or job-creating impacts, but excluded from the top five policy priorities are social grants, the rural household infrastructure and housing grants to provinces, and the LES.

9. Government Priorities 2010

10. Growth Trends

11. 5- Results – Relative utilization of National Revenue Fund The proportion of the National Revenue Fund to be used in government’s top five priorities is estimated to be 48.7 % in 2009/10 and to fall slightly to 48.3% in 2010/11 and to 45.2% in the outer year 2012/13. This implies that despite prioritization, the growth of priority budgets will be less than growth of national revenue. The gap is being filled by debt servicing costs, which rise from 10.1% of national revenue in 2009/10 to 11.1% in 2010/11 and 12.9% in 2012/13. Other, “non-prioritized” components of spending from national revenue decline from 19.8% to 18.7% between 2009/10 and 2010/11; but rise over the medium-term to 21% in 2012/13. This creates fiscal space for policy and hence budget reprioritization in the outer years of the 2010 MTEF.

12. 5.1 to 5.3- Results Relative utilization of National Revenue Fund ◦ The proportion of national revenue budgeted for priority job creation and infrastructure programmes rises from 5.8% to 6% between 2009/10 and 2010/11 and stabilizes at that proportion over the medium-term. The proportion set aside for education and skills development priorities falls from 21.9% to 21.6% over the short-term and to 20.3% over the medium-term. With the exception of the HIV-Aids conditional grant, a slight uptick in share for 2010/11 masks a decline in share over the medium-term.

13. 5.4 to 5.5- Results Relative utilization of National Revenue Fund ◦ The share devoted to rural development indicates a steady decline over both the short- term and the medium-term from 1.3% to 1.0% between 2009/10 and 2012/13. The proportion of national revenue devoted to the justice, crime prevention and policing priority also steadily declines over the 2010 MTEF from 10.3% to 9.1%. By contrast, budgets for human settlements and local government increase their relative utilization of national revenue from 6.4% in 2009/10 to 7.1% in 2011/12, falling to 6.9% in 2012/13.

14. 6- Results – Relative growth rates (W.1.1) ◦ National revenue is projected to grow at 5.9% between 2009/10 and 2010/11 and to average 5.75% over the 2010 MTEF. This serves as a benchmark for comparison.(BR-2010) Debt servicing costs rise rapidly in real terms, 16.5% over the short-term and 14.7% over the medium-term.(BR-2010) This leaves the pool of national revenue available for spending to grow by an average 4.65% over the short- and medium-term.

15. 6.1- Results – Relative growth rates (W.1.1 and PBER) ◦ The budget priority that grows fastest over both the short-term (15.8% p.a.) and the medium- term (8.3% p.a.) is human settlements and local government. This programme is not included in government’s top five priorities. The second fastest growing priority is job creation and infrastructure (9.2% in the short- term and 6.8% over the medium-term). These priority programmes are therefore growing faster than average.

16. 6.2 to 6.3- Results Relative growth rates (3) ◦ Education and skills development grow at below average rate of 4.6% between 2009/10 and 2010/11 and 3.2% over the medium-term. This result is heavily influenced by budgeted wage restraint on the personnel budgets. Maths and science teaching is consistently emphasized over the medium-term but FET college grants decline in the outer years. Health spending receives above average growth in the short-term (6.4%) but real declines in the Hospital Revitalization grant in the outer years. The HIV-Aids grants grows strongly over the medium-term.

17. 6.4 to 6.5- Results – Relative growth rates (3) Real average annual growth for justice, crime prevention and policing is slow at 1.3% over the medium-term. Poverty-reducing social grants grow at a higher, but still below average, rate of 3.3% over the medium-term.

18. Conclusion ◦ The appropriations for 2010/11 address government’s top priorities. ◦ The Commission supports the 2010 Appropriation Bill as tabled