Bua Briefs - 2010 Medium Term Budget Policy Statement (MTBS)

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26 October 2010

Special Edition

• Introduction
• Highlights

Introduction

In terms of the Medium Term Budget Policy Statement (MTBS), at the centre of the country’s policy framework should be:

• healthcare and the creation of National Health Insurance (NHI)
• education
• employment.

Also informing the budget policy framework is the New Growth Path with six main factors, namely:

• infrastructure – through the expansion of transport, energy, water, communications and housing
• agriculture and the agroprocessing sector
• mining and mineral beneficiation
• the green economy and associated manufacturing and services
• manufacturing sectors identified in the Industrial Policy Action Plan (IPAP)
• tourism and selected services sectors.

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Highlights

2.1 Economic Sectors and Employment

Employment and developmental priorities

The MTBS also highlighted initiatives to help the country achieve its development goals. These are:

• strengthening labour-market institutions to increase both public- and private-sector demand for labour, especially for young job seekers
• greater participation by development finance institutions in co-financing infrastructure projects, enterprise development, housing and farming support
• implementing the IPAP, as well as increased support for small enterprises and local economic development
• greater investment and competition in the electricity, transport and communications sectors
• the need for improved economic cooperation between countries in southern Africa, including financial and trade institutions, transport, communications, energy and water networks
• improvements in public-service delivery.

Financial regulation

The MTBS outlines several institutional changes needed to achieve greater financial control measures to shield the country from any possible risk. These include:

• the formation of the Council of Financial Regulators to promote effective coordination and information-sharing and to give effect to macro-prudential supervision
• the Reserve Bank’s revised mandate, which includes particular responsibility for financial stability
• proposals to strengthen the regulation of market conduct, aimed at both client protection and broadening access to financial services to all
• extending the scope of financial regulation to cover private pools of capital, over-the-counter markets and credit-rating agencies.

Expenditure priorities for the 2011 Budget

• There are also other challenges and pressures that need to be addressed.  These pressures are:
  • Completing the reform of social security arrangements. A key aim is improved preservation of savings for retirement among working South Africans. Consolidation of the fragmented existing administrative arrangements for social security is also a priority.
  • Implementing the NHI system. The first phase will involve improved primary health services in rural areas and underserved communities, and an expanded programme of hospital construction and revitalisation. An nterministerial committee will develop practical transition proposals. 
  • The need to improve the maintenance of transport infrastructure and networks, and invest in modern public transport systems. 
  • The need to provide for the fiscal contribution to new growth initiatives, industrial development and job creation. 

2.2 Governance and Administration

The MTBPS highlighted that National Treasury, along with other government departments and agencies, has been working to combat fraud and corruption. This work has been carried out under the leadership of the Inter-Ministerial Committee on Anti-Corruption and comprises the following initiatives:

• Increasing the monitoring capability of government, aimed at early detection of fraud. Transparent public disclosure will be required at each stage of the supply process, in all spheres of government, including reasons for award decisions. 
• Government will look at identifying procurement requirements that could be better managed centrally, such as the use of transversal contracts for the acquisition of high-value and complex goods and services.
• Stiff penalties are proposed, of up to double the contract value, for service-providers who obtain government contracts fraudulently. Public officials who assist in tender fraud will also be liable for resultant losses incurred by government.
• Tax-compliance measures associated with government procurement will be strengthened.    

2.3 Human Development and Social Protection Clusters

Millennium development goals (MDGs)

• The MTBPS acknowledges that the country is likely to achieve the 2015 MDG targets for reducing extreme poverty, for access to water and sanitation and in providing school opportunities and achieving gender equity in education.
• Challenges have also been identified in the areas of critical health indicators, such as maternal and child mortality, HIV and TB prevalence, as well as the quality of schools that fall short of acceptable standards.

Broader economic indicators

In 2009, real spending on education and health increased in 20 out of 29 low-income regional economies.

R100 million was allocated to scale up HIV and AIDS prevention services.
R350 million was allocated for occupation-specific dispensation (OSD) salary adjustments in the health sector, pending agreement being reached in the bargaining council.

2011 Budget: Expenditure priorities

• The spending framework for the period ahead is informed by government’s 12 agreed outcomes, with priority given to education, health, infrastructure development and job creation.
• A further R22 billion remains unallocated to departments at this stage, and is set aside for key education, health, infrastructure and job-creation commitments. Proposals for expanding youth employment opportunities will enjoy special priority.
• The MTBPS sets out broad policy considerations underlying the expenditure proposals, including government’s economic and industrial policy framework, the need to strengthen infrastructure maintenance, land and agrarian reform goals, pressing needs in education and health-service delivery and the challenges of improving police services and the administration of justice.

2.4 Infrastructure Development Cluster

• Public infrastructure projects in progress (such as the Gautrain) will lead to further private investment, and a more efficient business environment. Infrastructure spending combined with a recovery in domestic demand will result in faster growth in imports than exports over the next three years.
• In the energy sector, the integrated resource plan will provide clarity on committed generation projects and the future direction of power generation technology, such as nuclear and renewable energy.
• The planned increase in generation capacity from the Medupi and Kusile coal-fired stations will be supplemented by independent power producers, initially through direct sales to Eskom, but ultimately through an independent buyer of power.
• Total infrastructure spending of R811 billion is projected over the Medium Term Expenditure Framework period, of which 40% will be in energy, 26% in transport and 11% in water supply. 
• State-owned enterprises will add over R320 billion to public-sector debt over the next three years. Reliable electricity supply, clean water and better transport services have to be paid for over time, and so we will see further rises in tariffs and user charges over the period ahead.

2.5 International Cooperation, Trade and Security

• South Africa was recently ranked first among 94 countries in the International Budget Partnership’s Open Budget Survey, which assesses the degree to which governments provide sufficient budget documentation to allow for public participation, understanding and oversight in national budget decision-making. 
• International trade and output have started to grow again after the recession. Current global coordination efforts are focused on new sources of growth, longer-term trade development and a more stable financial system. 
• South Africa’s view is that shared long-term goals and well-sequenced reforms are more likely to succeed than unilateral or protectionist steps.
• Sub-Saharan Africa is well positioned to benefit from the improvement in global demand.
• The expansion of regional economic activity is supported by institutional reforms providing a positive environment for the expansion of private investment. 

2.6 Justice, Crime Prevention and Security Cluster

• R320 million was allocated for OSD salary adjustments in the Department of Justice and Constitutional Development, the National Prosecuting Authority and Legal Aid South Africa.
• R200 million was allocated to the South African National Defence Force for support activities during the 2010 FIFA World Cup™.

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