The 9th International Anti-Corruption Conference
FISCAL TRANSPARENCY AND PARTICIPATION IN THE BUDGET PROCESS
TABLE OF CONTENTS
A movement towards greater transparency and participation in governmental budget decisions is sweeping much of the world. This trend is apparent in many developing countries as part of the trend towards greater democratisation and openness in government decision- making. The trend is apparent also in developed countries, where in countries like Australia, New Zealand, Sweden and the United Kingdom broad budget reforms adopted in recent years placed emphasis on transparency.
Spurred by the Asian financial crisis - which in hindsight developed in part due to financial practices that were not open to scrutiny - an emphasis on fiscal transparency (but not necessarily an emphasis on participation) has also become common among international financial institutions (IFIs). Most notable in this regard are the efforts by the IMF, including its recent publication of a Code of Good Practices on Fiscal Transparency and supplementary documents designed to help countries realise this code.
Though the trend towards greater transparency and participation in the budget process1 is unmistakable, in many countries it begins from an inadequate baseline. In these countries the development of budgets often occurs exclusively in the secrecy of the executive branch; the adoption of budgets by the legislative branch occurs with little opportunity for debate or amendment; budget policies are implemented without information being provided about their effectiveness; and actual expenditure data is not provided or provided too late to control budget execution effectively.
The issue of transparency and participation in the budget process is of direct relevance to South Africa. As path breaking as the strides towards democracy have been since 1994, including significant strides in opening up the budget process, much remains to be accomplished. The budget process, for instance, allows for little input by the legislature, let alone by the public.
It is with these trends in mind that the Budget Information Service of the Institute for Democracy in South Africa and the International Budget Project of the Centre for Budget and Policy Priorities based in Washington, D.C. have undertaken this report on transparency and participation in South Africa's budget process. The report may serve as an approach that would be of use to researchers in other countries who are interested in assessing how the IMF Code and other principles of transparency and participation could help inform and improve the budget process in their nations.
The report borrows from, modifies, and adds to the IMF Code of Fiscal Transparency. The IMF code has a special focus on the features of transparency of most interest to the financial community and does not fully flesh out a budget process that facilitates effective participation by the legislature and the public. The survey developed for this report attempts to develop these principles, reflecting our special focus on the role of civil society.
The efforts of civil society and of institutions like the IMF to promote fiscal transparency are complementary in several respects. Independent researchers and the IMF have access to different information and target different audiences. Using diverse information to reach diverse audiences is likely to broaden the scope of promoting transparency. Civil society can also act as an independent check on government reports. Independent research concerning budget transparency may also prod governments to undertake their own efforts at assessing transparency in their countries. Taken together, reports such as this one by independent researchers and the fiscal transparency efforts of the IMF may yield the most comprehensive and productive debate on these issues.
In a large fraction of the world's countries, transparency and openness in government decisions became more common in just the past few years. International trends in public management have pushed transparency to the fore as an operational necessity while the increased adoption of democratic systems of government created a political environment of greater openness and participation. This is obvious in a number of countries, not the least in South Africa where dramatic improvements have occurred since the first free election in 1994. Fully transparent and participatory budget processes do not, however, automatically follow from the transition to democracy. In fact, even some of the world's longest standing democracies have budget processes that in key respects are opaque or severely limit the involvement of those outside of the executive branch.
It is perhaps not surprising that the public, civil society, the media, and some in the legislative branch of government have applauded and encouraged the trend towards budget transparency. But the recent international financial crisis has intensified the demand by international organisations and by the international business and financial communities for governments to provide accurate and complete information about their fiscal situations.
In 1998 a range of Asian economies, some of which had performed exceptionally well for more than a decade and which had attracted vast amounts of international capital, saw their financial markets unravel and their economies spiral downward. Few observers predicted the dramatic downturns in these countries' economies as few understood the underlying structural weaknesses including problems with their financial markets. This lack of understanding reflects the fact that certain fundamental information about these economies had not been readily available. In other words, these economies were not transparent. Many believe that the economic reversals would not have been so sharp if more complete information about the financial markets and fiscal policies in these countries had been available. Economic risks would have been easier to assess and resources would have been better allocated. This would have meant smaller and more diversified market reactions that could have triggered prompter policy adjustments. The belief that greater transparency would have helped prevent the Asian economic crisis contributed to the development of the IMF Code.
Another sometimes related set of economic challenges may have contributed to the growing support for transparency. At the same time that many countries have been adopting democratic forms of governments, frequently these same countries - such as those in Eastern Europe - have been experiencing economic turmoil that produced widespread poverty. This has led citizens and non-governmental organisations (NGOs) to focus on the budget for solutions, creating pressure for transparency and participation. Transparent institutions and decision-making processes can permit countries to address these economic challenges while at the same time maintaining the support of their citizens. When citizens have accurate information that enable them to understand the difficult economic choices their countries face, and are able to participate in the decisions, better decisions that have the support of the public may result.
Good governance dictates that government operations and decisions should be made openly, and with the active participation of those people influenced by them. The budget is the primary economic policy document of governments; for this reason transparency and participation in the budget is particularly important.
Indeed, it can be argued that in a democracy the public has the basic right to information about the budget and to have its views considered in budget decisions, making it an end in itself. Put differently, transparency is a prerequisite for democracy. However, even without recourse to the principles of democracy, the provision of comprehensive, accurate, timely and frequent information on a country's economic conditions and its budget policies is desirable because:
There is an important relationship between participation and the focus above on transparency. Transparency is not only an end in itself. Transparency is desired as a means of achieving desired outcomes such as enabling participation. Meaningful transparency is not only about the availability of information, but its use. Meaningful transparency is inextricably linked to meaningful participation in the budgetary process by a variety of interests. In turn, therefore, the provision of sufficient opportunity for legislature and civil society input budgetary processes is important because:
Therefore, if governments want to reap the benefits of being transparent, a country's governance systems must ensure that the incentives for making use of available information outweigh any obstacles to participation.
The findings of this paper are based on a Transparency and Participation Questionnaire (see Appendix 1). The questionnaire sets parameters applicable to most democracies for research on transparency and participation. It draws on the provisions of the IMF Code of Good Practices for Fiscal Transparency but also revises and expands on these to address the most fundamental factors determining both transparency and participation.
This methodology section on how we measured transparency therefore discusses the survey we used and how it differs from the Code. It concludes with a short section on sources used to compile the South African survey report.
The IMF code comprises a set of guidelines to establish a sound and viable transparency framework for fiscal policy. It is built around the following objectives, each of which speaks to a category of requirements: roles and responsibilities in government should be clear; information on government activities should be provided to the public; budget preparation, execution, and reporting should be undertaken in an open manner; and fiscal information should be subjected to independent assurances of integrity (IMF, 1998: 122).
While the IMF Code is an important advance in efforts to promote fiscal transparency, it is limited, particularly when it is examined from the perspective of promoting participation in the budget decision-making process. The limits to the Code create an interesting opportunity for civil society to expand its framework to encompass the principles of participation and accountability.
The transparency and participation guidelines used in our survey are to a large extent compatible with the IMF Code, frequently drawing directly from it. The differences between the two sets of guidelines include the level of detail and the number and technicality of the standards. We weeded through the IMF standards, selected the ones that seemed most important to advancing the goals of both transparency and participation, and tried to express them in more general terms. In some cases we supplemented the IMF Standards with guidelines from the South African Constitution and in others developed measurable indicators. The biggest differences however, in the two sets of guidelines are our separation of the legal and regulatory framework for fiscal transparency from in practice fiscal transparency and our addition of questions related to the participation of the legislature and civil society in the budget process.
Section 1: A legal framework for transparency
The questions in this section were concerned with the legal framework of roles and responsibilities, the legal basis for taxes, and the legal basis for fiscal transparency requirements for the executive. It also amalgamates the legal framework issues important to participation referenced throughout the IMF questionnaire.
Section 2: Transparency in Practice: the clarity of roles and
This section looks at the clarity of expenditure roles and responsibilities in practice.
Section 3: Public availability of budget information.
This section follows the IMF approach relatively closely although we also examine questions of budget information that were referenced under other principles of the IMF Code. Further, we emphasised an element that is crucial for civil society: the usefulness of the information provided. The public availability of information is of little benefit if it is not released in a format that can be understood and assessed.
The section examines the availability of information as regards the budget framework, fiscal stance, budget classifications and extra budgetary activities.
Section 4: Independent checks and balances of budget execution and
This part of the survey also is concerned with the availability of independently audited actual expenditure data and with the internal checks that prevent over-expenditure or illegal expenditure.
In this section there is again similarity between the IMF and the paper's approach, although the paper has drawn together in this section budget execution questions which were referenced elsewhere in the IMF Code.
Section 5: Budget decision-making process.
While calling for an "open" budget process, the IMF Code does not assess whether the legislature or civil society can participate in the budget process. For example, it does not assess whether the legislature is able to amend the budget bill, a standard used in our survey.
The research and report format
It is important to note at the outset that speaking of a questionnaire and a survey may be misleading: the research was not intended to be an opinion survey. Rather the authors set themselves the task to make the most accurate assessment of transparency and participation in South Africa in accordance with the questionnaire. In order to do this a panel of experts was selected and interviewed. The report reflects the collated opinion of the respondents, not only on the answers to the questions, but the reasons for the answers being what they are. In many cases, existing research of the Budget Information Service already covered the survey questions comprehensively: this knowledge base was used both to supplement and inform the interviews.
The tougher questions were the qualitative ones: for example the question on the clarity of roles and responsibilities presupposes consensus on what it takes for roles and responsibilities to be called clear. Different people with different agendas may have different answers.
In order to bridge this potential gap, the panel of experts were selected with care: each had a specific and relevant area of specialisation and in each area of specialisation we made sure that we had experts from different sectors of society, that is from the executive, the legislatures, civil society and the private sector3 . We conducted a total of nine in-depth interviews, supplemented by shorter interviews on written replies on specific points of clarification, with a total of 17 respondents.
A breakdown of respondents is as follows: 7 came from the executive, 4 from the auditor general's office, 1 from the legislature and 5 from civil society and the private sector. In writing up the interviews we attempted to reflect the full spectrum of opinion, within reason.
In conducting the survey and writing this report, it became clear that taking an accurate snapshot of the state of transparency in South Africa would be extremely difficult. The image is bound to be blurry. The survey questions rarely had a straightforward answer: more often than not, the answer was conditional on an information system coming on-line, or on a future change happening, or unclear because processes have not yet settled down.
In trying to deal with this ambiguity, the results were collated in the following format:
The report includes broad assessments of progress on transparency and access to the budget process. These assessments take into account only changes already announced or implemented. In doing so it hopes to establish a benchmark against which changes can be measured in future surveys.
The report itself - in order to make the data more accessible to the reader -- is in discursive format and thematically aggregates the answers to individual questions. The full questionnaire with individual question answers is reproduced in Appendix 1. In the discussions we have endeavoured to give the context of the level of transparency. This means that the report distinguishes where relevant between policy decisions in principle and the feasibility of implementation. It also means that the reasons for lack of progress on some issues will be explored.
At the end of each of the four sections an overall assessment for that section is given. This includes a digest of milestones relevant to that section. Similarly, it includes a synopsis of key concerns for future progress. Where applicable, reference is made to transparency and participation measures that may soon be adopted, especially where a grading needs to be balanced by future plans in order not to skew the overall impression a reader may get.
South Africa is a country in transition. The change in government brought about by the first democratic elections in 1994 set off a transformation process that is an evolutionary roll-out of the democratic principles established in the pre-election negotiations. Transparency is no exception, as is demonstrated by the following comparison.
When South Africa's newly elected members of parliament took up their seats in 1994, one of their first tasks was to consider the annual budget. As with countless budgets presented to apartheid parliaments in the preceding years, the budget was unveiled in its entirety for the first time on budget day. Hundreds of pages of technical line item, programme and vote (inter-departmental) information for all spheres4 of government were presented to members with very little supporting material and in a vacuum of actual spending information on the preceding year. In their deliberations on the budget, members had no recourse to inputs from outside of government. Even inputs from the executive were restricted. In fact, Parliament had very little power to do anything but pass the budget, which indeed it did.
Earlier this year, the same Parliament passed its fifth, and last pre- election budget. Although it was still in the absence of detailed amendment powers and actual spending information, this time parliament had already seen the three-year fiscal and budget framework as well as the aggregate budget numbers in November. This time the budget was presented with two volumes of detailed supporting information and analysis and this time the portfolio committee on finance could draw on the inputs of 14 organisations before presenting its report to the floor. This time individual ministers appeared before dedicated portfolio committees to defend their budget and policy choices. This time, the process was repeated in all nine provinces (the national parliament considers only the national budget and the division of revenue between and among spheres of government).
The current South African budget process represents a marked increase in the degree of transparency and participation, the focus of this paper. Yet further changes are planned and are indeed required before South Africa can reap the governance benefits of good availability of information, a responsive executive and an active legislature and civil society.
Before turning to the specific areas demarcated by the questionnaire, it is useful to consider briefly the South African context of transparency and participation. All of the pro-transparency forces referred to in the international background above, are at work in South Africa.
While these forces may have engendered transparency and increased participation organically, three other categories of events have speeded up and systemised progress towards both.
A Legal Framework for Fiscal Transparency
Since 1994 new national legislation has strengthened fiscal and budget transparency in South Africa. The survey however, did show up several areas of concern.
The questions relevant to this section tested the following aspects of transparency:
Transparency requirements for the Executive
Fiscal transparency requirements for the executive are only set out to a limited extent in the existing legislation. South Africa does not have a comprehensive fiscal transparency code for the executive, such as the UK Code on Fiscal Stability (1989) or New Zealand's Fiscal Responsibility Act of 1994.
Existing fiscal transparency in South Africa-- such as the fiscal information published, how often it is published, the format thereof and the availability of supporting information - has the following legal foundations:
The PFMA is the cornerstone of new public financial management in South Africa. As such it has far-reaching provisions for the provision of information on fiscal activities, both as regards scope and usefulness. The burden of reporting increases drastically under its provisions. For example the PFMA demands monthly actual expenditure reports from departments to treasuries, public consolidated actual expenditure and revenue statements as regards the revenue funds from treasuries; and audited statements to the legislatures within 7 months after fiscal year end. That is a major step up from the current one year gap between budget year end and the tabling of audited statements, and will not only require better information systems, but also increased financial management capacity. As has been emphasised in several official reports on the state of the public sector5 , departments are plagued by a chronic dearth of capacity on both accounts. For these reasons the PFMA makes provision for a phased implementation of some of its transparency provisions. Some of the respondents expressed doubt that the government's management information and accounting systems will be able to produce the full scope of information as frequently as is required even within the implementation time frames.
As will be apparent from Section III (Public availability of Information) Government currently publishes more than what is required by the acts and regulatory framework documents. This is the result of Government's interpretation of information needed by Parliament and Civil Society to participate in and monitor the budget. The resultant scope, depth and usefulness of available information are therefore dependent on the goodwill of current office holders. It is hoped that the Budget Reform White Paper6 and the accompanying Department of State Expenditure Regulations will expand existing requirements and establish a more comprehensive formal basis for the assignment of responsibility to the executive.
The lack of legislation on the publication of contingent liabilities and extra-budgetary activities remains a major gap in South Africa's transparency requirements. An annual consolidated statement on public sector contingent liabilities may be a useful addition to current documentation. Such a statement would include a range of actual liabilities, to explicit or contractual contingent liabilities to implicit liabilities. Examples include the liabilities of funds such as the Unemployment Insurance Fund, claims against the foreign currency reserves, the liabilities of provincial governments, liabilities of extra-budgetary public sector institutions, the liabilities of government agencies and potential liabilities in support of the banking sector. Such a report could further serve the purpose of making explicit who is liable in the final instance, aiding the management of contingent liabilities between spheres of government.
Key aspects of fiscal management
Two sets of measures were used to flesh out this section of the questionnaire, namely the requirements under the Constitution and some key aspects listed in the manual accompanying the IMF Code (IMF2, 1998). Appendix II contains a table with detail on both these sets of requirements.
The Constitution sets the requirement that national legislation has to be enacted to set out roles and responsibilities in principle for key aspects of fiscal management, including budget planning, approval, execution and oversight. It requires the establishment of a National Treasury and the need for measures to ensure both transparency and expenditure control in each sphere of government by introducing generally recognised accounting practice, uniform classifications and uniform norms and standards.
It requires legislation to
The enactment in February 1999 of the PFMA and the Public Finance Management Act Amendment Act (PFMAB, Bill 27 of 1999, applicable to the provinces) entrenches these principles in enabling legislation. It further obligates the national treasury to publish regulations that will refine the framework requirements of the Act.
Earlier acts -- such as the Intergovernmental Relations Act (Act 97 of 1997) that established the Budget Council7 and the Local Government Budget Forum 8 , and the Finance and Fiscal Commission Act that established the commission and its advisory responsibilities -- set out roles for individual institutions.
However, legislation for the clear assignment of fiscal management responsibilities between the executive and the legislature remains a significant omission. The Constitution assigns to Parliament the crucial dual roles of policy making through legislation and oversight over the executive through monitoring the direction of policy, amongst other by approving and debating expenditure and revenue plans and holding the government to account on the execution of these plans. It therefore grants the legislature amendment powers over the budget in principle, but leaves it to national legislation to determine what exactly these powers should be. On the other hand, the Constitution assigns to the executive the mandate to formulate policy and to design, fund and run programmes to give effect to policy. In the continuing absence of the enabling amendment powers legislation it is unclear how the legislature is to fulfil its responsibility to scrutinise the budget.
The IMF Manual on Fiscal Transparency lists the following requirements all of which are covered by existing legislation:
The manual also identifies the need for clear and stringent conditions for the use of contingency funds. This is not covered by existing legislation.
One respondent pointed out that whereas an extensive legal basis for the budget exists, it is spread over many acts and documents: there is no agency or body tasked with ensuring that all actors fulfil their legal obligations; and there is no budget law that ensures full coverage. Several in-government regulations qualify and expand published budget rules, making clear understanding difficult for stakeholders outside of government.
The legal basis for sub--national expenditure responsibilities and tax powers
The Constitution assigns either concurrent or exclusive expenditure responsibilities to the spheres of government. Functional areas of concurrent responsibility (joint competencies) are listed in Schedule 4 of the Constitution (for example health, housing, education, welfare services and policing). Exclusively provincial functions are listed in Schedule 5 (for example abattoirs, ambulance services, provincial roads and traffic). Other functions remain at national level (for example defence and foreign affairs). Co- ordination of some local government matters are shared between national and provincial (municipal health services, municipal airports, municipal public transport) while others are provincial (street lighting, cleansing, municipal roads).
The taxing powers of sub-national governments are still murky. The Constitution grants provinces the right to levy certain taxes as long as it does not interfere with national policies and is done in accordance with national legislation. This legislation, which may for example leave room for provinces to put a provincial surcharge on income tax, is still outstanding. The debate around what provincial taxing powers should be, given equity, redistribution and efficiency considerations, is only just starting. Provincial own revenue is therefore restricted to levies, user charges and fees and in total comprise on average only 5% of provincial budgets. Respondents agreed that there is little clarity about the future tax powers of sub- national governments. Whereas it is very clear what the nature of current sub-national tax powers are, it is less clear what they ought to be and what they will be, once enabling legislation is in place.
The legal basis for taxes
Respondents felt that taxes are raised according to legislation approved by the legislature. South Africa also has a well-established tax case law, as well as transparent and well-established procedures for negotiating concessions and settling conflict. Tax regulations are published by the South African Revenue Services (SARS) in guidebooks and distributed to all taxpayers with their tax returns. Additional popularised booklets explaining regulations and procedures are available.
The rights and obligations of the state vis-à-vis the taxpayer and vice versa are also made transparent by the adoption by SARS of a code of conduct in 1997 when it gained managerial authority independent of the then public service regulations. This code is applicable to all taxes and governs the way in which officials of the SARS shall interact with the public. Furthermore, a SARS client charter was published in the 1998/99 Budget Review that sets out the rights and obligations of taxpayers.
Despite the above, some respondents felt that tax regulations are still not very clear. There are many people who have no idea how their tax is calculated. The base tax system is seen as non-transparent, even if additional regulations are well explained. Another respondent however emphasised that in a modern economy all tax codes are likely to be complex, and that South Africa is no worse than any other country. In fact, the South African Revenue Service issues notes and procedures on contentious issues that can be applied uniformly.
Most respondents to the tax questions felt that the law and incidence follow each other fairly closely in South Africa, compared with other countries. Some respondents remarked that tax compliance is far from complete in some sectors. This argument is borne out by year-on-year improvement in collections.
A respondent from the Department of Finance remarked that whereas there may be a legal basis for taxes, there is enormous lack of transparency on the rationale behind new tax regulations and their impact. The information systems of the South African Revenue Services are set up in such a way that aggregating tax information across individual tax records is not always possible - blocking the easy assessment of the impact of tax policy. This makes it very difficult for the legislature and civil society to evaluate any of the tax proposals in the budget despite improved information on tax proposals published in the last two years' Budget Reviews. There is also no ex- post accounting of the effects of new tax proposals, making it difficult for the executive to plan and justify future tax proposals, and difficult for parliament to fulfil its oversight role, both before and after taxes are published.
Since the 1994 democratic election, the legislative framework for fiscal relations, budgeting and financial management has changed in line with the dictates of the pre-election negotiated agreement on the structures and functions of government. Many of these changes have impacted on transparency.
The following analysis gives a brief overview of legislative milestones for transparency, as well as remaining shortcomings of the legislative framework.
The final Constitution (Act 108 of 1996) entrenched a degree of transparency in budgeting and financial management. It did so, however, only in principle. In the two years since the enactment of the Constitution the South African government has passed further national framework legislation that translated these principles into a set of practical arrangements. Of these the recently enacted Public Financial Management Act has been the most significant for all spheres of government. It assigns roles and responsibilities to various actors; it sets out the framework for consistent budget and reporting formats; and beefs up the reporting requirements. The Act also consolidates budgeting and reporting requirements for extra-budgetary public entities. Other significant acts are the Intergovernmental Relations Act that clarifies roles within a framework budget process.
The post 1994-government has continued transparent tax practices in that all taxes are levied in accordance with legislation. It has further tried to clarify roles and responsibilities in the tax system by issuing a tax officials' Code of Conduct and a tax payers' Charter.
Compared to these positive features of the legislative framework for transparency practices, we note these concerns:
This section of the paper/questionnaire dealt with the legal requirements for transparency. Given that key pieces of national legislation have been passed in support of transparency requirements (Public Finance Management Act), while key pieces (amendment powers, provincial taxing powers) are still outstanding, we rate South Africa as medium on the legislative framework for transparency. We note however the relative strength in the area of taxes.
We have established in the Introduction that the transparent management of the public finances means that the electorate can hold specific parts of government accountable when things go wrong. In this way, transparency provides an incentive for individuals in government to govern better.
As the IMF Manual on Transparency points out, in an intergovernmental system clarity on roles and responsibility is not only absolutely essential, but also much more difficult to obtain. In a country with multiple levels of government (such as South Africa) budget transparency requires at a minimum that the roles different levels of government play in budget decisions and their responsibility for budget execution should be clear.
In South Africa sub-national governments are elected separately from national government, but have very little taxing powers. As seen in the previous section, the Constitution assigns expenditure responsibilities per function to either or both of the national and provincial spheres of government. It does so, however, only in principle. In order to reap the better governance benefits of accountability, the practical arrangements for the assignment of roles and responsibilities should leave little doubt as to the location of decision making power and execution responsibility.
As will be explored in this section, the practical arrangements in the South African case fall far short of such transparency. All respondents to the questionnaire agreed that the assignment of expenditure and tax responsibilities between spheres of government is unclear or emerging. This creates room for spheres of government to point fingers at one another when responsibility for over-expenditure or failure to deliver services needs to be located. Two sets of factors contribute to the obscuring of roles.
Firstly, the national and provincial governments in South Africa share the same budget cake. Currently provincial own revenue 9 contributes on average only 5% to total provincial expenditure. Yet provinces spend 55-60% of the consolidated non-interest national budget. If allocative roles and expenditure responsibilities of the different spheres were clear, accountability for public moneys could follow. However, respondents agreed that there are several factors in the way revenue is divided and in the balance between revenue assignment and expenditure responsibility which exacerbate the asymmetry between taxing powers and expenditure responsibility. We briefly consider the following:
Secondly in the joint competences the roles of the spheres of government is not clear. Broadly speaking, national is responsible for policy and for norms and standards, while provincial governments are responsible for delivering the services. One respondent pointed out that historically available capacity determines what happens where, and that this occurs inconsistently across sectors. Education is a good example: in the 1998/99 budget year the national department not only took over the delivery of text books to provinces which were without books (a provincial responsibility), but for a period also entertained the notion that provinces should be allowed to set their own teacher/pupil ratios (a national responsibility). It is hoped that a move towards sectoral policy making in the budget process that includes provincial governments will contribute towards greater transparency on policy goals and how they are to be achieved, given existing constraints.
Despite the above concerns, it would be unfair not to pay attention to efforts to make explicit the expenditure responsibilities of sub- national governments. For example, the Budget Council, an intergovernmental body of national and provincial ministers, now discusses and agrees to the vertical and horizontal divisions of revenue. This should help prevent recommendations going to Cabinet if they are under-funded. The medium expenditure framework (MTEF) enables national and provincial spending departments to plan within spending trajectories, making it more difficult to agree to allocations in the Budget Council, and then to argue cases of underfunding when they are unable to stick to their budgets. The Public Finance Management Amendment Bill further obligates the national sphere to attach to national legislation with provincial budget implications a memorandum assessing the potential cost to provinces. This gives the national legislature (including the provincial chamber where relevant) an opportunity to ratify the provincial implications of national policy decisions. Finally, the exercise by the national sphere of its Section 100 powers 14 in the case of three provinces, has forced these provinces to accept budget constraints and responsibility for delivery within these constraints. Whereas this is an extreme measure, it has had the effect of setting precedents that make explicit provinces' expenditure responsibilities.
Although the Constitution assigns clear taxing and spending powers to the different spheres, in practice there has been a great deal less clarity in the assumption of roles and responsibilities by the spheres of government. In fact, the planning and execution of the first post-election budgets have been mired with disagreements between the spheres on the sufficiency of revenue transfers, efficiency of expenditure and policy/budgetary control. This has made it very difficult for the legislatures, as well as the electorate, to know whom to hold accountable for either budget planning or budget execution.
Whereas new institutional arrangements like the Budget Council, the MTEF budget process and the strict assignment of accountability under the PFMA represent improvements in practice to enforce constitutional roles and responsibilities, fundamental problems remain that allow sub-national spheres to deny budgetary responsibility. These problems are rooted in the lack of provincial taxing powers commensurate with expenditure responsibility and concern the division of revenue process and the effect of national spending mandates on provincial budgets. Confusion on the roles of the spheres in the joint competences further obscures the transparent assignment of accountability for effective policy and efficient spending.
In weighing up these factors and respondents answers to our questionnaire, we rate the South African system as weak on the clarity of subnational roles and responsibilities.
A fundamental requirement of fiscal transparency is that comprehensive, reliable and useful budget information is made available.
This section firstly examines the comprehensiveness of budget documentation as regards
Comprehensiveness of budget documentation15
Since 1994 the national Department of Finance has systematically been expanding the breadth and depth of annual budgetary information. Nowhere is this better illustrated than in column three of the table detailing the availability of budget information as per the transparency questionnaire in Appendix 3. The only requirement that was fulfilled before 1994 was the publication of programme and line item data. All other requirements have been fulfilled through subsequent transparency developments.
These developments are contained in four sets of documents:
Budget Framework numbers
Current Budget Documentation includes most of the required budget framework information. This has been a fairly recent development. One catalyst has been the implementation of Gear, which set up the targets and required fiscal policy to be based on the macro-economic framework and forecasts.
The introduction of medium term budget planning in the 1998/99 budget year expanded the annual agency and programme forecasts of pre-1994 documentation to a three year period. National data is published in the consolidated Estimates of Expenditure, as well as in the Budget Review. On provincial level, Expenditure Estimates and Reviews are provided for each province. The new National Expenditure Survey tabled with this year's budget, added contextual information on a national level for every vote. The Intergovernmental Fiscal Review added sectoral contextual information for provincial expenditure.
A pre-budget statement was issued for the first time in November 1997. The MTBPS spells out government's medium term fiscal policy objectives and priorities. These are repeated and updated in the Budget Review.
Indicators of fiscal stance
The budget documentation for consolidated government contains several indicators of fiscal stance. Tables in Annexure B of the Budget Review include overall balance, current balance, primary balance, public debt indicators and liabilities. The budget documentation does not compare estimated indicators of fiscal stance with the actual outcomes. Comparisons of year on year changes are restricted to publishing the previous year's estimates. However, analysts could monitor these indicators by referring to data published by the Reserve Bank.
As far as indicators of the central government's financial position is concerned, Annexure B of the Budget Review gives overall balance, primary balance and current balance. The budget deficit, however, is presented in the budget and taken up by the press and analysts as the acid test summary indicator of the financial position.
There are some concerns that the schedule of contingent liabilities is defined too narrowly. The national budget excludes provincial overdrafts, university debt, non-departmental organisations, research councils, government agencies and social security and other funds. Table 9 of Annexure B in the Budget Review contains financial guarantees furnished by national government, but does not cover all potential shortfalls that may have to be covered by the budget, such as those incurred by Public Entities or Public Enterprises.
The debt table, Table 8, does not include provincial debt. It also excludes extra-budgetary institutions and social security funds, making it difficult to assess the full liability risk of the consolidated government. The budget documentation contains no information on quasi-fiscalities16 or on tax expenditures 17. It also does not include a statement of financial assets and liabilities, or one of net worth18 .
Fiscal policy and budgeting is based on medium term macro- economic forecasts. These are supported by limited analysis, including some reference to assumptions. The medium term assumptions are updated twice a year, once in the MTBPS and once in the Budget Review. The discussion of the economic outlook in the 1999/2000 Budget Review was much improved in scope and depth over the previous years' analysis.
The assumptions, parameters and models underlying the macro-forecasts are not available for public scrutiny. Government forecasts make use of the Reserve Bank model, as well as models from the Council for Scientific and Industrial Research and the University of Stellenbosch. These are not open to independent assessment.
Further, the interaction between the fiscal framework and the macro- forecasts is based on a set of policy guidelines in the medium term macro-economic strategy document, Gear. Gear was drafted by a panel of economists during a closed process and is based on the same models. Since its announcement Gear has controversial. Its major opponents included the labour movement and prominent pro-poor non-governmental organisations.
Given that the macro-economic growth projections of Gear have not been achieved (see page 35 below), that the drafting process was closed and the models are not open to scrutiny, public reaction to the budget is often still overshadowed by debates on the integrity of the macro- forecasts and the validity of Gear. Greater transparency may have enhanced consensus and could have released scarce capacity and time for debate and scrutiny of allocative or operational issues.
The Constitution requires the national Treasury to introduce uniform expenditure classifications in the interest of transparency, simplicity and comparability. This would entail changes to vote structure across the provincial and national budgets, as well as changes to the way in which expenditure is classified within votes and programmes. A programme, led by the Department of State Expenditure19 , is currently underway to pilot these changes in the 2000/2001 budget.
Currently consolidated expenditure is classified first by vote (which often coincides with an individual administrative agency, but not necessarily), then by programme with line items within programmes. Up till the 1999/2000 Budget programme information was also classified according to capital and current expenditure and according to standard items. The standard items classification is not a system used internationally, nor does it correspond with the economic classification of expenditure used by the Reserve Bank and Statistics South Africa. From the 2000/2001 budget Government intends to move towards a system of economic classification of planned expenditure. This will replace both the current standard items and current/capital expenditure classification. The new system not only simplifies the classification of expenditure, but makes it compatible with international systems. It can furthermore be used to break down expenditure in a way that is almost exactly comparable to the previous classifications, as is demonstrated by the table below.
As government will in future account for expenditures in accordance with the economic classification system and as these will be captured through the classification of account codes in the information systems, it will make the Reserve Bank and Statistics SA data more reliable. In the past these were derived manually from the standard item accounts produced by government.
The transparency questionnaire, as well as the IMF Code, is particularly concerned with the transparency of extra-budgetary institutions. Transparency on the extra-budgetary activities of the state has two results: it makes clear the extent of the role of the state in the economy and secondly, it makes explicit the fiscal implications of such activities.
Transparency on extra-budgetary activities would be conducive to better overall decision making because:
For the sake of simplicity and comprehensiveness, we have consolidated our discussion of transparency on extra-budgetary institutions in South Africa in this section of the paper. The discussion draws on several questions in the questionnaire.
The first two months of 1999 saw two pro-transparency developments in the publishing of information on extra-budgetary institutions, namely the passing of the Public Finance Management Act (PFMA) and the inclusion of more extra-budgetary information in the Budget Review.
The PFMA introduces three changes regarding extra-budgetary activities:
The Public Finance Management Amendment Bill (PFMAB) extends these provisions to provincial public entities. However, whereas the new legislation establishes a central list of EBIs, it does not require consolidated reporting by government on its extra-budgetary activities20 , and secondly, the lists still excludes for example institutions of higher education.
Changes to the 1999/2000 Budget Review represent an effort by central government to consolidate data on EBIs. The Review takes several steps to bring the South African Budget closer to international standards. Tables in this document are constructed to include extra-budgetary institutions (EBIs), and where data is available, donor funds, as well as more information on local governments.
The following table sets out how aggregate figures are put together in the new National Government Accounts table of the 1999/2000 Budget Review. Figures in bold were either not represented or under-presented in previous tables:
This resembles much more closely what is required by the IMF standards and makes it easier to compare South African budgetary data with data from other countries.
On national level the Estimates of Expenditure and the Budget Review distinguishes between budget and extra-budgetary funds. Annexure B of the Budget Review classifies revenues, financing and debt in a way that is compatible with Government Finance Statistics standards of the IMF. Provincial overdrafts are excluded, however. The Budget Review includes a GFS-consistent account of national government including all numbers that fall within the GFS net, but outside the South African national budget. The Budget Review reconciles this table with the national budget classification. It distinguishes between budget and extra-budgetary funds.
Availability of actual spending information
Up till the enactment of the Public Finance Management Act, fiscal reporting to the legislatures took place once a year, and audited financial statements were available two years after the budget had been tabled. Both the frequency and timeliness of fiscal reporting, as it stood, made it difficult for legislatures to fulfil their oversight role.
In accordance with the PFMA audited statements on spending of provincial and national departments, legislatures, constitutional institutions, public entities and enterprises must be presented to the relevant legislatures within seven months after the end of the financial year. This is five months earlier than previously.
A more significant change is the requirement that the national treasury must also publish monthly statements within 30 days after the end of each month on the actual revenue and expenditure per vote from the National Revenue Fund. The PFM Amendment Bill extends these provisions to the provincial treasuries and provincial revenue funds. This means that actual expenditure data will be available year-round. The data is released to the public through a monthly release and is available on the Department of Finance's website.
The Reliability of budget information
The questionnaire tested two indicators of reliability: the incorporation of information on risks to the fiscal position and the reliability of expenditure and revenue estimates.
The budget presentation includes a discursive assessment of risk: it sketches a low and a high economic forecast scenario and indicates factors that could affect those. Further indicators of risk can be found in the contingent liabilities table in the Budget Review.
In testing the expenditure and revenue estimates, we calculated the average absolute deviation of outcome numbers from estimates on four levels:
Medium term macro-economic forecasts
The South African economy has consistently failed to achieve the overall growth rates forecast in Gear and in subsequent budget documentation. The real GDP growth rate forecast for 1996/97 was 3.75%, it turned out to be 3%. The comparative numbers for 1997/98 were 2.5% and 1.5% (Budget Review, 1998:2.2). The 1999/2000 MTBPS published in November last year, already adjusted projections for 1998/99 to 0.2% (MTBPS, 1998: 30), compared with the 3% projected in the Budget Review, 6 months earlier.
Expressed as a ratio with GDP these adjustments are not huge (R734 billion to R656.9 estimated GDP for 1998/99). However, the knock-on effect on the fiscal framework over the medium term is considerable given a programme of deficit reduction. For the 1999/2000 fiscal year it has meant a nearly R3 billion adjustment in the projected deficit, and more importantly, a close to R1 billion adjustment in expenditure. In order to still achieve GEAR targets of a 3% deficit by the year 2002, the 2000/01 fiscal years has absorbed an adjustment in expenditure estimates of approximately R6 billion over the baseline. And that is based on a 2, 3 and 4% projected GDP growth in the base and outer years for the 1999/2000 fiscal framework.
Government, since the introduction of GEAR, has succeeded in delivering an actual deficit within range of its target. This, however, is not attributable to precise revenue or expenditure estimates. Since 1996/97 improved collections on the revenue side have offset over-expenditure. The table below records planned estimates and actual outcomes for the budget framework since 1995/96.
Planned and Actual Revenue, Expenditure and Deficit for the fiscal years 1995/96--1998/99
Source: Budget Review 1997,1998.
If one takes the absolute deviation of actual outcomes from planned estimates (see table below), the average over the four years calculated from the table is 2.8%. In the 1997/98 budget year recorded the biggest deviation (4.2% average absolute deviation over the three estimates). Of the three estimates, the actual deficit deviated the most (6% over the four years21 ) from the planned deficit.
Percentage absolute change from budget framework estimates 1995/96- 1997/98
An average absolute deviation of 2.8% over the four years is not high. The more interesting aspect of the table above is the dramatic improvement from 1997/98 to 1999/2000. The relative stability of the budget framework numbers also masks the greater fluctuations that can occur on the vote and programme level of estimates.
Expenditure between votes on a national level
Trends for the four years are as follows.
Amounts overspent and underspent on planned national expenditure 1995/96--1998/99
The votes ranking are as follows:
Average absolute deviation from planned expenditure per national vote over the fiscal years 1995/96- 1998/99.
(Source: Budget Review 1999, Estimates of Expenditure 1995/96; 1996/97)
Although the average absolute deviation from planned expenditure over the four years (17%) is not inconsiderable, the trend is encouraging. For the 1998/99 fiscal year on average spending in particular departments differed by only 9% from the budget estimates. It would therefore seem that whereas budget estimates were wrong by as much as 43% in the past (1996/97), they may have become more reliable.
Expenditure within programmes
Furthermore actual spending between types of expenditure within programmes, and between programmes within a vote can differ substantially from budgeted expenditure. The differentials, moreover, can vary considerably by province. For example, note the difference in budgeted and revised personnel expenditure in provincial health and education spending in 1997/98 in the table below.
Budgeted and revised provincial health & education personnel expenditure for 1997/98
(Source: Provincial Estimates of Expenditure, 1997/98; 1999/98)
However, if one looks at the next fiscal year 1998/99, a marked improvement can be seen. This can mostly be ascribed to tighter control over expenditure.
Budgeted and revised provincial health & education personnel expenditure for 1998/9922
(Source: Provincial Estimates of Expenditure 1999/2000)
The Usefulness of Budget Information
The public availability of information is of little benefit if it is not released in a format that can be understood and assessed. The questionnaire establishes three indicators of the usefulness of budget information.
On a national level a clear statement on the accounting basis and policies adopted in the budgets and accounts of government is made in Annexure D of the Budget Review. The same policies apply to the provincial budgets (as per the Public Finance Management Act), but are not consistently stated in the provincial documentation.
Policy and budget analysts today have immediate access to much more supporting budget information than in 1994. A milestone is the inclusion of a national Expenditure Review in the budget documentation for the 1999/2000 budget. This document reports on the objectives, funding and activities of spending departments on a programme level for the national government. The Intergovernmental Fiscal Review (published in September 1999) offered similar information on a sectoral level for provincial expenditure. It also provided the first access to comprehensive actual provincial expenditure data in some areas. Some provinces, like the Western Cape, publish an extensive supporting memorandum that fulfills some of the functions of the Expenditure Review on a vote level, but this is not done consistently across the provinces. The absence of information on the objectives and activities of programmes, continues to present a problem.
In assessing South African Budget Documentation for usefulness, it would be unfair not to pay brief attention to the transparency goals that government has set itself. Recent documentation 23 applicable both to national and provincial government requires annual reporting on departmental and programme objectives, planned activities and outputs. The annual report should also include the result of a clients' needs survey conducted earlier in the year. Furthermore, as part of the medium term expenditure planning for every programme, performance indicators must be drafted. These will be consolidated in the provincial and national medium term expenditure frameworks.
In order to be useful budget data should be comparable across years, spheres of government, votes, programmes and between planned and actual expenditure. In researching this paper, the following shortcomings were noted:
Changes in the structure of government, as well as budget reform measures, have resulted in far-reaching improvements in the budget information available to legislatures and civil society. Let us consider the milestones:
Compared to these milestones, the concerns we'd like to raise from this section include the role of government in the economy and the paucity of information management capacity.
Even though the concerns above are important, the improvements in the availability, reliability and usefulness of budget information since 1994 merit a rating of medium in this section.
Independent Checks and Balances of Budget Execution and Government Data
A critical requirement of fiscal transparency in the context of democracy is the opportunity for legislatures and civil society to assess whether government undertook what it planned in the budget. The survey is therefore concerned with the integrity of actual expenditure data, as well as with internal checks on consistent budget budget execution.
The questionnaire tested the following aspects:
Independence of the national auditing and statistics offices
National statistics are collected and collated by an independent institution, Statistics South Africa. Economic outcome data, as well as the data on the national government accounts, are reliable.
The Constitution guarantees the independence of the Office of the Auditor General. Provincial Auditor Generals fulfil the functions of the national body for provincial governments, but report to the Auditor General. In practice the funding mechanism in place for the Auditor General enforces independence. The office of the Auditor General does not draw its funds from a budget vote, as in other countries. Rather it operates by invoicing departments on a time basis. Departments are required to budget for their audits, as do companies in the private sector. The Auditor General issues warnings to departments during audit, should this budget be breached. This has the further effect of setting up an incentive for departments to account accurately for expenditures, minimising potential audit problems and therefore their audit cost.
Currently, the Auditor General's mandate has been extended to not only monitoring and reporting on the accounting for funds used, but also to the efficiency and effectiveness with which they have been used, as well as adherence to prescribed rules and procedures, for example procurement procedures.
Officials in Office of the Auditor General (AG) expressed concern as regards government information and accounting systems. Staff of the AG pointed out that previous attempts to universally reform the system and institute consistent information systems have failed because of the lack of political will in seeing it through, and because the systems redesign did not take adequate account of users' needs. As it is the users who determine the quality of information going into the system, their buy-in is crucial to ensuring that quality information is produced within it. It was feared that in the current redesign the same fundamental errors are being made.
The AG also pointed out that whereas his office has a mandate to audit the activities of public institutions, they have no exclusive mandate to audit extra budgetary institutions. These are mostly audited by private sector auditing firms, whose auditing scope are notably more limited than that of a public auditor who also has to report on the efficiency of expenditure and procedural compliance with prescribed norms and standards. One example of the potential danger of such arrangements is the Mpumalanga Parks Board deal with the Dolphin Consortium. Although the Board's auditors gave the deal a clean bill of health, the AG decided to obtain a special mandate from Parliament to investigate the deal, a procedure which unearthed several irregularities.
The Auditor General expressed some disappointment at the lack of follow-up on his recommendations. It was felt that both the legislatures and the executive often wait until abuse of systems have resulted in fraud and corruption before taking heed of warnings on weak adherence to for example the procurement procedures or financial reporting requirements.
The current regulations around procurement sets up a net of tender boards, provincial and national, and a procedure for inviting and evaluating tenders.
Respondents to the questionnaire recognised that
The Constitution calls for national legislation to ensure fair, equitable and cost-effective procurement systems across the public sector. It does not, however, say which agency should take responsibility. Given the complexity and inflexibility of the current rules and regulations, the Department of Public Service and Administration has expressed its intention to draw up new regulations that will simplify the system. Some provinces have in the meantime proceeded to draft their own regulations. On the other hand, the PFMA makes it the responsibility of agency accounting officers and accounting authorities to ensure that a fair, equitable and cost- effective system is in place and tasks the National Treasury with drawing up a framework within which systems can operate. It is expected that a Draft Procurement Bill will clear up some of the uncertainties around the regulations.
Whereas the procedures are clear, respondents have noted some caution about the generic terms in which the rules are stated: almost anything can be termed expenditure of an "exceptional nature".
Early warning systems
At a provincial level, provinces have instituted different systems to control over-expenditure. The measures range from ceilings on certain types of expenditure, to regular provision of cash flow statements and projections; regular review meetings; treasury approval for all spending commitments and even a virtual banking system in the case of Gauteng. Many of these measures were only implemented in the past two years and their effectiveness remains untested.
These early warning systems are however expected to be supported by a Public Finance Management Act requirement that spending departments submit monthly actual expenditure reports to Treasuries.
The recent bail-out of the Free State -- under Section 100 of the Constitution -- by the National Department of Finance emphasised the need for reports to the legislature to prevent crises. The system of The Department of State Expenditure is largely untested: continuing expenditure overruns within provincial departments have raised doubts as to its effectiveness. For example, the Eastern Cape Health Department failed to pay salaries at the end January 1999 due to lack of funds (Business Day, 26 January 1999). More recently the Department of Agriculture and Land Affairs in the same province, have effectively ceased operating, calling in staff to avoid stay and travel costs and closing order books, also due to severe budget shortfalls for the remainder of the year (Business Day, 9 November 1999): with an effective early warning system this should not occur.
In assessing South Africa in this section, we have noted the following milestones:
Based on the strong independence of data collection and auditing agencies and the clear provisions of the Public Finance Management Act, the authors rate South Africa as strong on the integrity of execution data. On the other hand poor procurement control is noted as a serious concern.
This section tests the extent to which the legislature and civil society are able to effectively participate in the drafting and legislative stages of the budget process. By effective participation we refer to the opportunities to make viewpoints known to appropriate people and have these views taken seriously, especially if they justifiably require a change in policy or budget.
The following aspects of participation were tested:
Availability of information during the drafting process
The budget drafting process is relatively closed in most countries of the world and South Africa is no exception. Until 1997, no information was available to the public prior to the public presentation of the forthcoming budget. In this context, the Medium Term Budget Policy Statement (MTBPS), which was released at the end of October 1999 for the third year, represents a substantial improvement. The 1999 Statement was also debated for the first time in parliament, after a process of committee debate and hearings.
In August 1999 the Minister of Finance announced the further intention of the executive to present the national medium term expenditure estimates to the national parliament with the MTBPS. Such a step will effectively grant the legislature insiht, during the drafting stage, into national spending proposals for the coming fiscal year. This will enable the legislature to consider these proposals, hold hearings and submit its reaction for inclusion into the final proposals, which will then be tabled as normal on budget day.
The National Treasury is of the opinion that the information released in the MTBPS represents an optimal degree of transparency during the drafting stage. Members of the Treasury argued that parliamentary and civil society scrutiny is a vital part of budget decision making, but it should not mean that the government has to formulate the budget in public. They argued that three-year expenditure estimates offer parliament and civil society sufficient time to influence the budgeting decisions of subsequent years. A concern was expressed that the premature release of insufficiently formulated allocative options, is more likely to lead to poor decision making than to better decision making.
The MTBPS does indeed contain very useful information, previously unobtainable prior to the budget presentation (and in many cases not provided at all). The MTBPS contains information on the medium term economic outlook and the fiscal framework. On the inter-governmental front, the MTBPS announces the inter-sphere and inter-provincial allocations for the budget (vertical and horizontal split), and considers in detail the effect of the horizontal share formula. On expenditure the MTBPS carries a consideration of the functional and economic classification of expected expenditure, ie the share of health, education, security, etc spending in the total consolidated budget and the expected split between capital and current spending. Our assessment is that the MTBPS enables a thorough and timely evaluation of macro-economic policy, assumptions and performance. This may offer a space to influence macro-economic policy for years two and three in the MTEF.
There are however, several qualifications to note on the usefulness of the MTBPS:
In sum, the MTBPS is a considerable improvement in budget transparency. It is unfortunate that additional departmental and programme information is not available and that provincial treasuries do not publish similar statements. A release of this information would not require Treasuries to prematurely release policy decisions since many of the allocative decisions have been made. It will however contribute immensely to the quality of budget debate; detailed engagement is important to focus the nation's energies on timely research and debate on intra-department allocations. (As a Member of the National Assembly Finance Committee argued the need to interact with the budget numbers before Budget day is critical because of limited time and legislative capacity to assess the numbers before the Budget is passed.) One consequence of the time squeeze around the budget presentation is that civil society is more likely to focus on broad discussions of the size of the envelope rather than detailed consideration of better ways to spend existing resources.
In terms of the Constitution, legislatures have strong powers to call witnesses and experts, including any member of the Executive and to hold public hearings. Some commentators have argued that the nature of the South African democracy suggests that committees may end up rather weak custodians of oversight given, in particular, the large ruling party majority and the proportional party list system which maintains party discipline.
Certainly, the committee system has not always proved strong to date. Nevertheless, in the context of the budget process and related committees, it does seem that where committees have been willing to push their powers, they have been increasingly and effectively used to investigate financial issues, such as the Sarafina saga, the Sitole case and the Child Maintenance Grant 26 . Where these powers have been tested, the legislatures' right of access to civil servants and demands for accountability or policy shifts have often been upheld.
Enhanced effectiveness in the national Finance and Public Accounts committee's participation in the budget process can be measured through increasing quantity of hearings, greater depth of certain hearings and increased participation in hearings. These strengths have been particularly evident during the recent negotiation process over the Public Finance Management Act and the consideration of upcoming money bill amendment procedure legislation. Increased participation is uneven but visible in several of the Provinces (especially Gauteng, Free State, KwaZulu-Natal, Western Cape). Several provincial finance committees have found mechanisms within current constraints to enhance effectiveness such as securing accurate monthly actual expenditure reports and significant improvements in departmental information on budget implementation. A couple of provincial legislatures have also been at the forefront of uncovering mis-expenditure and overspending (KwaZulu-Natal and Mpumalanga). In general, the National Finance Committee has established expertise in some system and macro-economic issues, while several of the provincial legislatures have established expertise in tracking budget execution.
Opportunities for participation
Time: The Budget is tabled in the National Assembly on the second Wednesday in March (1999 being an exception due to the elections). Following the presentation in the National Assembly, the budget is referred to Portfolio Committees on Finance that has a minimal seven days to undertake public hearings and to table its report to the House. The budget is then referred to each of the sector Portfolio Committees that have the option to hold public hearings and table a report. In the National Council of Provinces (NCOP), committee involvement is optional. The lack of time for research and analysis on a document that has taken 18months to prepare is a serious obstacle to transparency and a legislative oversight.
Over and above the insufficient time allocated to research and committee discussion, the time allocated to parliamentary debate is skewed towards deliberations in the House as opposed to detailed committee investigation. Finance Committee debate comprises less than one-tenth of the four months allocated to the entire legislative budget debate in the deciding House. Given the poor weighting to committee deliberations currently in South Africa, most of the process is consumed by general debate on the floor of the House, often unrelated to the budget.
One of the solutions currently under discussion is shifting the presentation of the budget to November or January to allow for sufficient analysis prior to parliamentary hearings and the beginning of the financial year. This process change should be observed simultaneously in the national and provincial legislatures to enable accurate consolidated accounts. Currently the budget is tabled two months before the start of the fiscal year. By the time it is passed, the fiscal year has already started.
As far as budget execution is concerned, the time lapse between the tabling of audited accounts and the end of the fiscal year, makes it difficult for parliament to relate audit results to the current spending environment. This contributes to a lack of effective oversight over budget execution. The format of actual spending information and audit reports should also facilitate reconciliation with budget plans, to enable parliament to hold the executive to account.
Amendment powers: Neither the National nor Provincial Legislatures have the power to amend the budget. Although the Constitution grants legislatures the right to amendment, enabling legislation has not yet been agreed on. In theory, a committee can recommend that the entire budget (or specific votes) be rejected in total and this could lead to a motion of no-confidence or force the Executive back to the drawing board. In practice, however, this is unlikely to happen for several reasons, including the large ruling party majority in the National Assembly. Parliamentary officials recall only one instance in the past when part of the budget was rejected. This occurred when one of the Houses of the tri-cameral system rejected Chris Heunis' Constitutional Affairs vote. Nevertheless, the President's Council subsequently overrode the decision. On a provincial level the Mpumlanaga legislature rejected the education vote, which was amended and finally passed close the end of the fiscal year. Legislation on amendment powers was tabled in the national Finance Committee in late 1997, but was immediately withdrawn and referred to a Finance Committee / Department of Finance working group that has yet to resolve the issue. While the early availability of inter-departmental allocations may give the legislature more influence in the budget, it should not be traded for amendment powers. Amendment powers, oorrectly designed to take account of the need for parliament to hold the executive to account for the effectiveness of spending, are still required to give weight to the parliamentary recommendations during the drafting stage. In the absence of amendment powers, these, as well as recommendations on the outer years of the MTEF, may be ignored too easily by the executive.
In summary, despite the increased impact of the National Finance Portfolio Committee and several provincial Finance Committees, the effective involvement of legislators in the budget process remains strongly curtailed by existing institutional and process arrangements.
Civil society participation
Outside of actual budget deliberations, civil society involvement in finance related legislation is poor27 . Exceptions are the strong involvement in the Jubilee 2000 campaign that advocates the scrapping of apartheid-related debt and the Child Maintenance Grant campaign that advocated for an increase in the amount per child. Both of these are closely related to poverty. Many sectors of civil society have also been involved in campaigning against the implementation of Gear.
At the national level, the greater breadth of input still reflects primarily better resourced non-governmental organisations. The input of community groups and Chapter 9 monitoring institutions is still very limited. Throughout the provinces participation of civil society in budget debates remains low - in fact it is non-existent in most provinces.
It is important to note the reason for the lack of solid data on which to base this judgement. Neither the national nor provincial legislatures maintain a database on civil society participation, despite commitment in each legislature to a public participation policy. Some data is becoming available through the work of the Parliamentary Monitoring Group whose monitors minute committee procedures. However data on the incidence of civil society input is not captured independently of committee reports, making it difficult to ascertain the extent, quality and impact of such inputs without mining the whole database.
The absolute and relative participation of civil society does not yet do justice to the size and potential contribution of the sector to public policy formulation and poverty alleviation. Despite strong improvement from a low base, civil society participation has not yet reached a critical mass that can stimulate consistent and broad involvement. There are several reasons for this:
Since 1994 the relationship between the legislature, the executive and civil society has been transforming according to the dictates of the Constitution and the end of the struggle against apartheid. Milestones for increased participation in this process have been:
Several obstacles however still remain.
A closed budget drafting process and lack of legislature amendment powers severely restrict legislature and civil society participation in the budget process. Whereas some legislatures have carved a space for themselves in monitoring the implementation of the budget, they are also largely unable to effectively scrutinise budget plans before passing the budget. In turn this restricts civil society input into the budget. We rate South Africa as weak on participation in the budget process.
South Africa is lifting the shroud of secrecy that obscured public finances in the apartheid years. In some areas such as the availability of information progress has been remarkable. In other areas such as the roles and responsibilities and the availability of sub-national data, practice still needs to catch up with the in- principle requirements of existing legislation. In still some other areas such as the rules for budget execution and the coverage of contingent liabilities and extra-budgetary institutions, the provision made is insufficient to be effective in fulfilling the objectives of transparency. While the degree of progress is certainly laudable, it should therefore not cause complacency on the issue of transparency.
In summary the following table provides an overview of areas tested, criteria used and scores as presented in Section 1 to 5 of the South African report.
Many of the shortcomings mentioned in the above table, are covered by planned budget reform measures. These are:
It bears noting that planned budget reform measures are, at this stage, just that: plans. It is not assured that they will be adopted in the near future. But, as this report underscores, it is important that these plans are enacted if the South Africa budget process is to be strengthened. The details of the plans are, of course, also critical, and will determine in substantial part how much further down the road of transparency and participation South Africa will go. For instance, the details of the still to be drafted money bill amendment powers legislation will determine the effectiveness of the legislatures' scrutiny and oversight functions. Should the legislation grant parliament weak powers only -- ie the ability to move funds between votes or within votes but locate these powers in the main house with only little time to review the budget -- the effectiveness of legislature and civil society participation in the budget will be dealt a severe blow. However, too strong powers will compromise the ability of the legislature to hold the executive to account for implementation. On the other hand, the way in which structures in support of parliament's amendment powers are set up, may exclude civil society from the process, strengthening parliament's hand, but weakening civil society. A strong internal research section may lock budget discussions within government (referring to both legislature and executive) and exclude civil society, who currently fulfils an advisory role to committees through submissions.
Future research will track the exact design of these budget reform measures, as well as the implementation of future and currently new transparency provisions. In addition, arising from the findings of this research, the authors would like to highlight the following
Our concern in this paper was neither with transparency nor with participation alone, but with the relationship between transparency and participation in bringing about better government 29. It is in this arena that the South African country survey has started to crystalise principles that may be applicable to other countries. And it is to these principles, implicit in much of what is written above, that we want to turn in conclusion.
Firstly: Transparency is a prerequisite for effective participation. Pre-1994 the existence of a budget information service would have been close to completely ineffective: government decisions and their budgetary implications were not part of the public arena. After 1994 the provisions of the Constitution and the availability of more information and access to civil servants enabled the legislatures and civil society to begin to explore budget work and financial oversight.
Secondly, transparency will not automatically lead to increased or effective participation. The improvements in the availability of budget information in South Africa has not been followed by a proportionate increase in the effective participation of legislatures and civil society. This is because of strong institutional and legislative obstacles, including the availability of access points for debate in the budget process, the timing of the budget, and civil society and legislature capacity. It would be interesting to see if the weight of these factors in the South African situation are replicated in the results of other country surveys.
Thirdly, significant improvements in participation can occur in the absence of formal information releases. In South Africa both civil society and the legislatures were able to significantly improve participation through creative information seeking.
The openness of government decision making, the availability of budget and outcome data and the effective engagement of government's constituencies in budget debates are inseparable. The release of better information by the executive branch, will not mean much unless coupled by efforts in the legislature and civil society to use it. Similarly, it is difficult for the executive to establish accurately what information and institutional provisions are most needed without a dialogue with legislatures and civil society. Only through this dialogue will we be able to push for greater information and more intervention opportunities. Only through a vibrant budget debate thus enabled, will we realise the potential benefits of transparency. In the final analysis it is only through partnering one another towards more transparency and better participation that government, the legislatures and civil society can reap the benefits of open government.
Although we did not include members of the media on the panel, in retrospect we probably should have. It is crucial that the budget information is available to the media and media panelists would have a good sense of the ease of finding information, as well as of the usefulness of available information for audiences without technical or budget expertise.
The South African Constitution specifically refers to different "spheres" of government in order to imply a non-hierarchical and inter-dependent relationship between national, provincial and local government. The creation of separately elected provincial governments after the 1994 election was the result of the agreement negotiated before the election that set up the Interim Constitution.
The drafting of a Budget Reform White Paper was first raised in 1996 at a Budget Reform Conference organised by the Department of State Expenditure. The project has since moved to the Department of Finance. It is expected that the White Paper will provide a policy framework for overall public expenditure management. This policy document is now expected this year as stated by Finance Minister Trevor Manuel in the 1999/2000 Budget Speech.
Consisting of the Minister of Finance, the MECs for Finance, 5 representatives of the national local government organisation, and one member of each provincial local government organisation recognised in terms of the Organised Local Government Act, 1997.
Provincial own revenue refers to revenues that provinces collect for deposit into their own revenue accounts and over which they therefore have control. Examples are license fees, gambling taxes and the income of provincial toll roads. Currently these account for only 5% of provincial revenue.
The change in formula and subsequent variations on the Department of Finance formula has also meant that the principles behind the assignment of revenue to provinces has not been stable, rendering it in itself less than transparent.
An example of an unfunded mandate is the obligation under national legislation to pay out social security grants to all eligible recipients. Provinces have to find the money for these within their equitable share, ie the grants are not funded on a case by case basis from the national level. In the case of the Northern Cape, for example, where take-up rates have been historically high, social security payments make up a disproportionate spending obligation for the provincial government. Another national spending obligation is public service wages. These, on a national and provincial level, are determined through negotiations nationally. As the national sphere has not yet provided any retrenchment tools with which to rightsize the personnel component of programmes, provinces do not have the option to pay less people the higher wages. In effect the size of the salary bill becomes another spending mandate from national government, making provinces even less accountable for overspending and for delivering on their mandates.
Section 100 of the Constitution grants the national government the right to intervene or take over a provincial government in the national interest. The Minister of Finance has used these powers to grant three provincial governments bail-outs conditional on a revamp of budgets and hard future budget constraints.
The questionnaire specifies a list of transparency requirements for budget documentation. Appendices I and III table our response to these requirements. Appendix III lists the location and frequency of publication of data under each requirement. The main text of this section is restricted to demonstrating a trend towards greater transparency, followed by a discussion on issues surrounding the publication of budget data.
Quasi-fiscalities would result from government activities or regulations that have indirect fiscal implications, either on the tax or revenue side. An example would be the directed lending by banks for public services provided by non-financial public enterprises through the cross-subsidisation from their commercial activities.
A strong argument can be made that focus on the deficit as an indicator of fiscal position can be misleading, especially in cases where governments sell off assets in order to reduce the deficit. Net worth, which includes assets and liabilities as variables, increases provides a longer term focus to assessments of fiscal position.
The 1998 Budget Review included a table which give the consolidated revenue, expenditure and deficit/surplus for extra-budgetary institutions. This table was omitted in the 1999 Budget Review. This is an instance of information that is volunteered - i.e. not required by law or regulation -- one year and then not published subsequently.
The deficit in 1995/96 was approximately 8% lower than estimated in the budget, while the 1997/98 deficit was approximately 9% more than the estimated deficit. Both these years were followed by a deficit within 3% of the estimate.
The 1996 wage agreements not only set up large increases for a three year period, but in some sectors also included agreements on simplifying wage structures which on average moved personnel into higher salary brackets. There was no data available to predict the impact of these decisions. Other policy decisions with severe spending implications included the move to free health care for pregnant women and children. This led to increased expenditure, as well as reduced own revenue as previously user-charges were levied.
In each of these cases the relevant national parliament committee intervened either to hold the executive to account for expenditure decisions (Sarafina and the Sitole case) or to change the provisions of draft legislation with a budgetary impact (the Child Maintenance grant).
It is worth pointing out that at a local government level budgeting systems, transparency and participation differ from local authority to local authority. Some authorities have participatory budgeting processes that allow for high levels of community involvement. Others have closed processes with low levels of involvement and transparency. In many cases community-based organisations have taken up the challenge of participation, campaigning for certain outcomes from the budgetary process, such as streetlights or civil amenities. This kind of budgetary participation by civil society is not included in our assessment, because the research focused on the consolidated national budget, of which only R1 billion (or less than 1%) is transferred to the local government level.
Whereas industrial interest groups could still access the Constitutional Court should they want to present a case that policy and its budgetary implications are unconstitutional, the high cost of this route is closed to the non-profit public interest organisations and their constituencies.
It is interesting to note that these conclusions may apply to transparency within the executive in the interest of better policy making and internal controls, as much as it does to transparency to the outside.
Abedian, I, Ajam T. & Walker, L. 1996. Promises, Plans and Priorities: The emerging system of intergovernmental fiscal relations in South Africa. Idasa, Cape Town.
Afrec, 1999, Submission on the 1999 MTBPS to the Portfolio Committee on Finance, Cape Town.
Business Day, 1999: News in Brief, BDFM Publishers, Johannesburg. Business Day, 1999: Eastern Cape Department shuts down, BDFM Publishers, Johannesburg.
Department of Finance, 1996, 1997, 1998, 1999 Budget Review, Government Printer, Cape Town.
Department of Finance, 1997, 1998, 1999 The Medium Term Expenditure Statement, Government Printer, Cape Town
Department of Finance, 1999, National Expenditure Survey, Government Printer, Cape Town.
Department of Finance, 1999, Intergovernmental Fiscal Review, Government Printer, Cape Town.
Department of Public Service and Administration, 1999. Public Service Regulations, Pretoria.
Krafchik, W & Wehrner, J, 1989, The Role of Parliament in the Budget, Idasa, Cape Town.
IMF, 1998, Code of Good Practices on Fiscal Transparency; Manual on Fiscal Transparency ; www.imf.org/external/np/fad/trans/site.htm
Interviews: Abedian, I & others; Barder, O; Cluver,H & others; Du Plessis N & others; Gouws, R; Ketley, R; Roux, A, Lieberman E, Simkins C, Andrew, K. Written responses: Wren, A; Wehrner, J.
Office of the Auditor General, 1998. General Report of the Auditor General on the Accounts of the National Government for 1996-97,
Government Printer, Pretoria. Presidential Review Commission, 1997. Report on the Budget Process, Government Printer, Pretoria
South Africa, 1996. The South African Constitution, Government Printer, Pretoria.
South Africa, 1994. Public Service Act, Government Printer, Pretoria
South Africa, 1997. Intergovernmental Fiscal Relations Act, Government Printer, Pretoria
South Africa 1997. The FFC Act, Government Printer, Pretoria
South Africa 1999, The Public Finance Management Act, Government Printer, Pretoria
South Africa 1999, The Public Finance Management Act Amendment Act, Government Printer, Pretoria.
Working Group on Transparency and Accountability, 1998: Report of the Working Group on Transparency and Accountability, Washington.