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Note: The "Idiot's Guide," which follows, is a slightly abridged version of a report by the Institute for Democracy in South Africa. It was referenced in Chapter 3 of the main text and was written with the goal of assisting NGOs and researchers in South Africa in preparing budget analyses of their provincial budget. The guide might also be of use to you, as you think of what resources you can draw on, and what questions you might want to ask, in preparing budget analyses at the provincial (state) level, or at the national or local levels.
1. Introduction
Until recently, the provinces of South Africa were only spending agencies for the national government, disbursing funds according to the policies and priorities determined at the national level. Provinces could not set their own priorities, nor did they have much fiscal accountability - problems could always be blamed on the national government.
The budgetary arrangements for the 1997/98 fiscal year have for the first time permitted the provinces to determine their own provincial budgets according to their own social and economic priorities, within the national framework. Provincial budgets will increasingly embody the provincial governments' responses to regional challenges and opportunities for development within the nine provinces.
Provincial budgets detail the revenue that the province anticipates receiving within a financial year, as well as its plan for spending these funds. Provincial budgets vary in size, with the biggest budget (Kwa-Zulu Natal) being nearly seven times larger than the smallest (Northern Cape).
2. General Comments
Unfortunately, it will never be possible to compile a complete manual with a well-defined set of instructions, which - if followed - will result in a useful fiscal analysis. The principle reason for this is that budgets cannot be analyzed in isolation of policy. One of the key questions one asks is - to what extent does the budget, and the resource allocation it describes, reflect policy decisions taken by the province, department or country as a whole? A budget is merely a planning tool; whether it is "good" or "bad" depends on whether it manages to allocate public resources in a way that supports the activities which will ultimately impact on the spending agencies' policy priorities.
Ideally budgets should be policy-driven and embody the policy priorities of the spending agency. Analysis should attempt to assess whether the allocation of resources implicit in the budget (financial, human resources, etc.) does reflect and promote stated policy objectives.
Furthermore, the budget is just planned expenditure. The prime focus of attention, however, is generally how the budget impacts on a particular sector. The questions of how the budget is actually implemented and the efficacy of delivery become vitally important. Because the links between policy, the budget and its delivery - as well as the link between the ultimate beneficiaries - tend to be very different in each of the various sectors, it precludes a mechanistic approach to analysis.
Budgeting used to have essentially an annual focus. But a one-year planning horizon is extremely inefficient given that the provision of public goods and services is an ongoing operation. Introducing a program in one year will have implications for spending in subsequent years (for example, building a new school will require financing for maintenance and teacher salaries in the following years). Also capital expenditure (such as investment in public infrastructure) will often span several years and will have budgetary implications for the whole of that period. Because of these deficiencies, there is a move to multi-year planning. The Gauteng province has already initiated a three year rolling plan and the other provinces are expected to follow suit. So various budgets will have to be analyzed in the context of longer, medium term planning cycles.
What this rough guide is attempting to do, is to raise very elementary questions about factors which may have bearing on a particular spending agency's budget.
3. Where to Find Data
The primary sources of data are:
The best possible outcome would be to obtain actual spending in various departments and then compare this to what was budgeted. In this way systematic overspending or underspending may be detected. Then it is a matter of figuring out which pressures influenced this outcome; for example, are unspent funds symptomatic of a capacity bottleneck or mainly due to poor financial management? Unfortunately, actual figures are hard to come by.
Probably the easiest way to go about analysis is to consider first where the province derives its funds and second, how these funds are disbursed.
4. The Revenue Side
A logical point of departure is to examine the sources of provincial funding and any shifts which may have occurred over time.
5. Intergovernmental Grants
Transfers from government are in the form of intergovernmental grants which are allocated by means of the revenue sharing formula. Provinces and local governments are entitled to an equitable share of national revenue to perform their constitutionally assigned functions, and their share cannot be offset against other revenues raised by them.
For all the provinces, transfers from national government are the largest form of income, roughly about 95% of all income received. It is difficult to formulate an opinion on an allocation to the province without looking at the position of other provinces.
This information would be contained in the Budget Review:
6. Own Revenues
The extent to which provinces have effective latitude to pursue regionally differentiated economic policies clearly is heavily influenced by their capacity to raise funds independently of central government. This is likely to be a key challenge for provinces for some time to come.
A good place to start is:
7. The Expenditure Side
There are several similarities in spending patterns across the provinces. Health, education and welfare account for about three quarters of provincial spending. About half of provincial budgets covers the wage bill. The single largest item is education, comprising 35% to 40% of provincial spending. This allocation covers primary and secondary education, special education, teacher training and technical colleges. Payment for teachers is the largest item in the education budget, with 80% of education funds being devoted to personnel costs.
Comparing Gauteng's and Northern province's health allocation reveals substantial variation. For provinces like the Northern Province without academic health facilities, the health budget generally constitutes 15% to 20% of the total budget. But for provinces with academic health facilities like Gauteng and the Western Cape, the health allocation is substantially larger - about one third of the Gauteng budget. Health is also a personnel intensive function, with nearly half of health spending covering the cost of employing doctors, nurses and other health workers. Welfare makes up about 15% to 20% of provincial spending. Because social pensions and welfare assistance are mainly transfer payments to individuals, personnel costs are relatively small.
A pivotal question is whether there has been a significant realignment of expenditure patterns in line with new policy and away from the maldistribution of the past. Reprioritisation of funds between sectors is important. Possibly even more crucial is reprioritisation within particular sectors. For example, new health policy generally envisages that increased emphasis be placed on primary health care provision rather than academic hospital complexes. The question is then whether the allocation of resources promotes these changing policy aims. This, ideally, then has to be related to the overall performance of the spending agency in achieving its stated goals.
Currently the entire fiscal system is in a state of flux. The following factors make it extremely difficult to compare budget allocations directly across years during this transitional period:
8. Analysis of the Budget by Program
The overall provincial budget will contain several programmes associated with each departmental budget. The departmental budget (e.g. for health, education, welfare) is further divided into subprogrammes.
In scrutinizing a departmental budget, it is useful to ascertain:
The same kind of questions can be applied to each of the sub-programmes which comprise the provincial budget.
9. Analysis of the Budget by Standard Item
Besides looking at a programmatic breakdown of departmental spending, it is also important to consider a breakdown of expenditure according to standard item. This shows expenditure across programmes on goods and services required to achieve stated objectives. The standard items include:
One could, in theory, identify what the most important cost-drivers within a particular department or program are. Unfortunately, these terms for these standard items are often vague and uninformative - and what precisely they cover would differ from department to department. For example, in the education budget "stores and livestock" would include textbooks. In the health department it would include medicines.
10. Analysis by Economic Category
- Current transfers - include grants-in-aid, financial contributions, financial assistance, pensions and social grants.
- Capital transfers - include all loans, purchase of shares and ordinary capital transfers. The criterion for designating a capital transfer is the use to which the beneficiary puts the money - if they use the transfer to acquire capital or undertake capital projects or redeem capital debts it will be deemed to be a capital transfer.
11. Process Issues