Government Adjusts the Budget: Why it Matters for Service Delivery

| Carlene van der Westhuizen and Thokozile Madonko
Minister of Finance, Nhlanhla Musa Nene. Photo from Treasury website.

The Adjustment Budget got very little coverage last week, but it is vital to understand it, explain Carlene van der Westhuizen and Thokozile Madonko.

Most of the attention last week was on Finance Minister Nhlanhla Nene’s inaugural Medium Term Budget Policy Statement, also known as the Mini-Budget, which lays out tax and spending priorities for the next three years.

But there is another set of documents the Minister tabled that gets much less attention, the Adjusted Budget, which has implications for money that the government is spending right now.

A Citizens’ Adjusted budget prepared by the Budget and Expenditure Monitoring Forum (BEMF) and the International Budget Partnership (IBP) summarises the most important implications of this technical, but important document.

The Adjusted budget shows how government plans to change the spending plans presented in the National Budget tabled before Parliament and the public in February for implementation from 1 April. Circumstances change during the year and it is critical that government has the flexibility to respond to any changes over the last six months. Such changes can range from severe flood damage to higher than expected inflation which means that government departments have to pay more for goods and services than planned.

The Adjusted budget enables the government to adjust their spending and performance targets for the second half of the financial year. Unused funds, including the money from the unallocated reserves and money which departments think that they are not going to spend, are also reallocated or removed through the Adjusted Budget. Since the Adjusted Budget changes the amount of money departments or programmes receive, it is important to ask whether these changes in departments’ budgets could affect their ability to provide goods and services to the public. One could also question whether certain changes have been the best way to reallocate funds. The Citizens’ Adjusted budget helps ordinary people to engage in these questions.

Not using the rainy day fund this year

As a result of the economic slowdown this year, government will receive about R6 billion less in taxes than initially planned. In response to this, government has decided not to grow the budget but instead to curb spending and not supplement the 2014/15 budget by drawing on the R3 billion unallocated reserves. The result is that, unlike any other year since 1994, government will not use the money from its unallocated reserves (essentially a rainy day fund) to fund any departments or programmes in 2014/15. It also plans to make further savings of over R3 billion during the rest of the financial year. The overall impact of this belt tightening is an expected decrease in total spending of R6.2 billion, which accounts for the single biggest change to the 2014 National Budget.

The Adjusted Budget also makes a number of smaller changes. The Department of Communications is receiving R620 million extra to pay for the process of changing to a decoder system through its digital broadcast migration programme.

The National Treasury itself is returning R561 million of the Jobs Fund which could not be spent on these employment creation projects in this financial year. The Department of International Relations and Cooperation is receiving R350 million more since the weaker Rand has made activities related to international relations (such as running embassies and consulates) in other countries more expensive. The Department of Social Development’s budget drops by R250 million because fewer than anticipated people applying for Old Age Pensions after the means test was relaxed. Fewer people than expected also applied for the Foster Care Grant. Other departments responsible for delivering services to the poor see some movement of funds, including shifting of money between programmes or between sub-programmes.

Adjusted Budget for Health

A small but important additional allocation of R32.6 million is given to the Department of Health to fund various activities to deal with the Ebola outbreak. The National Department of Health was however unable to spend some of the money allocated for hospital upgrades through the National Health Grant. As a result, the Department returned R133 million of the grant to the National Revenue Fund, while R226 million of the grant is reallocated to pay for furniture for hospitals and clinics as well as various other goods and services. A further R262 million of the unspent portion of the grant is given to provinces to pay for hospital and clinic upgrades. To make these shifts some provinces gained and others lost.

R43 million was taken away from the Eastern Cape and R315 million from Limpopo while R18 million was given to the Free State, R200 million to KZN, R30 million to Northern Cape and 14 million to North West. It is important to ask what impact this will have on the service delivery and performance targets set by Limpopo and Eastern Cape Departments of Health for the 2014/15 financial year.

Adjusted Budget for Education

The department of Basic Education is another national department that sees some of its money transferred to the provincial sphere. Almost R400 million that the department could not spend on the eradication of mud and other inappropriate schools, is given to the Western Cape Province to spend for the building of schools through the provincial Education Infrastructure Grant. To sufficiently explain these shifts more detailed information is needed, but these trends suggest that provincial departments have better capacity than the national government to deliver certain functions, particularly to the poor.

A good news story from the education sector is that an additional R9.7 million was given to KwaZulu-Natal for the HIV and AIDS Life Skills Education Grant which provides them with a total of almost R61 million to support HIV/AIDS prevention in schools.

If you are interested in a particular department or programme and want more detail on how it was affected in the adjusted budget you can access the National Department information on the National Treasury website. The Provinces will adjust their budgets in the next two weeks.

Van der Westhuizen is with the International Budget Partnership, South Africa. Thokozile Madonko is with the Budget and Expenditure Monitoring Forum.

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