National Treasury South African Revenue Services Statistics South

National Treasury South African Revenue Services Statistics South Africa Budget Analysis

National Treasury Budget Analysis

Mandate of the Treasury • Support economic growth and development, • Promote good governance and social progress • Foster accountable, economical, efficient, equitable and sustainable management of public finances. • Fiscal principles - counter-cyclicality, intergenerational fairness and debt sustainability

Broader Economic and Fiscal. Policy • Manage revenue and expenditure - economic recovery, fiscal sustainability and fiscal consolidation • Limit the cost of service delivery - eliminate ineffective or wasteful expenditure • Improve Value For Money - target spending on policies and programmes with the greatest developmental impact

Policy Priorities • Maintaining an explicit expenditure ceiling • Real increases in spending within set expenditure ceiling: 2014/15 (R 1. 03 trillion); 2015/16 (R 1. 11 trillion); 2016/17 (R 1. 18 trillion) • Capital spending and capital transfers are the fastestgrowing components of non-interest expenditure. • Challenge: strike a balance between cost containment and service delivery – consider infrastructure investment, social grants and service delivery needs

Policy Priorities

Strategic objectives • Prepare, finance, publish and monitor the execution of the annual national budget • Improve techniques to monitor and analyse public expenditure • Ensure the appropriate use of available public financial resources for socio-economic development and infrastructure investment; • Contribute to improved capacity in financial management and resource planning in government;

Strategic Objectives (Cont. ) • Contribute to the development of a stable and robust financial sector; • Support infrastructure and urban development; • Promote public private partnerships as a financing alternative for development, where feasible; and • Enhance SCM in government through the establishment of the Chief Procurement Office,

Current spending • Aim: tight control of goods and services budget effect cuts on travel, catering, consultants, conferences, entertainment, etc. • Current budget – 23% of the budget. • 99% - interest on land • Goods and services – consultants and business services (30%) and computer services (33%)

Current Expenditure

Transfers - 77% of budget

Capital Expenditure • Mostly on software and other intangible assets – 94% of capital budget • Budget grows by 4. 75% in nominal terms, but declines by 1. 36% in real terms • Machinery and equipment budget declines sharply by 59. 2% in nominal terms (62. 07% in real terms)

Programmes Administration; Economic Policy, Tax, Financial Regulation and Research; Public Finance and Budget Management; Asset and Liability Management; Financial Systems and Accounting; International Financial Relations; Civil and Military Pensions, Contributions to Funds and Other Benefits; • Technical Support and Development Finance; • Revenue Administration; and • Financial Intelligence and State Security. • •

Budget growth trends – 2014/15 • Budget grew by 2. 12% in real terms, • Monetary increase of R 2 billion, mostly (41. 39%) for the Technical Support and Development Finance Programme. • Increase will also fund the Neighbourhood Development Partnership Grant and Integrated Cities Development Grant. • SARS (Prog 9) gets the bulk of the budget – 35%.

Administration 2% of Vote • Provides strategic leadership, management and administrative support to the department • Budget has been reduced in real terms by 8. 92 per cent in comparison to the previous year • 98% spent on current payments, 51% of which is spent on Compensation of employees • Most of the goods and services budget (28%) will be spent on operating leases • Concern: Programme has been under-spending for the last few years

Economic Policy, Tax, Financial Regulation and Research 1% of Vote • Provides specialist policy research, analysis & advisory services - economic policy, tax, financial sector and regulatory reform • Allocation decreases in real terms • 76% of current budget is allocated to for compensation of employees and 24 % to goods and services • 50% of goods and services budget to consultants and professional services • Most expenditure - Financial Sector policy, Tax policy and Economic policy sub programmes. • Concern: Significant under-expenditure due to unfilled vacancies in legal design tax unit

Public Finance and Budget Management 1% of Vote • Provides advice and analysis on fiscal policy and public finances, IGFR, expenditure planning, etc • Increased by 7. 5% in real terms, mostly (86%) allocated to Compensation of Employees • Expenditure priorities - improving provision of financial management, budgeting and expenditure management support. • Concern: 47 vacancies due to a lack of capacity in the (relatively new) public service pensions and benefits unit.

Asset and Liability Management 13% of Vote • Ensure prudent cash management and an optimal portfolio of debt and other fiscal obligations • Financial investments subprogramme – 98% of programme budget – for Capital payments for recapitalisation of DBSA, the Land Agricultural Development Bank of SA, Postbank - up to end of 2015/16.

Financial Accounting and SCM 3% of Vote • Promote and enforce transparent, economic and effective management of revenue, expenditure, assets, liabilities and SCM processes in the public sector • 66% spent on current expenditure, mostly on computer services (47% of current budget) • Financial systems subprogramme – 58% to develop, implement and maintain new integrated financial management system

International Financial Relations 5% of Vote • Mostly transfers to African Integration and support (54%) and International Development Funding Institutions (42%) • Transfer payments to the common monetary area compensation increase by R 8. 99 million or 1. 5 % to R 622. 84 million. • Transfers to the ADB and ADF increase by R 36. 59 million (91 %increase) in 2014/15 to recapitalise the entities and buy shares, and replenishment of the ADF

Civil and Military Pensions, Contributions to Funds and Other Benefits 14 % of Vote • Provides for pension and post-retirement medical benefit organisations to former State employees and retired members of the military • 98. 4 % of the budget is transferred to households, 46. 2 %of these go towards postretirement medical scheme contributions

Technical Support and Development Finance 14% of Vote • Provide specialised infrastructure development planning, implementation support and technical assistance, to aid capacity building in the public sector • 38% transfers to provinces and municipalities • 53% transfers to public enterprises and public corporations • Most expenditure takes place through the Employment Creation Facilitation sub-programme - implementation of the jobs fund • 41% growth in real terms • Comment: Department should report on jobs created to the committee – impact at service delivery level

Revenue Administration 35% of Vote • Entire allocation is transferred to SARS to provide core tax administration services and maintain IT services that support its operations • 2014/15 allocation declines by 6. 33 % in real terms due to a tightening of the budget (Cabinet approved baseline reduction of R 1. 4 billion on the transfer over the medium term). • Reduction won’t have a negative impact on performance of SARS - SARS has accumulated adequate accumulated surplus to cover its operations

Financial Intelligence and State Security 16% of Vote • To combat financial crime for national security, etc through the Financial Intelligence Centre Act • R 4. 17 billion or 96. 1%of this budget will be transferred to the South African Secret Services Account • Comment: The department should provide a progress report on the service delivery implementation and performance of the institution, as well as provide a report on the monitoring mechanisms that are applied in this regard.

Committee considerations • Provide a progress report on the service delivery implementation and performance, including monitoring mechanisms of the institution and its entities. • Provide a report on how the department will fill vacant positions. • Committee should monitor the infrastructure investment framework – both capital spending and capital transfers

SARS BUDGET ANALYSIS Standing Committee on Finance

SARS mandate • To ensure optimal compliance with tax and customs legislation. • Ensure compliance is achieved in a manner that does not unduly impede trade, economic growth and development. • Ensure compliance is achieved in the most efficient and cost effective manner. • Achieved 84% (2013/14) and 83% (2012/13) in compliance – PAYE Tax filing

Achievements of the 2013/14 financial year

Policy priorities for 2014/15 • Aim - to support the National Development Plan’s economic and social objectives. • Ensure a sustainable revenue stream for government to meet its policy and delivery priorities. • Four core outcomes serve as the foundation of all current and future activities: • Increase customs compliance; • Increase tax compliance; • Increase the ease and fairness of doing business with SARS; and • Increase the cost effectiveness, internal efficiency and institutional respectability of its operations.

Risks faced by SARS • Growing illicit economic activities • Perceptions of poor state service delivery and corruption - negatively affects taxpayer’s attitude towards compliance; • Tax evasion practices: businesses increasingly try to evade tax obligations and minimise the impact of slow economic recovery on their profitability; and • Vat fraud could increase as businesses try to protect their profitability.

Responses to risks • Deploying officials to reach all current and potential taxpayers, • Outreach, educational and other compliance activities; • Developing and procuring mobile registration kits to facilitate the registration of new taxpayers; • Increasing border control activities; and • Pursuing information exchange agreements • Introducing regulatory and legislative reforms to counter tax avoidance schemes.

Budget Analysis • For 2014/15 - SARS receives an allocation of R 9. 7 billion, up by R 671. 9 million or 7. 5 per cent in nominal terms (or 1. 2 per cent in real terms) from the previous year’s allocation of R 9. 0 billion. • Over the medium-term, the budget is expected to increase at a nominal average rate of 6. 1 per cent, reaching R 10. 8 billion by 2016/17. • SARS’s budget is divided among five programmes - the bulk is allocated to the Operation programme (R 5. 6 billion or 57. 8 %), and the Administration programme (R. 1 billion or 32. 3 per cent).

Budget Analysis(Cont. ) • Nearly two-thirds of the Operations and Administration programmes’ spending is on compensation of employees. • Specifically on audit, IT and tax administration specialists’ skills, which are critical for SARS to deliver on its mandate. • In instances where SARS lacks capacity, consultants are used for legal, auditing and IT related services of which spending on consultants amounted to R 238. 2 million in 2013/14. • As SARS intends building internal capacity in these areas, spending on consultants is expected to decrease to R 205. 9 million by 2016/17.

Key issues for consideration by Parliament • SARS should report on progress made with respect to filling the critical skills required by the organisation - vacant posts with regard to audit, IT and tax administration specialists? • The 2013/14 -2017/18 Strategic Plan highlights the need for a succession plan as 20% of senior leadership may potentially be leaving in the next 4 years due to retirement or expiration of contracts. Has SARS identified potential successors and/or planned for an appropriate handover and grooming process? • SARS should regularly update the committee on it’s risk-mitigation strategies pertaining to all identified risks as well as other challenges – highlight any pertinent gaps or challenges

Statistics South Africa Budget Analysis Standing Committee on Finance

Stats SA mandate • Statistics Act (1999) – advance production, dissemination, use and coordination of official and other statistics to assist organs of state, businesses, other organisations and the public in planning, monitoring, and decision making. • Coordinate statistical production among organs of state in line with the purpose of official statistics and statistical principles.

Policy priorities for 2014/15 • Key priorities over the medium-term include: – Expand the statistical information base by increasing its depth, breadth and geographical spread - production of economic, social and population statistics; – Develop and enhance qualitative and methodological standards; – Integrate fieldwork and data operations, provide management support, and implement effective governance and administration; – Lead the development and coordination of statistical production in the national statistics system.

Budget Analysis • Receives R 2. 2 billion, up by R 500. 9 million - 28. 8 % nominal increase(or 21. 2 % real increase) from the 2013/14 allocation of R 1. 7 billion. • Stats SA’ budget is divided among seven programmes • Administration programme receives the largest share (R 934. 7 million or 41. 7%) • Statistical Collection and Outreach programme receives R 524. 5 million or 23. 4 per cent. • Collectively, the two programmes receive 65% of the budget

Budget Analysis(Cont. ) • 55% (R 1. 2 billion) of the budget is allocated to compensation of employees due the labour intensive nature of survey activities. • Goods and services amount to R 536. 1 million, down by R 52. 6 million from the R 588. 7 million allocated in the previous financial year. • The largest expenditure components of the goods and services budget include: operating leases (26%); computer services (17%); and travel and subsistence (16%).

Budget Analysis(Cont. ) • Transfers and subsidies declined by R 2. 6 million (14. 7%) in nominal terms from R 17. 7 million in 2013/14 to R 15. 1 million in 2014/15. • Capital payments increased by R 427. 7 million from R 32. 0 million in 2013/14 to R 459. 7 million in 2014/15. • The bulk (i. e. R 421. 2 million) of this increased capital allocation is to be spent by the Office Accommodation subprogramme (Administration) on buildings and other fixed structures.

Key issues for consideration by Parliament • The Department previously reported to the Committee that it did not meet some of its performance targets due to capacity constraints. • Provide the Committee with details regarding staff establishment, skills retention and other strategies to ensure that it meets its targets • The Department previously reported that they had challenges in recruiting finance and statistical skills, is this still the case? • What is the department’s plan to ensure that these critical posts are filled?

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