1. National Treasury South African Revenue Services Statistics South Africa Budget Analysis

2. National Treasury Budget Analysis

3. 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

4. Broader Economic and FiscalPolicy 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

5. Policy Priorities Maintaining an explicit expenditure ceiling Real increases in spending within set expenditure ceiling: 2014/15 (R1.03 trillion); 2015/16 (R1.11 trillion); 2016/17 (R1.18 trillion) Capital spending and capital transfers are the fastest- growing components of non-interest expenditure. Challenge: strike a balance between cost containment and service delivery – consider infrastructure investment, social grants and service delivery needs

6. Policy Priorities

7. 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;

8. 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,

9. 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%)

10. Current Expenditure

11. Transfers - 77% of budget

12. 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)

13. 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.

14. Budget growth trends – 2014/15 Budget grew by 2.12% in real terms, Monetary increase of R2 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%.

15. 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

16. 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

17. 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.

18. 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 and Agricultural Development Bank of SA, Postbank - up to end of 2015/16.

19. 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

20. 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 R8.99 million or 1.5 % to R622.84 million. Transfers to the ADB and ADF increase by R36.59 million (91 %increase) in 2014/15 to recapitalise the entities and buy shares, and replenishment of the ADF

21. 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 post- retirement medical scheme contributions

22. 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

23. 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 R1.4 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

24. Financial Intelligence and State Security 16% of Vote To combat financial crime for national security, etc through the Financial Intelligence Centre Act R4.17 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.

25. 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

26. SARS BUDGET ANALYSIS Standing Committee on Finance

27. 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

28. Achievements of the 2013/14 financial year

29. 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.

30. 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.

31. 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.

32. Budget Analysis For 2014/15 - SARS receives an allocation of R9.7 billion, up by R671.9 million or 7.5 per cent in nominal terms (or 1.2 per cent in real terms) from the previous year’s allocation of R9.0 billion. Over the medium-term, the budget is expected to increase at a nominal average rate of 6.1 per cent, reaching R10.8 billion by 2016/17. SARS’s budget is divided among five programmes - the bulk is allocated to the Operation programme (R5.6 billion or 57.8 %), and the Administration programme (R.1 billion or 32.3 per cent).

33. 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 R238.2 million in 2013/14. As SARS intends building internal capacity in these areas, spending on consultants is expected to decrease to R205.9 million by 2016/17.

34. 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

35. Statistics South Africa Budget Analysis Standing Committee on Finance

36. 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.

37. 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.

38. Budget Analysis Receives R2.2 billion, up by R500.9 million - 28.8 % nominal increase(or 21.2 % real increase) from the 2013/14 allocation of R1.7 billion. Stats SA’ budget is divided among seven programmes Administration programme receives the largest share (R934.7 million or 41.7%) Statistical Collection and Outreach programme receives R524.5 million or 23.4 per cent. Collectively, the two programmes receive 65% of the budget

39. Budget Analysis(Cont.) 55% (R1.2 billion) of the budget is allocated to compensation of employees due the labour intensive nature of survey activities. Goods and services amount to R536.1 million, down by R52.6 million from the R588.7 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%).

40. Budget Analysis(Cont.) Transfers and subsidies declined by R2.6 million (14.7%) in nominal terms from R17.7 million in 2013/14 to R15.1 million in 2014/15. Capital payments increased by R427.7 million from R32.0 million in 2013/14 to R459.7 million in 2014/15. The bulk (i.e. R421.2 million) of this increased capital allocation is to be spent by the Office Accommodation subprogramme (Administration) on buildings and other fixed structures.

41. 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?

42. THANK YOU