the Free State Provincial Legislature, by Mr Phi Makgoe, MEC for Finance
16 March 2007
Mr Speaker
Madame Premier
Members of the Provincial Executive Council
Distinguished guests
Members of the media
Ladies and gentlemen
Sharing what we know whilst continuing to learn from others assisted to
ensure that expenditure proposals for the vote of the Free State Provincial
Treasury, for the 2007/08 to 2009/10 Medium Term Expenditure Framework (MTEF)
period, represents the end result of leading edge creative ideas.
In this regard we set out to define a framework for action to achieve my
Department's vision of being a leading change agent for improved economic
growth and social equity through prudent financial management.
We endeavoured to do so within a coherent funding framework that allows
for:
* the creation of an enabling treasury environment
* informed by a collaborative approach capable of consolidating gains arising
from various budget and accounting reforms of recent years
* by further supporting a heightened focus on performance management.
Proposed aggregate allocations for the 2007/08 to 2009/10 MTEF period
Mr Speaker, it is proposed that the charge to the provincial revenue fund to
fund operations of vote four the Provincial Treasury over the next MTEF period
be as follows:
* R127,112 million in 2007/08
* R136,374 million in 2008/09
* R146,457 million in 2009/10.
These allocations represent nominal year on year growth of 6%, 7% and 7%
respectively over the three-year MTEF period.
Over 96% of allocations will be funded from the provincial equitable share
of nationally collected revenue and 4% from provincial own revenue sources.
Members of this House are aware that the Provincial Treasury does not receive
any national conditional grants.
Expenditure proposals over the MTEF period, caters for inflationary
expectations and also provides for estimated salary adjustments over the MTEF
period.
Furthermore, estimates by economic classification results in the following
relative shares of different categories of expenditure to be provided over the
MTEF period namely:
* 61% for compensation of employees
* 38% for goods and services
* 1% for transfers and subsidies to households as well as capital payments in
respect of machinery and equipment.
Estimated departmental own revenue receipts: 2007/08 to 2009/10
Mr Speaker, before I deal with expenditure proposals in respect of different
programmes of the Department allow me to briefly deal with estimated
departmental revenue receipts over the next MTEF period.
These receipts refer to sources of provincial own revenue arising from
departmental operations which is collected by my Department and then paid over
to the provincial revenue fund, as the Provincial Treasury's own contribution
towards the coffers of provincially collected revenue. It is thus important
that this departmental operation should not be confused with the transversal
treasury function of optimising the revenue of all provincial departments, as
part of the provincial fiscal policy strategy.
Mr Speaker, such own departmental revenue receipts is estimated to amount to
R58 million in 2007/08 which represents a 5% increase compared to the adjusted
2006/07 appropriation. Hereafter, it is projected to grow at a steady 5% per
year to R61 million in 2008/09 and R64 million in 2009/10.
Interest earned on investment of unused provincial funds that is available
from time to time for relatively short periods of time, accounts for the lion's
share of 99,4% of own departmental revenue receipts over the MTEF period whilst
the remaining 0,6% will be derived from incidental departmental receipts
arising from the occasional sale of departmental goods and services, the sale
of capital assets, the imposition of fines, penalties and forfeits and
financial transactions in assets and liabilities.
2007/08 to 2009/10 expenditure proposals per programme
Mr Speaker, I now want to deal with the detail of the various expenditure
programmes in my vote over the MTEF period as this would give an indication of
the main services the Provincial Treasury is expected to render over the
2007/08 to 2009/10 MTEF period.
In the jealousy of time, I will not deal with the full detail of all
sub-programme expenditure but focus more closely on those treasury operations
that more directly support the attainment of the development goals of the Free
State Growth and Development Strategy (FSGDS).
Expenditure proposals in respect of programme one: Administration
Programme one, administration, focuses on the overall management of the
Department and aims to provide strategic leadership and strategic management in
accordance with applicable legislation, regulations and policies through
planning, organising and co-ordinating and controlling departmental functions
so as to ensure that there is appropriate support services available to all
other departmental programmes, thus enabling the achievement of overall
departmental goals as efficiently, economically and effectively as
possible.
This programme comprised of sub-programmes for:
* the Office of the MEC
* management services
* corporate services
* financial management
* internal audit accounts for 34% of total departmental expenditure in 2007/08,
given its first MTEF year allocation of R43 million. Further allocations will
be R43 million in 2008/09 and R45 million in 2009/10.
Expenditure proposals in respect of programme two: Sustainable Resource
Management (SRM)
Programme two, SRM, provides professional advice and support to the MEC on
provincial economic analysis, fiscal policy, public finance development and
management of the annual budget process.
This programme is comprised of sub-programmes for:
* programme support, providing for the cost related to the efficient running
of the programme
* economic analysis which provides for provincial economic and social research
that informs the annual provincial budget process to ensure that it contributes
towards the attainment of the objectives of the FSGDS
* fiscal policy which provides fiscal policy advice, determining the provincial
MTFF and develop and optimise the provincial revenue base
* budget management charged with the preparation of the provincial MTEF budget
in line with the goals and objectives and special focus areas of the
FSGDS
* public finance providing policy advice and monitoring budget
implementation.
R13,5 million is allocated to this programme in the first MTEF year, which
accounts for 10,6% of total departmental expenditure in this year. Allocations
in the second and third MTEF year will be R14 million and R14,8 million
respectively.
Mr Speaker, the Provincial Treasury has now succeeded in engineering an
approach to provincial resource allocation that saw a deliberate movement away
from a conventional budget process, largely informed by historical departmental
baselines in favour of an approach that seeks to utilise priorities from the
FSGDS as the mandating framework informing resource allocations to departments
in line with the specific objectives of provincial clusters.
This approach has already started to yield dividends as is evidenced by
improved provincial expenditure and much improved infrastructure delivery in
the current financial year. To further consolidate the gains from the new
resource allocation strategy, it becomes increasingly important for the
Treasury to focus on external factors to the extent that they may impact on the
effectiveness of provincial expenditure with regard to intended beneficiaries
of public goods and services.
In line with the aforementioned, the allocation to this programme will
enable the Treasury to further engage in various processes aimed at ensuring
that provincial resource planning and actual service delivery programmes, take
place in a manner that allow for more effective synergy, alignment and
co-ordination with national departments, parastatals, state-owned enterprises
(SOEs), provincial entities and district and local municipalities to achieve
the service delivery and development objectives of the FSGDS.
Mr Speaker, to ensure that this province is well geared to internalise
competitive and comparative advantages to the benefit of the province and
mitigate any negative external factors, the new MTEF period will see the
Provincial Treasury more aggressively assuming the role of a leading change
agent to address the gap between provincial socio-economic needs and key
service delivery indicators. Over this coming MTEF period, I therefore commit
my Department to ensure that:
* it effectively utilises operations in the areas of economic analysis,
fiscal policy and public finance to lengthen the provincial planning horizon so
as to create a treasury environment that allows all important role players and
stakeholders in the province to contribute towards the attainment of the long
term development objectives of the province
* it continues to conduct visits to different infrastructure projects in the
province to verify project implementation information contained in the
provincial infrastructure model as well as information provided by provincial
departments in their infrastructure plans, to facilitate better performance
assessment of infrastructure delivery and its impact on key economic
variables.
Expenditure proposals in respect of programme three: Asset and Liability
Management
Programme three, asset and liability management, is responsible for
supporting and interlinked financial systems provides policy direction and
facilitates the effective and efficient management of physical and financial
assets and Public-Private Partnerships (PPP).
This programme is comprised of sub-programmes for:
* programme support, providing for the cost related to the efficient running
of the programme
* asset management, responsible for facilitating the effective, efficient,
economical and transparent management of physical and financial assets and the
implementation of PPP and supply chain management frameworks
* supporting and interlinked financial systems through managing the
implementation and maintenance of provincial financial systems.
This programme, accounts for 41% of total departmental expenditure in
2007/08, given its first MTEF year allocation of R52 million. Further
allocations will be R60 million in 2008/09 and R62 million in 2009/10.
Several focus areas will remain important over the MTEF period in respect of
work performed by this programme.
With regard to the need to monitor the implementation of policies for the
effective management of physical assets, the development of efficient systems
for inventory and stock control, will remain a high priority with particular
focus on the development and implementation of transparent and economic
practices to deal with asset disposals.
In addition, this programme needs to ensure the implementation of the
necessary economic life cycle and value for money mechanisms through the
introduction of not only systems and processes to support the preparation of
forward asset strategies in respect of acquisition, use and disposal of assets
but also in respect of managing the related risks and costs over all phases of
the asset life cycle.
Work also need to continue to utilise the provincial supply chain management
regime to ensure:
* value for money in public expenditure through engineering a reduction in
procurement costs over time
* effective supplier performance management in line with pre-determined norms
and standards
* the development of strategic sourcing methodologies to assist with the
progressive realisation of preferential procurement targets through the
development of small, medium and micro-enterprises and the implementation of
effective broad-based black economic empowerment (BBBEE) strategies and the
mainstreaming of historically disadvantaged operators into formal economic
activities.
Key to the achievement of the aforementioned will be the implementation of a
provincial suppliers' management information system by the end of the first
quarter of the new financial year that will afford this government the
technical means to evaluate provincial progress in meeting government targets
in respect of provincial procurement.
Mr Speaker, it is also important for this House to note that in order to
enhance the provincial capacity and ability to effectively and efficiently
manage provincial infrastructure delivery, processes will continue in the new
financial year to provide strategic leadership and support through Treasury
participation in the roll-out of an Infrastructure Delivery Improvement
Programme (IDIP) in the departments of health, education and public works,
roads and transport to enhance the provincial capacity and ability to
effectively and efficiently manage the implementation of provincial
infrastructure delivery.
Mr Speaker, members of this House are well aware that the Cabinet meeting of
21 February 2007, approved a framework to align infrastructure delivery cycles
with the MTEF budget cycle in order to improve planning, implementation and
better cash flow management that would among other things deal with what is
commonly referred to as the fourth quarter expenditure spike. This framework
accommodates the long lead time before infrastructure projects reach the
construction stage. To accommodate this, the infrastructure cycle needs to be
amended to include an Infrastructure Programme Management Plan (IPMP) and an
Infrastructure Programme Implementation Plan (IPIP) which will be mandatory for
all infrastructure delivery departments.
Mr Speaker, I'm happy perhaps a little more than happy to report that these
processes have already commenced in this province and that the excellent
performance of the provincial Department of Public Works, Roads and Transport,
will not only result in this Department not contributing anything to the
so-called "March spike," this year, but that the re-alignment of processes that
have already occurred in this province prior to the Cabinet approval referred
to earlier, means that this province will start the new 2007/08 infrastructure
delivery cycle, even ahead of schedule as envisaged by the Cabinet
decision.
Expenditure proposals in respect of programme four: Financial Governance
This programme executes the functions and responsibilities of the provincial
Accountant-General and promotes accountability through the substantive
reflection of the financial activities of the province as well as compliance
with financial norms and standards.
This programme is composed of sub-programmes for:
* programme support providing for the cost related to the efficient running
of the programme
* accounting services responsible for ensuring the effective implementation of
accounting practices in line with generally recognised accounting practice and
the preparation of consolidated financial information that reflect the overall
financial position of the province
* norms and standards: Public Finance Management Act (PFMA) charged with
ensuring the development and implementation of norms and standards in
provincial departments and public entities in line with the PFMA
* norms and standards: Municipal Finance Management Act (MFMA) responsible for
promoting, supporting, monitoring and reporting on the implementation of the
MFMA at delegated municipalities and municipal entities and ensuring that
quality reports translates into service delivery and performance
* risk management and internal audit, responsible for promoting effective
optimal financial resource utilisation and internal audit in departments and
public entities.
14% of the total departmental budget will be utilised by this programme in
2007/08 with proposed expenditure of R18,3 million in this year, where after it
will grow to R18,8 million in 2008/09 and R23,8 million in 2009/10.
Mr Speaker, the office of the Provincial Accountant-General and its
sub-programmes remain the champion of financial governance in this province and
work will continue in the new financial year and beyond to foster prudent
financial practices in provincial departments, provincial public entities and
delegated municipalities.
Mr Speaker, it goes without saying that the improvement of financial
governance and efficiency remains the key to the achievements of the objectives
of the Provincial Treasury. The main focus in this regard remains the promotion
of greater transparency to ensure the production of credible and full
information as regards government's financial transactions in line with the
prescribed standards of Generally Recognised Accounting Practice (GRAP). Work
in this area of operation do not only aim to ensure that no unrecorded
transactions with financial implications can take place unnoticed but also that
financial results are analysed and interpreted to serve both the needs of
public interest and internal use that can further improve financial management
practices.
Furthermore, work executed to ensure adherence to the Public Finance
Management Act (PFMA) and Municipal Finance Management Act (MFMA) also aims to
improve not only performance management but also to enhance the efficiency of
oversight bodies such as those of the provincial legislature. Availing such
information for use by oversight bodies not only gives an indication of how
well vested the development and implementation of normative financial norms are
throughout provincial departments and entities but also contributes towards
greater efficiency in operations, financial compliance in terms of existing
prescripts and regulations and the internalisation of risk reducing practices
in the provincial government.
Closely related to the above are operations executed by this programme to
promote effective optimal utilisation of available provincial resources through
effective risk management and internal audit practices in provincial
departments, public entities and municipalities. My Department has again
succeeded in obtaining an unqualified audit report for the 2005/06 financial
year.
Mr Speaker, observers agree that the types of risks an organisation faces
have increased and become more complex in nature making it of the outmost
importance for departments, entities and municipalities to homogenise their
internal approaches to risk management to effectively apply limited public
resources to where it matters the most. The Treasury thus has an overarching
role in working with other departments and entities to ensure the establishment
of effective risk management and internal audit practices, and monitor progress
in this regard through assessing systems, procedures and processes for adequacy
and degree of risk prevention management and reporting relevant findings to
assist accounting officers to better entrench risk reducing practices, better
comply with the entire spectrum of the existing financial legal framework and
in the process, ensure that overall performance is improved through the
creation of significant benefits from limited resources.
Mr Speaker, the cherished ideal and commitment of government to extend
services to citizens previously denied even the most basic of infrastructure
whilst ensuring that the quality of public service delivery remains at an
acceptable standard, compels the Provincial Treasury to continue to actively
play its designated role in respect of the implementation of the MFMA in
respect of inter alia:
* the institution of service delivery and budget implementation plans to
support multi year budgets
* compliance in respect of monthly, quarterly and annual reporting in line with
MFMA norms and standards
* the implementation of appropriate supply chain management policies and
processes.
Provincial Treasury is now tabling quarterly reports in the Free State
Legislature in respect of compliance by delegated municipalities in terms of
Section 71 reports prescribed by the MFMA.
Besides the fostering of good financial practices at municipal level, this
interaction between the Provincial Treasury and municipalities over the medium
term also holds the promise of unlocking the maximum benefit from the total
provincial property portfolio that could result not only in improved service
delivery, but also increased provincially generated revenue to support key
provincial growth and development initiatives as well as allowing for better
engagement with national and local spheres in respect of both financing and
optimum service delivery.
The way forward: some concluding remarks
Mr Speaker, the Provincial Treasury believes that you cannot stay the best
without doing better without doing more. We are willing and ready to meet new
challenges and build on past strengths. Many initiatives introduced by my
Department in collaboration with other departments are beginning to bear
fruit.
We now have a well entrenched provincial process to ensure political
involvement and oversight over the provincial budgeting and strategic planning
processes to ensure that public spending in the final analysis impact on the
lives of all Free Staters.
The Treasury continues to generate a wealth of quality information relating
to budgets and public spending to support the Provincial Legislature and
provincial Executive Council to monitor and oversee the quality and width of
actual provincial public service delivery.
We will work tirelessly to create fora and channels to gain advice from
departmental staff, line departments, public entities, national departments,
the Finance Committee of the Legislature, the Provincial Public Accounts
Committee and other portfolio committees of the Legislature, provincial
clusters, municipalities and other provincial role players and stakeholders to
ensure that provincial service delivery takes place in a manner that allows for
maximum synergy.
The Treasury will continue to strengthen and provide strategic support with
regard to accounting policies, procurement, compilation of annual financial
statements and the institution of adequate risk response strategies and
internal audit processes to mitigate transversal risks and improve the quality
of financial management in this province.
Mr Speaker, our ducks are in a row to raise the bar on the performance of
the Treasury. Our performance plan operationalise the Department's 2007/08 to
2009/10 budget proposals, through setting measurable targets to inform in-year
operations effectively geared towards supporting the broader objectives and
responsibilities of my Department flowing from various mandating pieces of
legislature as well as the FSGDS. For us, the publication of the performance
plan is much more than a compliance process as it creates the instrument for
all and sundry to gauge actual departmental output delivered against set
targets.
It is my pleasure to announce that the bid for the rendering of commercial
banking services has been awarded to First Rand Limited. This heralds the start
of a new partnership that would be the key in assisting the Treasury to
continue to support provincial departments with effective and appropriate
banking facilities.
Mr Speaker, there is hope for the future indeed.
Issued by: Provincial Treasury, Free State Provincial Government
16 March 2007
Source: Free State Provincial Government (http://fs.gov.za/)
