South Africa's Public Finance Management System

• Since democratization in 1994, South Africa's public finance management system has undergone significant changes and is still in transition.
• These changes require public servants to adapt to transformation in institutional design and mindset.
• Managerial leadership requires conceptual and technical skills, particularly in public finance systems and governance.
• This chapter discusses public finance theory and provides a differential analysis of 'budget and budgeting system', as an evolution of public finance in South Africa, especially with the Medium Term Expenditure Framework (MTEF).
• It outlines the budgeting system in South Africa and its role-players to explain the dynamic public finance management system.

Evolution of the Public Finance Management System in South Africa

• Previously, the South African budgeting system was secretive without an open formula for fund allocation
• The executive compiled the budget, with a limited role for Parliament which served as a rubber stamp
• The budgeting process was highly centralized, not inclusive or participatory
• Function committees were exclusive and focused on controlling funds rather than improving service delivery; these were disbanded in 1995
• The process relied on a line-item budgeting system
• The Exchequer and Audit Act of 1975 reflected expenditure control and lacked flexibility, focusing on controlling rather than managing public finances
• Traditional budgeting focused on expenditure controls to oversee government spending
• The Exchequer and Audit Act regulated state property and monies, evident that the Act was input and control-oriented
• Accounting officers were not active, and management culture was rule-bound, with little flexibility and delegation leading to poor service delivery
• In the item budgeting system, management and budgeting focused on resources, staff, and facilities for a program or ministry
• The OECD indicates that the traditional approach to budgeting was not results or outcome-focused, which is crucial in modern public management.
• Since its transition to democracy, the new constitution demands transparency and accountability
• In 1998/9, the medium term expenditure framework was introduced to encourage participation, transparency, accountability, and policy-budgeting co-ordination
• The Public Finance Management Act (PFMA) also fosters effective financial management, transparency, and accountability
• The budget is decentralized, and all government spheres make budget decisions through established structures
• Performance budgeting has been introduced worldwide, including in Australia and New Zealand
• The introduction of performance budgeting in South African Public Service introduces a results-oriented approach and greater management flexibility within a legal framework

Public Finance: A Theoretical Analysis

• Public Administration is multidimensional and multidisciplinary, consisting of governance, management, leadership, public policy, human resources, and public finance
• Public finance supports the government's vision in attaining its goals, as it is central to service delivery
• Once compiled and distributed, departments must ensure strategic and financial planning, auditing, debt, revenue, and expenditure management
• The budget is fundamental in financing government programs and service delivery
• Public finances become central through regressive and progressive tax forms and borrowing to finance government deliverables and improve lives
• Public finance as a resource is crucial for financing government activities
• The budget, within public finance, indicates government policies and financial implication of programs
• The government must provide services, making financial management critical
• The budget distributes and redistributes services among people
• Soundness depends on policy, organization, and a great deal on the latter
• Public finance relates to the finances of the state in a multi-dimensional way
• Public finance is manifested in the budget, financed mainly through taxation
• Taxation implies money collected from the diversity of monies available
• The use of tax income by the state results in the government being a role-player in the national economy
• Government expenditure, or the spending of tax income, is returned to the national economy through salaries and purchasing
• Government Finances originate from the government tax base that ensures that government delivers services
• Borrowing is another avenue for the government's revenue base

Fiscal Policy

• The plan for service delivery is mostly outlined in the country's budget
• Budget outlines and finances government projects and programmes
• Fiscal policy performs specific functions to meet the country or government's demands
• Fiscal policy defined as national government decisions regarding government expenditure, taxation and borrowing, to pursue specific goals
• Additionally, fiscal policy is the budgetary stance of government concerned with revenue raised, how and where it is spent
• Fiscal policy should perform the following functions: provide public goods and services, redistribute resources until equitable income distribution is achieved, combine economic growth with low rates of unemployment and inflation
• Fiscal policy is central to distribution and redistribution, ensures economic stability, monitoring of inflation and reduction of unemployment
• Goals include economic growth, job creation, price stability, balance of payments, the socially accepted distribution of income and poverty alleviation
• Fiscal policy is crucial in meeting government's demands and expectations
• Public finance has to be central in a country's economy and in public expenditure
• Effective financial management is essential to achieve government goals and vision
• Finance is universally involved in administration as oxygen
• Allocation of finance is the supply of fuel for the engine of administration
• Provision of public finances to governance operations, plans and projects is central in ensuring that the government's main goal of delivering services is achieved
• Fiscal policy ensure that services to people are delivered adequately
• Adequate delivery services to people should be based on adequate funding and proper budgeting and planning
• Understanding public finance, government policies and the role in the industrial sector of the economy is crucial
• Public finance is connected to all the activities of government
• Public finance is concerned with how public authorities finance activities, how their expenditure is decided upon and how their revenue is obtained
• Public finance is the heart and cornerstone of service delivery in government
• The Public Financial Management Act (PFMA) seeks to modernize financial management and encourage managerialism in the public sector
• Public sector managers manage budgets effectively for accountability, responsibility, transparency, and flexibility within a legal framework
• Some public finance economists deal with views of how government should function in the economic sphere and the attitudes regarding relationships between individuals and the state
• Organic view of society Individuals contribute to the goals determined by the government
• Mechanistic view of goverment Govrnment furthering individual goals
• Macro-economic and micro-economic functions of government are essential for understanding the government's effect in allocating resources and distributing income
• To deal with unemployment and price levels, To attend to macroeconomic and microeconomic functions of government, a budget is essential

Budget: Conceptual and Analytical Synopsis

• Budget and budgeting system are used interchangeably, though they differ in purpose
• Budget is process-oriented
• Budgeting System is systems-based
• Analysis of the budget as financial planning tool to support service delivery
• The budget process should provide mechanisms for transparency and accountability because allocations originate from taxpayers
• A budget must be transparent, and the executive, including officials, accountable
• Budgets and budgeting systems are interlinked in order to improve governance and service delivery
• By definition, a budget is a planning tool so that services are delivered effectively, efficiently and resources are used economically
• Term budget derived from French word bougette
• Bougette meaning a small bag or portfolio
• Budgets refer to a pouch or purse (scholars such as Gildenhuys)
• The most important aspect is that public finances are accountable to people for outcomes
• A budget is a series of goals with price tags attached to it to link policy, budgeting, and planning with regard to revenue and expenditure management
• The budget becomes a document with useful information on government priorities, budgeting, costing of policies, expenditure and outputs and outcomes
• Information is crucial for transparency and fiscal accountability, especially for parliamentary oversight and the Standing Committee on Public Accounts (SCOPA)
• Budget is a document that refers to the financial condition of government, including information about revenue, expenditure, activities, purposes and goals
• A budget must contain information relating to revenue, expenditure, activities and goals or its not a comprehensive fiscal policy

Budget Principles

• A budget is prospective, containing anticipated future revenues, expenditures, and accomplishments for transparency and accountability
• The stating of accomplishment is crucial for the public and government
• A documented policy framework of government is credibility, content and way information is packaged for inhabitants to co-assess outputs
• Key principles are as follows:
• Publicity: The main stages should be made public
• Clarity: The budget should be understandable to every citizen
• Comprehensiveness: The budget should contain expenditure and revenues on a gross basis
• Accuracy: Budget estimates should be as accurate as possible without padding expenditure estimates or providing for hidden reserves by underestimating revenues
• Periodically: Appropriations should be authorised for a definite period of time

Role-Players: Budgeting Process

• For effective budget system, participatory, inclusive approach and process are essential
• An effective budget system implies that role-players in the budget process must be identified so that the budget process becomes transparent
• Once role-players have been identified for the budget process, the process must be within a legal framework so that budgetary systems are strengthened.
• Legal framework: section 215 (1) of the South African Constitution
• National, provincial and municipal budgets must promote transparency, accountability, and effective financial management
• Section 215 (2) (c) of the Constitution
• budgets in each sphere of government must show sources of revenue and adherence to national legislation.
• Matters of importance are expenditure management, parliamentary oversight, accountability, planning and budgeting, political managerial accountability, risk management, compliance of fiscal norms
• Role players in South Africa: national Parliament, Cabinet, intergovernmental forums, National Treasury and Audit General

Finacial and Fiscal Comission (FFC)

• The FFC is legally established by the Constitution of the Republic of South Africa (1996)
• Impartial recommendations
• Constitution, the Fiscal and Commission Act of 1997 is established
• Commission is independent, gives advice on financial and fiscal matters and is expected to be part of the process
• The commission provides advice about how government revenue should be shared

Budget Council

• Is established by the Intergovernmental Relations Act No. 97 consists of the National Minister and Finance Council
• Minister is the chairperson of is of the Budget Council
• Council consults on matters concerning the provincial governments management

Minister's Committee on the Budget

• The committee enhances budget prioritisation and policy review
• Evaluates the output of the national medium-term expenditure committee
• Evaluates the MTEF review reports
• Makes recommendations to Cabinet on the division of revenue and the allocation of national share between departments
• Responsable for planning and expenditure management

Medium-term Expenditure Framework Committee

• Committee evaluates whether the departments and their spending plans are consistent with objectives
• Assists in identifying the spending patterns patterns of departments
• Identifies risks and possible threats on available resources of government

National Treasury

• National Department of Finance and National Department of State Expenditure have merged to form the National Treasury
• Promotes of the national government's fiscal policy framework.
• The National Treasury co-ordinates of intergovernmental financial and fiscal relations
• Manages the budget process and monitors the implementation of provincial budgets

Auditor General

• He is responsible for financial management in all spheres of government
• Auditor control happens through its auditing expenditure at all three levels of government
• He reports that correct accounting procedures and standards are being followed
• He reports to the public accounts committees

Budgeting and Processes

• Essential perspectives so budgeting in the sector is placed in a context
• Financial controls and systems need to be in place to ensure good governance

The Processes

• The legislature is responsible for sanctioning the overall public sector budget and authorising the executive incur expenditure
• Budgeting is essential component of the planning, control and evaluation process and allocating resources to achieving the public sector objectives
• Management tool for planning and controlling funds to ensure to be met
• Annual budgeting is successful, links to medium covers a period of about three to five years and revenue projection
• To be effective, a budget should be integrated with accounting and accounting information
• Regular monitoring of the budget is vital and readily to for discussion, management decision making

Budgeting as a System

• Theory is in guide to craft a budget by an institution and accountability/transparency are entrenched
• Budgeting system looks at the process of implementing the process
• The roles, institutional structures, norms and values, and actors produce the output
• System is a set of units with a relationship among each other
• relationships are especially is when dealing and the complexity
• Performance is the government
• The managerial leaders have a responsibility to ensure the and and results system
• The of resources must of the
• Medium-term expenditure framework MTEF
• MTEF is rolling spending for national and provincial

MTEF's Aims

• To reinforce the link between policy choices, its and the to
• To make trade-offs explicit and kept in the medium term -Once introduced is for

Unites Nations Development Programme UNDP

• Introduction of the MTEF is to management more Transparent Accountable Results
• MTEF could be as an and as a

The Government and UNDP's Views in MTEF

• Support of government transparency, accountability and responsiveness
• Matters should the the The framework
• Policy and more the ability to budget and be

Fundamental Aims in Government

• Creating certainty: credible have certainty resources
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• is is assisting and option and

Policy Prioritization and Budgeting

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Policy and Budget

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Financial Management

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Rule of Law Compliance for Financial Management

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Effectiveness

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Financial Analysis

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Supply Chain Managment

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Financial Management as a System Analysis

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The Key Function of FMS

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Information Related

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