Public Entity Discussion

Presentation to Standing Committees on Appropriations

Presenter: GH Manack | Head: PEGU National Treasury | 26 March 2018

Classification of entities budget reform perspective

Why improve the policy framework for classifying and managing public entities?

Promote modern management practices in the public sector.

Ensure that public resource are subject to an appropriate degree of governance and oversight.

Regulate and manage the use of devolved service delivery structures.

Onerous governance and reporting requirements.

Transfers from government amount to approx. R180 billion.

Manage Government’s exposure to risk

2

Classifying entities : Principles

The classification framework must seek to promote the basic values and principles governing public administration as set out in Chapter 10 of the Constitution.

The classification framework must clearly define an exclusive list of allowed corporate forms.

The framework and definitions need to be easy to understand.

The framework should provide the possibility of a growth path towards greater autonomy.

The purpose of the framework is to facilitate standardisation and transparency, and to improve the review/oversight of existing and future entities.

The framework must identify and provide a set of definitions and standard attributes for each of the corporate forms.

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Some policy framework recommendations

Devolution of functions must be part of a modernisation programme.

Only devolve functions if sufficient reason.

Form follows function – Generally!

Ministers should be held politically accountable for all policies and institutions that fall under his/her control.

Responsibilities should be spelt out clearly in establishment Acts and policy frameworks.

Delegations of powers and responsibilities should accompany and be consistent with the devolution of functions.

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Public entity classification

Structure of the Public Sector

(Excluding Local Government)

Public Sphere Institutions

Government Enterprises General Government

Public Service

Public Entities

Stewardship Entities

Research Entities

Regulatory Entities

National Departments

Provincial Departments

Departmental Agencies

Statutory Advisory Entities

Statutory Corporation

Service Delivery Entities

Subsidiary Companies of Public Entities

State Owned Companies

Financial Intermediaries

State I nterest Companies

Public Sphere

Institutions

Tertiary Education Institutions

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Prohibited corporate forms

The following corporate forms are to be curtailed:

Non Profit Organisations /Section 21 Companies:

On establishment it is unclear who the members will be and with what authority they act

When dissolved the reallocation of assets is complicated

Cannot pay dividends or relocate surpluses

Trusts, Ad hoc Funds, Co-operatives and Close Corporations

Subsidiaries of PE subsidiaries

Shared Service Centres

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Issue related to listing

National Public Entity – PFMA Definition

– A board, commission, company, corporation, fund

or other entity (other than a national government

business enterprise) which is

Established in terms of legislation

Fully or substantially funded either from the NRF, or by

way of a tax, levy or other money imposed in terms of

national legislation and

Accountable to Parliament

Section 47 (2) of PFMA - The Accounting authority for a

public entity that is not listed in either Sch. 2 or 3 must,

without delay, notify the NT, in writing, that the public

entity is not listed.

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Section 38(1)(m) of the PFMA

Purpose

– To submit proposals to the NT to consider granting written consent to an accounting officer who intends to establish or take the initiative in establish a new entity.

Responsibility

– Implementation of this section is sometimes problematic

– Interim process approved by Cabinet

– Evaluation panel consisting officials from Presidency, NT and DPSA

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Section 51(1)(g) of the PFMA

Purpose

– To submit proposals to the NT for consideration and approval of the establishment of a new entities which a public entity intends to establish or in the establishment of which the public entity takes the initiative.

Responsibility

– Interim process approved by Cabinet.

– Evaluation panel consisting officials from NT and DPSA

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Section 54(2) of the PFMA

Purpose

• Before a public entity concludes any of the following transactions – Establish or participation in the establishment of a company;

– Participation in a significant partnership, trust, unincorporated joint venture or similar arrangement;

– Acquisition or disposal of a significant shareholding in a company

– Acquisition or disposal of a significant asset;

– Commencement or cessation of a significant business activity; and

– Significant change in the nature or extent of its interest in a significant partnership, trust, unincorporated joint venture or similar arrangement

• The accounting authority must promptly and in writing inform the relevant treasury of the transaction

Responsibility

– Implementation of this section is problematic

– Public Finance can direct/instruct otherwise or express a view

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Provincial Public Entities To Be Delisted (29/03/2018)

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Province Name

Free State 1. Free State Tourism Authority

Limpopo 2. Limpopo Appeal Tribunals

3. Limpopo Development Tribunals

4. Limpopo Housing Board

5. Limpopo Local Business Centres

6. Limpopo Panel of Mediators

7. Limpopo Planning Commission

Mpumalanga 8. Mpumalanga Gambling Board

9. Mpumalanga Liquor Authority

North West 10. North West Provincial Heritage Resources Authority

Housing DFI consolidation

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• Consolidation to create a single ‘Human Settlements Development Bank’

(HSDB) the merger of RHLF, NURCHA and NHFC

• Merger of the 3 DFI’s has already begun in practice.

• However, Treasury approval to set up a new DFI (ito sec38(1)(m)) has

not been given- waiting for formal submission of business case and draft

legislation by DHS.

Concern;

• There is no clear market failure identified

• The HSDB wishes to undertake all of the previous DFI’s activities, plus

more- there is no cost efficiencies gained from consolidation

• The trade-offs and opportunity costs of shifting funds from subsidy

housing grants to capitalise the HSDB has not been explicitly

considered.

QUESTIONS ?

THANK YOU

Discussion

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Additional information

Additional information

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1

Overview

• In all three spheres of government we have extra-budgetary institutions

and public sectors businesses, collectively called public entities.

• Of these, those classified as general government units are funded from

the national revenue funds by means of transfers from their executive

authorities or from specific levies.

Division of Nationally Raised Revenue

Rmillion

Consol unit 2014/15 2015/16 2016/17

2017/18

Revised

Estimate

2018/19

Revised

Baseline

2019/20

Revised

Baseline

2020/21

Revised

Baseline

National government 489,987 546,065 555,738 599,886 628,621 685,927 736,551

Of which: National public entities 103,161 106,998 112,640 118,551 129,284 149,279 160,734

Social security funds 27 18 26 20 20 21 22

Provincial government 439,544 471,424 500,384 538,160 570,997 611,758 657,455

Local governments 87,570 98,338 102,867 110,728 118,458 126,914 137,462

Debt-service costs 114,798 128,796 146,497 163,155 180,124 197,664 213,859

Contingency reserves – – – – 8,000 8,000 10,000

Provisional allocation not assigned to votes – – – – 6,000 2,308 2,125

Total Nationally raised revenue 1,131,899 1,244,623 1,305,486 1,411,929 1,512,200 1,632,571 1,757,452

Plus: Social contributions: Social security funds 44,205 54,321 58,095 65,233 74,318 79,891 84,488

Total allocations to general government

public entities & social security funds 147,393 161,336 170,761 183,803 203,622 229,191 245,244

Overview

• Allocations to these units (excl. social security funds) have increased

from R107,0 billion (8.6% of total nationally raised revenue) in 15/16 to

an estimated R118,6 billion (8.4% of total revenue) in 17/18

• Their spending was 13.5% (R184,0 billion) of consolidated govt spending

in 15/16, estimated at 13.6% (R212,2 billion) in 17/18 and is expected to

rise to 14.0% (R272.7bn) in 20/21.

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Consolidated Government Spending

Rmillion

Consol unit 2014/15 2015/16 2016/17

2017/18

Revised

Estimate

2018/19

Revised

Baseline

2019/20

Revised

Baseline

2020/21

Revised

Baseline

National departments 577,681 652,125 673,351 735,150 787,384 847,829 914,067

Provincial departments 444,486 480,855 514,004 551,226 584,390 625,096 671,051

National public entities 174,216 183,996 199,939 212,197 230,840 253,927 272,708

RDP 3,078 4,280 3,545 2,920 2,600 2,200 2,300

Social security funds 35,526 44,994 50,939 56,466 65,975 73,903 81,822

Grand Total 1,234,987 1,366,250 1,441,777 1,557,959 1,671,190 1,802,955 1,941,948

1

Breakdown of spending

• In 2016/17 38% of the spending by this sphere was on goods and

services, 24% on compensation of employees, 17% on transfers and

14% on capital spending.

• Infrastructure spending amounted to 9% (17.1 bn) of total spending in

this sector

Consolidated Government Spending: National Public Entities by economic classification

Rmillion

Item of Spending 2014/15 2015/16 2016/17

2017/18

Revised

Estimate

2018/19

Revised

Baseline

2019/20

Revised

Baseline

2020/21

Revised

Baseline

Compensation of employees 41,440 44,805 48,971 54,723 58,731 63,185 69,202

Goods and services 62,195 65,168 76,798 75,126 79,576 83,104 88,391

Interest and rent on land 6,365 9,220 9,943 6,772 7,252 7,957 9,543

Transfers and subsidies 26,917 28,763 34,542 43,415 45,411 56,901 61,454

Payments for capital assets 36,755 35,255 28,691 31,232 38,434 41,264 42,459

Payments for financial assets 544 784 994 928 1,437 1,515 1,660

174,216 183,996 199,939 212,197 230,840 253,927 272,708

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Breakdown of spending

• The economic development function accounts for the majority of

spednding at R108,9 billion (54.5%) followed by learning and culture at

R31,1 billion (20.1%) of total spending in 2016/17.

• 85% of total spending by this sphere is concentrated in the 26 largest

entities. Of these the top ten spent R133,5 billion, or 66.8%, of total

spending.

Consolidated Government Spending: National Public Entities by functional classification

Rmillion

Function group 2014/15 2015/16 2016/17

2017/18

Revised

Estimate

2018/19

Revised

Baseline

2019/20

Revised

Baseline

2020/21

Revised

Baseline

Learning and culture 25,300 26,275 31,098 42,612 44,652 56,050 59,753

Health 5,497 7,643 8,712 8,520 9,198 9,692 10,378

Social development 7,270 6,856 7,593 7,784 8,606 8,817 9,407

Community development 21,861 20,165 19,409 18,312 22,682 26,479 28,090

Economic development 93,801 101,405 108,898 109,823 119,599 126,027 136,532

Peace and security 6,450 7,180 7,741 8,079 9,102 9,460 10,041

General public services 14,038 14,472 16,488 17,067 17,002 17,403 18,508

Grand Total 174,216 183,996 199,939 212,197 230,840 253,927 272,708

1

Efficiency of spending

• Annually, the public entities sphere falling under general government

underspend by an average of about R11 billion on their revised estimate.

• They mainly underspend on payments for capital assets followed by

transfers and subsidies.

• The sectors that contribute the most to underspending are Community

Development, Learning and culture and economic development.

• Accumulated cash and cash equivalents less trade and other payables

amounted to R40,2 billion in 16/17.

Budget Vs

Audited

Revised

Estimate vs

Audited

2012_13 145 782 465 154 559 942 141 964 395 -3 818 070 -12 595 547

2013_14 168 428 140 174 632 963 162 938 129 -5 490 012 -11 694 835

2014_15 184 506 828 192 079 446 184 393 550 -113 278 -7 685 896

2015_16 208 878 001 206 834 544 192 178 400 -16 699 601 -14 656 144

2016_17 222 344 046 219 619 281 208 617 984 -13 726 063 -11 001 298

Over/under spending

Budgeted

Revised

Estimate Audited

Financial

Year

1

In-Year-Monitoring

• Public Entities are required by the Treasury Regulations 5.3.1 to report to

their executive authorities on a quarterly basis.

• Section 76 (4) (g) Of the PFMA says, National Treasury can request any

public sector units to submit any information in a format determined by

the treasury.

• National Treasury has introduced quarterly reporting to the treasury by all

national public entities.

• Compliance is currently averaging 80% of entities. The first summary

reports will be published for the first quarter of 2018/19.

• Further work of ensuring data quality and integrity is still required.