Using Budget Analysis to Scrutinise the Public Enterprises Vote - PowerPoint PPT Presentation

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Using Budget Analysis to Scrutinise the Public Enterprises Vote

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To clarify some basic budget analysis techniques ... SOE's have made the budget figures a roller coaster ride: it is worth conducting ... – PowerPoint PPT presentation

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Title: Using Budget Analysis to Scrutinise the Public Enterprises Vote


1
Using Budget Analysis to Scrutinise the Public
Enterprises Vote
  • A Presentation by IDASA
  • 7 March 2007

2
Purpose of the Presentation
  • To clarify some basic budget analysis techniques
  • To show how these techniques can facilitate
    analysis of the DPE budget by making budget
    figures more revealing

3
Basic Uses of Budget Analysis
  • Quantitative information regarding
  • Priority
  • Progress
  • Equity
  • Adequacy
  • This presentation emphasis the first two

4
Manner in which Figures are Organised in the ENE
  • Allocations by Programme
  • Allocations by Economic Classification
  • Current Payments (Salaries and Goods/Services)
  • Transfers and Subsidies
  • Payments for Capital Assets
  • (Each Programme Allocation is further broken down
    by economic classification)

5
ENE Allocations Continued
  • Thus a large/interesting programme allocation can
    be analysed further by looking at
  • The economic classification of functions in the
    programme
  • The descriptive information provided for each
    programme

6
Technique 1 Share of Total (Priority)
  • Purpose 1 Relative Priority of Functions /
    Programmes at a Point in Time
  • Purpose 2 Trends in relative priority over time
  • Purpose 3 Priority (and trends) of Departmental
    allocations as share of total public spending and
    as share of GDP
  • Calculation (Share / Total) 100

7
The budget figures
8
DPE Budget as a of Total Voted Funds and of
GDP
9
Share of Total () and Trends in Share of Total
10
Visually
11
Totals and Share of Total (Economic
Classification)
12
Share of Total and Trends Excluding Manufacturing
Enterprises
13
Technique 2Real Percentage Growth Rates
(Progress)
  • Important to calculate trends in allocations to
    particular programmes/functions over time
    progress if you think the trend is the right
    one
  • Problem that budget allocations present nominal
    allocations
  • Simple example 1999 R 2 000 000
  • 2000 R 2 500 000
  • 2001 R 2 600 000
  • It is tempting to argue that the 2000
    calculation was 25 more than the 1999
    allocation, but is this true? Nominally yes, but
    in real terms maybe, maybe not. It is not
    necessarily the case that 25 purchasing power
    was allocated to the function
  • Real means adjusted to reflect actual purchasing
    power this is determined by the interaction of
    allocation changes and inflation changes

14
Nominal Change Calculation
  • (New Value Old Value) / Old Value 100
  • Thus (2 500 000 2 000 000) / 2 000 000
  • 100
  • (500 000 / 2 000 000) 100
  • 25

15
Inflation
16
But
  • To get the real change, that is whether the
    purchasing power of the allocation has increased
    or decreased, we need to first deflate the
    allocations and then do the same calculation
  • We use a deflator to express the values in terms
    of the value of the Rand in a particular year
    (also called constant Rands)

17
Real Percentage Changes

18
Summarising the Process
  • Get deflators / price indices
  • Select base year
  • Convert nominal allocations to real allocations
  • Calculate percentage change

19
Formula
  • Nominal Allocation (Base Year Index/Current
    Year Index)
  • Ie the nominal allocation is multiplied by the
    ratio of base year price to price in the year of
    the allocation
  • Thus R 2 500 000 was multiplied by 100 / 119 to
    get the real allocation of R 2 100 840 in real
    terms, as expected, the allocation is less than
    the nominal R 2 500 000

20
Deflating using DPE figures Nominal Change
21
Real Change
  • Given the following price indices, 1) calculate
    the real percentage change in the total
    allocation to administration from 08/09 to 09/10
  • 2) What is the estimated inflation rate over this
    period?
  • 03/04 - 84
  • 04/05 - 87
  • 05/06 - 91
  • 06/07 - 95
  • 07/08 - 100
  • 08/09 - 105
  • 09/10 - 109

22
Real Percentage Changes
23
Application
  • The same techniques can be used with individual
    programme budgets to determine priorities and
    trends and generate questions to the Department

24
Comments / Questions based on the ENE information
  • Clearly the transfers to various SOEs have made
    the budget figures a roller coaster ride it is
    worth conducting the analysis with these
    transfers removed to focus on longer-term funding
    for the Departments key functions

25
Comments / Questions Continued
  • Nominal allocations for Consultants, contractors
    and special services go from R 21 331 000 to R
    34 670 000 from 06/07 to 07/08 a nominal
    percentage increase of 62.5. Compensation of
    employees goes up by a significant but
    comparatively small nominal percent of 19.2. The
    increased allocations for this function is not
    limited to a specific programme, but reflects
    increased allocations in all the programmes to
    this function. The increase is, in other words,
    significantly in excess of the departmental
    budget increase as a whole.
  • Two questions
  • 1) Is it not possible to retain greater
    expertise in the Department, that is rely more on
    employees and less on consultants and similar
    services?
  • 2) How does the Department ensure that it is
    getting value for money in contracting these and
    related services?

26
Comments / Questions
  • Allocations to capital assets for the department
    itself decline rapidly over the MTEF, from R 1
    809 000 in 2006/2007, to R 925 000 in 2007/2008,
    and down to R 75 000 in 2009/2010. Is this
    adequate for future departmental capital needs?
  • Can the DPE explain the basis on which the travel
    and subsistence allocations are calculated?
    Recent trends appear somewhat random as well as
    including huge percentage changes

27
Travel and Subsistence Allocations to Programmes
28
  • Thank you
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