Title: Using Budget Analysis to Scrutinise the Public Enterprises Vote
1Using Budget Analysis to Scrutinise the Public
Enterprises Vote
- A Presentation by IDASA
- 7 March 2007
2Purpose 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
3Basic Uses of Budget Analysis
- Quantitative information regarding
- Priority
- Progress
- Equity
- Adequacy
- This presentation emphasis the first two
4Manner 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)
5ENE 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
6Technique 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
7The budget figures
8DPE Budget as a of Total Voted Funds and of
GDP
9Share of Total () and Trends in Share of Total
10Visually
11Totals and Share of Total (Economic
Classification)
12Share of Total and Trends Excluding Manufacturing
Enterprises
13Technique 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
14Nominal 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
15Inflation
16But
- 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)
17Real Percentage Changes
18Summarising the Process
- Get deflators / price indices
- Select base year
- Convert nominal allocations to real allocations
- Calculate percentage change
19Formula
- 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
20Deflating using DPE figures Nominal Change
21Real 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
22Real Percentage Changes
23Application
- The same techniques can be used with individual
programme budgets to determine priorities and
trends and generate questions to the Department
24Comments / 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
25Comments / 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? -
26Comments / 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 -
27Travel and Subsistence Allocations to Programmes
28