Spending Reviews bring to light the links between policy development and implementation, through providing a better understanding of the institutional landscape, policy, cost and budgetary implications. A better understanding of departments’ baselines assists in finding savings in existing expenditure, as well as proposing savings and efficiencies in medium term budgets. By analysing and understanding how money is spent in institutions or facilities, as well as on existing implementation programmes, a strong empirical base for clear recommendations to decision-makers is developed.
The resources listed below will assist you to quickly access examples of previous national and provincial spending reviews, as well as infographics summarising the review in one page.
Technical Spending Reviews
A PER was commissioned to estimate the costs and test the robustness of the incentives that had been proposed for stimulating bio-fuels production in SA. The review concluded that the proposed scheme was deficient in a number of respects, making it both more expensive than initially anticipated and more generous to producers than it needed to be. The PER identified weaknesses in the conceptualisation of the incentive scheme. These included:
- The inappropriateness of guaranteeing a 15% return on assets rather than on equity, especially when claw-back provisions kick in only after actual returns exceed 20%;
- The inappropriateness of allowing “incentive double-dipping” by allowing subsidised firms to qualify for accelerated depreciation incentives; and
- A lack of clarity about whether incentives should be paid on biofuel produced or biofuel delivered to refineries.
In addition, the PER identified numerous weaknesses in the model that had been generated to estimate the cost of the biofuel incentive that collectively made it unsuitable for policy purposes. Reworking the numbers, the PER estimates that the cost of the biofuel incentive will be substantially higher than that projected in the original model.
The study shows that only 123 000 housing units are delivered per year, significantly fewer than the national Department of Housing’s published number of 254 000 units. The full cost of an RDP house (top structure and local reticulation) is calculated at R153 000, as against a subsidy of just R90 000 at the time of the study. The additional costs are largely met from municipal infrastructure funding and other spending programmes, while the mobilisation of private finance is insufficient. Census data suggests that about 2 million households did not have adequate housing in 2011. At the present pace of delivery, it would take 30 years to eradicate this backlog using the RDP and informal settlement model of delivery. Should delivery continue within the current policy parameters, the cost of eradicating the backlog over ten years would be R600 billion (or R60 billion per year). However, as current spending is only R15 billion per year, such a significant increase does not seem feasible.
Human Settlements and Public Works
Provincial government have two stocks of rental accommodation: one managed by Public Works and which accommodates government employees; one managed by Human Settlements for ordinary citizens. Public Works provide rental accommodation at low monthly rentals for occupants who are also mostly government employees earning an income. There are about 6600 of these units across the country. Operational shortfalls in the provincial public works portfolio are covered by provincial governments’ budget allocations and represents a significant subsidy to the occupants estimated to be worth nearly R5,000 per household relative to market rents. Occupants should be able to afford to pay for their accommodation on terms that are not highly subsidised, especially as public servants receive a housing allowance. The arrangement is not sustainable or equitable. However, any attempt to change these arrangements is met with opposition from government employees. Human Settlements departments inherited a stock of provincial government-owned units that has largely been sold off or handed over to occupants. A small portfolio of more problematic units — about 6,000 in total — remains in the books of five provinces. These are rented out at low rates, and collection rates are poor, leading to a gap between costs and revenues of about R100 million in 2016/17. This creates an individual subsidy to the beneficiary far greater than the subsidy provided in any of the other housing programmes. The policy equity argument does not hold for this stock. Overall, it is unsustainable to continue to manage the stock as rental stock and for provincial departments to continue to act as management agents.