Budget introduction

Budgetary work is a critical part of how the government operates in South Africa. Since the introduction
of democracy there have been significant changes in how the public budget process is carried out. The
Constitution of the Republic of South Africa which was established in 1996 requires government
departments to work towards fulfilling various socio-economic rights such as education healthcare
housing and welfare. However these rights must be achieved within the limits of the available resources.

To effectively accomplish these rights and deliver public services the government has to plan and
allocate its budget wisely. This is where Parliament plays a crucial role in overseeing the budget. The
budget is a reflection of the government’s choices and is used as a tool to achieve its economic and
development goals.

In the budget the government outlines its planned expenditures and the income it expects to collect.
The income collected is then used to finance the planned expenditures. However the government faces
a challenge of balancing numerous legitimate demands with limited resources. Therefore budget
support is provided to help the government fulfill its goals by increasing accountability to its citizens.

Overall the public budget process in South Africa strives to ensure that the government efficiently
allocates its resources to meet the needs and rights of its citizens while promoting transparency and
accountability.

The purpose of budgets

a budget is like a plan for how to spend money. It can be thought of as a document that lists out what
things the money will be used for and how much will be spent on each thing. The budgeting process
involves making decisions about how to allocate the money to different goals or purposes.

While budgets also consider the sources of income and taxes when it comes to government work
budgeting is primarily focused on how the money will be spent rather than how it will be raised. The goal
of public budgeting is to allocate money in a way that achieves the best results and meets the needs of
the community.

A budget can be viewed from various frames of reference. These are:

 Political process – competition among various groups for limited resources

The budget allocation is an important tool that governments use to promote economic development
effectively. It helps the government decide how much money should be spent on different areas and
projects. This process of deciding how to allocate the budget is influenced by politics meaning that
politicians and other decision-makers have to consider the political context in which they are
operating.

Understanding how the budgeting process works within the government institutions and considering
the political factors that affect budget decisions is crucial for getting better results. The budget
reflects the government’s activities in terms of money. It is like a plan that helps the government put
its priorities into action. By allocating funds to different areas the government can work towards
achieving its goals and improving the well-being of its citizens.
  Economic process – resource allocation

The budget is a significant tool used by the government to manage its finances. It shows what the
government considers most important for the country’s economy and society. By allocating money
to different areas the budget reflects the government’s goals and promises. It also highlights the
limits and compromises the government has to make when deciding on its policies.

 Administrative process – planning, coordinating, control and evaluation

The budget is an administrative tool that helps in planning and controlling future operations. It
includes estimates of the money the government expects to receive (revenues) and how it plans to
spend that money (expenditures). It also lays out the schedule of activities that will be carried out
and how they will be funded.

The budget is important because it coordinates fiscal policies which are the government’s decisions
about taxes and spending. Only by looking at the budget can we get a clear view of the government’s
financial direction.

The resources that the government can use include things like infrastructure natural resources and
human resources. It also includes financial resources in the form of domestic currency and foreign
exchange as well as money from borrowing grants and assistance programs.

Overall the budget helps the government make informed decisions about how to use its resources to
meet its goals and ensure its financial stability.

 Human rights process – allocation of funds in compliance with State obligations towards the full
realisation of constitutional rights

Simply put a national budget is the process of deciding how to spend money in a way that respects
and protects human rights. The government needs to make choices based on its responsibility to
ensure that everyone’s rights are upheld. The purpose of the government is to use all its resources to
guarantee and promote human rights for all individuals. So the decisions about how to allocate
money in the national budget should be guided by these obligations to prioritize the well-being and
rights of its citizens.

The functions of the government budget

Government budgets play an essential role in the planning and control of the economic activities of a
nation.

Three central economic functions of the government budget are:

 Allocation of resources

Allocation of resources refers to how the government determines the distribution of public goods and
services. Essentially it involves deciding how much of the country’s resources should be utilized by the
government different sectors of the economy and households.

When allocating resources the government needs to determine the proportion of resources that will be
used for providing public services. They also have to decide how these resources will be divided among
various government functions such as social development healthcare defense and other policies and
programs.

It’s important to note that the allocation of resources can have different impacts on different groups
within society. Certain functions policies and programs may benefit certain groups more than others
particularly those who are more vulnerable or in need. By analyzing the budget we can better
understand how resources are being allocated and identify the consequences of these allocations.

 Distribution of income and wealth

the government can use budget plans to address inequalities in how money and assets are shared
among people. They may be worried about unfair differences between different groups of people in
society. Budgets are designed with the idea that it’s important for everyone to have a fair and equal
share of resources.

 Stabilisation of the economy

Stabilizing the economy means taking steps to keep it steady and balanced. The government uses its
budget to help achieve this by focusing on various goals like maintaining employment controlling prices
boosting economic growth protecting the environment and managing external trade.

Creating a stable economy involves making decisions based on economic political and social factors. For
example policymakers need to decide which goal is most important at a given time and what levels of
unemployment debt and interest rates are acceptable.

Budgetary policies can support sustainable economic growth by carefully planning the use of funds. They
also ensure that the government remains accountable to the people by showing how revenues are
collected and spent. Budget analysis requires understanding the larger economic context such as the
constraints assumptions and theories that influence budget decisions.

Budgets are tools used to achieve specific objectives. Therefore the first step in creating a budget is to
define these objectives and determine which policies will help accomplish them. It’s important for
budgets to align with the chosen policies rather than the policies being shaped by the budget.

Since different levels of government have different responsibilities looking at the budget of just one level
of government provides an incomplete picture of how resources are allocated. To get a better
understanding we need to examine the overall division of revenue between the three levels of
government. This is done through the Division of Revenue Bill. Within each level of government the
national and/or provincial Appropriation Bills further detail the allocation of funds. By considering these
factors we can get a more comprehensive view of how the government manages its finances.

Budget principles

The budget should be governed by several principles, including transparency, accountability,

participation, equity, non-discrimination and equality.

 Transparency

Transparency is an important principle in the budget process because it helps people understand and
analyze the government’s policies. It allows us to find any weaknesses in those policies and make
necessary improvements. When the government is transparent it builds trust with its citizens and
encourages collaboration.

With transparency the government provides information about its budget decisions expenditures
and outcomes. This allows the public and the legislature to hold the government accountable. It also
promotes stability in the economy and fiscal matters.

To promote transparency the government should ensure that the information it provides is accurate
and reflects the true state of the economy. It should be easily understandable for the general public
and accessible for anyone who wants to scrutinize it.

Overall transparency is a crucial aspect of the budget process as it enables the government to make
informed decisions fosters trust and collaboration and holds the government accountable to the
people it serves.

 Participation

Participation at all levels of decision-making means that everyone has the right and responsibility to
be involved in making choices about how things are run. This includes decisions about society
politics and the economy.

Participation is really important when it comes to making decisions about how money is spent
known as the budget process. When people from all parts of society get actively involved it helps to
make sure that the money is used fairly and in a way that benefits everyone. This is especially
important because when powerful groups dominate the decision-making process it can lead to
unfair spending.

By actively participating in the budget process people have the opportunity to speak up and
challenge programs or policies that might threaten their rights. It also allows for mechanisms to be
put in place to compensate for any negative effects that these decisions might have on people’s
rights.

When it comes to making decisions about the budget it’s important to get input from different
stakeholders. This includes regular citizens people who advocate for certain causes experts in specific
fields engineers for infrastructure projects and analysts who can provide valuable insight. Consulting
with a variety of stakeholders helps to ensure that decisions are well-informed and consider the
needs and perspectives of different groups in society.

 Accountability

Accountability is a fundamental principle that plays a crucial role in the budget process. It involves
ensuring that the government is responsible for how it collects and spends public money.

Public funds which come from citizens’ taxes and borrowings have a direct impact on taxpayers.
Therefore it is essential for the government to be held accountable for how it acquires these funds
and how it utilizes them.

There are different aspects to accountability when it comes to the state budget. Firstly there is
accountability for the specific things the government spends money on. This means that the
government should be transparent and answerable for the items and services it chooses to allocate
funds towards.

Secondly there is accountability for state performance and results. This means that the government
should be responsible for achieving the desired outcomes and objectives for which public funds are
spent.

Lastly there is accountability for the budget processes themselves. This relates to ensuring that the
government follows the best practices to achieve the best value quality and service for public money.

Improving accountability in decision-making is a primary goal of budget work. This means holding
decision-makers responsible for their actions and ensuring they can justify the choices they make.
Additionally enhancing transparency in the decision-making process is crucial. This involves ensuring
that the government is clear about its priorities and how it converts those priorities into actions and
expenditure allocations.

Ultimately accountability is vital in promoting trust and confidence in the government and ensuring
that public funds are used in the best interest of the citizens.

 Equity and Equality

To ensure fairness in the budget we need to consider two important principles: equity and equality.
Equity means that the budget should be distributed in a way that is fair and just. This means that
everyone should have access to the resources and benefits provided by the budget without any form
of discrimination.

Equality on the other hand means that the budget should be allocated equally to all citizens. This
means that no one should receive preferential treatment based on their gender ethnicity social class
or age.

It is important to make sure that the budget does not discriminate against certain groups of people
who may be more vulnerable or marginalized. This means taking specific measures to ensure that
these groups are not left behind and have equal access to the resources and benefits provided by
the budget.

By prioritizing equity equality and non-discrimination in the budget we can create a more just and
inclusive society where everyone has an equal opportunity to thrive and succeed.

Budget Analysis

Budget analysis is a detailed and thorough examination of the budget. It involves collecting studying
and understanding budget data as well as how it relates to other important information like
government policies and programs. The goal of budget analysis is to provide reliable and easily
understandable information that can be used to have an impact on policy discussions and decisions.

Budget analysis can be done from different perspectives. Some groups look at the financial
arrangements at both national and local levels. Others focus on how budget decisions affect
vulnerable groups or specific programs. Some analyze the allocation of funds between different
functions such as comparing military spending to investments in economic development. There are
also those who examine the budget process policies and institutions themselves.
Some groups use technical methods for budget analysis. This includes categorizing expenses into
different categories looking at specific budget numbers examining new allocations and
understanding the government’s plans as reflected in the budget.

Overall budget analysis aims to provide useful insights and information about the budget so that
decisions related to budget issues can be made in a more informed and effective way.

Getting started on budget analysis involves a four-step process. That is:

 Learn the process by which the budget is prepared

First, it is important to become familiar with the process by which the government budget is
prepared and identify the key players in the budget process.

This involves securing a copy of the Public Finance Management Act (No. 1 of 1999) (PFMA),
Treasury Regulations, and other guidelines on budget preparation.

By carefully studying financial legislation and corresponding guidelines, one would gain the initial
information and knowledge needed to begin analysing the budget.

 Become familiar with terms used in the budget

It is important to become familiar with the various terms used in the budget. The use of an
accounting dictionary or consulting with finance researchers would be helpful.

 Learn how to read the budget

It is also important to learn how to read the budget, as well as to know how the budget is classified
and what each classification entails. It is essential to understand how to read the figures in order to
determine their implications.

Consulting experts and others already engaged in budget analysis would be of assistance. In
addition, studying the budget guidelines prepared by the National Treasury would also be of use.

 Analyse the government’s development plans

As the budget is – or should be – tied to the government’s development plans, it is important to

assess these plans.

This involves securing copies of such development plans and programmes, and carefully analysing
them in order to determine their impact on the country

Key Stakeholders in the Budget Process

The budget process is how governments make decisions about how to spend money. It involves
creating a plan for the upcoming year and looking at the next two years as well. The plan is then
voted on by the Parliament but they only vote on the upcoming year’s budget not the next two
years.
In South Africa an important part of the budget process is the Medium Term Budget Policy
Statement (MTBPS). This statement gives information about the country’s economy and makes
estimates about how much money will be spent and earned in the next few years.

The budget process happens in a cycle throughout the year with different activities happening at
different times. It is a complex process because it involves setting new goals each year and preparing
for them over several years.

There are three main parts to the budget process: planning management and control. Planning
involves deciding how much money to spend and where to spend it. Management involves making
sure the money is used correctly and efficiently. Control involves checking that everything is going
according to plan.

The budget process has a timetable that shows when each activity happens. This can help figure out
the best times to make changes or get involved. Different people and groups may have different
areas where they can influence the process.

Role-players are involved in the budget process

 The National Treasury is a government department that makes important decisions about the
overall economy and money matters. They work together with other departments and provincial
treasuries to create the country’s budget. They also make sure that the government spends
money wisely and doesn’t go into too much debt.
 The National and Provincial Departments have the task of creating budgets and plans for their
respective areas. They have to think about the goals they want to achieve the policies they want
to implement and the options for spending money. They also have to consider the resources
they will need such as staff and materials and the results they expect to see. Once their plans are
approved they have to put them into action and make sure they are carried out effectively.
 The Budget Council is a group of important government officials who make decisions about how
money is distributed among different levels of government. These officials include provincial
members of the executive council responsible for finances directors general of treasuries and the
minister and deputy minister of finance along with their advisors. They provide advice to the
cabinet on how to divide the money between the three levels of government.
 Cabinet and Provincial Executive Councils have an important role in deciding how money is
spent in the government. They are responsible for overseeing the budget process and
determining how much money should be allocated to national departments and provinces. They
rely on the advice of the Budget Council to help them make these decisions. Additionally they
also have the power to set the priorities for the budget by identifying the most important
policies that need funding.
Similarly the Executive Councils at the provincial level play a crucial role in determining how
money is distributed within their respective provinces. They prioritize spending by deciding
which areas or departments within the province should receive more funding.
Overall both Cabinet and Provincial Executive Councils have the authority to influence the
budget allocation and play a significant role in shaping government spending decisions.
 The Financial and Fiscal Commission (FFC) is a group of experts that gives advice on money
matters. It was created by the Constitution to be independent and provide
 recommendations. The FFC suggests how the government should divide its money between
different levels but the government doesn’t have to follow these suggestions. The FFC talks
to the Cabinet and the Budget Council to give their advice.

 The National and Provincial Legislatures have the job of looking at and reviewing the
budget. They also keep an eye on how money is being spent by government departments
once the budget is approved. They make sure that the public has a chance to get involved in
the process.
There are certain groups within the legislative environment like the finance committees and
the public accounts committee that play important roles in this.
The Money Bills Amendment Procedure and Related Matters Act gives Parliament the power
to make changes to the budget if needed.

 Civil servants especially those working in the National Treasury and Provincial Treasuries
have an important role in creating budgets. Even though they don’t have the authority to
make policies they play a crucial role by offering important information managing policies
and assisting with the technical aspects of budget development.

The Budget Cycle

The budget cycle comprises the major events involved in making decisions about the budget, and
implementing and assessing those decisions. The specific characteristics of the budget cycle differ from
country to country.

Generally, the budget cycle is likely to have four stages. Many different and individual decisions have to
be made at many different levels. National government must decide how much of the share of nationally
raised revenue is allocated to national, provincial and local government.

National, provincial and local governments must each decide how to divide their budgets between
different departments.Within departments, decisions are made on how much is spent on different
programmes. These events go through the various cycles of the budget process.

 Phase 1: Planning (drafting) phase

During the planning or drafting phase of the budget process in South Africa the government goes
through a series of steps to develop the budget plan. This phase is carried out by the Executive branch of
government specifically the National Treasury with input from the Cabinet. The goal is to establish policy
priorities and allocate financial resources effectively.

Here are the key steps involved in this phase:

1. Policy prioritisation: This step begins with the Medium-Term Strategic Framework (MTSF which is
a comprehensive plan that outlines the government’s priorities for the next few years. The State
of the Nation Address given by the President establishes the medium-term priorities based on
the MTSF.
 2. Preparation of MTEF budget submission: The Medium-Term Expenditure Framework (MTEF) is a
planning tool that guides the budget process. National and Provincial departments prepare their
budget plans based on specific guidelines provided by the National Treasury.
3. Review of Macroeconomic and Fiscal Framework and Division of Revenue (DORA): This step
involves a technical consultative process between the National and Provincial treasuries as well
as the departments. They review the macroeconomic assumptions and determine how to divide
revenue between the different levels of government.
4. Recommendations of the medium-term allocation process: Medium-Term Expenditure
Committees (MTECs) conduct hearings to evaluate the budget submissions from national and
provincial departments. They assess the departmental priorities and make recommendations
based on their baseline allocations.
5. Deciding on the Medium-Term Allocation Process: The National Treasury provides “pre-final
allocations” to provinces specifying their equitable share of revenue and conditional grants. This
helps determine their budgets.
6. Preparation of the Budget: The National Treasury leads the Budget Review process and
coordinates the compilation of the Estimates of National Expenditure (ENE which provides a
detailed breakdown of planned government spending.

Key Documents in the Planning (Drafting) Phase:

- Departmental Annual Strategic Plans: These plans outline the goals and actions of each department for
the upcoming fiscal year aiming to implement their five-year strategic plans effectively.

- Medium-Term Strategic Framework (MTSF): This document translates the government’s five-year plan
into specific programs and actions.

- Medium-Term Budget Policy Statement (MTBPS): The Minister of Finance presents this statement in
Parliament which includes the macroeconomic assumptions that shape the government’s fiscal policy.

- State of the Nation Address (SONA): The President addresses the nation in this annual event reporting
on the country’s status and setting forth government priorities and goals for the year ahead.

By going through these steps and documents the government lays the foundation for the budget and
ensures alignment between policy priorities and financial resources.

Phase 2 of the budget process is called the Legislative or Authorisation phase.

During this phase the budget proposed by the Executive (which includes the government) is presented
to Parliament. The National Treasury plays a major role in this process.

Once the budget is tabled in Parliament it is carefully reviewed and debated by Members of Parliament.
This involves input from various groups such as organised interest groups civil society the media and the
general public. The goal of this phase is not only to examine the proposed spending and revenue plans of
the government but also to ensure transparency in the budget process.

After the budget is tabled public hearings are held to gather feedback and presentations from different
interest groups representing
Phase 3: Putting the Plan into Action

During the implementation phase the government starts using the budget that was approved by
Parliament. The executive branch which is made up of the political leaders of different departments is
responsible for carrying out the budget. They work with government departments and other
organizations owned by the government like South African Airways and Eskom.

To begin the implementation the National Treasury releases the funds according to the approved budget.
The Accounting Officers who are the top officials in each department or Chief Financial Officers review
spending proposals to make sure they follow the proper procedures. The legislature also grants
permission to the executive branch to spend the budget in government departments.

Once everything is approved departments and agencies can start spending the money. They can do this
directly through their finance departments or by following specific rules for purchasing goods and
services. After they make their expenditures and payments they prepare reports to show how well they
used the money. These reports explain if they spent too much too little or just the right amount to
accomplish their goals.

Phase 4: Evaluation (Auditing):

During the auditing stage independent audit institutions like the Auditor-General (AG) review the final
budget documents. They check if these documents are consistent with the legal authorization.

The AG examines the financial management performance and position of each entity by carefully looking
at their year-end reports also known as Annual Reports. After completing the auditing process the AG
provides an opinion on the status and quality of the financial statements and management reflected in
the year-end documents.