Last week, the Select Committee on Appropriations of the National Council of Provinces and Standing Committee on Appropriations of the National Assembly held public hearings to solicit comment on the 2023 Appropriation Bill and the Eskom Debt Relief Bill. The Public Service Accountability Monitor (PSAM) made submissions to highlight the need for adequate resourcing, and oversight of South Africa’s anti-corruption system, as envisioned in the NDP 2030 agenda.
Budget 2020 Statement
PSAM Urges Government to Grow ‘the Aloe’ by Strengthening Public Institutions and Prioritising Effective Public Expenditure
Using the analogy of the resilient, hardy aloe – Finance Minister Tito Mboweni emphasised the need to channel scarce resources to ‘new growth’ and prioritise survival during ‘tough times’; economic growth and the development of South Africa’s young democracy. But growing within an ailing public service with blossoming inequality and rapidly shrivelling public institutions, the aloe is clearly under threat – green shoots and all.
The Public Service Accountability Monitor (PSAM) concurs with the Minister on the need to radically improve the South Africa’s public finances. He admits that in many instances the 2020 Budget proposals amount to “difficult and painful sacrifices”. To this we add a question; which sectors of the population are such sacrifices likely to hit the hardest? We contend that it is those currently without access to reliable municipal services, those dependent on ailing public transport systems and those whose hope for receiving quality education and healthcare is mainly through the public service.
In January 2020, a World Economic Forum (WEF) report ranking 82 economies placed South Africa amongst the lowest scorers for fair wages and indicators such as pupil to teacher ratios. The report asserts that there is a direct, linear correlation between a country’s income inequality and its social mobility score. South Africa was ranked 77th with a score of 41.4 out of 100, below many other upper middle-income countries in education quality and equity, social protection and health.
Improve Spending Efficiency, don’t harm services
The PSAM supports 2020 Budget Review emphasis on improving spending efficiency. However, this should not be achieved at the expense of service delivery in key departments such as health and education. Prioritising an efficient, effective public service is imperative but should not increase the burden on healthcare practitioners and teachers exacerbate deterioration in these sectors.
Minister Mboweni announced cuts to the wage bill by R 160 billion over the next three years. The PSAM concurs with the Budget Justice Coalition’s call that any wage bill interventions must be undertaken in a manner that does not compromise the delivery of essential public services, particularly as these have potentially dire implications for provincial departments.
Budget allocations for the Education Infrastructure Grant (EIG) and School Infrastructure Backlog Grant (SIBG) have been reduced by R459 million and R122.8million respectively despite both programmes being vital for ensuring that all schools have appropriate infrastructure for teaching and learning. We are also concerned by reductions to conditional grant allocations in the health sector equating to R1.9 billion between 2020/21 and 2022/23.
Expenditure for Community Development of which Human Settlements is a component, has been drastically reduced by 19% to R39.6 billion in 2020/21. Human Settlements has the lowest average annual growth rate (0.9%) of spending areas such as public transport. This will lower the chances of deserving families accessing adequate housing as stipulated in section 26 of the Constitution.
Bailing out State-Owned Entities at high cost
Another worrying trend is the funding of bailouts to flailing state-owned entities which occurs at the expense of essential services. The adjustment by R 5.2 billion to the education budget and R 3.9 billion to health over the medium term equate to reductions in real terms despite unmet service delivery targets. Provinces like Kwazulu Natal, Limpopo and the Eastern Cape are beset with dilapidated hospitals, clinics and schools with inadequate sanitation.
The PSAM has, in past evaluations of education department strategic planning and expenditure tracking reports, raised concerns about the potential delays to project completion and resulting cost overruns that the state can ill-afford. These problems exist in addition to reported fruitless and wasteful expenditure as well as irregular expenditure. In October 2019, for instance, the Auditor-General reported that the Department of Education had incurred potential irregular expenditure amounting to R504.3 million relating to procurement and contracting irregularities in school infrastructure projects in 2018/19, adversely impacting on learners’ right to education.
We therefore agree with the Minister’s plan to address corruption and wasteful expenditure. To do this, key public institutions must be adequately resourced to fulfil their mandates. In the weeks to come – the PSAM will scrutinise allocations to institutions like the Office of the Chief Procurement Officer as well as to Chapter 9 institutions with important oversight mandates; the Human Rights Commission, the Public Protector and Auditor-General’s Office.
Positive Steps
We are encouraged by the release of the long-awaited draft Public Procurement Bill announced by the Minister.
We are encouraged too by the increase to the early childhood development subsidy from R15 to R17 per child per day and welcome the proposed national audit of ECD facilities. We urge the Departments of Social Development and Education to ensure more rapid implementation of universal ECD programmes. The WEF ranks South Africa amongst the lower performing economies for pre-primary school enrolment.
We call on the National Treasury, Parliament and line departments to prioritise more transparent, inclusive and participatory budgeting processes, aligned with principles of the Open Government Partnership which the South African government joined in 2011.
ENDS
For further information contact:
Zukiswa Kota |Head of Monitoring and Advocacy| Public Service Accountability Monitor| 046 603 8826 | psam_admin@ru.ac.za
The Public Service Accountability Monitor (PSAM) forms part of the School of Journalism and Media Studies at Rhodes University, Grahamstown, South Africa.
A Medium Term Budget Policy Statement that is blind to gender, inequality and ignores Constitutional duties on the state cannot take our country forward
Thursday, 31 October 2019, Cape Town
The Budget Justice Coalition (BJC) is concerned that the 2019 MTBPS proposes a deepening of austerity (cutting expenditure to address debt) in the country.
The proposals include:
- a 2% cut in goods, services and capital expenditure each year for the next two years;
- a ‘fiscal target’ to have a main budget primary balance by 2022/23, which will require R150 billion of spending cuts; and
- immediate cuts next year to provincial and local government grants and equitable shares.
These cuts are proposed in the context of the failure of fiscal consolidation since 2011 to deliver growth or reform in the economy. This has included a decline in spending on education per learner and a massive increase to more than 38 000 vacancies in the public health sector.
Some of the new areas where additional cuts are proposed include Home Affairs, Agriculture, Rural Development and Land Reform, Community Development and Higher Education. Yet these are all areas that require adequate funding to meet national development goals.
The prioritisation of debt repayments and bailouts to State Owned Entities (SOEs) must not crowd out social spending.
We are concerned that the South African government continues to reduce social spending despite the international experience from Greece to Argentina showing that austerity dismantles programmes aimed at reducing inequality and has terrible consequences for poverty and unemployment.
The budget remains blind to intersectionality
We are appalled that no adjustments have been made to the budget despite an important Presidential commitment in September to redirect R1.1 billion towards an emergency plan to combat femicide and Gender Based Violence (GBV). The funding is expected to be appropriated largely from existing provincial government budgets, which are being slashed!
We support the allocation of funds to the emergency plan, however it is important to ensure that it is not taken from other critical services. Government must provide information and the opportunity for discussion on where the additional money should come from.
The BJC reaffirms that the budget overall is critical for transforming gendered discrimination across society. We are committed to an ‘intersectional feminist’ budget and budget process that addresses the situation of those most marginalised in society, including black women, people living in poverty, children, migrants, people with disabilities, and gender non-conforming people, which evidence shows, are the people bearing the biggest impact of austerity measures.
Women are seriously impacted by increased risk of violence including rape because of a lack of safe toilets and insecure transport. To redress inequalities and discriminations of the past, the Treasury should demonstrate an understanding of the lived realities of women and other marginalised groups.
State-owned Enterprises (SOEs)
We are concerned that SOE bailouts are impacting on service delivery through budget cuts, yet there is no real plan for how debt will be managed for SOEs. We are concerned by the paucity of accountability mechanisms to ensure Eskom’s compliance with the preconditions for bailouts and loan guarantees. The poor are already bearing the burden of mismanagement of SOEs and would be hardest hit by Eskom’s collapse.
Austerity is self-defeating
Radical cuts to public sector spending during periods of economic stagnation is self defeating. As government spending constitutes a large share of GDP, reduced spending means lower growth. Lower growth means developmental goals are more difficult to attain but also that tax revenues fall and the debt-to-GDP ratio rises. This is exactly what happened in Greece. Austerity cannot spur economic recovery and will not result in debt reduction.
THERE ARE ALTERNATIVES
If cutting government expenditure and public investment during an economic slump is tantamount to economic suicide, what are the alternatives?
Tax and revenue
The BJC has consistently argued that Government should raise more funds from the wealthy and from high-earning individuals to maintain essential social expenditure. In the short term, Treasury must find a way to plug the gap through:
- Increases to personal income tax on the two highest brackets of R708 000 and R1.5 million, and adjusting the remaining tax brackets below inflation
- Increases to taxes on wealth and income from wealth which remain below PIT rates and international norms, this includes: Capital Gains Tax, Dividend Withholding Tax, Transfer duty for properties with a value over R5 million, and Inheritance tax.
- Reduce tax breaks to higher-earners, for example, through medical aid tax credits;
- Explore which tax breaks to corporations can be removed;
In the medium term it is critical to:
- Improve the capacity of SARS;
- Combat illicit financial flows and tax evasions;
- Institute a net wealth tax
- Gradually increase corporate income tax back to levels similar to that of the early 2000s
These taxes are critical not just for raising the revenue necessary to protect hard-won rights, but also to reduce obscene levels of inequality, which the MTBPS acknowledges is a structural barrier to growth.
We welcome the additional allocations to boost SARS’s revenue collection abilities and strengthen the National Prosecuting Authority fight against corruption.
We have argued that failing to implement any of the above ideas, but instead increasing VAT in 2018 was unacceptable, as it is poor and working class families who were hardest hit. We call on government to take these considerations seriously.
Public debt
Stabilising sovereign debt at sustainable levels should be a medium-term government goal. The most effective way to do this is to raise levels of economic growth so that the debt-to-GDP ratio falls, even if this means increasing borrowing in the short term. The strategic investment of borrowed funds in growth-enhancing activities like infrastructure or health care investments will reduce relative debt levels in the medium-term through increased productivity, revenue collections and higher levels of GDP. This is preferable to cuts in expenditure which translate into lower growth and thus a higher debt-to-GDP ratio. Credit rating agencies have been shown to be particularly sensitive to growth rates.
The MTBPS confirmed that investors are still confident in SA government bonds as global interest rates remain low and that there is therefore room for further borrowing to boost the economy. Moreover, South Africa’s debt levels remain modest by international standards.
Privatisation is not the answer
The Treasury has provided no evidence to back its claim that giving the private sector a greater role in the delivery of public services is sustainable or has benefits that outweigh the costs. Private businesses survive by making-profit. This introduces perverse incentives and objectives into the financing and delivery of public services.
Is the Treasury ignoring international evidence of this? By 2014, the World Bank had acknowledged that public private partnerships (PPPs) do not work. It “acknowledged that, despite its efforts, PPPs have attracted very little private investment. Even where they have been more successful, the risks were generally borne by the Bank and host country governments” (IEG of the World Bank, 2014 quoted in 2019 United Nations Conference on Trade and Development (UNCTAD) Report). This means that the state ends up subsidising private-sector profits.
A 2019 UNCTAD Report states:
“PPPs in infrastructure have, moreover, undermined transparency and public accountability as they frequently appear as ‘off book’ transactions. Infrastructure is a public good that must be broadly accessible, but accessible and inclusive infrastructure may conflict with the objectives of private investors who seek to recover upfront investment costs through user and other fees.”
We must instead develop a long-term plan to invest in the capacity of departments and state entities to spend and manage programmes and projects effectively.
We need cautious budgeting that protects constitutional rights, rather than austerity budgeting
While we applaud the reduction in spending on Ministers’ benefits, there is room to prioritise savings by tackling wasteful and inefficient expenditure. When all is said and done, the state must prioritise anti-corruption, strengthening the management of public resources and take strong punitive action against breaches of Public Finance Management Act (PFMA) and Municipal Finance Management Act (MFMA).
As a party to the International Covenant on Economic, Social and Cultural Rights, the government must align with the principles as adopted by the Committee charged with overseeing the implementation of that covenant on public debt and austerity.
These principles state that any regressive budgetary changes must be:
temporary, remaining in place only insofar as they are necessary; reasonable, with the means chosen being the most capable of achieving a legitimate aim; necessary, with all alternative financing measures comprehensively exhausted; proportionate, in that their human rights benefits outweigh their costs; not directly nor indirectly discriminatory, according priority attention to disadvantaged groups; based on transparency and genuine participation of affected groups and subject to meaningful review and accountability procedures.[1]
Public sector wage bill
The Treasury continues to site the public sector wage bill as a reason for its austerity programme. This is despite the fact that wage expenditure as a percentage of total government spending has been stable over the past two decades. Proponents of cutting the public sector wage bill are silent on the distribution of salaries within the wage bill, which has become top-heavy, with 29 000 state employees now earning over R1 million, according to Minister Mboweni.
We applaud the efforts made to curb ministers’ salaries and benefits. But we need a plan for public sector employment that is based on competency and capacity to deliver our developmental goals in the long run.
A CALL TO ACTION
There is still time to convince the Treasury not to implement the regressive spending plans proposed in the MTBPS. The BJC calls on all social forces to play their role to challenge and mobilise against the cuts and for a new plan for greater solidarity and growth in our country’s economy.
For further information, contact:
Daniel McLaren mclaren@section27.org.za 079 901 1453
Busi Sibeko busi.sibeko@iej.org.za 065 913 6881 (available Thursday only)
Sibabalwe Gcilitshana sibabalwe@equaleducation.org.za 084 070 4947
Zukiswa Kota z.kota@ru.ac.za 072 648 3398
Sacha Knox sacha@spii.org.za 083 688 3158
Isobel Frye isobel@spii.org.za 084 508 1271
Gilad Isaacs gilad.isaacs@iej.org.za 082 786 2473
Neil Coleman neil.coleman@iej.org.za 082 776 5018
[1] Committee on Economic, Social and Cultural Rights, 2016. “Public debt, austerity measures and the International Covenant on Economic, Social and Cultural Rights,” Statement by the Committee.