The Treasury does not believe in indiscriminate, incremental and across-the-board increases in departmental budgets to simply keep pace with inflation as they fail to take into account underspending, inefficiencies and wasteful expenditure.
This was said on Friday by the head of the Treasury’s budget office, Edgar Sishi, who pointed out that government underspending in 2021/2022 was R17.9bn, while the preliminary indication was that for 2022/2023, there would be R40bn underspending compared with the main budget allocations. Budgetary increases have to be targeted, he said, for instance on public sector infrastructure and fighting crime and corruption.
Sishi was responding to criticism of the proposed budget cuts by groups including the Institute for Economic Justice (IEJ), the Budget Justice Coalition (BJC) and the parliamentary budget office. Wits University adjunct professor and head of the Public Economic Project Michael Sachs said last week that the contraction in 2023/2024 government consumption expenditure was the largest yet in a single year. Noninterest government spending will fall dramatically in 2023/2024 to 24.1% of GDP from 25.5% in 2022/2023.
The BJC has pointed out that the 2023/2024 “austerity budget” will see average spending per public health user fall 6.5% from R5,028 in 2022/2023 to R4,605 in 2023/2024 in real terms, while the average spend per school pupil is reduced by 4% from R22,552 to R21,630 in real terms over this period.
IEJ director Gilad Isaacs argued during a meeting of parliament’s two finance committees that macroeconomic and fiscal policy should aim to promote economic growth and employment and not focus on stability and debt reduction, as was the case with the 2023/2024 budget.
“If we understand macroeconomic and fiscal policy as a ‘driver’ of growth and employment, this means we must frame our policy with these goals in mind,” Isaacs said in a note.
“This is not how it is framed in the Budget Review, which views fiscal policy as being about stability and debt reduction,” he said.
Sishi was adamant that while government aims for much higher economic growth, simply spending more money would not necessarily achieve this.
Historically, he said, there has been a poor correlation between government non-interest spending, debt and economic growth. Government debt grew faster than GDP over a number of years. “It is not a historical fact that simply spending more money will result in economic growth.
“Government policy and actions create an enabling environment for growth [and] as such higher long-run growth requires improved state capability,” Sishi said. It is important to reduce debt and debt service costs.
He said that the emphasis has to be on targeted injections. Considerations that have to be taken into account when budgeting include the inability of departments to spend; value for money; poor outcomes; wastage and inefficiency; corruption and maladministration; political dysfunction causing poor use of resources in municipalities; and obsolete and nonperforming or duplicated programmes embedded in departmental budgets.
“National Treasury considers that the above should be the most important aspects of the budget process going forward,” he said.
“The budget does not support the damaging practice of incrementalism and departs from straight-line, CPI-based growth of spending items. National Treasury proposes that the budget process should place greater emphasis on performance, waste, efficiency and strategic trade-offs.
Procurement difficulties
“If departments can’t spend the money they already have, why is it an issue that we should immediately talk about adding more money?
“That an area is a critical policy area (for example health or education) does not necessarily assess what is in the baseline and whether what is in the baseline is being used appropriately. This is an issue that has been lost sight of.”
Among the reasons Sishi gave for departments’ inability to spend are procurement difficulties, particularly with infrastructure projects; noncompliance with legislation; unprocessed or disputed invoices; litigation; delays in finalising claims; and delays in filling in posts.
The Treasury undertakes spending reviews as part of the budget process, but Sishi said that not all departments are implementing the recommendations to achieve savings. The Treasury’s acting director-general, Ismail Momoniat, said that achieving value for money and corruption in particular are the biggest issues faced by the Treasury.
SA Institute of Taxation CEO Keith Engel fully supported the Treasury’s view that it is necessary to get more value for money in government expenditure.
The SA Institute of Chartered Accountants senior executive for taxation, Pieter Faber, said that allocating more money does not necessarily mean more service delivery.
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