The state’s wage settlement with public servants would make it harder to fill posts, health minister Joe Phaahla told parliament on Tuesday.
The Treasury previously said the wage deal would cost the government an extra R37.4bn above the allocation set aside in the February budget for compensation in 2023/24. It warned departments would have to find the money by cutting jobs and delaying or scrapping projects.
“We are concerned that the salary agreement is expected to be funded from savings, meaning a reduction in headcounts,” the minister said in his budget vote speech.
The wage agreement came against the backdrop of a health budget that is set to shrink in real terms over the medium-term expenditure framework.
Consolidated public health expenditure fell from a revised estimate of R259.4bn in 2022/ 23 to R259.2bn in 2023/24, and will increase to R268.9bn in 2024/25 and R281.3bn in 2025/ 26, but fails to keep pace with inflation. The budget grows a nominal 2.7% over the medium-term expenditure framework, while the Treasury put inflation at 6.9% in 2022, and estimates it will come in at 5.3% this year, 4.9% in 2024 and 4.7% in 2025.
Phaahla’s comments to parliament come hard on the heels of the second presidential health summit, at which a report was presented showing that poor financial management is amplifying the pressures created by shrinking provincial health budgets and unfunded wage agreements. The report was compiled by the Wits Public Economy Project and the Medical Research Council (MRC), drawing on data from the department of health, the Treasury and the auditor-general.
“Financial management capacity remains as big a concern was it was five years ago [when the first presidential health summit was held],” said the MRC’s director for HIV/Aids, Fareed Abdullah, who presented the report to delegates.
The report shows most provincial health departments received qualified audits year after year, meaning their financial statements contained material misstatements. Only the Western Cape received unqualified reports without findings from 2018-2020, and Mpumalanga and Gauteng were the only provinces to show improvement in recent years, he said.
Irregular expenditure
The analysis found irregular expenditure by health departments averaged R6bn a year and had accumulated to R60bn by 2020. Irregular expenditure is regarded as the broadest gauge of financial management capability and refers to money that was spent in contravention of the legislation governing public finances. It does not necessarily mean the money has been wasted, or lost to fraud. For example, overpayments on compensation can be a cause of unauthorised expenditure, if officials do not get the appropriate permission to shift funds from other programmes.
Michael Sachs, who directs the Public Economy Project, said unfunded wage deals were a long-standing trend, but this year was particularly severe because the Treasury had deliberately underbudgeted for compensation. “However you look at it, it has a negative impact on the quality of services and efficiency of the sector,” he said.
In order to meet their obligations to pay employees, analysis of the past decade showed provincial health departments delayed payments to service providers, cut back on capital spending and maintenance, and reduced spending on training and agency personnel.
At the same time, they sought to reduce their headcount by attrition, rather than a more deliberate approach such as retrenching underperforming or unnecessary staff, said Sachs. The result was increased pressure on the remaining employees, and ballooning accruals — amounts owed to suppliers that are rolled over from one financial year to the next.
The report shows the combined accruals in health stood at R15.36bn by 2021/22, or 17% of the sector’s non-compensation budget. The Eastern Cape was particularly hard hit, with accruals 45% of its non-compensation budget. This was partly due to its high level of medical negligence payouts, which were not budgeted for, said Sachs.
Most provincial departments had no plan to manage accruals, negotiate with suppliers to reduce payments, or prioritise spending, Abdullah said. “Our overall finding is there isn’t sufficient capacity in most provinces to do it in a smart way,” he said.
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