SA’s unfolding fiscal crisis has been long in the making and, just like the death of the main character in late Colombian author Gabriel García Márquez’s famous novel Chronicle of a Death Foretold, has never been more foretold.
The Southern Centre for Inequality Studies has been warning for some time about the erosion of the credibility of government budgets, pointing to, among other ills, the “growing gap between budget plans and execution”.
In its most recent analysis of the 2023/24 budget in June the centre, based at Wits University, said that to be credible a budget — “a financial plan that accurately reflects the government’s revenues, expenditures and financial obligations” — must be realistic, transparent and trustworthy.
“Budget credibility is crucial for effective governance and economic stability as it enables the government to allocate resources efficiently, implement policies effectively, and maintain public trust.”
Spending plans set out in a budget must contain what will be implemented, and projected fiscal balances must be as close as possible to the outcomes “and the full extent of government’s fiscal health and macroeconomic policy”.
Various reports, including those about the department of social development handing money back to the fiscus at the end of the 2022/23 financial year and the cash crunch the government has now run into, are symptoms of a budget that lacks credibility.
The Southern Centre for Inequality Studies’ Public Economy Project, which is led by Michael Sachs, former head of the National Treasury’s budget office, has pointed to the widening gap between the government’s expenditure cuts over the years and its policy objectives.
“A credible budget depends on a capable state with an effective executive authority,” the centre said in June. “In the absence of clear and effective executive authority, the connection between budgeting and policy-making has become increasingly tenuous. Budget plans cannot but lack credibility where policy is incoherent.”
Teacher assistants
It pointed to the R350 grant. Three years after it was introduced the government has not clarified the grant’s policy framework, leaving the grant and its extension to rely on ad hoc regulation and creating uncertainty and confusion.
Here is another policy incoherence; the government has been funding posts for teacher assistants while finance for teachers and textbooks has been cut, “without any policy statement about what this implies for the future of the public education system”.
Then there is the proposed National Health Insurance, which proposes building new hospitals just as the government is cutting expenditure on health workers, medical equipment and health operational budgets. The core funding of universities is also being cut while the government is pumping money into the National Student Financial Aid Scheme to increase the student population.
The National Treasury, the key institution in the budgeting process, “has begun to see the medium-term expenditure framework as a bargaining position rather than a reliable cost estimate of government programmes”, the centre says.
Many years ago the Treasury explained the same point. The 1999 medium-term budget policy statement reads that the medium-term expenditure framework provides the government with “a tool to manage the tension between competing policy priorities and budget realities”. It helps the government to “reprioritise expenditure and make informed policy choices that are affordable in the medium term”.
But as the centre’s analysis has made clear, those years are gone. It warned in June that the Treasury’s budget guidelines for 2024 were already setting the government up for failure; they were based on the containment of public sector wages, which would “result in spending outcomes that depart considerably from the budget”.
Severely compromised
The centre also cautioned in June that the budget guidelines for the 2024/25 financial year are already sacrificing the “credibility, performance and quality of the forward guidance provided by the medium-term fiscal framework”. Well, the government is now scrambling to trim budgets further because tax revenues are running behind the February forecasts.
All of this, the centre warned, would mean human resource planning will be severely compromised as departments “are unable to gauge what their annual budget will effectively be … while attrition systematically weeds out the best performers and those with portable skills”.
The pressure to cover the costs of “unfunded compensation budgets” will also leave national and provincial departments with higher accruals and a lack of maintenance of infrastructure. “More broadly, government’s own estimates of the fiscal policy trajectory are less credible to the extent that the expenditure path they are based on is unlikely to materialise.”
The centre concludes that economic growth, with high interest rates, is one of the fundamental factors driving the unsustainable fiscal position. But getting the economy moving requires “a clear and credible plan for growth and development”. And so the slouch towards Bethlehem continues.
• Sikhakhane, a former spokesperson for the finance minister, National Treasury and SA Reserve Bank, is editor of The Conversation Africa. He writes in his personal capacity.
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