The Medium-Term Budget Policy Statement (MTBPS) will once again highlight the government’s fiscal framework for the next three years.
The fiscal framework is a framework that gives effect to the national executive’s macro-economic policy and it includes, among others, estimates of all revenue expected to be raised during that financial year, estimates of expenditure and estimates of borrowing for that financial year.
The South African Institute of Chartered Accountants (SAICA) has commented on each of these aspects of the fiscal framework in its submissions to Parliament on the February 2021 and 2022 Budget and the 2021 MTBPS. The submissions reveal that revenue is not the problem but productive spending by the government is.
This article sets out, in respect of each of these aspects, what has transpired since the Budget and what SAICA is hoping to see in the MTBPS.
Estimates of revenue
Tax revenues have been growing steadily over the last few years, with a slight dip due to Covid in 2020/21.
The 2022 Budget predicted increased revenues over the medium term rising to 25% of GDP in 2024/25. It is therefore evident that South Africa’s tax revenues have (on average) been growing despite weak economic growth.
The market is projecting the overall tax revenues for the current fiscal year (2022/23) to be above those predicted by the National Treasury in the February 2022 Budget by approximately R80-billion to R120-billion.
This is mainly due to favourable commodity prices in the mining sector but a weakening in the global (and local) economy could, however, see this ease towards the end of the year.
It is evident that the tax revenue collections have been increasing despite slowed economic growth and are therefore not the reason for the ever-increasing budget deficit and the fiscal crisis that the country finds itself in.
Estimates of expenditure
Similar to the revenue trends, government expenditure has been on an upward trajectory.
As SAICA mentioned in its submission to Parliament, increasing costs incurred by government is in itself not a problem, as long as there is sufficient economic growth and service delivery to show for it.
Unfortunately this has not been the case in South Africa as is evidenced by low growth forecasts and the shocking findings of the Auditor General reports over the last few years highlighting poor financial and performance management, especially in key service delivery departments such as that of health, education, housing and public works – all having a huge impact on the lives of citizens.
Lack of productivity and failing service delivery is evidenced by the 1,6-million working days lost due to strike action in the first half of this year (45 000 for the same period last year). The major cause of industrial action in the second quarter of 2022 relates to wages.
Despite government’s commitment to restrain the wage bill (which has risen from 58,2% to 59,5% of consolidated non-interest spending between 2019/20 and 2021/22) and only let it grow by 2,1% per year, this has not totally materialised as it is evident from increases secured by staff at Eskom and Transnet of between 6% to 7%.
The strike at SARS saw salary increases of 1,5% funded by the savings from the delay in their recruitment drive and it seems as though the Transnet increase will have to come from operations. The impact from the Transnet strike has been estimated to have cost the economy between R100-million and R1-billion each day (the strike lasted for 12 days).
SAICA has also questioned how the appointment of the 12 000 new police officers promised by the President in the 2022 SONA will be funded as the increase of R8-billion over the next three years would be eroded by inflation.
In 2021 SAICA raised its concerns about the ageing government workforce as it was apparent that government’s plan to scale up early retirement without penalties had not been successful and SAICA had hoped to see effective recruitment plans for younger candidates, but no further information on this has been provided to date.
SAICA has raised numerous concerns regarding the wage bill including those fewer bureaucrats and more staff at the coal face of delivery are needed and they should be remunerated accordingly.
Other concerns include the cost of suspensions, the high average salary of government employees in comparison to the private sector salaries, the structural mix of employees (as alluded to above – too many managers and too few on the ground staff) and the lack of feedback on the Ministers’ Performance Agreements that were entered into in 2020. The aim of these performance agreements was to increase transparency accountability.
Although SAICA welcomed the introduction of these agreements and their availability to the public for scrutiny, little seems to have come from this considering the adverse Auditor General Reports year on year.
Any benefits from these agreements do not seem to have filtered down to provincial or local government level and appropriate consequence management in instances of non-performance has generally not been implemented.
This is all despite the R50-million expenditure incurred in 2020 on a revised performance management system.
Feedback from the National Implementation Framework “Professionalising the Public Sector” is also eagerly awaited in the hope that this will provide answers to the many problems experienced with the public sector services.
Conclusion
Rising tax revenue and government expenditure has not been matched by higher economic growth, increased productivity or greater efficiency. Yet, despite this being the case for almost 12 years and promises being made by the government to bring the situation under control, nothing substantial seems to be done about it.
The slow pace of reform continues to sap business confidence, private investment, productivity and competitiveness.
Services received from the public service should reflect value for money. Those with jobs should be performing at the required standard, otherwise they should be performance-managed or consequence-managed.
The collective bargaining process as it relates to performance management does not provide the accountability that is required to ensure individual productivity and performance standards are achieved. Individual performance management agreements need to be instituted across the public sector.
South Africa is at a stage where the government needs to be brutal on inefficiencies if there is any hope of future economic growth and employment prospects for its citizens.
It is SAICA’s hope that the MTBPS will consider a ‘public sector productivity pact’ as recommended by BUSA. This pact should be entered into between the government and public sector workers where they agree to minimum standards for both wages and productivity.
We acknowledge that this is a challenging task, but the potential value to society is worth the effort considering the alternative damage that can be caused by further service delivery protests.