Addressing development through budget policy

Finance Minister Enoch Godongwana has called for cost-cutting measures in government to reduce spending. Picture: GCIS

Finance Minister Enoch Godongwana has called for cost-cutting measures in government to reduce spending. Picture: GCIS

Published Nov 5, 2023


Michael Sutcliffe and Sue Bannister

The Minister of Finance’s Medium-Term Budget Policy Statement (MTBPS) was delivered during a time of severe fiscal constraint. Despite some negative comment, there are many positive initiatives. They range from short-term strategies to increase tax collections and reform the social wage system, to initiatives focusing on immediate challenges, but which also have longer-term implications.

In this regard, there can be no doubt that we must work to address logistics, infrastructure, crime, poverty, inequality and other delineated areas if we are to move out of the debt trap into which we have moved since 2008.

Importantly, though, we must base our approach on evidence, and the approach should be an all of society one. We should be wary of generalisations and panaceas, such as claims that all of local government as being dysfunctional, rather than focussing on what elements of local or other spheres of government need specific actions.

A lot has been said about some of the areas in the MTBPS such as the fiscal outlook, consolidation and economic growth prospects. Relatively few commentators, though, have focussed on some of the specifics mentioned in the speech in areas affecting where people live and work, including broader areas of infrastructure and procurement.

In terms of municipalities, National Treasury must be congratulated for introducing a municipal debt relief programme. Our experience in eThekwini showed that such programmes are successful as long as conditions set are strictly applied. In our case in eThekwini we started a programme of writing off debts as long as consumers kept up payment on their current accounts. If they did so we would write their debt off over a 48 month period. Such approaches make sense because they address the reality that if bills are not paid over more than 90 days they are unlikely to be repaid at all. More importantly, building a culture of payment compliance lays the basis for higher financial collection ratios.

The Minister’s focus on particularly water and waste water (sanitation) is also to be welcomed, although he could have also included roads, stormwater, public transport and other basic network services. These must be seen as the major economic and social parts of building human settlements, and if done properly will address many of the environmental challenges faced as we build a more sustainable human settlements system. The important initiative to create a fund for disasters for example, should also be used with a condition that rebuilding is done in better and in more sustainable ways, rather than simply rebuilding in old ways.

Notwithstanding this, though, there is a need to reverse a very worrying trend in budgetary and expenditure patterns in municipalities. At a macro level these may be summarised as follows, comparing aggregate 2012/13 with 2022/23 adjustment budgets and expenditure patterns:

 We must improve budgeting and spending levels in municipalities: In 2012/13 the adjusted total municipal budgets were R288.3 billion compared to R567.3bn in 2022/23, but importantly in 2012/13 approximately R35bn remained unspent and this has grown to R71.4bn in 2022/23. There may be a variety of reasons for these unspent budgets, but poor budgeting, reduced collections, poor management, are often key factors behind this.

 We must reverse the decline in the ratio of operational to capital expenditure: Over the past 10 years we have seen a significant proportionate decline in capital expenditure across municipalities: for example, in 2012/13 19% of the aggregate expenditure was on capital projects, but by 2022/23 this has declined to only 12% being spent on capital projects. This decline has meant that less infrastructure is being developed.

 At an operational level, repairs and maintenance expenditure patterns have remained low and in many cases have declined. This is an important factor behind water losses, electricity outages, sewerage spills and so on.

 A most worrying negative trend is under-expenditure of operational budgets for many of the basic services. For example, looking at the operational expenditure for water and sanitation, we find in 2012/13 that R2.3bn was unspent, and by 2022/23 this figure rose to R9.2bn remaining unspent. In the case of electricity, the figures are even more startling with R5.4bn of operational funds being unspent in 2012/13 as compared with R15.4bn in 2022/23.

The solutions to this poor budgeting, expenditure and implementation needs more specific analysis of each municipality, but they include improving leadership, particularly at an administrative level, improving consequence management, and including support provided to reverse these trends.

In spite of the fact that billions is spent on financial management, for example, the number of financially distressed municipalities continues to grow.

The recommendations around the establishment of an infrastructure finance and implementation support agency is to be welcomed. However, but care must be taken to ensure that such an approach is evidence-based and not based on an uninformed belief that the private sector always deliver more efficiently, effectively or economically. Our own experience in eThekwini during the FIFA World Cup period allowed us to compare the cost of internal versus external engineering professionals, for example, and we found that having highly experienced practising engineers working in our municipality were over five times cheaper than using consultants on the same work.

But at the same time, government does require support for more specialised work. In addition, care must be taken that public-private partnership approaches do not result in expensive infrastructure and increased costs to society going forward.

Finally, we must note that over-regulation of development processes in general and procurement in particular, remains a great challenge. We hope that the Procurement Bill simplifies procurement, for example, and addresses the real problems in our supply chain processes.

Our own experience is that corruption, incompetence and inefficient processes remain rife in procurement, and unless there is greater transparency and simplified appeals processes by independent bodies, we will not reduce corruption. The root of this is a lack of transparency and responsiveness in government and entities which, when coupled with little or no consequence management, results in poor public perceptions, protests and the like.

*Sutcliffe and Sue Bannister are Directors at City Insight

**The views expressed do not necessarily reflect the views of Independent Media or IOL