SINDILE VABAZA: The trouble with inefficient public spending

“While spending on government consumption has been held down over the last 10 years, demand for public services has increased substantially. Meanwhile, as public employment in health, education and criminal justice has stagnated, employment by private companies providing the same services has surged. 

“This shift may be welcomed by some as contributing towards more efficient services. However, rising private sector provision of social services in tandem with deep cuts to public services means a redistribution of resources from the poor to affluent citizens. This could materially widen SA’s extreme levels of inequality.”

This is a quote from an article by authors Michael Sachs and Arabo K Ewinyu and contributor Olwethu Shedi, all from the Public Economy Project, published in The Conversation on October 21. It typifies the sort of language often used in SA public discourse, which obscures the facts of social problems and government inefficiency and profligacy, and how quite plainly the death spiral of public services comes down to government mismanagement and the natural inefficiencies of the state itself. 

It is also clear that South Africans with any means tend to flee from public services to private ones for good reason, often at great sacrifice for middle-class South Africans who are essentially double taxed when it comes to funding public services but not using them. 

The language mentioned above is often driven by a priori assumptions, which set up the conversation around public services in such a way that any discussion of free-market solutions is deemed “anti-poor” and “anti-black” and as a redistribution towards the affluent. 

Take education for example. Why wouldn’t parents who have the means and are willing to make sacrifices for their children not choose the low-fee private option? According to a Trends in International Mathematics & Science Study assessment, 79% of SA teachers don’t have adequate content knowledge in the subjects they teach. And this does not take into account teacher absenteeism or teacher unions protecting woefully bad and absentee teachers.  

It beggars belief that school vouchers (a market solution), which change incentives and fundamentally put more power into the hands of parents — especially poor and working-class parents — and less power in the hands of clearly incompetent administrators and woeful and uncommitted teachers, are not pursued as policy. 

This same obscuring of facts happens when it comes to health care too. The fundamental premise of the proposed National Health Insurance scheme uses the same logic, that health-care resources are weighted disproportionately towards the affluent (private sector) and that this is a fundamental injustice.

Government officials, academics and even some in the media push this narrative, even as ordinary South Africans can see that doctors and nurses in the public health system do not even trust each other or public health administrators for their own health-care needs. Public servants have private health-care in the form of the Government Employees Medical Scheme (Gems). In fact, government officials generally avoid public services if they can help it. This startling hypocrisy between behaviour and policy objectives and public pronouncements is rightly infuriating.  

Again, why shouldn’t a market solution to this be on the table if people consistently flee public services when they have the means, to include those who work in public services and administration?  

Deeper structural problems

With another major public sector downing of tools planned because of public servants’ unhappiness with a 3% pay increase, it seems obvious to point out that SA’s need for fiscal consolidation and public sector spending cuts can be broadly attributed to the migration and thinning of a skilled and high earning tax base, due to the mismanagement, corruption and poor policy decisions of all three spheres of government.  

It is a vicious cycle in which governments fail to create a conducive policy environment that encourages investment and therefore the creation of jobs. This means government then has to intervene and initiate social programmes and fiscal transfers to ameliorate its initial failures. Falling revenues then also contribute to the government being unable to meet its obligations, and spending falls in real terms in core public services.  

A report, “The Public Sector Wage Bill — an evidence-based assessment and how to address the challenge”, compiled by Intellidex — said that the country’s public sector wages are higher than the average of 46 countries monitored by the IMF. These range from Bangladesh to Norway and Denmark, and include countries from Europe, Africa, South America and elsewhere.  

Business Unity SA (Busa) commissioned Intellidex to research various aspects of the public wage bill in SA, and it produced the report that utilises data released by the National Treasury, as well as the Quarterly Employment Survey released by Stats SA, which measures the full public sector. 

While public sector wages have stabilised as a percentage of GDP from the boom years from 2007 to 2010, payroll costs in SA are larger than the global norm as a percentage of GDP, public spending or tax revenues, according to the report.

Public sector wages as a percentage of tax revenues grew from 31% before the global financial crisis to 41% in 2009/2010, despite a global slowdown. The figure exceeded 50% of revenue in 2020/2021 before dropping to 47% in 2021/2022, and is expected to be 45% in 2022/2023. 

• Vabaza, an aspiring economist and an avid writer, is a contributing author for the Free Market Foundation. He writes in his personal capacity.