RAYMOND PARSONS: SA’s third budget: six lessons we could learn

How to run a government so that citizens benefit, and taxpayers don’t go crazy, a recent book by Sir Michael Barber, former adviser to former UK prime minister Tony Blair, is a must-read for all participants involved in framing SA’s third budget.

With its emphasis on what is now called the “science of delivery” (or “deliverology”) it unpacks valuable global insights as to how governments — whether in developed or developing economies — can successfully deliver while inevitably having to make do with scarce resources.

Barber’s point of departure, to which most South Africans will relate, is that running a government effectively is important because success or otherwise is fundamental to the prosperity and wellbeing of us all, wherever we live.

There may, of course, be political factors in SA that block the best remedies available. But this would reflect a lack of political will and a failure to opt for a managerial view of public value.

Whether it is thought that the government should be big or small, the common ground is that in either instance the public sector must be efficiency driven. We know failure to meet major delivery challenges becomes a big drag on economic growth.

The process of delivery is important to politics, since democracy is weakened if politicians repeatedly make promises they do not deliver. But regardless of politics, citizens also have a big stake in successful delivery. If the government at various levels fails, the daily lives of average citizens are materially affected, including health, safety, energy, education, water and crime prevention, as well as the effective regulation of markets.

The global fiscal framework that envelops the delivery challenge is now familiar to the government of national unity (GNU) in light of the recent VAT saga. These are the triple bind of downward pressure on the ability to raise taxes, a debt burden that needs to be reduced and widespread strong demand for better public services. These all resonate with the insights that have been confirmed by the VAT controversy.

Global research also confirms factors that shape fiscal risks, such as the emergence of unbudgeted needs, too many priorities to implement and political buy-in with weak capacity in parliament.

Despite SA’s vulnerable finances, the fact that the budget process has gone back to the drawing board is therefore a positive development, especially if six key lessons have been learnt:

• Throughout the recent debate about VAT there was no call from participants for increased borrowing. It was generally recognised that SA’s spending on interest payments was already too high and that the National Treasury should be supported in not wanting SA to fall into a debt spiral. Without being obsessed by decimal points, the credibility of the third budget will nevertheless depend on its ability to stay close to the original commitment of a 76.2% debt-to-GDP ratio.
• The focus now inevitably falls on further discipline in government spending. State spending now has to be recalibrated as far as possible in ways that “cut fat instead of muscle”. This will not be easy. “Politics”, said eminent economist John Galbraith, “is not the art of the possible. It consists of choosing between the disastrous and the unpalatable”. Hence it will be a strong test of the GNU political leadership and economic expertise needed to meet the revised fiscal targets in credible ways. And if it is to be a growth-led budget, emphasis must in any event shift from consumption to investment in infrastructure.
• It has been accepted that a large part of the solution lies in strengthening the SA Revenue Service’s (Sars) tax collection capacity so as to enhance tax revenues. The revised fiscal framework must therefore clarify the extent to which the higher investment in Sars structures over the next couple of years will add significantly to tax income and help “balance the books”.
• It is more evident than ever that without adequate economic growth future risks to fiscal policy remain high. If SA wants to grow its tax base to enlarge its fiscal space it needs a rapidly expanding economy in which job creation accelerates and tax revenues rise. In any event, the original 2025 budget growth assumption of 1.9% underpinning earlier tax revenue projections will need to be revised in the light of recent negative global and domestic economic trends. The GNU’s goal of 3% GDP growth in the medium term must dominate the third budget strategy.
• The message from the rejection of the VAT rise stemmed from a widespread public view that taxpayers are not getting value for money, either through lack of effective delivery or through corruption. Though several remedies such as the positive Operation Vulindlela have been announced from time to time to improve the situation, overall SA has not yet succeeded in how to manage delivery and public expenditure much more effectively.

The third budget GNU decisionmakers will for now inevitably wrestle with the necessary compromises and trade-offs that can help to massage the economic arithmetic of the budget into something like respectability, at least in the short term. The markets will then respond with relief for the time being. The third budget is likely to be acceptable but may not tackle the fundamental delivery problem. Instead, the day of reckoning may successfully be postponed for another year in the expectation that in the meantime something will turn up. But can smart fiscal steersmanship and the second phase of Operation Vulindlela help something to turn up?

• Hope lies in the sixth lesson: that the budget process will in future be more transparent and consultative, not only in the short term but also in the longer term. This will make for better understanding and decision-making around the political economy of fiscal policy. It becomes possible “to think outside the box”. Importantly, it opens the door to participants from both inside and outside parliament to ensure that results are also delivered, while restraining the costs.

The way to go is not just on the inputs, nor only on the outcomes, but on both simultaneously with the help of the science of delivery. It is therefore time for SA to come to terms with the complex but fundamental issue of public sector productivity.

While the government and other structures as a whole may emphasise the productivity of public expenditure, ultimately it is the finance minister who must eat, sleep and breathe these challenges daily.

•Parsons is a professor at the North-West University Business School.