DAVID MAYNIER: Cost review is urgent
The resignation of Michael Sachs from treasury underlines what seemed apparent for weeks: the budgeting process is in chaos
Finance minister Malusi Gigaba’s maiden medium-term budget policy statement allowed for a full-scale budget blowout because he would not, apparently, sugar-coat the state of the economy. (As he put it later, he wouldn’t "do a Comical Ali and tell people everything was fine".)
But the shock resignation of veteran budget office tsar Michael Sachs suggests the "decision not to take any decisions" has more to do with a chaotic budget process, which has now been centralised under President Jacob Zuma, than anything else. We now have:
* A "presidential fiscal committee" making decisions about the budget rather than Gigaba’s committee on the budget;
* A "mandate paper" setting out budget priorities in terms of a new prioritisation framework compiled by the department of planning, monitoring & evaluation, rather than national treasury; and
* Rogue elements, such as Morris Masutha, who are peddling a R40bn budget-busting higher education plan, with Zuma’s support.
This shows that treasury is slowly being "defanged" and reduced to bookkeeping, with dwindling influence over spending.
It’s worrying, especially since Gigaba’s medium-term budget showed that the fragmented arsenal of fiscal tools used to contain spending — including an expenditure ceiling, cost-containment measures, head-count freezes and procurement reform — have had mixed results at best.
We now know, for example, that though cost-containment measures sent the right fiscal signals, they were largely ineffective. This is clear from the fact that national government’s spending on items subject to mandatory cost containment decreased in real terms by only R4.5bn between 2013/2014 and 2015/2016. For provincial government, these cost-containment measures led to a fall of just R1.7bn over those three years.
That is why we must seriously consider implementing a comprehensive spending review to examine the composition of spending, the efficiency of spending and future priorities for 2018-2021.
We now know that though cost-containment measures sent the right fiscal signals, they were largely ineffective
Such a review would be geared towards highlighting the hard decisions we must take about spending cuts over the medium term.
So, for example, we could look to cut the size of the executive to about 15 ministries. This would save an estimated R4.6bn/year, or R13.8bn between 2018 and 2021.
We could also look to run the provincial legislatures more efficiently, saving an estimated R1.8bn in 2018/2019, and R5.5bn between 2018 and 2021.
But in the end, if we are going to get serious about cutting spending, we must confront the ballooning cost of compensation for government employees, projected to run to R1.9trillion — growing at 7.3% — between 2018/2019 and 2020/2021.
Savings can be re-allocated
So consider these options:
* Freezing the salaries of senior management who earn more than R918,000/year and who are employed on salary levels 13 to 16 in general government. This could save R1.2bn in 2018/2019 and R6bn between 2018 and 2021; or
* Freezing the salaries of all employees in general government. This could save about R57.8bn in 2018/2019, R92.7bn in 2019/2020 and R129.1bn in 2020/2021 — that’s R279.7bn over those years in total.
We could re-allocate these savings to many other areas — including by investing in infrastructure and skills development to support economic growth, or by cutting the fiscal deficit to reduce the next few years’ debt and interest costs.
The fact is, comprehensive spending reviews have been very successful in many other countries. If Zuma and his new presidential fiscal committee are at all serious about curbing spending, they ought to at least consider such an option for SA seriously.
• Maynier is DA shadow minister of finance and a member of the standing committee on finance in parliament