South Africa

Maverick Citizen Op-Ed

Budget underspending: A case of austerity by stealth?

Finance Minister Tito Mboweni delivers the mid-term budget statement at parliament, Cape Town, South Africa, 24 October 2018. (PHOTO: EPA-EFE/NIC BOTHMA)

While there’s much speculation about the announcements Tito Mboweni’s Budget speech will bring, the Budget Justice Coalition is most concerned about the prospect of further austerity budgeting and the impact this will have on citizens. Austerity budgeting entails deliberately cutting expenditure and increasing taxes. In this article, we ask whether austerity by stealth is something that has been happening in a manner that is perhaps less obvious. 

Six months after the beginning of the financial year, the Minister of Finance delivers the Medium Term Budget Policy Statement (MTBPS) speech. The MTBPS describes the policy framework for the budget that gets announced in February the next year.

So, the October 2019 MTBPS provides some indication of what is to come in the 2020 budget. This approach to budget-making gives government departments and markets some form of stability as it provides an indication of what to expect when the budget is announced.

What is often less discussed in the public discourse is that at the same time as the MTBPS is presented to Parliament, an Adjusted Budget is tabled. The Adjusted Budget indicates any adjustments to the current year’s expenditure plans that Treasury may be recommending to Parliament. Essentially, the Adjusted Budget shows you how the government is planning to change its spending plans during a financial year to respond to any unexpected events.

It also gives an idea of how departments are performing halfway through the year when looking at their service delivery indicators. Funds that are unused can be moved within a department’s budget to another programme that needs the money, or from one department to another that needs the money. 

If a department is spending slowly in a specific area, funds can be declared “unspent” halfway through the year and sent back to the National Revenue Fund. These are unspent amounts that will not be spent in the current financial year, which once declared unspent, reduce the amount of money that a department has to work with. These changes are tabled in Parliament for approval. 

This process is part of the good budget practice. You don’t want to see the country unnecessarily paying interest on borrowings when there are unspent funds sitting in departments. It can also be a good thing if a department has found a way to improve its efficiencies to spend less money.

But the downside is that sometimes the funds being declared unspent affects service delivery because the money had been allocated on the basis of an assessment of need, but was given back because a department has poor capacity to deliver.     

In October 2019, R3.9-billion was declared unspent halfway through the year. However, in October 2018, a somewhat lesser amount of R328.8-million was declared unspent. And in October 2017, R1.67-billion was declared unspent. Given the jump in declared underspending between October 2018 and October 2019, what explains the difference? Can it be ascribed to worsening ability on the part of departments to spend to deliver services? Or is the difference due to pressures on departments to cut spending? Is this in-year adjustment a form of austerity by stealth?

We raise these concerns because when the budget for the financial year was announced, the levels of spending may have been applauded by the public and analysts because it indicated an increased commitment to a particular service. But then in actuality, this spending did not take place. However, this may escape attention in technical jargon and because it requires detailed analysis to spot these sometimes hidden trends in public finances.

To what extent are departments possibly purposely holding off on spending during the first half of the year then declaring money unspent, so that the extent of austerity measures escapes the notice of the public? While R3.9-billion is not a significant percent of the overall consolidated government expenditure of R1.83-trillion that was budgeted for 2019/20, it is still a large amount of money.

Here is where the largest amounts of declared underspending emanated from during the 2019/20 financial year: 

  1. Department of Higher Education and Training: R897.1-million
  2. Police: R703.6-million
  3. Department of Health: R346-million
  4. Cooperative Governance and Traditional Affairs: R310.5-million
  5. Small Business Development Department: R300-million
  6. Department of Energy: R256.5-million
  7. Department of Water and Sanitation: R215-million
  8. National Treasury: R179.4-million
  9. Rural Development and Land Reform: R117.3-million
  10. Correctional Services: R100-million

This is money that could have been spent, but was instead sent back to the National Revenue Fund. 

Let’s take a look at how the figures are made up for the top three departments that declared funds unspent.

Department of Higher Education and Training

The amount the department of Higher Education and Training declared unspent was R897.1-million.

  • R350-million of this was on planned transfers to higher education institutions (capital) due to slow spending by universities;
  • R400-million was on non-profit institutions (capital), returned due to slow spending by Technical and Vocational Education and Training (TVET) colleges;
  • In the programme that deals with Community Education and Training, R129.6-million in unspent funds has been declared on the compensation of employees due to posts left vacant as a result of post-provisioning norms and standards not yet being finalised.

South African Police Services 

The total amount that the Police declared unspent was R703.6-million.

  • R3.618-million was declared unspent from the compensation of employees for the Civilian Secretariat for the Police Service.
  • The bulk of the understanding was made up of R700-million being declared unspent from the police’s detective services;
  • Of that R119.3-million was declared unspent of money allocated to crime investigations.
  • R137.9-million was declared unspent from the criminal records centre.
  • R442.6-million was declared unspent against a line item called forensic science laboratory.

The reason provided for R700-million in unspent funds was said to be to do with a change in scope of the implementation of the criminal justice system’s seven-point plan intended to align it with the integrated criminal justice strategy. That’s an example of how seemingly insignificant policy or strategy changes can have major impacts on spending.

At the same time as this money was being declared unspent by the police, the Independent Police Investigative Directorate (IPID), which is meant to have independent oversight of SAPS, reported that slow performance was recorded with respect to the number of investigations that are decision-ready in relation to death while in police custody, death as a result of police action, rape by a police officer and rape while in police custody. This was mostly due to delays in obtaining technical reports for DNA samples and ballistics from the Department of Health and SAPS. 

Therefore, despite IPID’s intended independence, it relies on SAPS for forensic support while it is investigating acts of police brutality. Arguably, the funds returned by SAPS could have been used to improve SAPS’s performance in the same reporting period.

Department of Health

R346-million was declared unspent by the Department of Health.

  • Of this, the greatest amount, R240-million, is in the National Health Insurance programme: it too was declared unspent due to slow spending.
  • A further R30-million in unspent funds has been declared on payments for capital assets due to delayed spending in the health facility revitalisation component of the NHI indirect grant. This means that healthcare facilities that could have been improved to prepare for a better NHI roll-out were not.
  • R11-million in unspent funds has been declared on the human papillomavirus vaccine grant. Human papilloma virus is sexually transmitted. HPV vaccines help to protect against the type of HPV that can lead to cervical cancer, or genital warts.
  • R20-million in unspent funds has been declared on compensation of employees due to vacant health sector posts.

The declaring of unspent funds on vacant posts was a trend in 2019/20. Public servant compensation budgets are being targeted for being trimmed, as Treasury searches for areas to make savings in order to balance the budget. It’s important that government take a careful approach to this, because while there is a lot of rhetoric about a bloated public service, frontline service delivery of socio-economic rights needs to attract dedicated, skilled professionals to do the work. Nurses, doctors and teachers, for example, need to be valued and retained. 

The lesson to be learnt from this is that although policy documents may tell you about government’s stated plans, taking a close look at a government’s budget is the real proof of commitment: It is in the budget that government’s preferences are revealed, where we see how it is really performing using the money available and its capacity to deliver services. 

Budgeting in tough economic circumstances presents trade-offs and difficult choices. In this context, attention to the small print becomes even more vital. That is why after the budget speech, the Budget Justice Coalition will be scrutinising the budget to determine what the implications are for citizens and what preferences the actual spending reveals. MC

Kirsten Pearson is a Steering Committee member of the Budget Justice Coalition and a Research Fellow with the Rural Health Advocacy Project. The Budget Justice Coalition (BJC) aims to collaboratively build people’s participation in and understanding of South Africa’s budget, and planning processes. Follow the BJC on Twitter: @budgetjusticesa

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