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OUTA Submission OUTA’S COMMENTS ON THE SECOND ADJUSTMENT APPROPRIATIONS BILL & MTBPS Submission to the Select and Standing Committees on Appropriations Matt Johnston OUTA Parliamentary Engagement Manager Email: [email protected] Executive summary The key message of OUTA's submission to the Appropriations Committees on the Second Adjusted Appropriations Act is that it is time to improve the effectiveness and efficiency of public spending. Services delivered do not represent a good bang for buck. There is an urgent need to improve the effectiveness and efficiency of public spending. It is time that National Treasury stops making it look like there are crisis circumstances that require them to go delving into votes to do adjustments. Bail outs to state-owned entities do not arise out of the blue. It is quite clear in advance when SOE debt obligations will become due. There is also an urgent need for improved oversight by parliamentary committees. Parliament relies on what departments report about spending without verifying it. We recommend improved oversight of this by parliamentary committees, and better use by those committees of the Department of Performance Monitoring and Evaluation reports. The lack of outcomes resulting from capital-intensive expenditure in several major programmes is not accidental and cannot be ascribed to purely economic causes. It is a consequence of poor planning and a lack of political will to abide by public finance management laws. Further, this follows from a lack of fiscal policy that is realistic and reflects the skills deficit in our public service. Often, the scope of expenditure of plans have been deliberately inflated, beyond what is necessary, to enable payment of large amounts to intermediaries that do not add any value or tangibly contribute to the fulfilment of the objectives of the expenditure programme. We strongly support the proposal for zero-based budgeting and look forward to seeing how this will be implemented. 1 Table of contents Introduction 3 Improving the effectiveness and efficiency of public spending 4 Adjustments 7 Vote 24: Independent Police Investigative Directorate 11 Vote 25: Justice and Constitutional Development 12 Vote 28: Police 13 Vote 34: Mineral Resources and Energy 13 Vote 40: Transport 14 Vote 14: Statistics South Africa 14 Mid-year performance against spending 15 Reprioritisation of Expenditure 17 Mineral Resources and Energy 18 Water and Sanitation 22 Transport 36 Roads 36 Rail 39 Aviation 40 Local government 41 Stimulating local economic development 43 Zero-Based Budgeting 47 Parliamentary Oversight 50 Audit outcomes and public governance improvements 51 Key recommendations 54 Conclusion 55 2 Introduction The 2020 MTBPS is arguably the most important moment in South Africa’s fiscal history. The combined effects of restrictive measures taken to contain the Covid-19 pandemic, the failure to curtail systematic looting of public resources over the past decade (and beyond), and redirection of funding away from basic needs towards large bungled projects are now being felt. Service delivery does not match spending. We spend significant amounts on the public service but instead of improved productivity, we see the increased entrenchment of corruption and maladministration, knee-jerk solutions for failing state-owned entities and ever-increasing debt. The government is significantly failing to do more with less, and blaming the problems on the pandemic’s effects ignores the problems of more than a decade of systemic corruption and maladministration. The current situation demands a robust fiscal policy that will eliminate any and all expenditure items that have not had a measurable and satisfactory impact on the lives of ordinary South Africans. OUTA notes that the call for submissions highlights that the National Assembly's and the National Council of Provinces' Appropriations Committees are required, according to the Act, to consider and report on the following issues: ● The spending priorities of the national government for the next three years; ● The proposed division of revenue between the spheres of government and between arms of government within a sphere for the next three years; and ● The proposed substantial adjustments to conditional grants and local government, if any. This submission focuses on analysing the Second Adjustments Appropriation Act of 2020. It focuses on: (1) recommendations for improving the effectiveness and efficiency of public spending; (2) proposed adjustments; (3) performance-measurement outcomes relative to spending, including core sectors that must undergo reprioritisation of expenditure in our view; (4) zero-based budgeting; (5) Parliamentary oversight; and (6) audit outcomes and public governance improvements. 3 To successfully navigate an economic recovery, there must be acknowledgement that there is a need to address not only where public finances are being allocated, but also the delivery against that spending. For too long, everything has been a priority, spending has been growing, as has public debt, but services delivered do not represent a good bang for buck. The current economic and fiscal circumstances require that allocative and productive efficiencies must be improved drastically. Improving the effectiveness and efficiency of public spending The South African Government has reached the limits of its ability to fund its expenditure via taxes, excise duties and user charges. Non-discretionary spending which includes the wage bill and debt servicing costs crowds out social and infrastructure investment. To fund the growing deficit and debt obligations, South Africa is forced to breach the limit which it can safely borrow. South Africa needs to undertake fiscal consolidation in order to restore its fiscal balance. Increasing tax rates is not only regressive, but it will hamper the economy from recovery. In order to restore fiscal balance, cost reduction strategies need to be utilised and applied in a manner that preserves social spending to support the most vulnerable and protects human rights realisation. Across the board cuts are injurious, which is why OUTA is in support of the Zero- Based Budgeting approach that Treasury has indicated will be implemented. When the 2008 downturn affected countries, the OECD developed a conceptual framework of efficiency and effectiveness which links inputs, outputs and outcomes1. This conceptual framework is broadly in alignment with the Results-based Management framework that South Africa has adopted. In the conceptual framework below, budget spent and non-monetary resources utilised represent the input. These are used to produce an output, in turn leading to an outcome. For example, the input of spending on education leads to an output of educational attainment rates. 1 https://ec.europa.eu/economy_finance/publications/pages/publication11902_en.pdf 4 The OECD explains that “the greater the output for a given input or the lower the input for a given output, the more efficient the activity is. Productivity, by comparison, is simply the ratio of outputs produced to input used”. How effective the outcome is depends on the quality of the output. OUTA is concerned about both the efficiency of spending and effectiveness of services. We would like to see better efficiency being realised through the two approaches contained in the OECD’s conceptual framework: first, the elimination of activities that are unnecessary (better allocative efficiency); and, second, the reduction in the resources needed to achieve essential outputs (better technical or productive efficiency). Priority should be given to the first, achieving allocative efficiency, on the basis that doing the wrong thing, even if done well, is always inferior to doing the right thing, even if done badly. Also, substantive results can sooner and more easily be achieved through the elimination of entire activities than they can through efficiency improvement initiatives that are often slow and arduous exercises. In terms of allocative efficiency, the main areas of focus include potential activities and/or entities that can be eliminated entirely or operationally restructured. We would like to see a spending review of advertising spend across departments. We want to see advertising spend being utilised in an ethical manner and are concerned that some departments may have been utilising their considerable ad spend as a tool to silence negative reporting. When reviewing the spending per budget vote we see indications that when 10 departments were merged into five in 2019, it appears this was in name only as they continue to have separate 5 programmes and their operations haven’t necessarily been streamlined into one unified department2. We would also like to see the spending habits of South Africa’s foreign missions put under a microscope. We are concerned that all too often persons who have disgraced themselves are rewarded with diplomatic posts and that the salaries for these posts are higher than many respected INGOs pay. In terms of allocative efficiency we think it is important to ask if the number of countries in which South Africa has foreign missions is justified. OUTA is utterly horrified to hear that South African deputy ambassador to Sudan, Zabantu Ngcobo, and her partner are suspects in a murder investigation where two Sudanese women called Nisreen and Marwa were allegedly murdered in December 2019 as a “training exercise” before hired hitmen were intended to kill the SA embassy's intelligence officer3. Embassies are meant to support
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