Supplementary budget must herald fundamental change in the public sector – OUTA and PARI

Urgent measures needed to get debt under control.

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02/07/2020 06:59:48

                                                                                                                                                                                                                      Supplementary budget must herald fundamental change in the public sector – OUTA and PARI    

                                                                                                                                                                                                                      The Organisation Undoing Tax Abuse (OUTA) and the Public Affairs Research Institute (PARI) made a submission on the supplementary budget as part of the public engagement process following Finance Minister Tito Mboweni’s Supplementary Budget last week.

                                                                                                                                                                                                                      “A technical recession, the lockdown and now the massive contraction in the economy that is expected this year due to the impact of the Covid-19 pandemic has had a drastic impact on tax revenue, increasing the budget deficit to dangerous levels. OUTA therefore supports urgent measures to bring spiralling debt under control and avert a debt crisis,” says Matt Johnston, Parliament Engagement Manager at OUTA.

                                                                                                                                                                                                                      “We need political determination and solidarity to create policy certainty for investors, hold transgressors in corruption and maladministration to account, let go of tax-leaching SOEs, cut down government expenditure, and to support activities to turn our country around.”

                                                                                                                                                                                                                      The South African economy is expected to contract by 7.2% this year, with some worst-case scenario estimates that it will contract by up to 16%. South Africa’s unemployment rate increased to 30.1% in quarter one of 2020, with the number of unemployed persons now at 7.1 million.

                                                                                                                                                                                                                      We support the following in the supplementary budget:

                                                                                                                                                                                                                      •    Rationalising the cumulative cost of remuneration in the public service.
                                                                                                                                                                                                                      •    The zero-based budgeting approach.
                                                                                                                                                                                                                      •    A “digital tax” on medium and large ICT firms.

                                                                                                                                                                                                                      We strongly oppose:

                                                                                                                                                                                                                      •    Spiralling debt-servicing costs. This can cause a sovereign debt crisis that will undermine the livelihood of every single South African. We cannot take on more debt.
                                                                                                                                                                                                                      •    Deprioritisation of capital expenditure on infrastructure in critical sectors like Education, Health, Transport and Communications.

                                                                                                                                                                                                                      The following recommendations were made to Parliament’s finance committees as part of a successful turnaround strategy:

                                                                                                                                                                                                                      •    Drastically prune current state expenditure. 
                                                                                                                                                                                                                      •    Provide policy certainty to attract private investment. 
                                                                                                                                                                                                                      •    Encourage long-term partnerships with domestic and international private sector groups for access to alternative financial resources, with civil society groups for access to social capital and with academia for access to intellectual resources.
                                                                                                                                                                                                                      •    Unbundle monopolistic state-owned enterprises.
                                                                                                                                                                                                                      •    Encourage intensive capital investment in SMMEs and township economies to promote self-reliant local economies.
                                                                                                                                                                                                                      •    Hold a series of publicly inclusive debates in Parliament on the implementation of zero-based budgeting.
                                                                                                                                                                                                                      •    Ensure a clear and rational zero-based budget process across all spheres of government and state-owned enterprises with clarity about roles and responsibilities to ensure accountability.
                                                                                                                                                                                                                      •    Encourage enhanced regulation by the Competition Commission to reduce collusion, price rigging and abuse of dominant positions.
                                                                                                                                                                                                                      •    National Treasury to table a Human Resources report and strategic plan to fill posts with talent demonstrating the highest levels of integrity and skills on financial management throughout government.
                                                                                                                                                                                                                      •    Radically reprioritise scarce tax revenue toward capital investment such as infrastructure, and essential service delivery as in goods and services, not only Covid-19 remediation.
                                                                                                                                                                                                                      •    Refrain from increasing existing taxes and tariffs on South Africans due to known patterns of waste and abuse in the public sector and financial crisis due to Covid-19.
                                                                                                                                                                                                                      •    Provide a qualitative analysis of debt, which should feature in the debates. We are concerned that South Africa will fall into a debt spiral if the application of debt is not strictly controlled.
                                                                                                                                                                                                                      •    Encourage a more forceful reaction to AGSA findings, especially at the municipal level.
                                                                                                                                                                                                                      •    The cost of employees in the Department of Defence should be reduced significantly and reallocated to infrastructure expenditure in departments that are essential for recovered economic growth post-Covid19.
                                                                                                                                                                                                                      •    Urgent reforms are required in SOEs: clarity of purpose (do we actually need a particular SOE); clarity of national interest mandate; improved internal governance; and more effective oversight including more appropriate shareholder arrangements.
                                                                                                                                                                                                                      •    A large part of local government is in or rapidly approaching financial collapse, with potentially devastating implications for service delivery. A review of the entire local government fiscal and operating framework is urgently required.
                                                                                                                                                                                                                      •    Section 139 of the Constitution should be used for a wide range of remedies for dysfunctional and financially distressed municipalities.

                                                                                                                                                                                                                      The supplementary budget forecast is that gross national debt will increase to 81.8% of GDP this year as compared with 28% during the 2008 economic crisis.

                                                                                                                                                                                                                      We urge the Committees to facilitate engagements with the AGSA, the Department of Planning, Monitoring and Evaluation, civil society organisations and strategic oversight entities such as the Financial Intelligence Centre to promote experimental monitoring and evaluation of Covid-19 related spending.

                                                                                                                                                                                                                      The submission on Supplementary Budget 2020 by OUTA and PARI to the Select and Standing Committees on Finance is here.

                                                                                                                                                                                                                      Picture: Shutterstock

                                                                                                                                                                                                                      OUTA is a proudly South African civil action organisation, that is purely crowd funded. Our work is supported by ordinary citizens who are passionate about holding government accountable and ensuring our taxes are used to the benefit of all South Africans.