….article dated 20 July 2020….
Balance between needs and cuts required….
The Financial and Fiscal Commission (FFC), the independent body which reports to Parliament on intergovernmental financial relations (IGFR) in terms of the Constitution, has told MPs of its deep concern that Minister Mboweni’s budget cuts, announced in the Supplementary Budget Bill, may adversely affect the ability of local government to manage service delivery commitments in the coming year.
FFC manager for fiscal policy, Eddie Rakabe, is also concerned that National Government has not given guidance to provinces and local municipalities on IGFR matters and how they should reprioritise their budgets after having chopped them.
Help down the line
Whilst acknowledging the reasons for the cuts because of the unforeseen pandemic, he called for government to recognise that a delicate balance has to be struck between expenditure reduction and the meeting of basic needs. On top of this, the Minister had asked all parties to switch to zero-budgeting which may not be understood or implemented properly.
FFC Chairperson, Prof Daniel Plaatjies, acknowledged that an adjustment Budget by Minister Mboweni was necessary to mitigate the downsides of responding to the COVID-19 crisis but FFC’s main point was that in making Budgetary adjustments in such a short period of time, it was going to be extraordinarily difficult for all to produce new frameworks that were growth enhancing.
Not how much but how
Eddie Rakabe told parliamentarians that their comments were somewhat critical in the light of the Minister indicating that about R230bn in expenditure will have to be cut over the next two years which appeared drastic and care had to be exercised.
The FFC advises, he said, that a delicate balance must be struck between expenditure reduction and the meeting of basic needs. He was insistent that as expenditure is reduced, there had to be a plan to ensure that critical social services are not compromised.
The constitutional criteria in any Budget consideration had to be on the basis of spending where the basic rights of people are protected, Rakabe noted. In this respect, the reprioritisation proposed by the supplementary Budget in the view of FFC complied with this criterion, he said. However, the FFC was deeply concerned about the absence of a framework to guide provincial reprioritisation as a process — provinces having to do the reprioritisation on their own.
A little left and a little right
FFC agreed with the Parliamentary Budget Office, who had reported in the same meeting beforehand, that it was going to take a lot to get South Africa back to its pre COVID-19 position, which was not very strong in any case and the situation was fraught with the threat of collapse of social security plans.
Eddie Rakabe said, “We agree with the Minister that SA’s sovereign credit rating is a major concern since credit rating downgrades affect government’s ability to meet borrowing requirements and that to raise revenue from tax to meet social needs just because of the overwhelming need to meet debt servicing costs is not correct.
All the same, he said, the proposals needed much more care in application. Conditional grants had to be the main focus and whether there was a complete necessity for each.
All too fast
FFC recommended that government reconsider the sequencing of the phases for managing the Covid 19 pandemic. It was essential that capacity of provincial and local government treasuries be strengthened to ensure that they promote spending control and enhance spending effectiveness, they considered.
The FFC acknowledged the zero-based budgeting announcement but Rakabe said that he still remained most concerned about the effectiveness of changing the budget structure and the way things had been done for years so suddenly. He said time and resources were necessary to “ operationalise zero-based budgeting” properly.
He warned that there are “a whole lot of issues that need sorting out before moving full steam ahead with such a complicated financial concept being endorsed for all levels.
He told MPs of the Finance Standing Committee that in the FFC view, there was a great need to outline more clearly on how the un-allocated R19.6bn for job creation allocation is to work and who gets it needs to be a lot more explicit. On the President’s Covid-19 relief package, the divisions between national and provincial allocations were unclear, he commented.
Managing the fiscus through and beyond the Covid-19 pandemic had to be fleshed out in a lot more detail, Eddie Rakabe concluded.
From the meeting it became clear that whilst the FFC believes that an increase in tax revenues immediately was not a feasible policy option to assist local government through the COVID 19 period, the Minister’s announcement that future tax increases of R5bn in 2021/2022 year, R10bn in 2022/2023, R10bn in 2023/2024 and R15bn in 2024/2025 were considered as an acceptable necessary alternative.