The worrying state of state spending
THE government is facing a real crisis in the public’s perception about the state of government spending. Yet, once again, Finance Minister Pravin Gordhan asserted on Tuesday that the vast majority of government money is spent correctly. Who is right?
The perception problem regarding government expenditure was underlined recently by research firm TMS30x30, which showed that 96% of the respondents interviewed at the beginning of this year believed waste and corruption in government is high, and 90% felt that taxes could be lowered if government corruption was reduced.
According to Moneyweb, the research found that 71% of respondents felt that the amount of tax that they pay is unreasonable considering the benefits they receive and 88% feel income taxes should lower.
These are extraordinary figures but, despite the scepticism, on the face of it, Gordhan is right. When auditor-general Terence Nombembe reported earlier this year, he found R21bn in expenditure that was “unauthorised” or “irregular” or “wasteful” — the three categories of censure at his disposal. That is a pretty hefty sum in anybody’s language, but it does come off total government spending of R800bn. In other words, what might be described in business terms as the shrinkage rate in the government is about 2.6%. Any business with that kind of shrinkage rate would not consider itself out of the ordinary.
Nor does Gordhan ignore the problem of wastage, and in his budget in February he announced the establishment of a new procurement office and officer to combat the system in which businesses and certain government officials “cook up tenders in one form or another”.
Gordhan is obviously worried about the public perceptions, particularly as they seem to be backed up by lower than projected tax receipts. There could be many reasons tax receipts are coming in lower than expected, most obviously the weak economy, but presumably taxpayer resistance also plays a role. The South African Revenue Service managed to meet its revised target of R810bn for the 2012-13 fiscal year, which constitutes a real increase of 1,5%. But this target was originally set at R826bn and was revised downwards twice during the year.
The problem is also more than one of perceptions alone. The auditor-general is mandated to find specific forms of expenditure failures. For example, a decision taken by the correct authority according to the correct procedure to upgrade the private home of the president, for example, would not normally be regarded as “wasteful” according to the narrow definitions of the auditor-general’s mandate.
The office is looking for money, for example, spent on items that were not correctly and formally designated rather than testing the expenditure against a general notion of wastefulness.
In some ways, it is easier to get a feel for how the government is handling its cash not from the total misallocated expenditure, but just from the total number of qualified audits. Here again, the auditor-general has different categories of finding, ranging from misdemeanour to serious. If you take them all together, then in the 2011-12 financial year, clean audits decreased from 19% to 6%. That, too, is a frightening statistic. It means only one in 20 functions of the government — municipalities, functions of different departments, provinces and so on — have clean books, and that number has declined in one year by about 70%. In the auditor-general’s provincial report, the Eastern Cape had not a single clean audit of the 26 audited functions, which is the same as last year.
This decline suggests a broader decline in the financial efficacy of the government, and that suggests that, although public perception might be overstating the problem, they are by no means unfounded.
Gordhan is right to worry.