Budget set to unleash a ‘double whammy’

Cuts to be made where allocations not used

WHEN Finance Minister Pravin Gordhan said in his Budget R25 billion in spending cuts would have to be made in the next three years to help balance the books, another even more significant shift went almost unremarked: the R31.8bn that is to be taken from some programmes to fund higher education, the Brics bank and small business promotion.

This means some departments will be hit by what Treasury director-general Lungisa Fuzile described as a “double whammy”: their baseline allocations have been revised down and then, from within that reduced spending ceiling, they will have to give up money so it can be used elsewhere.

Responding in Parliament yesterday to submissions on the Budget from civil society and questions from MPs, Fuzile said this made working for the Treasury a “terrible job” in some ways, “which is why we don’t have friends”.

“Once you’ve reached a stage where what this economy can afford is X, you then have the job to persuade everyone that everything must fit within X – X cannot be elastic, because then there is no country,” Fuzile said.

Chief director for fiscal policy Ian Stuart said the Treasury had tried to “spread the pain”, dividing it between the three spheres of government, with national taking the biggest hit, and to cut spending where it would have the least impact on service delivery.

“We have put quite a lot of the pressure on national compensation of employees because we felt there was still some space there and as you know, the wage bill has for some time been growing more quickly than we like,” Stuart said.

A “significant amount” had come from there.

As Gordhan announced in the Budget, the government’s personnel administration system is to be “locked” to prevent the filling of vacancies, especially at managerial level, and permission to hire will be given only upon production of a human resources plan that shows how the department will fit into the new spending envelope.

Stuart said the provinces’ share of national revenue – divided according to a formula taking population and poverty levels, among others, into account – had also been reduced along with conditional grants and the same had been done for local government.

Responding to criticism from MPs that this could affect growth and result in infrastructure backlogs, for example in the replacement of mud schools, Stuart said these conditional grants had been persistently underspent, so the impact on the eventual outcome would be minimal.

In all, 51 percent of spending reductions would come from the national sphere, 21 percent from provinces and the balance, 28 percent, from local government.

But because provinces received 43 percent of nationally raised resources (excluding revenue they raise themselves), their share of the reductions was less than half that of the national govern- ment, Fuzile said.

It was a “difficult admission to make”, Fuzile said, that while there was a desperate need for appropriate school infrastructure, for example, programmes to build it had historically been able to spend just 60 percent of their budget.

“You have to say when you are faced with tough circumstances like we face right now, there is no point in insisting on channelling resources to that programme and therefore in the immediate term face the problem that rating agencies, creditors, South Africans in general, when they look at our fiscal trajectory, say it doesn’t make sense,” Fuzile said.

“But part of it is because we are presenting a picture that we are going to spend multiple billions on school building, which we know we won’t spend.”

There was “a place in budgeting for aligning the resource allocation with the capacity to spend”, Fuzile said.

PICTURES: JASON BOUD ‘NO FRIENDS’: Ian Stuart, chief director of fiscal policy in the Treasury and Lungisa Fuzile, director-general of the National Treasury.

TOUGH: Yunus Carrim, chair of the standing committee on finance and Charel de Beer, chair of the select committee.