A Budget for a New Era of Engagement

Signal vs. Noise in Fiscal Policy Telkom's microwave tower on Naval Hill. Photo: Graeme Williams Credit: Media Club South Africa (http://www.mediaclubsa.com)

Debates on the national budget have been called “noisy.”
Budget 2011 has been particularly noisy, as the sheer number of voices responding to the budget has increased, as has the complexity of the arguments being made.
This is a healthy development as it strengthens democracy, and ensures that government becomes accountable and society focuses not only on criticisms, but also alternatives.
The central challenge for government is not only to detect the signal through this noise, but to amplify the signal by taking on board as many players as possible. Government to date has not managed to do this with the furore around the youth subsidy, a case in point.
Continue reading “A Budget for a New Era of Engagement”

Translating allocations into inclusive transport and housing spending

The additional allocations made on Transport and Human Settlement should be used to achieve sustainable human settlements and ensure greater access to socio-economic opportunities.


Linking transport and housing planning. KwaZulu-Natal North Coast: Reconstruction and Development Programme (RDP) houses. Photo: Hannelie Coetzee, MediaClubSouthAfrica.com

If only words could easily translate to action. Listening to the 2011 Budget speech it has all the ingredients of a balanced menu to move South Africa to a path of sustained development including:

  • R800 billion has been allocated to economic and infrastructure development over the next three years.
  • A consolidated investment of R66 billion and R122 billion has been allocated for transport and human settlement development respectively.

Moreover, the job creation priorities recognise that the state must provide the social and physical infrastructure to ensure inclusivity in the economy. To achieve this, the budget speech is both short term and long term in outlook.
The delivery of housing has to ensure access to socio-economic opportunities, especially through linking housing and public transport infrastructure. The provision of a reliable and efficient public transport system will certainly deliver opportunities for improving the quality of lives and address the spatial distortions that continue to reflect past injustices condemning the marginalised to depend to the state and be perpetual recipients of state grants.
Caution should however be exercised that the expansion and modernisation of the transport and transport infrastructure does not result in increased cars on our roads and further contributing to environmental degradation. I note and recognise that the speech does touch on sustainability and green growth but does not go into detail in addressing these. The ever-increasing fuel prices should galvanise the country to support an improved transportation and public transport system. Importantly, the Minister alluded to shifting away from unnecessary consumption patterns.
Furthermore the provision of reliable and efficient public transportation network will on its own ensure increased ridership on public transportation and reduction in private car usage. This will certainly lead to a reduction in congestion and emissions resulting from private car usage.
The Minister also recognises

‘that now is the time to do extraordinary things, in dealing with our particular development circumstances. It requires new ideas and bold efforts from all: government, business, labour, communities and every family . . . Now we have to ignite the flame of higher inclusive growth, and sustain it.’

The challenge lies in the different ministries detailing how they’ll be operationalising their allocations to ensuring integrated and sustainable development. The challenge of capacity and competency of the different ministries  adopting an integrated approach to planning and implementation will thus be crucial to ensuring effective spending.
Photo Credit: Media Club SA

Don’t like the budget? Well there is nothing you can do about it

Yesterday Minister Gordhan told the people of South Africa that there is about R20bn more to spend than was projected in the October Medium Term Budget Policy Statement. Of this amount, he proposes to spend more than half on increases to civil servant salaries.  The effects of last year’s public sector strike also drove the budget deficit significantly higher.  Minister Gordhan told us that public sector wage commitments will have the same effect on the 2012/13 budget.  The result is that South Africans can expect very little help in dealing with rising food and petrol prices: social grants barely keep up with inflation and there is almost no real income tax relief.
The extra money committed to government salaries is also about five times what we will spend on the new employment programs promised in the State of the Nation address. It seems that Treasury is not yet ready to put money behind President Zuma’s announcement of tax cuts for youth employment – all Minister Gordhan had to offer in this regard was the promise of a discussion paper.
So what can South Africans do if they don’t like what the finance minister has proposed? Despite the much announced ‘social compact’, the answer is ‘not much’.
In 2010, the International Budget Partnership rated South African budget documents as the most transparent in the world. This is a remarkable achievement. Sadly the situation is very different when it comes to participation in the budget decisions that government reports on so diligently. Government is happy to tell us about what they do with the budget in world class detail. But the general public cannot use this information to influence what government chooses to do with public funding in the first place. When it comes to the budget, the South African electorate is all dressed up in information, but has nowhere to go.
In a democracy, Parliament should be the voice of the people in the formulation and oversight of the budget. Despite the hope held out by the 2009 passage of the Money Bills Amendment Act, Parliament still plays a subservient role in the budget process. Granted, it did make a number of recommendations to Minister Gordhan after last year’s budget. In response to most of their recommendations, Minister Gordhan effectively told Parliament “we’ll think about it”.  When Parliament asked to have more time to consider tax and spending priorities in the Medium Term Budget Policy Statement the response was that  it doesn’t suit Cabinet’s timetable.
While budget recommendations by Parliament and a written response by the Finance Minister are already progress over what we had in the past, they can hardly qualify as examples of budget democracy. Will Parliament force the issue and make the amendments that Cabinet can only promise to think about? Not likely. Not if the process for the implementation of the Money Bills Amendment Act is anything to go by. This Act was meant to give Parliament, and by extension the people of South Africa, a substantial role in the budget process. Yet more than a year after its enactment, MPs are still going on study trips to help them think about how to implement it.
Why does this matter? Some will argue that most South Africans don’t really care about the deficit or the cost of public sector wages. But many people care about grants, employment, education etc. The estimated 300 service delivery protests recorded in South Africa last year confirm that many South Africans want to have a say in how public money is spent. If Parliament cannot or will not be the voice of the people in the budget process, then we urgently need a national debate about how to fix this broken link in the democratic process.  It is only when the majority of people can actively buy into budget decisions that we will be able to form a true social compact.
It is safe to say that a significant part of South Africans would have chosen more job creation initiatives and larger social grant increases and tax cuts over government salary increases in this year’s budget. They should be given the opportunity to make that choice.

Enter the entrepreneur? Budget 2011 Proposals for Many Small Businesses not Just White Tigers


Zapreneur declares it has an interest in this subject. Photo - Moe and Milsey's Construction Company

We like them. The small business that succeeds against the odds. Minister Gordhan even saluted a couple of success stories on the budget. In the build up to the budget, I choose to read The White Tiger by Indian author Aravind Adiga . The White Tiger provides a devastating description of the poverty traps, and that rare success stories translate to private gain without a wider social impact. The central premise of the book is that successful entrepreneurs are as rare as white tigers. In fact, in South Africa the data provided by the Global Entrepreneurship Monitor indicates that job creating, opportunity based businesses are a rarity in South Africa. The book though not set in South Africa provides a useful refrain from the rah-rah usually associated with entrepreneurship. What then does the budget propose for the small business entrepreneur?
Continue reading “Enter the entrepreneur? Budget 2011 Proposals for Many Small Businesses not Just White Tigers”

Youth Subsidy and building consensus

Youth subsidy
KwaZulu-Natal Midlands: Ceramic painters Zama Nqubuku (foreground) and Wiseman Ndlovu at work in the Ardmore Ceramics studio. Photo: Hannelie Coetzee

Minister Pravin Gordhan reintroduction of the proposals around the youth subsidy is a brave political decision, given the overwhelming and justifiable criticism of the proposal. In tabling the new proposal Minister Gordhan has listened to the criticism and opted to tweak the proposal. The first proposal provided a wage subsidy or hiring voucher to lower cost of labour and compensate employers for the perceived risk of hiring inexperienced workers. In tweaking the proposal, government has shifted from this position, so that it is now to be administered as a tax credit. This is significant step as it potentially means that entry-level wages will remain the same.
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Education gets a whopping R190 billion

Education received the largest chunk of social spending, sitting at R190 billion this year to 215 billion in 2013/14, Finance Minister Pravin Gordhan revealed in his budget speech on Wednesday.
Gordhan said education makes up 21 percent of the government’s total expenditure in terms of non-interest allocations and was the largest receiver of the additional allocations.
The National Revenue Fund of R889 billion is provided for in 2011/12, which is 9.8 per cent more than the revised estimate for 2010/11. Consolidated expenditure is projected to increase from R897 billion in 2010/11 to R1.2trillion in 2013/14, with non-interest spending on public services growing by an average of 8 per cent a year.
Education policy analyst Graeme Bloch said it was not surprising that education received the lion’s share of the budget.”This is as it should be as education is the number one national priority and the best route out of poverty for individuals and the country.Nonetheless, the issue is the effective use of the funds, thus proper systems of monitoring and accountability. How will teachers, officials, principals and learners deliver on their promises and responsibilities?” Bloch asked.
The government has added R8.3 billion for school infrastructure. About R1 billion would be added for the funza lushaka teacher bursaries and bursaries for postgraduate students in natural sciences. R9.5billion would be put aside for expanding further education and training colleges and skills development.Bloch said South Africa needed a concrete plan to address infrastructure backlogs. “We need proper norms and standards and a detailed plan for libraries, labs, staffrooms and so on. We need to hear the voices of young people, learners and their parents to ensure funds are properly spent and government officials do their jobs,” he said.
The government has increased spending by 16 percent over the past two years. Education experts and policy analysts, however, argue that it is not so much about the quantum of the budget allocated on education, but how it is spent.
The provincial education spending is expected to grow by 6.5 percent over the medium term from R143.2 billion this year to R171.2 billion in 2014. Gordhan said this was mainly due to growth in compensation of employees. The Basic Education Department has put aside R8.2 billion to replace about 3 627 identified informal and unsafe schools structures. The large chunk of the money will go to the rural Eastern Cape to address the lack of proper classrooms.
A total of R24.3 billion will be set aside for education and skills spending over the next three years. Gordhan said all government departments were required to cut their spending by 0.3 percent in order to provide additional funding of R6 billion to the National Student Finance Aid Scheme. “I want to place on record our appreciation to Cabinet colleagues and departmental accounting officers for their co-operation,” he said.
Further Education and Training (FET) colleges are allocated over R14 billion for this year.  This money would enable government to increase enrolment from about 198,000 in 2010, to 315,000 in 2011.
State bursary scheme for FET college students would increase to R5 billion over the next three years, including an additional R3.9 billion to enable an additional 120,600 poor learners to access college opportunities.

Plainspoken Pravin's Word Cloud

What does the 2011 Budget Speech emphasis when constructed as a word cloud? Taxes, comes out really strongly from the word cloud below. Surprising that jobs or employment do not come out more strongly, given the emphasis in the speech.
It is interesting what one learns when constructing word clouds, and in this instance it was how prominently “government speak” features in the post. I have deliberately left in words like “programme” and “framework”. It is not to suggest that Minister Gordhan speech is filled with bureaucratic babble. Far from it, the speech reads really easily and communicates well.

Pravin Gordhan's Word Cloud 2011

Readers might also be interested in seeing what the word cloud looked like before I started tinkering and removing words, such as common words and words that are incidental to the speech. I have included this below.
Words before editing the Budget 2011 word cloud

Acknowledgement: Wordle

The tough life of budgeting for social grant holders

The national discourse on social grants as set by President Jacob Zuma emphasises that South Africa is creating a “developmental” and not a “welfare” state. The definitional debates on these terms are grounded by the realities of households reliant on social grants. Minister Gordhan announced increases to the social grant, yet when projected inflation is taken into account the majority of grants actually experience a real decrease or a small real increase as shown in the table below.
Continue reading “The tough life of budgeting for social grant holders”

The impact of the recession on non-interest spending

A central goal of the National Treasury is to make sure that non-interest spending remains higher than total expenditure. The intention is to direct more funds away from payment of debt. The recession has however placed a significant strain on the tax revenue. The chart below shows that between 2007 and 2009 government managed to ensure that non-interest spending grew faster than total expenditure. In other words, as a country we were able to grow spending on service delivery quicker than debt service costs. Since 2010 the picture has changed, with total expenditure (which includes debt service costs) growing more quickly. The intention of the National Treasury is clear in the forward estimates. It aims to close the gap between non-interest spending and total expenditure. This is important as it protects spending on service delivery.
[easychart type=”line” height=”300″ width=”350″ title=”% change in total consolidated expenditure and non-interest spending” groupnames=”Total consolidated expenditure, Non-Interest Spending” valuenames=”2007/08,   2008/09,   2009/10,   2010/11,   2011/12,   2012/13,   2013/14″ group1values=”15.2,   17.5,   17.5,   8.4,   9.8,   8.9,   8.8″ group2values=”16.9,   19,   18.7,   7.7,   9.3,   8,   8.2″ ]
(Data Budget Review, Authors Calculations)
In the context of a decline in revenue – even though there has been an increase when viewed against the 2010 estimates – government has increased the deficit. This is consistent with the counter cyclical strategy being followed by government. However, the challenge of protecting non-interest spending growth is vital to delivering services and enhancing opportunities, especially for the poor.