“We must all work together to pull the wagon through the drift,” Trevor Manuel said in every official language but English on Wednesday. And he is using all the room available in the Constitution to ensure that local and provincial governments get their shoulders to the wheel.
With his balancing act eased by a larger-than-expected tax overrun, Manuel was able to declare of his ninth Budget that “the big decisions are behind us”. He announced a growth-boosting package of tax cuts and infrastructure spending, continued expan- sion in welfare transfers, and a decrease in the budget deficit — something for everyone, from bond traders to schoolteachers.
Estimates of the budget deficit over the next three years remain largely unchanged, however, as more rapid economic growth and the consumer boom help fill government coffers. But even as the availability of funds improves, frustration over delivery failures at provincial and local level is becoming intense, and Manuel is looking for new tools to enhance central management of crucial programmes.
The Division of Revenue Bill, the legislation introduced each year to govern the allocation of funds to the various spheres of government, this year contains provisions aimed at improving Cabinet ministers’ leverage over their counterparts in provinces and municipalities.
According to the Bill, tabled with the Budget, “the Cabinet Member responsible for a concurrent national and provincial legislative function may determine a monitoring system for the performance of provinces or municipalities, and may make recommendations at any stage to a province or municipality on improving service delivery performance and compliance with national legislation”.
It goes further: if national ministers anticipate service delivery failures in other spheres of government, they can give very specific instructions on the detail of departmental management, including staffing issues, governance and administration. And premiers and mayors must “take into account” what they say.
Provincial departments responsible for education, health and roads must participate, along with the public works departments, in the Infrastructure Development Improvement Programme of the Treasury to ensure that they are unable to continue passing the buck for woeful underexpenditure on crucial investment programmes.
“This about giving expression to the idea of cooperative governance,” says Ismail Momoniat, Deputy Director General in charge of intergovernmental relations at the Treasury. He concedes that the Constitution limits government’s scope for action, but stresses that the new measures provide for improved accountability in a system that has so far enabled provinces to get away with underexpenditure.
Essentially, it seems, the proposed law creates a political mechanism that will help national ministers bring their provincial and municipal counterparts to heel, even if the Constitution disallows more robust legislative action. As for provinces such as the Western Cape, which think they can give themselves room by imposing taxes of their own, Momoniat sounds a cautionary note.
“They’re going to have to jump through a lot of hoops before we approve it,” he said of Premier Ebrahim Rasool’s proposed fuel, accommodation and development levies.
The Treasury won’t countenance any new taxes that threaten to push the overall tax burden higher than 25% of gross domestic product (it is currently 24,2%), nor will it approve measures that clash with national policy on containing the cost of doing business, trade and fiscal competition.
The Constitution gives the provinces scope to tax, but the Treasury has a potent weapon against those that insist on taxing their way out of mismanaged finances: it can simply reduce the deliquent’s share of national revenues.
There are other signs, too, that the government’s core administrative and managerial functions are being beefed up to improve monitoring and implementation of spending plans.
The Presidency is expected to spend R240-million in 2007/08, up from R144-million last year, and the budget for its Cabinet office, which coordinates the implementation of the government’s plan of action is, to triple next year from R6,9-million to R21,8-million.
Minister of Public Service and Administration Geraldine Fraser-Moleketi, charged with improving capacity in the civil service, will oversee spending growth in her department of 21% a year for the next three years, with line items for service-delivery improvement and anti-corruption measures more than doubling.
And in the Department of Public Enterprises, which is to pilot the massive infrastructure investment programmes of Eskom and Transnet, there are sharp increases in staff spending to oversee complex restructuring work. At least R159-billion is earmarked for new investments. There is now “far more nuance in the way spending happens”, Manuel told journalists on Wednesday. And more nuance too in the way the government watches it.
In a nutshell
The government is to spend
R418-billion in 2005/06, up from R291-billion in 2002/03, as its expansionary approach gains traction:
R22-billion more for social grants;
R6-billion to speed up land restitution;
R1-billion for agriculture micro finance;
R4,2-billion for pay progression in the police;
R6,9-billion for improving teachers’ salaries; and
R885-million to kick-start taxi recapitalisation.
But R11-billion in unexpected revenues helps pay for tax cuts, and a cut in the budget deficit from 3,1% of GDP, to 2,3%:
Corporate tax rate down from 30% to 29%;
Income tax relief worth R6,8-billion;
Small business tax cuts total R1,8-billion
But the fuel levy goes up 10c a litre, and taxes have increased on cigarettes (52c more for a pack of 20) and alcohol.
Economic growth above 4% is expected for the next three years and inflation is set to stay below 6%, but the current account deficit swells to 3,3% next year as imports grow.