The medium-term budget policy statement released on October 25 commits the government to increasing spending by R80billion over the next three years. However, past performance suggests that government departments may struggle to spend the funds coming their way.
Finance Minister Trevor Manuel will be filling the coffers of departments that have a track record of underspending in areas that are crucial for meeting the government’s development goals.
Last year the government failed to spend about R6,3billion, or 1,5% of the total budget. Of that unspent balance, R3,4billion was rolled over to the 2006/07 budget.
Three departments were responsible for the bulk of underspending. Land affairs failed to spend R1billion (27%) of its budget, the national treasury did not spend R1,1billion (8%) of its budget and social developÂÂment also failed to spend R1billion (2%) of its budget.
Despite significant underspending by land affairs in the past, the department saw its budget grow by 25% in the 2006/07 budget. Six months into the current financial period, it has only spent a quarter of this amount. Reasons range from protracted negotiations with landÂÂowners to high staff turnover.
Provincial governments were responsible for almost R3billion in unspent funds. According to Colm Allan, the director of the Public Service Accountability Monitor, an estimated 60% of the national budget is spent in the provinces. In KwaZulu-Natal, 17,3% of the social development budget went unspent. There was a persistent trend of underspending in this sector in all of the country’s provinces.
This week the treasury announced that it would give 58,8% of the R80billion it plans to spend over the next three years to provincial and local governments. A third of the provincial allocation and three-quarters of the local government allocation will be in conditional grants.
This could complicate spending further. Ebrahim Khalil-Hassen, public policy analyst at labour research body Naledi, said the regulations around conditional grants often result in underspending — and it can take up to a year to prepare an application, have it assessed and receive and distribute conditional grant money.
He said some projects also result in underspending because departments cannot accurately predict the timeline of the project. This applies especially to capital expenditure in areas such as infrastructure. Public-private partnerships also tend to result in underspending because of the time it takes to work out contractual issues, said Khalil-Hassen.
Meanwhile, the treasury anticipates that government departments will underspend, or save, R4,2billion in the next budget cycle.
Manuel said this week that the wage bill would increase to hire more civil servants, especially in health and social welfare. However, several departments have attributed significant underspending to their inability to fill vacancies. In this manner, home affairs saved R81million, the national treasury saved R88million and land affairs saved R64million. Departments such as the presidency and national treasury have said explicitly that they are unable to fill vacancies at senior management level .
In his speech on Wednesday, Manuel acknowledged that, while public spending has accelerated in the past five years, ”in many cases increased resources have not translated into increased outputs”.