Question NW3899 to the Minister of Finance
11 December 2023 - NW3899
Alexander, Ms W to ask the Minister of Finance
(1)In light of the expenditure cuts presented in the 2023 Medium-Term Budget Policy Statement, and with reference to his statement affirming that the cuts were not made without detailed analysis, what are the relevant details of the specific analytical model employed to ensure that well-functioning departments with sound financial management are not adversely affected; (2) what are the reasons to subject departments that demonstrate effective governance to the same fiscal constraints as those that do not perform adequately?
Reply:
1. The expenditure data presented in the 2023 MTBPS is a synopsis of the comprehensive details that will be presented at the time of the 2024 Budget. In the meantime, as indicated in the 2023 MTBPS the rise in debt-service costs, and weaker revenue collection, is having an adverse impact on the total amount available for government spending. This is the first and most fundamental consideration.
The National Treasury conducts regular assessment of the financial performance of departments, including in respect of entities that fall under the ambit of specific Ministries. In addition, since 2021 the National Treasury has conducted detailed spending reviews whose outcomes have been shared with departments. With this in mind, and in the context of proposed spending reductions, the National Treasury’s assessments has highlighted poor or low spending over time, poor programme performance, the accumulation of surpluses within departmental accounts and entities, own revenue generation capacity, and opportunities for savings as key considerations in applying reductions. In addition, broader policy decisions of government to refocus priorities has an impact on the decisions related to spending allocations.
The budget process, especially any downward or upward adjustments, is undertaken as a collaborative and consultative process within government. This is because it involves difficult choices and decisions that cannot and should not be made in a purely mechanistic fashion. Moreover, departments and sectors of government perform vastly different functions.
The choices and decisions that must be made are discussed in engagements at the national level in the Ministers’ Committee on the Budget, as well as Cabinet. For sub-national governments, all relevant budgetary issues are determined through the Budget Council (a legislated structure composed of provincial MECs for Finance and the Minister of Finance), and the Budget Forum (a legislated forum that includes members of the Budget Council, the Department of Cooperative Governance, and the South African Local Government Association (SALGA). Prior to these discussions, direct engagements take place between departments and officials of the National Treasury on the details of their budgets. Through these processes, agreements are reached on the how to manage the adverse situation for the fiscus, including the choices for spending reductions. Some of these issues remain under discussion.
2. The fiscal constraints on government and the budget are determined by economic performance, tax revenues and market conditions for borrowing. High and rising debt-service costs act as an automatic crowding-out of government spending priorities, including the most important priorities. For this reason, the 2023 MTBPS proposes staying the course for growth and sound public finances, in order to arrest this negative trend. The MTBPS proposal includes measures to boost economic growth so as to improve tax revenue collections without increasing the individual burden on tax-payers – otherwise known as base expansion, and some spending reductions to ensure that the debt position of government does not go out of control. This strategy, if implemented, will prevent the need for even more severe spending adjustments to the budgets of critical service delivery functions.