The Minister of Finance

The Minister of Finance

National Treasury

40 Church Square

Pretoria 002

24 February 2014

Dear Hon. Minister Pravin Gordhan,

Re: Budget tips prepared by PSAM for consideration by Minister Pravin Gordhan as he prepared to deliver the 2014 National Budget Speech

In the inclusive tradition of submitting “budget tips” we write to you in the lead up to the National Budget Speech on 26 February 2014. In taking up the opportunity to engage with the budget as citizens, we acknowledge that while the national budget is a vital tool in eliminating societal inequalities, budget reform itself must be a sustained process informed by the people’s needs.

The Public Service Accountability Monitor (PSAM) is a self-funded institute based at Rhodes University in the Eastern Cape.[1] The PSAM aims to improve the provisioning of public services by strengthening social accountability initiatives concerned with improving governance and public resource management processes. At the centre of this is the need to monitor and inform budgetary processes. The PSAM has been engaged in this work since 2007. The views put forward in this letter are informed by our work in South Africa and within sub-Saharan Africa.

The purpose of this letter is two-fold. Firstly to highlight key concerns relating to the management of public funds and secondly to emphasize the need for government departments to ‘go back to basics’ so as to improve governance processes.

Honourable Finance Minister - in your 2013 Budget Speech you reiterated the significant investment of public funds in education, housing, health, social development and public transport. This, according to the 2013 budget accounted for 60% of all public expenditure. It has become evident, however, that in some areas the budget itself is not the main limiting factor. The expanding public sector has not in our view resulted in a significant improvement in the rate and quality of service delivery and the authoritative concerns raised by the Auditor-General reinforce our views in this regard. How is this going to be meaningfully addressed in the upcoming medium term expenditure framework?

Of additional importance is the need to emphasise the filling of critical posts with qualified personnel in order to avoid increasing expenditure on consultants in many departments. What mechanisms are in place to ensure that this happens and that the public service is not in the process further compromised by the ill-effects of cadre deployment?

It is critical for municipalities and provincial governments to enhance their interaction and communication with communities especially in relation to the utilisation of funds concerned with the progressive realisation of constitutional rights to basic education, health, adequate housing, water and sanitation. A good functioning local government allows for communication, transparency and accountability. However in most parts of South Africa, this is not the case. This has led to an increasing number of service delivery protests. Recent research conducted at the University of Johannesburg-revealed that there has been a general rise in protest action since 2004, with peaks in 2009 and 2013.[2][i] An ongoing failure to explain and account for challenges and corrective action planned to improve such services will fuel service delivery protests within communities that are desperate for economic upliftment. It is vital to restore functionality to ward committees and to have less municipal council meetings held behind closed doors. The Treasury and Department of Cooperative Governance and Traditional Affairs can and must play an influential role in restoring the integrity of such platforms so as to address negative public sentiment and perceptions that leaders and representatives are failing in their duties.

In education, the third quarter provincial expenditure results for 2013/14 reflect continued trends in poor expenditure management in provinces such as the Eastern Cape and Limpopo. It would appear that it is not enough to merely introduce austerity measures in response to spiralling expenditure in, for example, personnel. Such measures tend to be reactionary and do not effectively address the root cause of over expenditure. It is apparent that the fundamental problems lie within provincial departments’ abilities to plan for, implement and monitor expenditure. This is best illustrated in the current trends in school infrastructure delivery and expenditure. Over the 2013 medium term expenditure framework, R23.9 billion was set aside for the construction and maintenance of schools. Currently delivery in various provincial departments is hampered by construction delays which in turn have an inflationary impact on expenditure. The current provincial management and fiscal accountability mechanisms require closer scrutiny and redress by national government. We would ask the Minister to explain what measures will be put in place to better manage large scale infrastructure projects concerned with eliminating school infrastructure backlogs?

The slow pace of housing delivery coupled with compromised service delivery in areas such as water and sanitation continue to fuel frustration in many communities across the country. According to the latest third quarter spending results for the 2013/14, the majority of provinces have spent less than 35% of the Integrated Housing and Human Settlements Development Grant (IHHSDG)[3] responsible for the implementing housing projects. Such levels of expenditure are unacceptable when the current national housing backlog stands at approximately 2 million units. This level of expenditure also reveals the hollow promise contained within national priority target of eradicating informal settlements by 2014. Honourable Minister, we urge you to introduce more stringent measures to monitor in-year budget implementation. This will also require more frequent in-year interventions from Treasury to expedite the roll out of key social services such as housing.

Human rights violations within the health sector, particularly at provincial and district level have been laid bare over the past few years and the PSAM agrees with the remarks and calls made by the Budget and Expenditure Monitoring Forum (BEMF) that the ongoing crisis in the Eastern Cape is linked to the year-on-year slowing of expenditure towards health services in that Province as well as other provinces. We call upon you to ensure that any measures to cut costs will not be at the expense social services, and rather that you will recommend an above-inflation budget increase of more than 2.4% for health services on top of baseline allocations for the 2014/15 financial year. We also concur with BEMFs position that while efficiency and good financial management processes are fundamental principles of accountable governance, historical and incremental budgeting continues to act against achieving the constitutional imperatives of equity and access for all. The sad truth is that most provincial health departments, which are the primary providers of services in the public sector, continue to fail to deliver on their core constitutional obligations. This is particularly acute in the Eastern Cape and Gauteng, closely followed by the Free State, Mpumalanga and Limpopo.

On the procurement front the PSAM urges you to drastically increase transparency at all levels within the regulatory framework so as to promote value for money and improved decision making. Considering the massive planned spending on infrastructure and South Africa’s chequered procurement history, it is critical to ensure that South Africa improves its regulation and management of this important component so that decisions are taken in the public interest and not for private gain or personal benefit. Whilst we note that centralisation of procurement is aimed at addressing past weaknesses within the system, this should not result in less transparency, rather it should be actively promoted.

The PSAM is of the opinion that where the delivery of services is concerned the critical problems may not always be centred primarily on insufficient budgets. Often they relate to poor budget governance; from pre-budget stages to implementation. In addition to improved financial governance, public input at the pre-budget and post budget implementation stages should be greatly enhanced.

To conclude honourable Minister, we believe that what South Africa needs is greater accountability, improved management and more effective budget implementation.

Yours faithfully,

Jay Kruuse

Director

Public Service Accountability Monitor (PSAM)

School of Journalism and Media Studies

Rhodes University

Grahamstown

Tel: +27 46 603 8358

Fax: +27 46 603 7578

E-mail:

https://rhodes-za.academia.edu/PSAMRHODES

http://twitter.com/Right_to_SAM

[1] See more at www.psam.org.za and at https://rhodes-za.academia.edu/PSAMRHODES

[2] No quick fix for protests – study. 12 February 2014. Available Online at: http://www.citypress.co.za/news/quick-fix-protests-study/

[3] National Treasury Press Release November 2013 Provincial Budgets: 2013/14 Financial Year

Mid-Term Provincial Budgets and Expenditure (third quarter) Report available at http://www.treasury.gov.za/comm_media/press/2013/20131202%20-%20Mid-Term%20Provincial%20Budgets%20and%20Expenditure%20Report.pdf

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