Spotlight on expenditure as SA budget comes under strain

CRAFTING SA’s budget has become a headache for Finance Minister Nhlanhla Nene: labour union allies accuse him of being tight-fisted, while opponents say he’s pouring too much money into areas like the civil service that don’t help grow the economy.

Africa’s most industrialised economy has struggled to balance its finances since coming out of a recession in 2009. Growth remains too hesitant to generate adequate revenue, leading to a deficit seen at nearly 4 percent of GDP this year.

The huge government wage bill is likely to be a key factor next week when Standard & Poor’s and Fitch review South Africa’s credit rating, which is hovering just above junk status.

A recent wave of protests by angry university students demanding cheaper tertiary education has put the spotlight on whether Pretoria is allocating its limited resources efficiently.

The students stormed the parliament precinct as Nene read out his medium-term budget statement last month, demanding that the government subsidise university costs and veto planned increases in 2016 tuition fees.

As learners clashed with riot police outside parliament, Nene unveiled additional government spending of 10.1 percent on top of levels announced in the main budget in February, to cater for salary increases for government workers.

The size of the civil service has always been a bone of contention between the governing African National Congress (ANC) and opposition parties who feel it is an unnecessary drain on the national purse.

The opposition Democratic Alliance is angry that the ANC, which has a comfortable majority in parliament, this week shot down proposals to re-assign money from non-core sectors towards tertiary education.

The proposals, which included cutting spending on foreign embassies, VIP protection, the security services and ministerial vehicles, would have freed up R904 million to help fund universities, the DA said.

“When it comes to a choice between more money for students or more money for ministers, the ANC chose more money for ministers,” the party said in a statement.

Critics have long argued that the government spends too much on wages in the public sector, which gobble up about 40 percent of the roughly $70 billion national budget.

This year, Nene also set aside R200 million  in preparation for a controversial multi-million-dollar nuclear energy programme which the opposition says South Africa can ill afford.

“Government spends too much of the tax take on wages and salaries for public sector workers. A smaller public service would free up fiscal resources for other priorities,” Barclays Africa economist Peter Worthington told Reuters.

While Treasury is keen to streamline spending, it has found it hard to hold the line against other arms of government, analysts said.

“The best example of this all is the nuclear programme, which is being pushed for political reasons but doesn’t match the criteria of efficacy, affordability and necessity,” Worthington said.

The budget has come under renewed scrutiny this week, after a report by the auditor general revealed nearly R26 billion of “irregular” expenditure by government departments in 2014/15, and nearly R1 billion  in wasteful spending.

“Unfortunately, government coffers have been drained by profligate spending habits, leaving Treasury with hardly any ammunition to implement counter-cyclical fiscal policies,” ETM analytics economist Jana van Deventer said. – Reuters