Spending

actual spending falls, but demand rises



Basic public services – basic education, health care and criminal justice – represent a large part of the consumption basket of poor South Africans. They are provided largely free of charge to any user. The public provision of these services is widely recognized as the cornerstone of the social and economic development of any society.

Together, they account for three-quarters of government payrolls and half of spending on goods and services – the drugs, books and cars doctors, nurses, teachers and police need to do their jobs. Over the past decade, there has been a chronic and growing erosion of the resource base on which public services depend. Users of these public services have been caught between the government’s need to consolidate the tax system on the one hand, and the demands of public sector unions for better wages on the other.

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In a recent report, we assess the choices made in the government’s budget statements and the numbers that are tabled as part of those statements. We argue that fiscal consolidation as currently proposed will significantly reduce real spending on basic public services. This will erode the quality and reach of these services and deepen income inequality in South Africa. These choices are unconstitutional. They will certainly lead to a regression of socio-economic rights.

The government has provided no evidence to suggest a contrary conclusion. Nor did it present any plans or policy interventions to mitigate the adverse effects of fiscal consolidation on public services.

The report assesses the quantitative aspects of public policy in three respects. First, we identify real spending trends over the past two decades. Second, we use budgets approved by parliament and provincial legislatures to assess the impact of budgetary choices on the actual allocation of resources over the next three years. Third, we present an analysis of government compensation and employment trends, which are heavily concentrated in the core public services of interest to us.

Actual spending is falling

We find that over the past decade there have been significant reductions in the real value of basic education and criminal justice. Health budgets are increasingly under pressure.

In basic education, the government spent around R20,000 (about $1,086) per learner in 2009, but this amount had fallen to around R16,500 per learner by 2021. If provincial government budgets are executed without adjustment, the next three years will see a large negative shock to the real value of expenditure per learner. In the worst case, the expenditure could drop to R14,000 per learner.

The government currently employs one educator for every 33 learners enrolled in the public school system. This figure could rise to 39 over the next three years, as the budget can only be achieved with significant reductions in employment in the sector.

In the area of ​​health, spending has stagnated in real terms relative to the population that depends on public services. In 2012, there were more than 720 health care workers per 100,000 uninsured people. This ratio has steadily declined since then, reaching 632 in 2018.

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Spending and employment increased in response to the COVID-19 pandemic in 2020. But current budgets imply a reversal of those increases and a reduction in per capita spending to a historic low. Healthcare workers per 100,000 population could fall to 590.

Given systemic inequalities within health systems, this shock is likely to be unevenly distributed. Provincial, specialist and district hospitals will likely be the hardest hit.

For the criminal justice sector, our analysis shows that by 2010 the level of expenditure had increased to over R2,000 per citizen. By the time the COVID-19 pandemic hit in 2020, however, spending had fallen below R1,700 per citizen.

Police employment reached around 200,000 in 2010, but has been reduced by around 15,000 by 2020. If current budget plans are executed, spending and police employment levels will fall further more in the coming years, reaching their lowest point in the last 20 years.

Reducing employment means reducing services

The 2022 national and provincial government budgets imply deep cuts in public employment in all of these services, regardless of any reasonable wage improvement assumption. Even if the assumptions made in the budget for average salary increases of 1.5% per year were to materialize, significant and damaging staff reductions are necessary to respect the expenditure limits.

We show that the government wage bill is dominated by basic public services. The professionals who provide these services – teachers, doctors and nurses, and police officers – dominate public employment. Within the central public services, the balance between professional and administrative staff appears to be stable and reasonable.

The ‘bloat’, if any, is concentrated in political and executive offices, economic regulation, infrastructure services and public administration – especially finance and cooperative government. These have seen substantial increases in employment in recent years. Despite this, total employment in all public administration departments was below 40,000 in 2019, compared to over a million in education, health and criminal justice.

From our overview of government payroll data, there is little evidence that the employment structure is deficient – ​​a view widely held in public discourse. This implies that fiscal consolidation will lead to a further withdrawal of basic services, rather than an improvement in efficiency.

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Even if the government could find efficiencies, reduce unnecessarily “bloated” bureaucracies, or overcome wasteful spending and corruption (and it has presented no clear plan to do so), the currently planned path to consolidation budget would still largely depend on the reduction in the real value of basic public services.

The government’s program focuses on reducing the average wage. Government employees are sometimes thought to be overpaid and unproductive, and therefore reductions in their numbers and pay can be made without negative impacts on public services. The evidence presented in our report challenges these assumptions.

It is true that over the past 20 years, most state employees have benefited from significant salary improvements. However, these improvements are strongly concentrated in the period 2007-2010. Since then, the average salary of most government employees has increased at a moderate pace, broadly in line with salary trends for similar workers in the private sector. Forcing the real earnings of civil servants to be lower than those of their private sector counterparts could erode the human resource base of public services.

Compensation spending cannibalizing budgets

For many years, budget allocations did not keep pace with salary increases agreed by the government. Employee compensation expenditures have been kept within strict limits for many years. Indeed, the Cabinet has raised civil service salaries while passing budgets that effectively invalidate its own decisions.

These pressures have resulted in three forms of “crowding out” that have eroded state capacity:

  • The most damaging was the reduction in the number of employees. Employment in basic public services has declined relative to general measures of public demand for services (such as population size or registered users). In the case of basic education and criminal justice, there have been absolute declines in the number of employees.
  • The real incomes of government employees who are not part of the bargaining unit – senior executives and judges – have been steadily reduced over the past decade. This, combined with successive negotiated agreements that grant higher salary increases to lower-level employees, has contributed to a compression of the government’s salary structure. Against a backdrop of rapidly rising salaries for private sector executives and others at the top of the distribution, this has likely contributed to the brain drain from the civil service and the operational collapse of so many ministries.
  • Where departments have not been able to keep compensation spending within limits, they have reallocated budgets from procurement, capital and maintenance expenditures to compensation, which now accounts for a greater share budgets. This was particularly marked in health care and criminal justice.

While government consumer spending has been contained over the past decade, demand for public services has increased dramatically. Meanwhile, as public employment in health, education and criminal justice has stagnated, employment by private companies providing the same services has increased.

This change may be hailed by some as contributing to more efficient services. However, the increase in the provision of social services by the private sector, coupled with severe cuts in public services, means a redistribution of resources from the poor to the wealthy citizens. This could significantly widen the extreme levels of inequality in South Africa.

The need to negotiate a new way forward

We suggest the following change of direction:

  • First, the government should announce a program that reflects clear policy choices and explicit plans to balance fiscal consolidation with the need to protect frontline services by cutting resources for lower priority programs and departments. It should ensure that the employment of teachers, nurses, doctors and police officers keeps pace with the demand for services.
  • Second, the government should negotiate a longer-term deal with its employees that balances the need for a living wage, sufficient employment, and measures that improve the efficiency of public services and increase productivity. This should be part of a program to improve public supply and restructure public services.
  • Third, a fiscal rule to anchor wage bill growth expectations should be considered as part of social dialogue. This would allow for better alignment between budgetary objectives and the need to maintain the services that constitute an essential element of South Africa’s fragile social and political pact. A fiscal rule of this nature would need broad public support and acceptance by public sector unions.

This article originally appeared on The Conversation and has been republished with permission. Read the original article here.