How govt could save R12bn

2013-10-27 14:00

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Pundits warn of grim times ahead even as finance minister wants government to ‘spend money smarter’

The crackdown on wasteful expenditure by top-ranking civil servants could save the state about R12?billion on consultants’ fees, travel and catering alone.

This is according to Kenneth Brown, the chief procurement officer appointed earlier this year in a new office aimed squarely at finding and eradicating wasteful expenditure.

Brown said the state spent roughly R12?billion a year on consultants, R10.5?billion on travel and R850?million on catering. This could be cut in half, even though this does not necessarily mean the expenditure can be labelled as “wasteful expenditure”, he told City Press.

The state is also planning to cut down its marketing budget by a full 80% by “spending money smarter”.

Expenditure on consultants could be cut by R4?billion to about R8?billion, he told City Press.

However, his figures do not tally with the three-times-larger figure for consultancy services provided by the Auditor-General.

Two weeks ago, using the Auditor-General’s report as a reference, City Press reported how national and provincial government spent a collective R33.7?billion on consultants in the past financial year.

Brown said the new savings campaign would involve monthly reports by every government department. These reports on expenditure for a number of items would be made public, he added.

The new guidelines on allowable expenditure will be drawn up and distributed throughout the state machinery within four weeks.

Promised new limitations on wasteful expenditure on cars, trips, hotel stays and parties were central to the mini budget unveiled by Finance Minister Pravin Gordhan this week.

The state also plans to ban credit cards and cut back on the ballooning use of contractors – all the usual suspects when government excess makes the news headlines.

Even if the proposed new austerity rules do save R12?billion, far more is required to balance the budget in coming years.

Gordhan aimed to impress upon everyone, particularly credit rating agencies, that the government has few illusions about its money matters.

Less politically adventurous, but more important for the actual budget, was Gordhan’s pledge to keep government spending beneath a predetermined ceiling of 2.2% real growth a year.

Gordhan is predicting a meagre 2.1% growth rate for the economy this year, down from an earlier 2.7%, and promised to observe an absolute limit on government spending, come hell or high water.

To do this, he has to stop the inflation of the state wage bill, which was identified as one of two primary risks to Treasury’s plans.

The other is the debt-service bill – the interest payments that now gobble up one-tenth of the budget.

In the medium-term budget policy statement, an extra R2.3?billion was found to cover the higher-than-expected wage increases in the year.

Over the past decade, the collective pay of civil servants went from R130 billion in 2004 to an estimated R409 billion this year?– 36% of the budget.

Over this period, the number of civil servants grew from about 1?million to 1.25?million – they are a major source of job creation and preservation since the economic crisis of 2008.

From now on, that number will stay put for at least three years, reads the new medium-term budget policy, while “exceptions will require a compelling explanation”.

Government was also “committed to reaching a sustainable public sector wage agreement”, it said.

The public wage bill still isn’t quite as bad as that at the dawn of democracy, when overlapping homeland administrations were being brought into the fold of the South African civil service, but it is getting there.

In 1995, the state’s R54.8?billion wage bill amounted to 38% of the budget to pay roughly the same amount of employees the state has now.

The cost of servicing state debt is becoming a burden, but could escalate dramatically if the global credit rating agencies make good on their negative outlooks on the country.

Moody’s, Standard & Poor’s and Fitch have all expressed concerns about the state’s debt in light of poor economic performance – and the lower tax revenues that follow.

Budget deficits since 2008 have been pushing up the state debt to a point where the interest payments have become a major expense without the costly effect of a downgrade.

The state will have to borrow R170?billion next year, roughly the same as this year.

At the beginning of this financial year, the debt stock was sitting at about R1.37?trillion, but Treasury estimates this will reach R2.17?trillion by 2017 – and that is 47% of GDP.

By that point, the debt cost will approach R140?billion a year. This is far more than most government departments get to spend in a given year.

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