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Minister of Finance, Tito Mboweni, has called upon the public to share their ideas on how to fix South Africa’s ailing economy. SAICA Senior Executive for Tax, Pieter Faber and SAICA Project Director for Tax Advoccy, Dr Sharon Smulders share their top 5 tips for the annual #TIPSFORMoF:
1. Enforce accountability - National Treasury has more power than it thinks
Accountability starts with those who are obliged to oversee. National Treasury has a positive obligation in terms of section 216 of the Constitution to enforce fiscal accountability for all organs of state. Extracts of this section reads as follows, subsection (1) and (2) are of particular relevance:
National legislation must establish a national treasury and prescribe measures to ensure both transparency and expenditure control in each sphere of government, by introducing
a. generally recognised accounting practice;
b. uniform expenditure classifications; and
c. uniform treasury norms and standards.
2. The national treasury must enforce compliance with the measures established in terms of subsection (1), and may stop the transfer of funds to an organ of state if that organ of state commits a serious or persistent material breach of those measures.
Section 216(2) thus not only states that the National Treasury must enforce fiscal accountability but it also states how it may do this - by stopping the transfer of funds to these organs of state.
The Auditor General’s reports over the years have shown the extent of the lack of fiscal accountability, especially in the municipalities. The latest report on municipalities shows that only 21 municipalities (out of the 278) received clean audits and irregular expenditure exceeded R32 billion. An indictment on National Treasury is that in municipalities where such findings had been made in the previous year, 44% did not bother to investigate the findings. The report on the national and provincial government (and their entities), also showed that audit outcomes regressed with only 100 (26%) of the auditees being able to produce quality financial statements and performance reports and could prove that they complied with key legislation to obtain a clean audit. The widespread lack of financial controls and project monitoring is evident and National Treasury must start meeting its constitutional obligation by enforcing its powers and prevent funds being transferred year on year to disfunctional entities without them having to be held accountable for their financial mismanagement.
2. No tax increases please!
The fact that SA taxpayers are overburdened by high taxes is an open secret acknowledged by the Minister of Finance. Budget Review 2020’s statements ring even more true today than last year when it stated:
In this context, substantial tax increases are unlikely to be effective. South Africa already has a relatively high tax-to-GDP ratio compared with other countries at a similar level of development. New tax increases at this time could harm the economy’s ability to recover
Compliant taxpayers are overburdened and with the COVID-19 pandemic having negatively impacted many individuals and companies, further tax increases will not have the desired effect. See “COVID-19 vaccine: Can Tax increases fund the costs?” for more on this.
Instead of tax increases, SARS should ensure more effective and efficient enforcement of tax evaders which includes those in both the formal and informal economy. Closing the tax gap and focusing on illicit trades should be prioritised. SARS’ human capital and digital technologies should also be enhanced but also made more effecient in dealing with tax evasion as well as in reducing cost and wastage for compliant taxpayers.
3. Reduce government spending
Government spending has to be brought under control and should be reduced to ensure that South Africa has a chance of reducing the budget deficit and stop its decade long dependence on debt. In 2020 we demonstrated that by just halving outsourcing, catering, fleet services, legal fees and subsistence government could save R16,3bn. The wage bill has to be curtailed as promised with concommitant productivity increases. By just reducing wage increases to CPIX, this will create savings in excess of R11bn. SOEs should be rationalised and/or sold if not sustainable or meeting their mandate.
Fruitless and wasteful expenditure, along will irregular expenditure, should be stopped immediately. The National Treasury’s own audit report in its 2019/20 Annual Financial Statements revealed that it had incurred R66m in fruitless and wasteful expenditure and incurred R249m in irregular expenditure.
Sound financial management and fiscal responsibility should start at home – especially seeing that National Treasury is seen as the bastian of sound fiscal and financial management practices. As mentioned above, no funding should be provided to government entities if clean audits are not obtained – it’s time to enforce accountability. Budgeting practices should be revisited from overstated wishlists to lean value for money spending.
4. Infrastructure spend
Many promises were made by the President of the country in his State of the Nation Address with regard to infrastructure spend and investment commitments. Yet no concrete action plan with timelines were provided.
Detailed logistical plans for the proposed infrastructure roll-out is needed as well as reforms to key legislation and regulations that govern infrastructure procurement. This also needs to be matched with proper funding plans to ensure that it is not a wishlist but an actual plan where costs are properly determined and financing planned. Proper infrastructure development and maintenance will also help stimulate private sector investment along with cutting the red-tape that is involved in these processes.
Although the President did invite the private sector to join it the Government’s many initiatives, it appears to be listening to the public but not hearing them. Many recommendations to improve the state of the economy have gone unheeded and it seems that the private sector is being excluded from certain activities – such as the vaccine procurement and distribution that the government seems to be taking on alone.
The government needs to redefine its role in economy. Once defined, it should align its plans with its capacity. Should it not have the necessary capacity or ability to ensure the required productivity levels, it will need to allow the public sector to step in. Collaboration can only occur after proper consesus though the platform created for such consesus, i.e. NEDLAC. NEDLAC does not appear to be functioning as intended, so a stronger social compact between the private sector and government must be reached. Collaboration involves getting your hands dirty and SAICA is one such role player that has already for years successfully collaborated with government in projects such as providing school governance and financial management support as well as training for financial managers at municipalties and CFO mentorship programs at TVET colleges and hospitals.
Improving service delivery and productivity is a key area. Though government has taken the initiative to start this process with the issuance of its Professionalising the Public Sector discussion document, it is going to have to collaborate with the private sector and organised labour in ensuring this plan is rolled out as government does not have the internal capacity to achieve this goal alone. Furthermore, without consensus and accountability agreements on the matter with organised labour, this initiative will remain a discussion document.
More of this type of assistance is available from the private sector and government should be accepting all the help it can get.