Budgeting to Service Corruption and Not to Improve the Lives of the Poor: The Treasury of Malusi Gigaba

26 October 2017

The Minister of Finance, Malusi Gigaba, delivered his much anticipated maiden Medium-Term Budget Policy Statement (MTBPS) speech yesterday.  Equal Education (EE) remains deeply concerned about the crisis that is unfolding with regards to the nation’s finances^[1]: the ever-increasing debt-to-GDP ratio, the SARS revenue collection shortfall, and the national and provincial departments’ inability to action much-needed implementation continue are all issues that continue to plague South Africa. It has become clear that under Gigaba, National Treasury will be renamed the “Department of Debt Repayment”.  If anything, the MTBPS was a clear signal that the country has now begun a journey of moving away from advancing social rights through the allocation of much needed resources

The allusions to austerity made by the Minister of Finance will only widen the already expansive chasm between rich and poor in this country. Debt repayment is important indeed, but when massive chunks of the fiscus are dedicated to debt repayment and others are sectioned off for self-enrichment by the Minister, the President, and their cronies, what will be left for social services? What will be left for poor and vulnerable South Africans?

Basic Education: School Infrastructure, Scholar Transport, Early Childhood Development and the Equitable Share

While only a single sentence was devoted to Basic Education in the Minister’s speech, a look at the MTBPS document reveals that spending on Basic Education funding has increased from the previous financial year - it is projected to be the fourth fastest growing line item in the medium term. However, it is important to note that Treasury has consistently downwardly revised projected spending on Basic Education in the previous and upcoming financial years.

The Medium-Term Expenditure Framework (MTEF)^[2], outlined in the MTBPS, forecasts the amount that will be allocated to education in the upcoming three-year period. A look at previous MTBP statements reveals that there will be far less funding available to Basic Education than was previously budgeted for. The 2015 MTBPS predicted, for example, that in the 2018/2019 financial year there will be R270 billion allocated to education. This year’s MTBPS revises that prediction, stating that only R249.8 billion will be allocated.

The downward revisions in the basic education budget estimates are worrying. They show that the Department of Basic Education (DBE) has been unable to implement the programmes it plans and, as a result, has been allocated less funding. This was the case in the 2017/2018 financial year when, as a result of underspending, the basic education budget was adjusted by R415 million^[3].

But the downward revisions also foreshadow a frightening pattern. They show that when corruption and poor governance plague our country, and force further budget cuts on Treasury, services such as basic education provision to the poor are compromised. When the time comes for “hard choices” to be made, we worry what this will translate to for learners in poor and rural schools.

School Infrastructure

Two grants currently exist to ensure the eradication of school infrastructure backlogs: the Education Infrastructure Grant (EIG), administered at a provincial level, and the School Infrastructure Backlog Grant (SIBG), administered by the national DBE’s Accelerated School Infrastructure Delivery Initiative (ASIDI). The graphs below show the amount that had been projected to be allocated to school infrastructure in 2013, before the promulgation of the Norms and Standards for School Infrastructure, in comparison to the actual amount budgeted for school infrastructure that year. Allocations to school infrastructure have not grown substantially in response to the additional delivery pressures created by the Norms and Standards - government’s legally binding mandate to provide schools with basic necessities. In fact, allocations to school infrastructure have shrunk.

More money needs to be allocated to PEDs and the DBE in order to eradicate infrastructure backlogs. At the same time, a key reason for the reduction of school infrastructure funds is that neither PEDs through the EIG nor the DBE through ASIDI have proven capable of properly spending infrastructure budgets. Treasury will shift R7.3 billion that had previously been transferred to provinces through EIG back to ASIDI so that it can complete its projects. Slow delivery has resulted in the three-year ASIDI initiative dragging on for a seventh year.

The MTPBS highlights ASIDI’s abysmal performance, acknowledging that only 3 of 115 schools have been built this year. Eskom through ASIDI electrified 0 of 620 schools it was meant to provide with access to electricity in the last financial year. Eskom delivered burnt electrical poles, delaying electrical connections – a situation that is under investigation.

National Treasury must not only allocate more money towards school infrastructure, but also capacitate provinces and the ASIDI Programme Management Unit at the DBE to ensure that value for public money is realised. Treasury should incentivise infrastructure planning in a way that translates to improved Norms and Standards implementation. This means creating stronger financial mechanisms to monitor and sanction those who build schools on behalf of ASIDI and provinces: Implementing Agents (IAs). IAs give both managerial support and project implementation support to the State. IAs can be government departments such as the Department of Public Works, or the PED itself. State-owned enterprises such as the Coega Development Corporation can also be IAs for school projects. Implementing agents have failed to visit project sites, manage contractors, follow Supply Chain Management processes, and adhere to relevant procurement legislation. This is unacceptable. An evaluation plan for these IAs, with built-in opportunities for civil society and public participation in their procurement processes, is a necessary step towards holding to account the entities entrusted with taxpayers money to build and fix our schools.

Scholar Transport

In 2017, after years of tireless advocacy by EE members, Minister of Basic Education, Angie Motshekga, finally publicly committed to working with Treasury to explore a conditional grant for scholar transport funding. Soon thereafter, the Director-General of the DBE Mathanzima Mweli reported to the Parliamentary Portfolio Committee that if all went according to plan, a conditional grant would be introduced in 2018/2019.

This commitment on the part of the DBE left EE hopeful that discussions around a conditional grant, initiated by the DBE, were underway. Given the Director-General’s comment above, and Treasury’s acknowledgment that the conditional grant could be introduced within a year of the endorsement of the proposal, we expected to hear about it in this year’s MTBPS. However, the 2017 Division of Revenue Bill contains no mention of a conditional grant for scholar transport and, in fact, scholar transport is not mentioned even once in the 2017 MTBPS.

This is incredibly disheartening for EE members, who walk punishing distances to take hold of their basic right to an education. Whether the promise by the Minister of Basic Education and Treasury has been broken or delayed is still to be seen. However, every minute that is wasted and every delay comes at the cost of children’s access to education.

Early Childhood Development

At the end of 2015/16, approximately 1.5 million children were accessing ECD services, of whom only  593 405 were receiving an ECD subsidy. The introduction of the early childhood development grant at the beginning of this financial year aimed to drastically increase that number until all children accessing ECD services in registered centres received the subsidy.

In the 2017 MTBPS it was announced that the ECD grant would receive about R500 million per year over the medium term.

The MTBPS states: “Over the three-year spending period ahead, the focus is to improve the quality of education by strengthening educator qualifications, and providing appropriate learner and teacher support materials.”^[4]

It is encouraging to see that the commitment to improving access to quality ECD is reflected in the MTBPS. However, as we have noted previously,  it is imperative that government pair increased budget allocations with initiatives that support ECD centres in poor and rural areas to be registered, so that they can benefit from government subsidies. Government must continue to assist ECD centres with registration by allowing for provisional registration and supporting centres with infrastructure upgrades.

Review of the Equitable Share

In his MTBPS speech, Minister Gigaba mentioned the continuing review of the provincial Equitable Share formula to ensure that it remains fair and responds to the needs of provinces.

EE has long been advocating for the revision of this formula because it is, in fact, inequitable. The education portion of the equitable share, for example, takes into account only enrolment and school population numbers, and fails to consider the heightened cost of education provision in rural areas and specifically in areas that were formerly classified as homelands.

The only update on the education component of the formula announced in the MTBPS is that a new tracking system established by the DBE to track learners throughout their school careers, will be used to determine learner numbers.

While this is a promising development to ensure more accurate data, it does not speak to the heart of the issue, which is that using learner numbers alone, is a crude and inequitable way to allocate the education portion of the Equitable Share. There is an urgent need for the equitable share formula to be adjusted in such a way that it accounts for rurality and the burden of historical neglect.

Higher Education

Yesterday at the Houses of Parliament, students from University of Cape Town (UCT) and Cape Peninsula University of Technology (CPUT) protested demanding a 0% increase and the release of the Fees Commission report that President Jacob Zuma has had since August. These student protests have put Higher Education at the centre of the agenda for budget spending. This may be the reason that Minister Gigaba reiterated the increasingly popular fallacy that higher education spending is the fastest growing element of expenditure over the medium term.

Higher education’s annual growth is currently 8.2%^[5], while debt servicing costs are growing at 11% per annum. This illustrates how the repayment of debt, which is ever-increasing due to the high debt-to-GDP ratio, is crowding out social spending.

Another important caveat to note is that the increase of 4.3% in consolidated spending on higher education institutions only depicts a nominal increase over the medium term. This means that the allocation is an increase in the number of rands that will be spent on higher education institutions, but not the value that those rands will have over the MTEF period. Since the increase is below Consumer Price Index (CPI) inflation of 5.1%. This “increase” in higher education institutions’ subsidies is thus not an increase at all!

Furthermore, it should be noted that the Department of Higher Education and Training does not receive allocations for each institution, but rather each institution is funded directly and according to its fees, meaning that Historically White Universities still receive the highest amount of funding, thanks to their high and unaffordable fees. As a result Historically Black Universities and the Technical Vocational sector will continue to languish without the desperately-needed State support.

EE is pleased to hear that TVETs received an increase of R52 million. Though not a massive increase, it is refreshing to see more public funds being directed to this subsector. The lack of focus and support for TVETs has been cause for great concern. However the decrease in allocations to Community Colleges is unacceptable! Community Colleges, along with TVETs, play a vital role in the upskilling of young South Africans, and could help curb the incredibly high youth unemployment.

Youth Unemployment

The Minister highlighted in his speech that poverty and unemployment continue to plague the South African economy. At a time when unemployment is the highest it has been since 2003 at 27.7%^[6], it is concerning that the revised economic growth rate (0.7%) is less than the 2016 average population growth of 1.6%^[7]. The 0.9% point disparity accounts for the large proportion of the country’s labour force that is inactive. This is most acutely felt by the youth as the unemployment rate, using the expanded definition, sits at a shocking 67.4%^[8].

The R13.1 billion revenue shortfall in the first quarter of 2017, has only served to worsen this situation. One such implication has been a widening debt-to-GDP ratio, plunging South Africa deeper into debt servicing obligations as we finance the resulting budget deficit. In fact, debt servicing is the fastest growing expenditure item at 11%. The debt-to-GDP ratio has been revised from an estimated 3.1% to 4.3%^[9]. In the wake of this revision and as a direct reaction, offset by poor revenue collection, the economic growth of the country has taken a hit and has had to be revised down from 1.3% to 0.7%^[10]. These tough economic conditions make it even harder for the millions of young South Africans seeking employment.

The Southern African Labour Development Research Unit (SALDRU) released a report earlier this year detailing parallels that exist between protracted experiences of poverty and unemployment. The report notes that previous experiences of poverty lead to the depreciation of an individual’s human capital, in turn making it more likely that he/she will experience poverty again. An individual’s chances of future employment are similarly influenced by having experienced protracted periods of unemployment: Not only does unemployment often translate into poverty, but extended periods of unemployment affect potential employers’ perception of an individual’s productivity and employability. This perception of the low employability of unemployed people leads job-seekers to accept poor quality, unsustainable work, which in turn increases the likelihood that they will be unemployed for extended periods in the future. Thus, having experienced a protracted period of unemployment makes stable employment very difficult to attain.^[11]

We have observed greater prioritisation of job creation and youth development spending over the MTEF period. This has been accompanied by a R5.1 billion revenue allocation from the skills development levy over the MTEF to support programmes expected to produce over 69 000 qualified artisans, and create 405 000 work-based learning opportunities through learnerships, internships and apprenticeships^[12]. We welcome this development with caution. While it is encouraging that money is being allocated towards skills development and job creation, we should not lose sight of the fact that government does not have a noteworthy plan to address the massive youth unemployment crisis - a crisis that can only be addressed through sustained economic growth.

EE  remains concerned about the lack of structural and institutional economic reform strategies to move the country away from revenue shortfall (despite the projected gross tax revenue shortfall over the MTEF) and widening budget deficit. Constrained social spending reduces opportunities for cross-cutting sectoral job creation and if we continue on this trend, human capital will continue to depreciate while economic growth remains slow and further cripples the economy with unmanageable levels of unemployment. 

Education Must Not Be Compromised

In his MTBPS speech, Minister Gigaba acknowledges that “further budget cuts will involve hard choices and difficult compromises.”^[13] South Africans have learnt that certain livelihoods are more compromisable than others. But at Equal Education we are committed to ensuring that our country’s poor do not suffer for the arrogant corruption and negligence of our leaders.

We call on Minister Gigaba and National Treasury to choose the country’s poor over their own enrichment. True black economic empowerment would mean access to affordable electricity, transportation, and public school infrastructure - not the empowerment of a small capitalist elite who benefit from the likes of Eskom, Telkom, Transnet, and PRASA. This is the “hard choice” that must be made. In the meantime, Equal Education and its members will continue to mobilise to protect education funding and to hold to account the entities who have been entrusted with public money to provide young people with a decent and dignified education. 

Issued by Sibabalwe Gcilitshana, Equal Education Parliamentary Officer, 26 October 2017

^[13] Malusi Gigaba, 2017 Medium-Term Budget Policy Statement Speech, p.17.