The great government hoax
SOUTH Africans are quite smug about their fiscal situation, particularly when we see the Greek trade unions marching through the streets and the markets pulling up their noses at Greek bonds.
But we have been duped – South African taxpayers are dangerously far away from getting value for money.
A careful reading of the Reserve Bank's June Quarterly Bulletin paints a picture of a government spending massively on military aircraft and salaries, while cutting back on infrastructure spending. How can this be, when infrastructure spending has been the government's mantra of the past few years?
It's important to note that by "government" I mean the three spheres financed directly by the taxpayer: central government, the provinces and the municipalities. Public sector entities such as Transnet and Eskom are excluded.
These have still been recording increases in real spending, albeit at a much slower rate than before. For the purposes of this article, we'll concentrate on the infrastructure and recurrent spending financed directly by the taxpayer – or "general government", as the Quarterly Bulletin defines it.
The figures are quite shocking: government consumption expenditure rose by a massive 7.3% in real terms in the first quarter of this year, while capital expenditure by government fell by a jolting 8% in real terms. (I use capital expenditure, or capex, and infrastructure spending, in place of the jargon term "real gross fixed capital formation". It's also important to note that all figures are quarter-on-quarter, seasonally adjusted and annualised percentage changes, unless otherwise stated.)
Consumption spending by government is mostly spending on salaries. This boosts the economy through increasing consumer spending, but fails to add to the productive capacity of the economy and can be inflationary. Also, because government's salary bill has soared, its capacity to create new jobs is severely constrained.
Blame it on the planes
Capex, by contrast, includes spending on electricity distribution infrastructure – with a backlog of R27bn – and municipal sewerage infrastructure, with a backlog of R23bn. The need to address these two issues is urgent.
These backlogs aren't being tackled, while government is cutting back on infrastructure spending. This spending also includes building of schools, houses and hospitals – creating jobs and adding to the productive capacity of the economy through raising skills and creating a healthy environment for SA's workers.
The 7.3% in government consumption spending in the first quarter is unusually high. The increase for the year in 2009 was 4.7%. The Quarterly Bulletin says the big increase in the first quarter primarily reflected the acquisition of two military aircraft, while real salary outlays also "edged" higher.
Excluding the spending on armaments, growth in consumption spending by general government slowed marginally from an annualised rate of 5.2% in the fourth quarter of 2009 to 5% in the first quarter of 2010.
This is still a large growth rate, but the difference shows the extent to which arms purchases are influencing the figures. The question that springs to mind is why is SA buying military aircraft? (Though these are hard assets, and one would expect them to be classified as capex, the international norm is to categorise them as consumption spending – because they don't add to the productive capacity of the economy.)
Is there a military threat? Could the money not be put to better use in those 55% of municipalities where sewerage facilities have been found to be inadequate? Or for the electricity distribution infrastructure?
Uncivil taxpayer burden
In some places, electricity distribution infrastructure is literally falling apart, as municipalities are reluctant to invest in electricity distribution because of the threat of losing the income from electricity tariffs.
The problem is that for years now, government has planned to put all of the country's distribution assets into six regional electricity distributors, which would bill customers directly without involving municipalities.
Despite promises that they would be compensated for lost revenue, municipalities have clung to the electricity distribution function, while at the same time not investing in infrastructure. It's no wonder that government capex is falling.
One gets some idea why the money isn't being spent in these areas when one looks at the increases in civil servant pay. The bulletin says in the year to the fourth quarter of 2009, there was a 19.4% hike in the average remuneration per worker in the public sector.
It doesn't give a breakdown between the broader public sector, such as Transnet and Eskom, and those financed by taxpayer money.
However, the increase for taxpayers must have been big, as the bulletin ascribes the surge in public sector remuneration to "one-off pay adjustments made in accordance with the occupation-specific dispensation and included an element of backpay. The intention of this dispensation is to improve government's ability to attract and retain appropriately skilled employees through improved remuneration," the bulletin says.
But government also pays well at the bottom end of the scale. The bottom line is that the strain on the fiscus is tremendous, and the spending which has suffered the most as a result has been that on infrastructure.
This makes a mockery of government's promises.