Why throwing money at a problem never works
Minister of Finance, Trevor Manuel, recently announced a small surplus in the national budget for the 2006/2007 year. The good news is an even larger surplus is planned for 2008. This surplus can be attributed to better than expected revenue collection fr
Yet many people are wondering why Manuel did not simply continue with a budget deficit in order to make more funds available for healthcare, housing, police and education.
The answer is quite simple and can be framed in two parts. First, the act of simply throwing money at a problem will not make it go away. And second, government is hamstrung by departmental inability to spend the money headed its way.
Limited resources make spending a real problem
Spending problems are nothing new in South African government finance. For many years now, various departments are left with millions of rand in unspent funds at the end of the fiscal year.
A quick look at government departments throws some light on the extent of this problem. The Eastern Cape under spent their housing and local government budget by R251.7 million this year. Over the same period, the Western Cape is on track to have some R123.5 million left in its personnel budget and another R22.1 million on its capital budget.
The truth is that many government departments have neither the administrative skills nor the available resources to spend all the money. And the problem is even worse at local municipal levels.
Dangers of forcing departments to spend
In the 2006/2007 year it appears that local municipalities were only able to spend R2.9 billion of the R6.9 billion infrastructure grant money allocated to them for the period. Only R3.6 billion of this money was effectively transferred to the municipalities, leaving R600 million unspent.
The point is a further R3.3 billion was available but never requested. This prompted the National Council of Provinces select committee on finance to warn municipalities that if they continued to fail in their spending projects, monies would be handed over to better performing areas.
Attempts to force government departments and municipalities to spend will lead to more serious problems. The reasons these departments cannot spend their allocations should first be addressed.
Imposing penalties for under spending might result in a raft of undesirable practices to ensure budgets are spent. This could, for example, lead to overpaying for projects or undertaking work without proper planning or benefit analysis.
Real solutions for a real world
Success has to be built on solid foundations. If government wants to ensure its municipalities and departments are able to correctly spend their budget allocations, they should first focus on departmental leadership.
We listened with interest to recent comments by the Minister of Home Affairs, Phumzile Mlambo-Nqcuka. She acknowledged that her department was suffering due to a huge shortage of management skills. This situation existed despite rigorous employment policies at the department. At last we were getting somewhere!
Then, just as suddenly, the Minister stated that there would be no jobs lost due to poor management. In other words, with the problem identified, the Minister categorically stated that she would maintain the status quo.
It seems her focus will be on finding a new and innovative DG for the department - who will then sort all the problems of poor and improper management with his dynamic management style. We doubt throwing more funds at this department will help, given the current management attitude!
Editor's thoughts:
Is there an argument for Treasury to withhold funds from certain government departments until these departments get their respective houses in order? Send you thoughts to [email protected].
