Provincial service delivery hit by SOE bailouts

This week the Western Cape government tabled our medium-term budget policy statement (MTBPS) in the Western Cape Provincial Parliament, outlining how we will ensure the efficient, effective and sustainable management of our public finances so that people are safe, so that people have jobs and so that people have opportunities in the Western Cape.

While we have done more than any other province over the past 10 years to promote economic growth and create jobs in the Western Cape, we face severe economic challenges, as a result of a weaker global and national economic outlook.

No thanks to the national government in South Africa, which continues to mismanage the economy, mismanage our public finances and mismanage our state-owned enterprises.

The 2019 national MTBPS delivered by Finance Minister Tito Mboweni in October has brought with it unprecedented uncertainty. This is because R150-billion still needs to be found over the medium term to stabilise national debt.

Mboweni is banking on a large portion of this coming from agreements with labour unions to cut the public sector wage bill. We will have to wait until next year to see if this risky strategy pays off, but in the meantime, provinces have been left to plan ahead despite these high levels of uncertainty.

These budget cuts risk wiping out service delivery in provinces across South Africa. What makes these cuts so hard to swallow is that provincial governments are expected to absorb them so that the national government can bail out zombie state-owned enterprises.

Consider the fact that bailouts of R49-billion for Eskom, R5.5-billion for SAA, R3.2-billion for SABC, R1.8-billion for Denel, and R300-million for SA Express have been pencilled in for this financial year alone.

We do not have all the facts, but we estimate that the budget cuts this province will be expected to absorb will be roughly equivalent to the bailouts pencilled in for South African Airways.

What makes these potential budget cuts so wrong is that they are being imposed on provinces to effectively bail out zombie state-owned enterprises. Essentially, the national government continues to subsidise failing state-owned entities at the cost of service delivery to citizens.

As I announced in the Western Cape MTBPS, we have assumed a worst-case scenario, and have planned a total downward adjustment to the provincial budget over the medium term of 5%, or R2.67-billion in 2020/21; 6%, or R3.4-billion in 2021/22; and 7%, or R4.19-billion in 2022/23, in the Western Cape.

Due to continued good governance, the Western Cape has been able to absorb some of the budget cuts because we have been prudent in the past. We have made provision for possible future shocks in the Western Cape by building up reserves for unforeseeable and unforeseen expenditure and for fiscal stabilisation in the Western Cape.

These reserves include R661-million available over the medium term for unforeseeable and unforeseen expenditure, and R1.14-billion available over the medium term for fiscal stabilisation in the Western Cape.

With this “lifeline” we have able to cushion education, health and social development from the full 5%, 6% and 7% cuts and have protected expenditure on the maintenance and repair of existing infrastructure assets.

The current constrained economic and fiscal outlook, together with the uncertainty, means it is more important than ever that we ensure the efficient, effective and sustainable management of fiscal resources in the Western Cape.

We will do so to maintain stability, credibility and transparency when it comes to the budget in the Western Cape, even if it means making the tough decisions.

We are committed, even in this challenging time, where many people have lost hope, or have lost trust in government, to “actually get things done” in the Western Cape. DM