Sindile Vabaza, an aspiring economist and an avid writer, is a contributing author for the Free Market Foundation.
The views expressed in the article are the author's and not necessarily shared by the members of the Foundation.
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This article was first published on Business Day on
6 December 2022
The trouble with inefficient public spending
“While spending on government consumption has been held down over the last ten years, demand for public services has increased substantially. Meanwhile, as public employment in health, education and criminal justice has stagnated, employment by private companies providing the same services has surged.
This shift may be welcomed by some as contributing towards more efficient services. However, rising private sector provision of social services in tandem with deep cuts to public services means a redistribution of resources from the poor to affluent citizens. This could materially widen South Africa’s extreme levels of inequality”.
This a quote from an article by authors Michael Sachs and Arabo K. Kwinyu and contributor Olwethu Shedi, all from the Public Economy Project, published in The Conversation on 21 October. It typifies the sort of language often used in South African public discourse which obscures facts about social problems and government inefficiency, and profligacy and how quite plainly the death spiral of public services is down to government mismanagement and the natural inefficiencies of government itself. It is also clear that South Africans with any means often flee from those public services to private ones for very good reasons, often at great sacrifice for middle class South Africans, who are essentially double taxed when it comes to funding public services but not using them.
This language is used and often driven by a priori assumptions, which often set up the conversation around public services in such a way that any discussion about free market solutions is deemed as ‘anti-poor’ and ‘anti-black’ and as a redistribution towards the affluent.
Take education for example.
Why wouldn’t parents who have the means and are often willing to make sacrifices for their children not choose the low fee private option? According to a TIMMS (Trends in International Mathematics and Science Study) assessment, 79% of South African teachers don’t have adequate content knowledge in the subjects they teach.
This language does not take into account teacher absenteeism or the fact that teacher unions protect woefully bad and absentee teachers.
It beggars belief that school vouchers (a market solution) which change incentives and fundamentally put more power into the hands of parents - especially poor and working class parents - and less power in the hands of clearly incompetent administrators and woeful and uncommitted teachers.
Even in healthcare this same obscuring happens. The National Health Insurance’s fundamental premise is built upon the same logic of healthcare resources being weighted disproportionately towards the affluent (private sector) and the injustice of it. Government officials, academics and even some in the media can push this narrative, while ordinary South Africans can see that doctors and nurses in the public health system do not even trust each other or public health administrators about their own healthcare needs and have private healthcare in the form of the Government Employees Medical Scheme (GEMS). Government officials certainly do not use public services either. This startling hypocrisy between behaviour and policy objectives and public pronouncements is rightly infuriating.
Again, why shouldn’t a market solution to this be on the table if people flee public services when they have the means to include those who work in public services and administration?
Deeper structural problems
With another major public sector downing of tools planned because of public sector worker unhappiness with a 3% wage increase, it seems obvious to point out that South Africa’s need for fiscal consolidation and public sector spending cuts can be broadly attributed to the migration and the thinning of a skilled and high earning tax base due to the mismanagement, corruption and poor policy decisions by all three spheres of government.
It is a vicious cycle in which governments fail to create a conducive policy environment that encourages investment and therefore the creation of jobs. This means that the government then has to intervene and initiate social programs and fiscal transfers to ameliorate their initial failures. Falling revenues then also contributes to the government being unable to meet their obligations and spending falling in real terms in core public services.
In a report titled “The Public Sector Wage Bill-an evidence-based assessment and how to address the challenge,” compiled by Intellidex, the country’s public sector wages were found to be higher than the average of 46 countries looked at by the International Monetary Fund (IMF). These ranged from Bangladesh to Norway and Denmark and included countries from Europe, Africa, South America and elsewhere.
Business Unity SA (Busa) commissioned Intellidex to research various aspects of the public wage bill in South Africa and they produced the report which utilizes data released by National Treasury, as well as the Quarterly Employment Survey released by StatsSA, which measures the full public sector.
While public sector wages have stabilised as a percentage of GDP from the boom years between 2007-2010, payroll costs in South Africa are larger than the global norm as a percentage of GDP, public spending, or tax revenues, according to the report. Public sector wage increases as a percentage of tax revenues has grown from 31 percent before the global financial crisis to 41 percent in 2009/10, in face of global slowdown, and has stabilized to around 37 percent. The percentage exceeded 50 percent of revenues in 2020/21 and were 47 percent in 2021/22 and will be 45 percent in 2022/23.