Economics 101: Private sector makes it, government spends it

1 July 2020

If there is one overriding lesson, among the many the Covid-19 virus has given to South Africans, it is that private business makes the money and the government’s major talent is spending it – more than two thirds of all tax revenue – on themselves.

The lesson is not a flash of light and understanding to businesspeople, but remarkably few other people understand this basic economic fact.

Nor is this truism the only lesson we have had to face these past months.

There is another: Keeping a record of where, how and to whom, the tax monies go, is not high up on civil servants’ priorities: the term “civil servant” refers here to public servants at all levels – State, Province, and municipalities of all sizes.

Combine these two Lockdown-Lessons and you have a perfect description of how the South African economy, together with all its 60+ million citizens, came to be in the state they are in.

And what a state the municipalities in particular are in was again under a spotlight when the Deputy Auditor General Tsakani Maluleke briefed the National Council of Provinces (NCOP) on local government audit outcomes for the 2018/2019 financial year (Note: before the Covid 19 outbreak).

As Maluleke helpfully explained to the members of NCOP, “a clean audit goes to …a municipality …(that) has credible financial information, whose performance information is useful and reliable and where we have not found significant non-compliance with key laws and regulations relating to financial and performance management”.

But, what did Ms Maluleke find instead, in the accounts of the 257 municipalities audited?

It was not good. Only 20 were deemed to be clean. Twenty-eight municipalities did not bother to submit their financial statements, thus breaking the law requiring them to do so by the end of August every year. That was 24 more delinquent municipalities than the previous year.

Don’t take bets that the 2019/2020 audit will be any better. More will be revealed in July.

Meanwhile, what did this mean in terms of taxpayers’ money?  Well, a mere nothing if you consider that R2.07 billion in what auditors call “fruitless and wasteful expenditure” deserves nothing more than a slap on the wrist of those responsible – even though it is double the waste of the previous year. Certainly, R2.07 billion pales into insignificance against the R12 billion that was not authorized – which means presumably that Treasury guidelines were simply ignored.

Anyway, who cared? Certainly no one in the 34% of South Africa’s municipalities who between them ended the year having spent more taxpayers’ money than they were allocated – a generous overdraft facility one might argue.

Which provinces had the worst record?  Well, according to the Auditor General, KwaZulu-Natal, North West, Western Cape and Eastern Cape, accounted for 71% of the annual irregular expenditure. KwaZulu-Natal won first prize in these stakes, managing to double its take to R6.47-billion, thanks to the valiant efforts of the eThekwini Metropolitan Municipality.

One way eThekwini did it was to pay contractors’ R800-million to develop an “information and technology management system”, while R424-million went to service providers hired to build “washing facilities and schools”.

eThekwini, it will be recalled had some trouble with its mayor who refused to step down when this became public.

Meanwhile nine municipalities are being investigated for “non-compliance likely to result in financial loss or the harm of a public-sector body and the general public” – in accordance with the Public Audit Amendment Act. This sounds fairly innocuous until you remember it is taxpayers’ money that we are talking about—money they have earned and already paid taxes on.

How else do our municipal servants manage this looting?  Common methods were fiddling the procurement process, theft of municipal assets, vandalism, and paying for goods and services that were not actually delivered.

And then there are the billions of Rands 229 municipalities owe Eskom. The best at not paying Eskom was Emalahleni municipality in Mpumalanga which owed R2.77 billion. Altogether the 229 owed the giant State-owned utility R18.9billion.

But of course, Eskom was not the only SOE waiting for municipalities to pay their bills. Water boards were owed R9.7-billion by June 2019. The Mopani district in Limpopo owed R930 million.

Imagine if this kind of industrial scale looting had taken place in the private sector. Heads would have rolled; chief executives would have been fired; shareholders would be carrying pitchforks into annual general meetings.  Nothing like this could happen in the civil service, of course. The most any of the guilty could expect would be to be put on extended paid leave pending an investigation, followed by cashing in of pensions and retirement on the proceeds to pastures new.

However, one looks at it, there is no way of avoiding the conclusion that the state of the majority of our municipalities is a picture of chaos, dominated by unbelievable levels of corruption, incompetence, and inefficiency. How SALGA can reward this level of non-performance with salary increases year in and year out is beyond comprehension. Then again, we get the government we choose, and if we continue to accept this without protest, we don’t deserve any better.

Issued by Dean Le Grange,Media and Digital Co-ordinator, Cape Chamber of Commerce and Industry, 1 July 2020