State cost-cutting to save billions

28 October 2009

The South African government aims to save over R27-billion a year by cutting down on wastage and slashing inefficient spending.

Presenting his Medium Term Budget Policy Statement in Parliament in Cape Town on Tuesday, Finance Minister Pravin Gordhan said the first set of savings proposals, for the 2010 Medium Term Expenditure Framework, would involve a R14.5-billion saving at national government level and a R12.6-billion saving at a provincial level.

The savings relate mostly to expenditure on non-core goods and services.

The steps follow the setting up of a ministerial task team to look into ways in which the government can achieve more with less resources.

The task team is headed by Gordhan and includes Minister of Public Service and Administration Richard Baloyi and the minister in the Presidency responsible for monitoring and evaluation, Collins Chabane.

Reducing administrative spending

The biggest savings are expected to come from reducing administrative spending in departments, which are expected to save the government around R2-billion a year.

The government is expected to save about R1.5-billion a year on social development, as a result of increased collections from wrongly paid or overpaid grant beneficiaries, an adjustment of the means test, and as a result of a slower than anticipated uptake of social grants from the extension of the child support grant to 15-year-olds.

The government is also expected to save R1.4-billion a year from the Department of Defence and Military Veterans. Some savings have also been realised on the department’s procurement programme, as a result of a more favourable exchange rate.

The Department of Trade and Industry is set to save R700-million a year, largely as a result of reductions in transfers and subsidies of certain projects.

A further R700-million should also be saved through the Department of International Relations and Co-operation, mainly as a result of a revised foreign exchange rate.

Three-phase cost-cutting

The government’s cost-cutting exercise will involve three phases.

The first phase involves changing spending habits, such as cutting costs on unnecessary spending – targeting areas such as consultants, entertainment, travel, luxuries and conferences.

Phase two will look at back-office operations to frontline services and reform procurement processes.

The third phase will involve a comprehensive expenditure review which will reshape the way in which South Africa’s public services are delivered and resources allocated.

Non-performers to be axed

In the latter two phases, the government is expected to terminate non-performing programmes, projects and even entities.

The Presidency will conduct a review, together with the National Treasury, of which programmes are working and whether the same services can be delivered at more affordable costs.

A review of the ministerial handbook will also take place.

A selection of potential saving areas for investigation in the medium term is expected to be finalised by December 2009, while the first set of investigations and recommendations will be completed by March 2010.

The review may see spending increase in certain areas, for instance boosting spending on quality education.

Crackdown on tender fraud

The government will also crack down on tender fraud to reduce wastage.

A working group comprising members of the National Treasury, SA Revenue Service, Financial Intelligence Centre, Auditor-General and police Special Investigations Unit has been set up to look into whether there are leakages in the country’s procurement system, or weak management, causing cost escalations.

The working group will report to the minister of finance.

The government has already acknowledged that there are some leakages in the government feeding scheme, school construction, and the procurement of office equipment and other goods and services.

Intense work has been carried out over the past six weeks to improve compliance with state supply chain management policies and procedures, and a large number of public officials have been identified as suspects in defrauding the state.

A range of steps will be taken against these suspects, including criminal sanction, internal disciplinary measures, tax collection and blacklisting.

Cutbacks at state IT agency

The government is also looking at cutting back on IT services procured from the State Information Technology Agency (Sita), in order to allow departments to procure IT services at market-related prices.

The government is also looking slashing Sita’s annual spending on temporary and contract workers by 20 percent, from around R400-million to R320-million.

It plans to cut annual non-labour operating costs at Sita by 10 percent, from around R428-million to R385-million, while halving the agency’s budget for capital expenditure from R598-million to R300-million.

All spending on capital expenditure at Sita will have to be approved by the government’s Capex Review Committee.

Source: BuaNews