Prioritising Good Governance For Residents Despite Looming Fiscal Emergency

Premier Alan Winde chaired a regular meeting of his Cabinet, on Wednesday, 6 September 2023.

At the meeting, the Provincial Economic Review and Outlook (PERO) report was tabled.

PERO is an annual research publication prepared by the provincial treasury that sets out the economic, governance, and social context for the Western Cape Government (WCG) and its entities. It will be tabled before the Western Cape Provincial Parliament on 21 September 2023 and as provincial Minister of Finance and Economic Opportunities, Mireille Wenger, noted “kicks off the 2023 Medium Term Budget Policy process”. This year’s MTBPS will be a particularly crucial one due to the fiscal crisis that is facing South Africa and its impact not only over the 3 years of the 2023 MTBPS, but beyond that.

PERO analyses, among others: the national and global economic context and trends; and how these impact on and are reflected in the Western Cape’s profile, economy, socio-economic context and demography.

This year’s PERO will also have a special focus on youth and in particular youth unemployment. Harnessing the power of our young people to contribute to the provincial economy requires long term investments into quality education and healthcare. Services which are currently under direct threat due to the impending fiscal crisis.

Cabinet also discussed the looming fiscal emergency facing South Africa. It was noted that the scale of expenditure reductions that are being considered will fundamentally compromise ours, and other provinces’, ability to deliver critical frontline services such as basic healthcare, education and social development.

As part of the discussion on the growing fiscal crisis, Cabinet received a report on the meeting of the President’s Coordinating Council (PCC) on Friday, 1 September. The Premier used the opportunity last week to raise the imminent fiscal emergency and resultant service delivery constraints.

In his presentation to the PCC the Premier raised the critical requirement for success: future planning and a credible budget framework. The Western Cape is anticipating that its population will reach 10 million by 2040 due to an anticipated growth of 120 000 citizens per annum – planning for this requires that there are short-, medium- and long-term credible plans in place.

The cuts being considered currently are significant, not only for the Western Cape but for the country as a whole. The Western Cape is facing a potential cut of R16,7 billion over the 2023 Medium Term Expenditure Framework (MTEF), excluding conditional grants. If one considers that the Western Cape receives approximately 10% of the share of funding, it is very easy to extrapolate what this could mean for provinces which receive a greater percentage of funding than the Western Cape.

In his PCC presentation and in his report back to Cabinet, the Premier made the point that now is the time to make hard choices in the interests of our residents, particularly the most vulnerable. This persistent uncertainty undermines good governance and the budget framework. The provincial Cabinet noted that this crisis was largely caused by national government’s failure, to date, to provide adequate funding for the public sector wage agreement which it had centrally negotiated. Lower than expected tax revenue, sluggish growth and rising debt service costs have also compounded the situation.

The Premier stressed, “This crisis must be tackled with the same vigour that we addressed the Covid-19 pandemic. Our spending must be targeted to areas that keep enabling economic growth and job creation. For example, in the next few weeks we need to make critical choices that will inform the 2024 school year.”

Premier Winde pointed out that Finance Minister Enoch Godongwana must provide details on the measures being put in place to respond proactively to these fiscal realities. “We desperately need a balanced approach which will protect service delivery and ensure financial sustainability. I am deeply concerned by the scale of national government debt and the possibility that the approach may be to borrow our way out of this crisis. In February this year the Finance Minister reported a possible budget deficit of 4% of GDP resulting in debt of R4,7 trillion. Government debt seems to be moving closer to 6,5% of GDP or R6 trillion. This is an unsustainable and irresponsible approach to the crisis. Just this week Sakeliga noted that “Almost all government borrowing currently is being used to cover interest obligations from previous borrowing.”

“As a provincial government, we believe that there are clear alternatives available to national government to address the serious fiscal challenges facing South Africa including:

• Introduce the urgent structural reforms our economy needs to grow;
• Ensure that decisive political steps are taken to counter negative investor sentiment in the market; and
• National government also needs to reconsider some of the unsustainable and unfinanced policy commitments which it continues to make,” stated Premier Winde.

Cabinet noted that just one of the clearest examples of the types of breakdowns that national government has to address is the failure of Transnet to provide critical logistical support to the economy. At the PCC Premier reported to Cabinet that he had raised the provincial government’s deep concern about the performance of the Cape Town port. A study by the GAIN Group states that inefficiencies at Transnet are costing the national economy R1 billion a day, most of this coming from lost sales of coal and iron ore. The report states that, “economic growth of 0.5% expected for 2023 could have been 10 times higher at 5.4%…The nearly 5% GDP loss is catastrophic and could have been even worse at higher commodity prices.”

He emphasised, “If national government just addressed the failures at Transnet we could already change our growth trajectory and inject much-needed funds into the economy. The right approach is not to see how we can divide a shrinking pie, but how we can grow the pie.”

Cabinet agreed to continue to engage national government on how the current fiscal crisis can be addressed sustainably and credibly. “Our focus in these engagements is on acting in the best interests of our citizens. When faced with tough choices, we believe that there can be no greater priority than ensuring the education and healthcare of our citizens and protecting the most vulnerable among us,” concluded Premier Winde.