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Right Balance

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Right Balance

4th November 2011

By: Terence Creamer
Creamer Media Editor

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Finance Minister Pravin Gordhan made a few crucial points regarding infrastructure delivery and the payment thereof in his recent address to Parliament.

The first related to the cost of not expanding and maintaining capacity, which he said would create an “even greater burden of congested and dangerous networks, constrained production and economic decline”.

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The second related to the thorny issue of repaying the debt raised to deliver infrastructure. Such resources could either be secured through the tariffs and charges associated with the provision of the service, or through higher taxes.

His final point was that the “right balance” needed to be struck between cost recovery from users and general tax funding. And it is precisely this mix that is going to be crucial to solving the current muddle around toll roads, particularly the ones that are nearing completion in Gauteng.

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One solution could lie in a hybrid model. For instance, the additional 7,5c/l added to the fuel levy from April 2010 to help Transnet fund the security-of-supply portion of the Durban-to-Johannesburg pipeline could be made permanent. Once the Transnet debt is repaid, the proceeds could be diverted to pay for a portion of the Gauteng roads debt and eventually to create a reserve for future road projects.

An element of ‘user pays’ could be sustained, but at far lower rates than is currently envisaged.

To be sure, there are other ways to reach the right balance, and inclusion of Gordhan on the task team assessing possible remedies offers some hope that it will be found.

But there is another kind of balance that also needs to be found as a matter of urgency. This balance relates to the worrying spending trends at local government level.

Underspending by municipalities on capital projects has risen from 14% in 2008/9 to 25% in 2010/11, and has emerged as a “core concern” for the National Treasury.

Reversing this trend will be vital to improving service delivery and changing the composition of government expenditure to achieve a more efficient balance between personnel, goods and services and capital spending.

This is particularly pertinent for municipalities, given that the recent ‘Local Government Budgets and Expenditure Review’ showed that many municipalities were spending significant amounts on nonpriority items, including unnecessary travel, luxury furnishings, excessive catering and unwarranted public relations projects. Consultants were also often used to perform routine tasks.

Altering this pattern has to be a priority for government and tough action should be taken against officials who continue to unsettle the spending balances.

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