Economists in support of proposed Zero-Based Budgeting

National Treasury is looking at adopting Zero-Based Budgeting to put the fiscus on a sustainable path. This week the department released a report titled A Framework For Achieving Spending Efficiency in a Fiscally Constrained Environment.

Zero-Based Budgeting means government will spend money it gets from taxes, thus reducing debt. However, there has been concerns that this way of budgeting could delay spending on infrastructure and some social functions.

The country has over the years used the traditional approach of incremental budgeting mainly using the inflation rate as a measure.

Many economist are in favour of the Zero-Based Budgeting guidelines introduced by the National Treasury this week.

The fiscus has been strained because of low revenue, as a result of economic downturn. The increase in spending has led to large deficits and increased borrowing.

With Zero-Based Budgeting, government departments will have to justify their expenses. Funds will be allocated according to needs, as opposed to using historical data.

Investec economist, Annabel Bishop, supports the Zero-Based Budgeting policy.

“Essentially what this is, is to begin again an allocation of monies that government spends on. The pros certainly are that it’s very good to have a reassessment of finances and to identify priorities where expenditure needs to lie. Some sectors will lose out and others will be biggest gainers. But hard priorities need to be looked at in South Africa to stimulate economic growth and to work down the country’s high unemployment rate. Particularly given impact that COVID- 19 has had on South Africa due to very hash lockdowns,” says Bishop.

Unisa economist, Mzwanele Ntshwanti, says Treasury should really push for zero-based budgeting to realise its fiscal goals.

“For me I’m in favour of it because it will definitely deal with the issue of corruption and also deal with the issue of efficiency and then Treasury we hope they will look at departmental plans with an eye of a needle and scrutinise them before they can allocate funds and going forward a report on how those funds were spent. I think we have been blindly allocating budgets and starting on a zero-budget sort of in inverted commas on a clean slate will really assist us to see a of what has been happening. A lot of the allocation that we do, we do not know why we allocate or if the amount we allocate are appropriate.”

Chief Economist at Alexander Forbes, Isaah Mhlanga, believes Zero-Based Budgeting is the right way to get value for money for government spending.

“Zero-based budgeting framework aims to put our fiscus on a sustainable level. Lets observe what we have seen in our fiscus, revenues they decline and increase according to where we are in the economic cycle but if we look on the expenditure side, it has continued to increase continuously and that puts our fiscus on an unsustainable level because deficit remains quite wide. What the zero -based budgeting framework does first is to force politicians to agree on a set of principles in allocating the limited resources that we have, secondly it re-assess every expenditure item which is something we have not done historically.”

While Zero-Based Budgeting is expected to help deal with corruption, there are concerns whether South Africa has the capacity to implement such a system.

“I can remember as a young economist working at the South African Reserve Bank I came across a certain expense item once, as it turned out this expense item was the salary of a clerk that calculated certain data, which somebody used once and for many years after we kept on paying a salary and no one use this specific data and this is what a Zero-Based Budget will achieve to insure that all that expenses that we incur are actually necessary. I’m absolutely in favour on a Zero-Based Budget and we have to do this. Having said so I’m not so sure we are going to get the Zero-Based Budget and the reason for that is because it’s quite a lot of work and there will always be a comparison to last year. I doubt this will gain traction or if we will really implement zero-based budget,” says Efficient Group Economist, Dawie Roodt.