On 24 June 2020, Finance Minister Tito Mboweni tabled a supplementary budget necessitated by the outbreak of the COVID-19 pandemic and economic downturn. This budget introduced adjustments to the original budget tabled in February 2020 and formalised the two tax bills which provide relief to taxpayers in response to COVID-19. Furthermore it sets out a roadmap to stabilise debt by improving spending patterns and creating a foundation for economic revival. Simply put, it cannot be business as before the advent of the coronavirus.
Like any entity, the country also needs to have both a strategic plan and a budget. Budgets look at the money needed to support the strategic goals. When the annual budget 2020/21 was tabled in February this year, the budget was at the time correctly aligned and based on the country’s strategic goals contained in the strategic plan. This budget was based on traditional budgeting methods which attempt to extrapolate the past, that is, making use of the previous year’s budget as a basis and adding inflationary adjustments. For the first time in many years this budget made a real attempt to reduce expenditure and as such tax increases were averted. However, the strategic plan in February did not take into account the severity of the impact of COVID-19.
With the advent of COVID-19, the strategic plan has changed. As the strategic goals have changed, announcing the supplementary budget was a necessary and sound decision. However, the supplementary budget cannot be based on traditional budgeting systems. Now included in the strategic plan is a serious disrupter, namely COVID-19, coupled with the economic downturn that resulted from the pandemic.
What was therefore required of this supplementary budget was to redo the budget from zero (a zero-based budget). This means that we do not use last year’s budget as a reference point but rather discount last year’s budget and start from zero. This budgeting technique would have forced departments to rethink their requests for budgeting from zero. The only budgeted expenditure that is then approved is budgeted expenditure supported with detailed business plans that in turn support the revised strategic goals.
The budget speech confirms that the medium-term expenditure framework (MTEF) process will be guided by the principles of zero-based budgeting, which will be applied as a series of overlapping evaluation exercises targeted at large programmes. The current system of public expenditure reviews is a step towards zero-based budgeting. The upcoming MTEF will pilot this approach. While this is certainly a step in the right direction and National Treasury must be commended for considering this futuristic approach, the reality is that the supplementary budget already required this approach.
The way forward
In addition to spending adjustments of about R230 billion over the next two years, the supplementary budget speech announced that tax measures of R40 billion over the next four years will also be required. The government will announce details to these tax proposals in the 2021 budget. Attempting to increase taxes amid a global pandemic coupled with an economic downturn is simply looking for the easy way out. Instead of budgeting for increases in tax, immediately apply the concept of zero-based budgeting principles and remove fruitful and wasteful expenditure on all fronts with dire consequences.