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Prohibit cabinet from granting taxpayer-guaranteed debt aid to state-owned enterprises

State-owned enterprises (state-owned enterprises) such as South African Airways and Eskom continue to fail South Africans on a daily basis, with poor service delivery and mismanaged funds. Yet they rely on those same citizens for bailouts. Using tax dollars to help these flat businesses is clearly not working, as their bosses come back every time with desperate looks on their faces begging for more. In an article on SAA written by Sunil Shah, the entrepreneur and investment professional explains what else the money could be used for. Important issues like housing and medical expenses could be addressed and helped, instead of extending the lives of two contentious businesses that continue to suck the taxpayer’s nipple. Below, Jacques Jonker explains why the government should be banned from providing taxpayer guaranteed debt assistance to public enterprises. – Jarryd Neves

Prohibit the government from providing public enterprises with assistance for taxpayer-guaranteed debt

By Jacques Jonker *

According to the preamble to the Public Financial Management Law (PFMA), the law exists to ensure, among other things, that “… all revenues, expenditures, assets and liabilities of this government [national government] are the management efficiently and effectively

Section 2 of the PFMA enshrines its objective of “… guaranteeing transparency, accountability and good management of … income, expenditure, assets and liabilities …”

While these are lofty goals, it is doubtful that the PFMA will be worthy of the paper it is written on considering the extent of corruption and wasteful spending within the South African government.

What best sums up this blatant disregard for the preamble and purpose of the PFMA is the wasteful and inefficient spending by state-owned enterprises (SOE), most notably South African Airways (SAA).

According to independent transport economist Dr Joachim Vermooten, since the government placed SAA under the direct control of the Department of State-owned Enterprises (DPE) in 2007, taxpayers have been forced to provide a total of R42.709 billion. in cash to a dilapidated airline, as well as debt guarantees totaling R 26.314 billion, in the February 2020 budget. Despite immense problems with granting cash bailouts to state enterprises sunk into the ground by pure incompetence, it is time to tackle the nefarious practice of issuing taxpayer guaranteed debt guarantees to these companies.

Taxpayers are not only forced to guarantee public debt as part of the bailout of state-owned enterprises. Whenever the government sells bonds on the open market, the taxpayers are effectively the basis of the guarantee provided to bondholders that the government will pay to bondholders when the bonds mature. Thus, debt guaranteed by taxpayers is nothing new. The problem is, it is getting out of hand, as the numbers provided above clearly illustrate.

Read also: Zondo to ask Zuma and Ramaphosa: What have you done to stop corruption in public enterprises?

If the preamble and objectives of the PFMA are to be implemented, it is crucial that an amendment not only be seriously considered, but actually tabled in Parliament, which amends the law by inserting a provision that makes it illegal for any body. government or official provide any form of debt guarantee to any public entity listed in Annexes 2 and 3 of the law. The amendment is also expected to make changes to sections 66 and 70 of the Act, which deal with loans and guarantees. Any other relevant provision requiring modification to achieve this objective should, of necessity, also be subject to the modification process.

Forcing taxpayers to guarantee debt to inefficient public entities has the effect of confining funds that could have been used productively elsewhere, such as in the area of ​​investment in human capital.

However, amending the LFMA would not only serve its own purposes, but would give substantial effect to the values ​​and principles of public administration enshrined in Article 195 of the Constitution. Currently, the PFMA gives formal legal effect to the provisions of Article 195, but the substance is lacking.

There is also a larger question at play here, and that is the question of storytelling.

When we engage on the issue of bailouts, we tend to talk about the government providing the bailouts. While this may be true in the sense that the money moves from the accounts of the National Treasury, a body of the state, to the accounts of the poorly managed public enterprise that needs it, we must not lose sight of the situation. as a whole, namely that this money is not that of the government. These moneys, on the whole, represent the fruits of the labor of South Africans, expropriated by the State, and in the case of South Africa, largely without compensation, given the inadequacy of the provision. Services.

But the money wasted on public enterprises are not the only costs. They only represent the direct costs for citizens. The indirect costs, that is, the opportunity costs of not using the money elsewhere, are severe, and it is the poor and marginalized who disproportionately bear these costs.

For example, the average cost of building an RDP house is around R157,801, despite provincial variations around this value. The R26.314 billion earmarked for SAA over the past thirteen years could have been used instead to provide housing for around 166,754 households in need. Or, the government could have covered the tuition fees of approximately 67,994 medical students, which would have avoided the need to import medical manpower from a foreign dictatorship like Cuba to deal with the effects of ‘a global pandemic affecting an ill-equipped health sector. .

It is crucial that the narrative surrounding the bailouts be amended with the PFMA if we are to win the war against an authoritarian kleptocratic state. The government has shown itself to be more than willing to continually and shamelessly undermine the Constitution, the rule of law and the provisions of various pieces of legislation that serve to hold it accountable. Desperate times call for desperate action, although it would be ideal to live in a world where taxpayers are never forced to guarantee loans to failed businesses, private or public in the first place.

  • Jacques Jonker is an economic and legal analyst at the Free Market Foundation. The views expressed in this article are those of the author and not necessarily those of the Free Market Foundation.Join the conversation on corruption and Covid-19

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