How treasury got its teeth

[nectar_dropcap color=”#1e83ec”]T [/nectar_dropcap]his year, like every year, the annual ritual of the budget speech will offer a reminder of the significant power that National Treasury has in determining some very basic facts of life in South Africa.

There is also a deeper significance to Wednesday’s speech. It will be the first delivered by Finance Minister Pravin Gordhan since his return to Treasury following the dramatic removal of Nhlanhla Nene and the brief stint by his replacement, David “Des” van Rooyen.

This drama, as everyone knows, sparked widespread outrage. It also invigorated public sentiments around the pre-eminent role of Treasury. The sharp fall of the rand and sudden downturn in markets that followed Nene’s removal left no doubt about the pivotal position Treasury occupies in the state.

While its centrality is widely acknowledged, what is less often questioned is exactly how this came to be the case. Just how did Treasury rise to become such a powerful state institution?

into the new millennium, Treasury was a key flag bearer of central state-building. Its authority was not simply cemented by its constitutional mandate and strong institutional capacities, however, but also by powerful support from the ANC’s executive, particularly the country’s deputy president and, later, president, Thabo Mbeki.

The Herbert Baker-designed building in Pretoria that today houses the National Treasury PHOTO: HERMAN VERWEY

Building Treasury, building the state

When the ANC came to power in 1994, it inherited a fragmented bureaucracy. Structures of public finance required major reform: revenue collection, expenditure controls and financial administration were splintered across apartheid’s various state structures, with little monitoring or oversight.

The country’s first democratic Constitution set out a road map to transform the fiscal structures of the country. Most crucially, in section 216, it outlined the need to establish a centralised National Treasury to perform a coordinating role in the emerging intergovernmental system.

With the creation of a new system of provincial and local government, Treasury’s position at the heart of state was cemented.

It became the central dispenser of the “equitable share”. It also became a crucial formulator of policy, constitutionally empowered to “prescribe measures to ensure both transparency and expenditure control in each sphere of government”.

Treasury overhauled the budgeting process, introducing a multiyear framework and a range of budget forums to open up the process.

To standardise financial management across government, it introduced the Public Finance Management Act in 1999, which profoundly changed the public service, improving the availability of information and the practices of reporting. Through this, Treasury gained oversight powers over every organ of state.

Treasury itself underwent far-reaching internal consolidation to bolster its institutional capacities. Over the course of the 1990s, the twin apartheid departments of finance and state expenditure – poorly coordinated and governed by archaic systems – were gradually merged to form the new National Treasury. By the decade’s end, Treasury had emerged as a powerful, streamlined entity with multiple specialised directorates.

It attracted personnel of strong calibre, and it was distinguished by its low staff turnover and high levels of internal promotion. Continuity and stability came to underpin its institutional strength.

Many of the core officials of “Team Finance” – most also members of the ANC – have been alternately deployed in various structures in the fiscal and monetary landscape. When Gordhan was appointed minister of finance in 2009, it was after having served as the commissioner of the SA Revenue Service for almost a decade.

In the 1990s and into the new millennium, Treasury was a key flag bearer of central state-building. Its authority was not simply cemented by its constitutional mandate and strong institutional capacities, however, but also by powerful support from the ANC’s executive, particularly the country’s deputy president and, later, president, Thabo Mbeki.

Treasury as a contested institution

The kind of hierarchical, technocratic coordination Treasury undertook was emblematic of Mbeki’s approach to state-building. And just as Mbeki’s centralised approach came to attract stringent criticism, so Treasury’s role was highly contested.

Criticism of Treasury was tied to the particular macroeconomic stance it came to promote. Contrary to many of the ANC’s election promises of increased social spending, Treasury emphasised restraint in government spending and a reduction in the deficit.

Sensitivity to the disciplining power of institutions of global capital profoundly shaped Treasury’s policy mandates – a prevailing economic orthodoxy that continues to legitimise its actions.

In 1996, we saw the introduction of the Growth, Employment and Redistribution (Gear) policy, which attracted stinging criticism from the ANC’s alliance partners.

Gear not only emphasised fiscal austerity and a distinct outward focus, it heralded a particular institutional vision with Treasury at the helm of state, alongside the presidency and other central departments.

Mbeki shielded then minister of finance, Trevor Manuel, in the fallout that followed the announcement of Gear, and smoothed the path for the ascendance of Treasury and its mandate of fiscal conservatism.

Treasury has not simply been criticised for the macroeconomic stance it embodies, but also because of the way it exercises power.

Civil society has challenged the accessibility and democratic engagement of budget processes (most notably through the people’s budget campaign), and questions are raised about the genuineness of fiscal autonomy in the country’s subnational governments, as well as the effectiveness of Treasury’s technocratic policies of top-down, compliance-driven financial management reforms.

As the 2000s proceeded, Mbeki’s model of centralised power became the source of increasing division within the ANC. This reached a breaking point at the ANC’s 2007 elective conference in Polokwane. Treasury was not spared criticism. In the run-up to Polokwane, Treasury under Manuel was labelled “too powerful” by factions within the governing party, and particularly also by its alliance partners, labour federation Cosatu and the SA Communist Party.

The post-Polokwane era was a landscape more hostile to Treasury. The provinces, parastatals and the president increasingly tested the limits of its reach.

The firing of Nene in December last year was, however, the most direct attack on Treasury’s authority.

In his first and only statement as finance minister, Van Rooyen tried to tap into long-held views of Treasury’s inaccessibility. Yet his assertion of the need to “open up” Treasury was read cynically. The incident was instead seen as a brazen display of presidential unilateralism.

Defending National Treasury became a defence against the president’s arbitrary exercise of power and creeping corruption. It was this issue that united opposition parties, civil society and business leaders, rather than unanimity over Treasury’s policies or modes of governance.

The return of Gordhan has brought with it renewed promises of deepened fiscal restraint – likely to be confirmed by this week’s budget speech. While restraint has been a common refrain of post-apartheid budget speeches, Treasury is in a stronger political position than in the recent past.

It will continue to have to negotiate its authority, however, as the full consequences of economic downturn are felt in all sectors of society.

With its continuing power to determine some of the very basic facts of life in South Africa, a role cemented in the earliest years of the democratic state, National Treasury will continue to be a site of contestation in the years to come.