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Research Paper 1 – Using models to cost government policies and programmes in South Africa

The purpose of costing new and existing government programmes is to mobilise and systematise information in a way that presents different options for how to move forward. There has always been a need for such information, and this need is going to remain, given the imperatives to improve the allocation and application of government funds to meet social needs. It is therefore important to build capacity in government to do costing studies, and to use costing information in policy-making and management processes.

This paper explores the history of policy costing in South Africa. It shows how the experience gained from the early policy costing projects fed into the methodology for Spending Reviews developed by the Government Technical Advisory Centre (GTAC) in 2013.

The Spending Reviews have highlighted the usefulness of costing information, as well as the lack of capacity within government to undertake costing studies. This is reflected by the fact that, to date, all detailed policy costing research has been produced by consultants.

In a report commissioned by the National Treasury in 2002, a set of proposals for a framework to manage costing policy in government were put forward. These proposals remain relevant 20 years later. National government needs to:

  • develop a policy framework on the development of policy,
  • extend the legislative requirements for costing policy,
  • establish a specialist costing unit within the National Treasury,
  • set out processes for managing, reporting and reviewing costing exercises, and
  • establish processes to ensure that policy proposals presented to Cabinet and to Parliament are accompanied by the appropriate costing information.

The first two of these are foundational for achieving the rest, and should be addressed first:

  • Develop a policy framework on the development of policy – The Office of the President (working with National Treasury) should develop a white paper or good practice guide that sets out a clear process for the development of policy, which requires different options to be specified, and the costing of these options.
  • Extend the legislative requirements for costingSection 35 of the PFMA should be amended so as to:
    • require departments to put in place systems and processes to evaluate, and where appropriate to cost, the fiscal and socio-economic impacts of all legislation, regulations and policy proposals.
    • enable the National Treasury to regulate the processes, scope, methodology, reporting and other matters necessary to give effect to the above requirement.
    • specify that executive authorities may not promulgate regulations unless they have been subject to a regulatory impact assessment or costing study.
    • require that the fiscal and socio-economic impacts of all draft legislation presented to Parliament or legislatures must be evaluated and, where appropriate, costed.
    • allow the National Treasury to submit a memorandum to accompany the policy proposals sent to Cabinet and to Parliament that evaluates the quality of the costing of the policy, and highlights implications the costing might have for the shape and content of the policy.

Policy costing has the potential to bring useful information into policy development and other governance processes. This may result in some incremental improvements, it may not. This depends on the extent to which government has the capacity and integrity to run policy and budget processes that are rational, informed by evidence and aimed at serving the best interests of the country, or whether such processes have been corrupted or rendered ineffective by indecision.

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