The following declaration was delivered by the DA Shadow Minister of Finance, David Maynier MP, to the National Assembly following the Standing Committee on Finance’s Report on the Proposed Fiscal Framework 2017 in Parliament today.
1. Introduction
The Minister of Finance, Malusi Gigaba, introduced the proposed fiscal framework when he tabled the medium-term budget policy statement on 25 October 2017 in Parliament.
The proposed fiscal framework sets out projections of key fiscal metrics, including economic growth, revenue, expenditure, the fiscal deficit and national debt, over the medium term between 2018/19 and 2020/21.
2. Fiscal Metrics
The fact is that:
• economic growth is projected to increase over the medium term from 1.1% to 1.9%;
• revenue is projected to increase over the medium term from R1.47 trillion to R1.70 trillion;
• expenditure is projected to increase over the medium term from R1.67 trillion to R1.93 trillion;
• the fiscal deficit is expected to increase from R193.1 billion over the medium term to R225.8 billion; and
• national debt is projected to increase over the medium term from R2.82 trillion to R3.41 trillion.
This assumes:
• that there will be no increases in expenditure not matched by a permanent source of revenue; and
• that there will be no budget “blowups” at “zombie” state-owned enterprises such as Eskom.
3. Scary Facts
What the proposed fiscal framework reveals, terrifyingly, is that if government sits back and does nothing, national debt will “blow out” to R3.41 trillion, or nearly 60% of GDP, in 2020/21.
What this means is that debt service costs, which are the fastest growing item of expenditure, consuming R183.1 billion in 2018/19, R203.3 billion in 2019/20 and R223.4 billion in 2020/21, will squeeze out expenditure on education, health and housing.
We are in danger of becoming a “zombie state” with salaries of public servants, social grants and debt service costs consuming 69.2% of revenue in 2018/19, 69.1% of revenue in 2019/20 and R69.5% of revenue in 2020/21.
4. No Decision
However, despite the terrifying facts, the minister, who would normally announce the level of “fiscal effort” necessary to stabilise national debt, decided to do nothing because he would not, we were told, sugar-coat the state of the economy.
(Or, as he put it later, he would not “do a Comical Ali and tell people everything was fine”.)
Well, the fact is that nobody believes the minister’s explanation and the resignation of Michael Sachs confirms that there is something horribly wrong at National Treasury.
What is of so much concern is that the hard decisions about the level of “fiscal effort” required to stabilise national debt have been deferred to next year and will be taken by a new and mysterious “Presidential Fiscal Committee”.
The “decision not to take a decision” should never have been an option, because there is no reason to believe that, following a bruising governing party election, the executive will be any more capable, next year, of making the hard decisions necessary to stabilise national debt in South Africa.
Things have become so bad that we are now not even sure that government has not abandoned fiscal consolidation, and its central fiscal objective, which is to stabilise national debt, in favour of a populist “spend now, pay later” fiscal policy under President Jacob Zuma.
5. Conclusion
We face the biggest “fiscal crisis” since the global financial meltdown in 2007/08 and must now take decisive action to:
• boost economic growth by implementing a package of short, sharp structural reforms to build business confidence and stimulate private sector investment;
• stabilise public finances by implementing a Comprehensive Spending Review;
• support the independence of financial institutions by supporting the institutional independence of the South African Reserve Bank, Public Investment Corporation and National Treasury;
• reform “zombie” state-owned enterprises by putting the national airline into business rescue with a view to stabilising and then privatising South African Airways; and
• mitigate significant long-term fiscal risks by terminating the nuclear build programme.
This will give hope to the 9.4 million people who do not have jobs, or who have given up looking for jobs, in South Africa.