We would like to begin by welcoming the Minister of Finance, Nhlanhla Nene, back to the “front benches” as finance minister in Parliament.
We are confident that, unlike his predecessor, who loved to bash National Treasury, he will bash those who bash National Treasury.
2. Fiscal Cliff
The primary objective of fiscal policy, which is the primary objective of National Treasury, is to stabilize national debt in South Africa.
However, this has been a spectacular failure, with national debt, measured as net loan debt, set to balloon to a staggering R3.03 trillion, or R52.2% of GDP, in 2020/21.
There is a question mark, given the pressure on spending, about whether national debt, measured as net loan debt, will actually stabilize at 53.2% of GDP in 2023/24.
However, assuming it does, we will be spending a staggering R277 billion on debt service costs in 2023/24, which is R30 billion more than we will spend on basic education this year, in 2018/19.
3. Rubber Stamp
We need to be honest about who ultimately is responsible for the failure to stabilize national debt in South Africa.
We are required by the Money Bills Amendment Procedure and Related Matters Act (No. 9 of 2009) to pass the fiscal framework and to specifically ensure that debt levels and debt service costs are reasonable in South Africa.
However, the fact is that after a period of customary tooth sucking and hand wringing the fiscal framework is rubber stamped every year by Parliament.
Which amounts to a dereliction of duty given that we are required to ensure that debt levels and debt service costs are reasonable in South Africa.
4. Fiscal Rules
We need some new and innovative thinking about how to deal with the staggering level of national debt and debt service costs in South Africa.
We have, therefore, written to the Speaker of the National Assembly, Baleka Mbete, giving notice of our intention to introduce a Private Members Bill, in terms of Section 73(2) of the Constitution, entitled the Fiscal Responsibility Bill [B_2018], in Parliament.
The Fiscal Responsibility Bill aims to introduce inter-alia “fiscal rule” that would reduce national debt and debt service costs in South Africa.
First, the Fiscal Responsibility Bill provides for:
- a fiscal rule prescribing that, for each financial year from 2019/20 to 2022/23, net loan debt expressed as a percentage of GDP must not be more than it was the previous year.
Second, the Fiscal Responsibility Bill provides for:
- a review of the fiscal rule by the National Assembly every four years, beginning in 2023/24 by either amending, renewing or terminating the fiscal rule; and
- an annual Fiscal Responsibility Report to be tabled by the finance minister at the same time as the budget is tabled, setting out whether the fiscal rules were complied with or not, together with reasons for those outcomes, and recovery plans in the event of a failure to comply with the fiscal rule.
And, finally, because South Africa is a small open economy, vulnerable to shocks, the Fiscal Responsibility Bill provides for:
- an exemption from the fiscal rule to be granted in respect of a specific financial year, or years, by the National Assembly upon application by the finance minister, with good cause having been shown and on the recommendation of the Standing Committee on Finance.
Whatever you may think of the merits of the proposal, had the Fiscal Responsibility Bill been in place, the former Minister of Finance, Malusi Gigaba, would not have had the discretion to deliver his now infamous “kamikaze” medium-term budget policy statement, which “blew up” the budget and risked a catastrophic full-blown sovereign credit ratings downgrade to “junk
status” of South Africa.
The Fiscal Responsibility Bill is, to the best of my knowledge, the first proposed statutory “fiscal rule” in South Africa.
We still have a lot of work to do before introducing the final version of the Fiscal Responsibility Bill in Parliament.
A notice of intent to introduce the Private Members Bill will be published in the Government Gazette shortly, inviting comments from interested parties, which we will consider before introducing the final version of the Fiscal Responsibility Bill in Parliament.
We look forward to working with the executive, political parties, civil society, trade unions and members of the public in developing the final version of the Fiscal Responsibility Bill, which we think will go a long way to stabilizing national debt and debt service costs in South Africa.