COSATU opposes Bill to stabilise public debt

Issued by Dr Dion George MP – DA Shadow Minister of Finance
13 Mar 2024 in News

Note to editors: Please find attached soundbite by Dr Dion George MP

Today the Standing Committee on Finance (SCOF) deliberated on public submissions from relevant stakeholders regarding the DA’s Responsible Spending Private Member’s Bill. None of whom had opposed the intention of the Bill and the spirit in which it was introduced, which is to protect the most vulnerable in our society by containing the unsustainable accrual of public debt and excessive deficit spending.

A government, like any entity, must operate within its means. When a government consistently spends more than it earns in revenue, a budget deficit forms. To secure the funds necessary to fund this expenditure, the ANC has resorted to excessive deficit financing via increased debt issuance, the funds of which were not channelled to infrastructure development or service delivery. Instead, it was used to sustain salary increases of the ANC’s cadre millionaire managers who add little to no value to the sector.

Over time this unchecked cycle of spending and borrowing has pushed our public finances to a crisis point. Our public debt burden has surged from just 27% of GDP in 2008 to 72.2% (R5.207 trillion) in 2024/25 as per the February National Budget. The Budget revised the debt stabilisation target to 75.3% of GDP by the fiscal year 2025/26.

The cost associated with servicing the increasing debt stockpile has been the fastest-growing item on the Budget and continues to occupy an increasing share of GDP and revenue. As a result, debt-service costs have risen from R307.2 billion to R356 billion in the span of a year. This means that we pay nearly R1 billion per day to service debt that has little to no positive impact on the living standards of vulnerable South Africans who are battling a government-induced cost-of-living crisis.

In anticipation of the fiscal crisis that currently besets our economy, the DA presented a proactive solution in the form of our Responsible Spending Bill. The Bill will introduce a fiscal rule to act as a guide towards more responsible spending. It will stabilize our fiscal environment and encourage a forward-thinking approach to budget planning.

Currently, South Africa stands out for having implemented an expenditure rule without accompanying it with a debt rule. Treasury’s reliance on an expenditure rule without a debt rule to support it has limited its ability to contain government spending in response to revenue shortfalls. Despite efforts to control spending, this approach has contributed to a rapid deterioration of our debt-to-GDP ratio.

The Responsible Spending Bill will introduce a strategic shift in fiscal policy by integrating a debt rule into the existing expenditure framework. This approach is designed to reinforce fiscal discipline by setting sustainable limits on government debt and expenditure. It will in this manner ensure that spending decisions align better with long-term economic stability and growth objectives.

Our Responsible Spending Bill marks the beginning of a disciplined approach to safeguard our financial future. The DA will always welcome constructive criticism; it is unfortunate that COSATU attempted to frame the Bill as an attack on frontline workers and in doing so politicise the debate around unsustainable debt. It is also telling that COSATU did not comment on the Bill when the DA presented it to NEDLAC and attempted to mislead the Committee by stating that the DA had not attempted to engage with them.

The Bill is in fact pro-worker since it implicitly incentivises growth-seeking behaviour. This is why debt-to-GDP ratios are used. If growth increases, the ratio decreases at an accelerated rate because the denominator is going up. Government can also therefore borrow more, if needed. Therefore, in order to prevent what COSATU says will be the collapse of the public sector, government must create an environment that will generate growth.

Despite National Treasury’s announcement that it will introduce fiscal anchor, nothing of the sort has been implemented or even brought to Committee. The Responsible Spending Bill is the only proposal on the table. Voting against it will be to vote against the future best interest of all South Africans.