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Cape Town – Contrary to claims made by Democratic Alliance MP David Maynier about the country’s rising debt levels, Finance Minister Nhlanhla Nene said that government has been managing the country’s debt responsibly.
Nene delivered Treasury’s budget vote in Parliament on Tuesday. During the budget vote debate, Maynier put forward a draft private member’s bill known as the Fiscal Responsibility Bill 2018.
The bill will set in place fiscal rules to ultimately bring down debt levels and stabilise the country’s debt position.
In his submission to the Speaker of Parliament, Maynier explained that debt has risen rapidly from 21.8% of gross domestic product in 2008/09, and will increase to 53.2% of GDP by 2023/24.
He also pointed out that debt service costs would rise to as much R277bn by 2023/24.
The Fiscal Responsibility Bill will introduce statutory fiscal rules aimed to contain national debt and debt service costs in South Africa, Maynier said. During his speech he also criticised the role of Parliament in failing to stabilise the country’s debt situation.
“The fact is after a period of tooth sucking and hand wringing the fiscal framework is rubber stamped every year by Parliament,” said Maynier.
However, in his response Nene defended government and Parliament. “It was through Parliament that we agreed that during the global financial crisis that our response is going to be premised on counter-cyclical fiscal policy.”
This meant that it was agreed to allow the debt level to rise. “Up to this point we have managed it responsibly,” Nene said.
Indictment to Parliament
Nene added that Parliament has not been “rubber stamping” the fiscal framework, and that there has been robust engagement by Parliament on the framework. It is a “serious indictment” to Parliament to say that there was no “robust engagement”.
Nene encouraged Parliament to engage and debate the proposed bill.
African National Congress MP Yunus Carrim also shared views on the bill. “What about responsibility to the poor and disadvantaged? What about the responsibility in service delivery?” he asked.
Carrim agreed to the idea of fiscal responsibility, but not at the expense of the poor and disadvantaged.
Stabilise debt
Treasury does not have fiscal rules, but in its budget review for 2018 it explained that government made changes to the fiscal framework to stabilise the financial position.
Measures included an R85bn reduction in spend, as well as a one percentage point increase in the VAT rate and adjusting personal income taxes to raise an additional R36bn. Government reprioritised R57bn of its spend for fee free higher education.
Government also increased its contingency reserves to make provision for uncertainty in the growth outlook.
“Together with the improved economic growth outlook, government’s interventions narrow the deficit relative to the 2017 MTBPS (mini budget) estimates, and stabilise the debt-to-GDP ratio over the medium term.
“The fiscal proposals will cause economic discomfort, but are necessary to protect the integrity of the public finances,” the review read.
Maynier’s bill includes fiscal rules to stabilise debt levels. One of them is to ensure that between 2019/20 and 2022/23, debt as a percentage of GDP should not be higher than that of the previous financial year.
Government must also ensure that between 2019/20 and 2022/23 the aggregated government guarantees must not be more than they were for the financial year 2018/19.
The fiscal rules should be reviewed every four years; the first review is expected in 2023/24 and rules may either be amended, terminated or renewed.
The bill also makes provision for exemptions to the rules, requested by the finance minister when the country’s economy becomes vulnerable to shocks.
The public has 30 days to make written submissions to the bill.
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