EDITORIAL: Has Ramokgopa jumped the gun on key fiscal debate?

So much for the fiscal rule. The National Treasury had undertaken to publish a discussion paper on the idea by end-March, even at next week’s budget, but minister in the presidency Maropene Ramokgopa seems to have pre-empted this and ruled the rule out altogether.

One wonders what finance minister Enoch Godongwana feels about his cabinet colleague stepping on his fiscal toes, as it were. One also wonders how the DA partners in the government of national unity feel about Ramokgopa’s peremptory dismissal of an idea they have long held dear. Nor is that dismissal necessarily without consequences in the market. Whatever the merits or otherwise of a new fiscal rule for SA, many in the bond market had grown rather attached to the idea, hoping it might help to hardwire sound public finances in the long term.

The government has worked hard in the past few years to try to rein in public debt, which has more than doubled since the global financial crisis of 2008/09. Interest costs on that debt now consume one-fifth of the tax revenue the government collects, crowding out spending on the government’s social and economic goals and driving up borrowing costs across the economy. And though the Treasury projects the debt will stabilise in the 2025/26 fiscal year at about 75%, some economists project the debt and debt costs will keep climbing — and worry about long-term pressures such as National Health Insurance that could derail the public finances again.

The Treasury said in the February 2024 budget that the government would propose a “binding fiscal anchor”, after extensive consultation, to chart a sustainable long-term path for the public finances. It has stepped back from that a bit, with director-general Duncan Pieterse telling Business Day late last year that a fiscal rule might be important for the long term, but in the short term the Treasury still needed to convince the market it could deliver on its plans to stabilise the public debt and rebuild the credibility it lost after years of missed targets.

So a new rule — the IMF has suggested a debt ceiling of 60% to bring SA in line with its peers — is not imminent. Yet, the Treasury did undertake in October’s medium-term budget to publish a discussion paper before the end of the fiscal year in March. It has been doing the technical work on this. And some hoped the paper might be published with next week’s budget.

It’s worth noting that SA already has had a fiscal anchor of sorts since 2012 when the Treasury put a self-imposed expenditure ceiling in place. This is not legislated and has been breached, but the IMF and others such as the Bureau for Economic Research have suggested it could be the basis of a new, more durable fiscal anchor that could be implemented gradually.

Certainly, the government has much to do still to convince markets that it can deliver on its promises to run the public finances more sustainably in the short and the long term. That would help to bring borrowing costs down. And to the extent that a binding fiscal anchor in some form might help, it needs to be debated.

The government needs to speak with one voice on this, after proper evidence-based consultation. It seems a pity to pre-empt the promised debate.