Prospects look dim for DA’s bill on state spending

Prospects for parliament adopting a DA proposal to impose a fiscal rule on government spending look dim. 

There is not much time before parliament rises in about a month before the general election, and the National Treasury has been working on its own fiscal anchor that is likely to hold greater sway with parliament’s finance committee than the DA’s bill, which was introduced in parliament more than a year-and-a-half ago. 

The governing party has rarely supported DA bills.

The medium-term budget policy statement states that the Treasury is “developing new fiscal anchors to ensure sustainable public finances. Work on these is under way, and an update will be provided in the 2024 budget”, which finance minister Enoch Godongwana will table in parliament on Wednesday. 

The Financial Mail reported last week that several analysts expected the Treasury to announce a new fiscal anchor in the budget aimed at slowing the build-up of debt as a way to signal the country’s deep commitment to fiscal discipline and to tie the hands of the political economy after the election.

The Treasury did adopt a ceiling on noninterest expenditure in 2012, but this was not binding and budget deficits and debt continued to rise.

DA finance spokesperson Dion George told MPs that time constraints should not be a hindrance to processing the bill. He stressed the importance of having a fiscal rule in place in the event of a coalition governing SA after the election.

George gave a presentation to the finance committee on his Responsible Spending Bill, which aims to promote responsible spending by obligating SA to reduce its debt levels and its exposure to debt. 

The proposed rule would tie the level of government current consumption expenditure to GDP growth so that if there is negative or no growth, this expenditure must not exceed that of the previous year. 

Covers freezes

“This approach is designed to ensure that increases in government spending do not exceed the economy’s ability to support such spending sustainably,” George told MPs. He said the bill sets precise targets for net loan debt as a percentage of GDP and institutes specific fiscal actions for varying debt levels.

The proposed rule also covers freezes or decreases in public service compensation, excluding those covered by the occupation-specific dispensation, relative to the level of net loan debt. 

The bill also provides for the regular review of the rules that must take place at least every four years and for the minister to request parliament for an exemption from them. It also provides for reports to parliament on the implementation of the rule. 

In his presentation, George noted that “government’s commitment to a redistributive policy framework has necessitated a significant increase in expenditure” with the result that the fiscal environment had deteriorated to a situation in which public debt was unsustainable, deficit spending was persistent and economic growth anaemic. 

He said that the government’s debt burden surged from only 27% of GDP in 2008 to 72.2% (R5.06-trillion) in 2023/24 according to the medium-term budget policy statement, in which the debt stabilisation target was revised upwards to 77.7% of GDP by 2026/27. The estimate for debt service costs for the 2023/24 year rose sharply to R354bn. 

George said the government’s unchecked cycle of spending and borrowing pushed SA’s finances to crisis point. 

“Introducing another fiscal rule to act as a framework for more responsible spending will bring back stability and encourage a forward-thinking approach to budget planning. 

“The Responsible Spending Bill introduces a strategic shift in fiscal policy by integrating debt rules into existing expenditure frameworks. This approach is designed to reinforce fiscal discipline by setting sustainable limits on government debt and expenditure.” 

George said that contrary to international best practice, SA’s reliance on an expenditure rule without a debt rule had limited its ability to contain government spending in response to revenue shortfalls. “Despite efforts to control spending, this approach has contributed to a rapid increase in the debt-to-GDP ratio, especially in a context of subdued GDP growth since
2009,” he said. 

ensorl@businesslive.co.za