It has been just over a year since finance minister Enoch Godongwana mooted the idea of a fiscal rule. Such a concept, sometimes known as a fiscal anchor, is designed to cap government borrowing.
In his medium-term budget in October, Godongwana promised a discussion document on the topic. The minister, who declared himself to “have no qualms with a fiscal anchor”, has become a victim of his own ideological consistency in a political environment that scythes through incumbent ideas.
Godongwana is under siege. The IMF said “structural reforms are paramount” and urged a one percentage point cut in debt-to-GDP, while projecting debt to balloon to more than 80%. The World Bank has offered to conduct a regulatory review, and it is on the record as saying that “hard, complex conditions associated with BEE policies” should be on the agenda.
The DA and other coalition partners refused to support his budget. To use the kind of cold language that seldom sees the inside of a budget statement, even “Budget 2.0” significantly hikes taxes and increases spending, and sees government debt rising yet higher — to more than 76% of GDP.
And Godongwana is under siege from the “magic money tree” left as well. The Institute for Economic Justice demanded he skewer a Laffered-out economy with an eye-watering tax raid, and tap further into the Gold & Foreign Exchange Contingency Reserve Account.
A poorly drafted rule would add a further layer of doubt to the developing fog of politely expressed incredulity that surrounds South Africa’s budget statements of late
In the context of all of this, it was something of a victory that the National Treasury managed to publish the discussion document on a fiscal rule at all. Powerful forces didn’t want it to see the light of day, not least elements of the ANC, which has quietly signalled a dramatic shift in its policy position by appointing Zuko Godlimpi, who is also deputy minister of trade, industry & competition, as chair of its economic transformation committee. Godlimpi is a proponent of expansionary fiscal policy and bailouts for state-owned and irretrievably corrupt basket cases such as Transnet and Eskom.
The Treasury’s discussion document is a good piece of work. It recommends that the country consider joining the more than 100 others that have such rules in further consideration of two concepts: a five-year fiscal review for each administration to be monitored in parliament, and a debt ceiling. Either would be an improvement. A carefully designed debt rule with a truly credible glide path to sustainability would force discipline and efficiency on to our legendarily sclerotic state, kill the vile impunity of the political class, allow oxygen into the economy to the benefit of all, and boost confidence while reducing the cost of debt.
But a poorly drafted rule would add a further layer of doubt to the developing fog of politely expressed incredulity that surrounds South Africa’s budget statements of late, and that is a risk in itself. A fiscal anchor done well would serve us well. Done poorly, it could be harmful.
Much of this is academic. Godongwana is a fan of the concept of a debt anchor and deregulation. Speaking to the Sunday Times, he expressed concern at the regulatory burden on businesses, even going so far as to say that “a big bank such as Absa or Standard Bank employs about 3,000 people, whose main function is … to deal with compliance. You may say there is some good in Elon Musk and [US President Donald] Trump’s madness.”
But the moment has passed. Without genuine buy-in from the ANC it is dead in the water, and that seems less likely than it did just months ago. The result is that, instead of operating from shared principles, while there is a coalition government there will be fraught contestation and rancorous disagreement over every line in every budget, and progress on growth and the debt burden seems more remote than ever.
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