JOHANNESBURG - We need some new and innovative thinking about how to deal with the staggering level of national debt and debt service costs in South Africa.
The fact is that our fiscal policy, which aims to stabilise national debt, has been a failure.
Our national debt, measured as net loan debt, is now set to balloon to a staggering R3.03 trillion, or R52.2 percent of gross domestic product (GDP), by 2020/21.
As a result, we will be spending a staggering R214billion on debt service costs by 2020/21, which is R120bn more than we will spend on higher education; R115bn more than we will spend on police services; and R8bn more than we will spend on healthcare in 2018/19.
The Minister of Finance, Nhlanhla Nene, is drowning in red ink, with ballooning national debt, and debt service costs.
We cannot go on like this, and for that reason we have written to the Speaker of the National Assembly, Baleka Mbete, giving notice of our intention to introduce a private member's bill, in terms of section 73(2) of the constitution, entitled the Fiscal Responsibility Bill (FRB), in Parliament.
The FRB is, to the best of my knowledge, the first statutory “fiscal rule” proposed in South Africa.
It aims to introduce a “fiscal rule” to stabilise national debt and debt service costs in South Africa.
First, the FRB provides for:
* A fiscal rule prescribing that, for each financial year from 2019/20 to 2022/23, net loan debt expressed as a percentage of GDP must not be more than it was the previous year.
Second, the FRB provides for:
* A review of the fiscal rule by the National Assembly every four years, beginning in 2023/24, by either amending, renewing or terminating the fiscal rule; and
* An annual fiscal responsibility report to be tabled by the finance minister at the same time as the Budget is tabled, setting out whether the fiscal rule was complied with or not, together with reasons for those outcomes, and recovery plans in the event of a failure to comply with the fiscal rule.
Vulnerable
And, finally, because South Africa is a small, open economy, vulnerable to shocks, the FRB provides for:
* An exemption from the fiscal rule to be granted in respect of a specific financial year, or years, by the National Assembly upon application by the finance minister, with good cause having been shown and on the recommendation of the standing committee on finance.
Put simply, the FRB would act as a sort of “legislative handbrake” forcing the executive to stabilise national debt and debt service costs in South Africa.
The fact is that had the FRB been in place, the former minister of finance, Malusi Gigaba, would not have had the discretion to deliver his now infamous “kamikaze” medium-term budget policy statement last year, which “blew up” the Budget and risked a catastrophic full-blown sovereign credit ratings downgrade to junk status.
We must accept that there is now a question mark, given spending pressures, about whether national debt, measured as net loan debt, will actually stabilise, as it is expected to do, at 53.2percent of GDP in 2023/24.
However, assuming it does, we will be spending a staggering R277bn on debt service costs in 2023/24, which is R30bn more than we will spend on basic education this year (2018/19).
We hope, therefore, that the FRB will be given serious consideration, and we are encouraged by the fact that the finance minister may not have agreed with the proposal, but nevertheless committed to “engage on the matter” when the idea was pitched in Parliament.
And so we look forward to working together with the executive, political parties, business, trade unions, civil society and members of the public on the FRB, which we think will go a long way to stabilise our national debt and debt service costs in South Africa.
David Maynier MP is the DA’s shadow minister of finance and a member of the standing committee on finance in Parliament.
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