Cabinet has unanimously agreed on a principle-based fiscal anchor for South Africa, instead of a hard number. A law to support the plan will be brought in next year, Moneyweb reported.
A fiscal anchor guides how much the government can spend and how much debt it can take on. South Africa’s debt has grown from below 60% of gross domestic product (GDP) in 2018 to almost 80%.
Finance Minister Enoch Godongwana said the law will require a new cabinet after each general election to approve a fiscal plan. The plan must set out its goals, strategy, main assumptions and risks.
“The government will be required to explain how its policy choices support fiscal sustainability and report against the plan through the Budget Review and MTBPS, including reasons for and responses to any material departures,” Godongwana said.
Godongwana said there were worries that a principle-based anchor could tell future governments what they must do. Under the plan, each government will write its own fiscal plan based on its election mandate.
The Financial and Fiscal Commission will judge whether each plan is believable. Government and Parliament will both have to consider its advice and explain how they respond to it.
Parliament will keep its oversight role. The National Treasury will stay in charge of producing official forecasts.
The bill will define fiscal sustainability as the state’s ability to pay its current and future spending and debt costs. It also aims to manage risks without harming economic stability or forcing sudden, large changes to tax or spending later.
According to Moneyweb, the anchor is part of the biggest change to the public finance system since 1999. The framework creates binding duties to disclose, assess and explain fiscal decisions.
Each government will still be responsible for its own fiscal choices, the report said.
Economists have called for a flexible anchor rather than a fixed one. The United States uses a nominal anchor, which limits its debt to a set amount.
Investec chief economist Annabel Bishop said trust in an anchor can weaken when crises force frequent changes to targets. She pointed to shocks such as the Covid-19 pandemic.
Dawie Roodt, chief economist at the Efficient Group, said several countries have some form of fiscal anchor. He said it seems too easy for them to keep moving the goalposts.
Some European countries use indirect anchors that mix rules on budget deficits and debt compared to GDP.
“The Americans keep adjusting their nominal fiscal anchor and the Europeans simply ignore their fiscal anchors. In the end it all depends on political will,” Roodt said.
The legislation to put the fiscal anchor into law is set to be introduced next year.
Source: this article is based on reporting by Moneyweb. Image: Moneyweb. Written with the help of AI and published by the Tzaneen Voice Business desk. See our Editorial Standards.
Anelisa Nkuna covers business and money news for Tzaneen Voice. Anelisa reports on the rand, fuel prices, interest rates, jobs, Eskom, Transnet, farming and company results. The aim is simple: explain what the numbers mean for household budgets, small businesses and workers in South Africa.