TIISETSO MOTSOENENG: The dangerous gamble of letting MPs overrule Treasury

The judiciary has stepped into a high-stakes tug-of-war over who holds the nation’s purse strings. At issue is whether parliament — and by extension, politicians — should have the power to routinely overrule the finance minister’s tax decisions. The hearing and judgment on Treasury’s autonomy is more than a legal tussle. It could reset the balance of power in Pretoria. 

On Sunday, the Western Cape High Court agreed to suspend the VAT hike pending a full review, with the DA crowing that it is “a victory for South Africans” in asserting legislative authority.

Still, as cheers echo, a larger concern looms: could empowering MPs to micromanage tax policy imperil SA’s fiscal stability? The answer is a resounding yes. Tampering with Treasury autonomy is a dangerous gamble with SA’s fiscal stability. The push by the DA and EFF may be wrapped in populist rhetoric about accountability and helping the poor but it risks triggering fiscal chaos at the worst possible time. The post-apartheid architects of SA’s democracy were right to keep the Treasury at arm’s length from populist pressures, and weakening this arrangement now would invite economic upheaval. 

The battle centres on a seemingly arcane provision of tax law that has suddenly become consequential. Under the law, a finance minister can announce a change in VAT and have it take effect immediately for up to 12 months before parliament passes it into law. Essentially, it is a mechanism allowing the Treasury to act first and get legislative approval later — a rarity in democratic systems that usually demand “no tax without representation”. When Enoch Godongwana unveiled a VAT hike, he relied on this provision until he caved in, trading political crisis for a fiscal headache. 

The DA and the EFF joined forces to halt the hike via an urgent interdict. They contend that any tax increase must be decided by the people’s elected representatives in parliament, not a minister’s decree. “What if a minister decides to implement a 25% VAT hike?” the DA’s counsel asked rhetorically in court. “What is happening is that the executive has taken over the power of the legislature. Even if it is for a month, can that be tolerated in the constitution?” 

Their legal argument leans on the constitution, which indeed envisions legislative control over money matters. The constitution explicitly required a law to enable parliament to amend money bills — budgets and tax laws — leading to the 2009 Money Bills Amendment Procedure Act, which gave MPs formal powers to adjust the budget. That act “reinforces the authority of parliament in budgeting”, ostensibly ending an era in which the National Assembly was a rubber stamp for Treasury proposals.

The finance minister’s decisions should ultimately be guided by maths and national interest, not the loudest voices in the chamber. 

Yet, even with that law, the executive retained de facto dominance over tax policy — section 7(4) of the VAT Act being a prime example of Treasury’s autonomy. But these powers gathered dust because ANC MPs lacked the will or incentives to challenge their own finance minister. Now, with the ANC dependent on allies, or even opponents, to govern, parliament’s slumbering power of the purse has awakened — and it is causing a whiplash. 

Treasury lawyers, for their part, insist that a constitutional line was crossed, and that all due processes were followed in tabling the budget that until now had been a formality, before turning into an open revolt. The court ruling will either uphold the status quo, in which the finance minister has leeway to set taxes subject to later parliamentary approval, or hand parliament a bigger stick to beat back unwanted tax policies from the executive.

The Western Cape High Court’s intervention has, for the moment, tilted the balance towards the legislature. It set aside the National Assembly’s earlier approval of the budget framework that included a VAT hike, essentially pressing pause on Godongwana’s plan. Reading the writing on the wall, Godongwana had already capitulated, announcing last week that he would scrap the increase for now rather than fight on. As things stand, this precedent delights those who champion parliamentary sovereignty. But it also raises a question: would a lasting shift to let MPs overrule the Treasury serve the public interest? SA needs only to look abroad — and back into its own recent past — for warnings about politicising tax and budget policy. 

Around the world, countries have experimented with giving legislatures more say over budgets and taxes. The results are often messy. An IMF study notes bluntly that when parliaments have unrestrained budget amendment powers, they are prone to push through measures that inflate spending or slash taxes in excess. It is easy to see why: legislators facing voters have every incentive to promise benefits and low taxes while deferring painful choices. The outcome can be ballooning deficits and free-for-all fiscal jockeying. 

The US offers a vivid cautionary tale. There, Congress hold the “power of the purse” — no budget or tax change happens without legislative approval — and partial gridlock frequently brings government to the brink of shutdown. In recent years, routine funding bills have turned into high-stakes poker games, with agencies left unfunded until last-minute deals. In March, for instance, Congress had to pass a hurried stopgap just to avert another federal shutdown, after months of bickering over the budget. Such deadlocks have become common, resulting in the deterioration of the country’s fiscal position with each political standoff.

The US runs staggering deficits — about $1.6-trillion, or 6% of GDP — because raising taxes or cutting popular programmes are a perennial political football. Empowering parliament to overrule SA’s technocrats could import a similar cycle of impasse and indiscipline — something the young democracy has largely avoided so far. 

Even in some mature democracies, there is recognition that some insulation from politics is needed in fiscal policy. The UK, for example, operates on the principle that the executive has primacy in financial matters. The practical effect is that Britain’s treasury proposals generally sail through with minimal changes — a stark contrast to the free-for-all seen in systems without such constraints. 

To be clear, too much parliamentary control can be as problematic as too little. There is wisdom in having guardrails that compel elected officials to think long term, beyond the next election cycle. SA’s own constitution was deliberately designed to put some distance between politicians and the purse. The drafters of the 1996 constitution had fresh memories of economic turmoil. When apartheid ended, the country’s economy was in a shambles, saddled with crippling debt servicing costs. The first democratic government faced pressures to deliver social redress — jobs and housing for all — which could have led to populist overspending.

Recognising this risk, the 1994-2008 golden era of Nelson Mandela, Thabo Mbeki and Trevor Manuel imposed stringent deficit targets, even when it was politically unpopular. The result vindicated them. By 2006, the economy was growing at its fastest pace in two decades, the budget deficit had virtually vanished, and debt-to-GDP was slashed from 50% to the low 20s by 2008. This hard-earned stability, which underpinned a decade of growth and investment, was achievable because Treasury had the latitude to live within our means and resist short-term populist spending.

“In a way, the system was designed to compel us to live within our means — that was our strength,” said Manuel in a 2021 interview with the IMF. The system was designed to force tough choices: budgets were crafted via a medium-term framework and presented to parliament as a collective, take-it-or-leave-it plan, ensuring SA “could agree on how to run things responsibly”.

It was not just altruism that motivated such a structure — it was also fear. SA needed only to glance north to see examples of fiscal ruin when political expediencies trumped economic sense. Zimbabwe’s spiral into hyperinflation in the 2000s, for example, was a textbook example of what happens when there are no institutional checks on spending and money creation. In that case, an all-powerful executive and pliant parliament printed money to fund promises, and the currency collapsed.

While SA’s situation was far more sound, the new democratic government knew investor confidence was fragile. Any sign that parliament could simply raid the Treasury or veto necessary revenue measures might spook markets. Thus, the constitution gave the National Treasury a strong mandate, giving only the finance minister powers to introduce money bills in parliament and preserving the executive’s initiative on fiscal policy. And even though it envisioned parliament getting amendment powers, it took 13 years of careful negotiation to actually implement those, underscoring the caution around diluting Treasury’s influence. 

For about two decades this model served SA well. SA entered the 2010s with strong fiscal buffers, translating into moderate inflation, lower interest rates and steady investment. It is no coincidence that during this era of Treasury autonomy, SA was hailed as one of the most promising emerging markets.

Then, in the 2010s, came a wake-up call: what happens when the Treasury’s independence is undermined? Under the convicted former president Jacob Zuma, political interference in fiscal matters surged. The Treasury was seen as “too powerful”. Translation: resistant to patronage. So, Zuma sought to “take it apart”, as Manuel observed bluntly in the IMF interview.

Tax collections faltered, and debt climbed to fund widening deficits and the “fee-free” education spree. A cascade of sovereign credit rating downgrades followed. The starkest episode was Nenegate in 2015: Zuma’s abrupt firing of finance minister Nhlanhla Nene, who refused to sign off on a dubious nuclear deal. Investors recoiled at this assault on fiscal prudence. The JSE, the bond market and the rand plummeted, eroding tens of billions of rand in shareholder equity and jacking up borrowing costs. By one estimate, those two days of madness vaporised the equivalent of 10%-15% of SA GDP. 

The history lesson here is crucial. It shows that Treasury independence was not about technocratic vanity or undue elitism. It was about protecting citizens from the ravages of economic mismanagement. When buffers around the Treasury were weakened, the poor paid the price through higher inflation, job losses and a weaker social safety net. Conversely, when the Treasury was empowered to make hard decisions, insulated from daily politicking, the country prospered and had resources to invest in public services sustainably. Today, those arguing to give parliament more overriding power claim it would boost democracy and accountability. Still, it is worth asking: accountability to what end? If it leads to short-term populist moves that erode the nation’s fiscal health, the ultimate result could be less accountability to future generations who will inherit the debt and economic stagnation. 

None of this is to say parliament should be a potted plant in budget matters. Healthy democracies require debate and oversight. Yes, parliament absolutely should scrutinise how taxes affect citizens, ensure public input and hold the executives to account for spending priorities.  But there is a fine line between oversight and overreach. Tipping the balance too far towards legislative control, as the current court case threatens to do, could swap one set of problems for another. Instead of an imperial Treasury dictating policy, we could get a politicised free-for-all that leaves the country rudderless on fiscal policy. 

SA should think long and hard before letting MPs overrule the finance minister’s tax decisions. The intention to make fiscal policy more democratic is noble in theory. In practice, it could open the floodgates to short-term populism. We would do well to heed the adage: if it ain’t broke, don’t fix it. The finance minister’s decisions should ultimately be guided by maths and national interest, not the loudest voices in the chamber. 

UPDATE: This article is being republished to add international examples. 

• Motsoeneng is Business Day acting editor.