The Treasury said in February it would propose a binding fiscal rule to “chart a sustainable, long-term path for the public finances”. ANC economic committee head Mmamoloko Kubayi now says the party doesn’t like that idea but would rather see “responsible spending” that does not compromise service delivery.
That is at least the start of a healthy debate on how to ensure SA gets on a path to cutting its unsustainable public debt to one the economy can afford, and keeping it there. But we suspect Kubayi’s comment hints at the ANC’s reluctance to embrace the steep spending cuts outlined by the Treasury in the budget framework for the next three years, to rein in debt.
There isn’t really an alternative as long as SA’s economic growth rate remains so low: tax hikes have been tried and failed to yield the revenue needed to close the budget gap and stabilise the debt. A much higher economic growth rate would quickly solve the problem — but then the ANC must be ready to support the tough reforms required to elevate growth, such labour market flexibility and slashing regulatory red tape.
Going into Wednesday’s medium-term budget, the fiscal rule may not loom large, but spending curbs and debt stabilisation do. The government has done well in the past couple of years delivering on its fiscal targets, but there’s much to be done.
It needs to stay on course and detail how it plans to do so. This will boost market confidence and, in turn, help cut borrowing costs. And confidence, as the Reserve Bank governor said this week, is the cheapest form of stimulus for the economy.
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