Question NW3994 to the Minister of Finance
22 December 2023 - NW3994
George, Dr DT to ask the Minister of Finance
In view of the compelling argument for instituting a debt rule that sets a clear target for the national debt as a percentage of Gross Domestic Product (GDP), what (a) are the reasons that the National Treasury has not acted on the growing concern that the current expenditure rule has failed to halt the deterioration of our debt-to-GDP ratio and (b) measures will the National Treasury that will manage and control the rising national debt effectively?
Reply:
a) The ceiling on main budget non-interest expenditure was introduced in 2012 to anchor fiscal policy. However, budget deficits and debt have continued to grow, in part because the ceiling was not binding. The target of reducing and stabilising debt has been persistently shifted out, largely because of lower‐than‐expected economic and revenue growth, and large spending pressures such as state‐owned company bailouts and compensation costs. As a result, main budget expenditure has remained relatively high at over 29 per cent of GDP over the past two years. This has led government to consider additional rules to provide an anchor for fiscal sustainability. Further details will be provided in the 2024 Budget.
b) Over the medium term, government will support the economy, stabilise the public finances and protect the social wage. In the context of persistently low economic growth, government’s fiscal strategy remains focused on consolidating the public finances to narrow the budget deficit, stabilise public debt and ensure fiscal sustainability. Fiscal policy will pursue a balanced approach that includes spending restraint, revenue measures and additional borrowing. Tax measures to raise additional revenue of R15 billion in 2024/25 will be proposed in the 2024 Budget. Relative to the 2023 Budget estimates, proposed reductions to main budget non-interest spending mainly baselines and provisional allocations and changes in reserves amount to R33.1 billion in 2023/24 and R213.3 billion over the next two years. On a net basis, non‐interest expenditure will decrease by R3.7 billion in 2023/24 and R85 billion over the next two years. Compared with the 2023 Budget, the main budget deficit increased by R54.7 billion in 2023/24, R51.8 billion in 2024/25 and R66.7 billion in 2025/26. The gross borrowing requirement for 2023/24 has increased from R515.6 billion to R563.6 billion, relative to the 2023 Budget. Gross loan debt is projected to stabilise at 77.7 per cent of GDP in 2025/26. And government will propose new fiscal anchors to ensure a sustainable long‐term path for the public finances.