ATC240326: Report of the Standing Committee on Finance on the Responsible Spending Bill [B9 - 2023] (National Assembly- section 76), dated 26 March 2024

Finance Standing Committee

Report of the Standing Committee on Finance on the Responsible Spending Bill [B9 - 2023] (National Assembly- section 76), dated 26 March 2024

 

The Standing Committee on Finance, having considered the Responsible Spending Bill [B9 - 2023] (National Assembly- section 76) referred to it and classified as a Private Members’ Bill, reports the Bill as follows:

 

1. INTRODUCTION AND BACKGROUND

1. The Responsible Spending Bill (“the Bill”) was introduced by Hnr. Dr. Dion George, MP, (the Sponsor) of the Democratic Alliance on 20 April 2023, after it underwent the NEDLAC Consultation process. The Committee was, on 14 February 2024, briefed by the Sponsor.
2. The Bill seeks to address South Africa's fiscal challenges by proposing a strategic shift in fiscal policy towards more responsible spending.
3. The Bill introduces precise targets for net loan debt as a percentage of GDP, along with specific fiscal actions for varying debt levels. This tiered approach aims to balance fiscal stability with flexibility, ensuring sustainable debt management while promoting economic resilience. It also ties government expenditure growth directly to economic performance, preventing increases that exceed the economy's capacity to support sustainably.
4. While emphasizing fiscal discipline, the Bill allows for exemptions from fiscal rules in cases of national emergencies or significant economic downturns. Clear criteria and procedures for returning to compliance post-exemption are established, maintaining a balance between flexibility and responsibility in fiscal policy.

 

2. PUBLIC PARTICIPATION

1. The Committee published the Bill and requested interested stakeholders to make written and oral submissions on the Bill.
2. On 13 March 2024, the Committee held public hearings and received written and oral submissions from one stakeholder, the Congress of South Africa Trade Unions (COSATU).
3. On 20 March 2024, the Committee received a response and input from National Treasury, as it is required by procedure for the affected department(s) to make an input on a Private Members’ Bill.

 

3. OVERVIEW OF THE KEY PROPOSALS

1. The Bill aims to instill a culture of responsible expenditure within the government. It aims to introduce a set of fiscal rules and obligations designed to reduce the country's debt levels and mitigate its exposure to debt. Within the bill, key terms such as "compensation of public servants," "financial year," "fiscal rules," "government guarantees," "gross domestic product," "Minister," "National Assembly," "net loan debt," and "primary balance on the main budget" are defined (Clause 1).
2. Central to the Bill are the fiscal rules outlined in Clause 2, which provide a framework for managing debt and government guarantees over a four-year period following the Bill's enactment. These rules dictate specific actions based on the country's net loan debt relative to its gross domestic product (GDP). They mandate adjustments in government consumption expenditure growth and compensation of public servants, contingent upon varying levels of debt.
3. Clause 3 of the Bill mandates periodic reviews of the fiscal rules, ensuring they remain relevant and effective. The Minister responsible for finance is required to conduct these reviews within four years of the Bill's commencement and subsequently at regular intervals. Furthermore, the Minister must consult with the Financial and Fiscal Commission during these reviews, promoting transparency and accountability in the process.
4. Exemptions from complying with fiscal rules are addressed in Clause 4, granting the Minister the authority to request exemptions, subject to approval from the National Assembly. This clause establishes a clear process for submitting exemption requests, including tabling them in the National Assembly and providing detailed reasons for the request.
5. Clause 5 requires the Minister to table an annual report before the National Assembly, coinciding with the presentation of the national budget. This report must detail the government's compliance with fiscal rules during the relevant period, elucidating reasons for any deviations and outlining recovery plans in the event of non-compliance.

 

4. SUBMISSION BY STAKEHOLDERS

1. COSATU vehemently opposed the Bill’s adoption. It expressed its rejection of the Bill, primarily due to their apprehension regarding its potential ramifications. COSATU emphasized that while the Bill aimed to address the national debt, its proposals appeared to unfairly burden public servants such as nurses and police officers. It argued that such measures would likely lead to the collapse of essential public services, raising concerns about the broader societal impact.
2. COSATU advocated for a broader discourse on the issue of public debt. It called for a nuanced debate that would explore which budget items should be prioritized or reduced. Additionally, COSATU underscored the importance of addressing the root causes of fiscal crises, including corruption, mismanagement of state-owned enterprises (SOEs), tax evasion, and the stagnation of the economy. According to COSATU, tackling these underlying issues was crucial for achieving sustainable fiscal stability.
3. Furthermore, COSATU criticized the drafting of the bill, labeling it as inherently flawed and unconstitutional. It pointed out that the Bill encroached upon workers' rights to collective bargaining, which was guaranteed by the constitution. Additionally, COSATU highlighted procedural shortcomings, such as the failure to engage relevant stakeholders like the Public Service Coordinating Bargaining Council (PSCBC) and the National Economic Development and Labour Council (NEDLAC). They argued that such omissions undermined the legitimacy of the bill and risked exacerbating labor market tensions.
4. In response to COSATU's objections, the Sponsor of the Bill, Dr. D George, provided detailed responses and explanations. The Sponsor acknowledged COSATU's concerns and clarified that the Bill's objective was not to target frontline workers' salaries but rather to protect vulnerable groups from the adverse effects of escalating debt levels. The Sponsor reiterated its commitment to ensuring CPI-linked increases for frontline workers and emphasized the focus on reducing the salaries of non-value-added government officials instead.
5. The Sponsor addressed procedural issues raised by COSATU, asserting that he had engaged with NEDLAC and received feedback from National Treasury. He underscored the Bill's alignment with a broader pro-worker agenda and its aim to prevent excessive government borrowing and spending. The Sponsor also outlined additional proposals aimed at social welfare within the fiscal constraints. Despite these responses, COSATU remained steadfast in its opposition, calling for the outright rejection of the bill by Parliament.
6. In response to COSATU's legal concerns, Parliamentary Legal Services (CLSO), which assisted the Sponsor in drafting the Bill, provided clarifications. Regarding the right to collective bargaining, the CLSO explained that the Bill does not regulate or limit this right but rather imposes parameters within which collective bargaining occurs. The Bill does not regulate conditions of employment but introduces new parameters for consideration. Furthermore, engagement with the Public Service Coordinating Bargaining Council (PSCBC) was deemed unnecessary as the Bill does not directly affect collective bargaining.

 

5. NATIONAL TREASURY’S INPUT

1. NT made an input in response to the Bill by acknowledging its alignment with the government's fiscal strategy and recognizing the effort behind it. NT emphasized the importance of sound fiscal rules in enhancing credibility, mitigating risks, and reducing debt-servicing costs. While welcoming the Bill as part of the consultation process, they also noted room for improvements to make fiscal rules more effective.
2. NT stated that in line with the medium-term fiscal strategy outlined in the 2023 MTBPS, the government remains committed to achieving a primary budget surplus, narrowing the deficit, and stabilizing debt at 75.3% of GDP by 2025/26. Measures such as expenditure restraint, revenue increases, and additional funding for critical services are part of the balanced approach to fiscal consolidation.
3. The Treasury highlighted the need for robust fiscal rules to anchor fiscal sustainability and supported the Bill's goal of reducing sovereign debt. However, it suggested a wider-ranging consultation to determine the most effective rules. NT also outlined concerns and proposed improvements to the Bill, including defining "current government consumption expenditure" and addressing the risk of pro-cyclical fiscal policy stance.
4. NT explained that the Government plans to propose a binding fiscal anchor after extensive consultation to secure the benefits of fiscal consolidation. It further explained that South Africa has a long history with fiscal anchors, such as aiming to lower and ultimately close the budget balance. Since the global financial crisis, debt-stabilization and the expenditure ceiling have anchored fiscal policy, with research indicating the benefits of well-designed fiscal rules in enhancing credibility and transparency.
5. NT further explained that the 2024 Budget Review outlines the government's commitment to developing fiscal rules tailored to South Africa's economic landscape through consultation and research. Institutional reforms, such as those seen in Brazil and New Zealand, could enhance fiscal oversight in South Africa.

 

6. COMMITTEE OBSERVATIONS AND RECOMMENDATIONS

1. The Responsible Spending Bill, introduced by Hnr. Dr. Dion George, MP, of the Democratic Alliance, aims to address South Africa's fiscal challenges by proposing a strategic shift in fiscal policy towards more responsible spending. The Bill seeks to introduce precise targets for net loan debt as a percentage of GDP, along with specific fiscal actions for varying debt levels. It underwent the NEDLAC Consultation process and was subsequently briefed to the Committee.
2. Despite the Committee's call for submissions, only one stakeholder, the Congress of South Africa Trade Unions (COSATU), participated in the public hearings on 13 March 2024.
3. The Bill aims to instill a culture of responsible expenditure within the government by introducing a set of fiscal rules and obligations designed to reduce the country’s debt levels. Key provisions include defining terms, establishing fiscal rules, mandating periodic reviews, addressing exemptions, and requiring annual reporting on compliance with fiscal rules.
4. COSATU vehemently opposed the Bill, citing concerns about its potential impact on public servants’ salaries, labor market tensions, and procedural shortcomings. However, the Sponsor of the Bill provided detailed responses, clarifying its objectives and engagement efforts with relevant stakeholders.
5. The National Treasury acknowledged the Bill’s alignment with the government’s fiscal strategy but emphasized the need for further consultation to develop effective fiscal rules. They highlighted concerns and proposed improvements to the Bill, including the need for defining certain terms and addressing the risk of pro-cyclical fiscal policy.
6. Considering the Treasury’s submissions on the necessity for more consultation and the limited stakeholder participation, the Committee recommends further engagement on these issues before a solution is proposed. The Committee stresses the importance of genuine public participation and suggests efforts be made to facilitate broader engagement with relevant stakeholders.
7. Furthermore, the Committee believes that more engagement and debate are necessary to reconcile differing perspectives on fiscal anchors and related matters. Therefore, the Committee recommends that Parliament facilitate further dialogue and deliberation on fiscal anchors and related policy measures.
8. Based on the submissions from the National Treasury and COSATU, the Committee suggests that the Responsible Spending Bill may require revisions to address the concerns raised and enhance its effectiveness. The Committee encourages the Sponsor to actively engage with relevant stakeholders to seek their input and consensus on key provisions of the Bill.
9. The Committee rejects the Responsible Spending Bill [B9- 2023].

The DA reserves its position.

 

Report to be considered.