FF Plus agrees with the IMF as regards to a debt ceiling for government

27 June 2018

The FF Plus’s economic policy framework is in line with the opinion expressed by the IMF regarding the ANC government, which asserts that state debt must have a debt ceiling. Die debt ceiling must be determined by the state’s capital assets and the state’s debt may never exceed these capital assets.

It will prevent dissaving (making loans without security) from occurring, seeing as all debt will be backed up by assets that can serve as collateral when the debt cannot be repaid. It would also mean that tax payers will not have to cover state debt.

Given the country’s current economic position and the government’s exaggerated projections for future economic growth – on which fiscal debt is based – it is clear that the government is making too much debt and will not be able to meet all its financial obligations.

A debt ceiling that can be amended by Parliament will afford the legislative authority greater oversight of the executive authority’s fiscal policy. It will place a renewed public focus on reckless government expenditure as well as their overly optimistic projections of economic growth.

It will enable Parliament to more effectively debate the relevant issues and the media and citizenry will be able to put more pressure on the government to act responsibly.

Last year just before the adjustment budget, the FF Plus released a fiscal policy aimed at addressing the government’s debt problems. The policy requires that state debt must be controlled by a Fiscal Commission (FC) that functions like the Reserve Bank.

As the Reserve Bank oversees monetary policy, the FC must oversee fiscal policy by means of adjustments in VAT. If there is a budget deficit, VAT must be increased until the balance between income and expenditure has been restored. As soon as this balance has been achieved and the budget is under control, VAT can be decreased again.

The time has come for the ANC government to heed the IMF’s warnings and recommendations so that the country’s economy can be pulled back before it plunges off a fiscal cliff.

Below is an extract from the FF Plus’s fiscal policy:

A Fiscal Commission (FC) similar to institutions in, among other countries, the USA, the Netherlands, Belgium, Austria, Denmark, Canada and Japan, must be established. The task of the FC will be to act as an independent institution that will oversee fiscal policy, similar to how the Reserve Bank currently oversees monetary policy in an independent manner. The Minister of Finance will not have the authority to interfere with the decisions and functioning of the FC. The FC will be appointed by Parliament and will consist of ten experts in the field, five of which will be appointed by the government and five by the opposition parties.

Any extra tax collected will be placed in a sovereign fund to serve as a fiscal cushion for difficult times.

The FC will have the following functions:

(1) The FC will determine the VAT rate and may adjust it according to fiscal need in order to ensure that the government’s fair and reasonable tax targets are met;

(2) The VAT rate may be adjusted twice in a financial year: once with the budget and again with the adjustment budget;

(3) An upward adjustment of the VAT rate will be limited in terms of the following:

(a) The government and public service must remain small and public officials’ salary adjustments may not exceed inflation;

(b)  For the next five years, state expenditure must mostly be funded by the sale of public enterprises and state assets, like land;

(c) That the economy picks up by protecting the free market, which will increase other tax revenue due to the broader tax base.

vi) The FC will do research and do short-, medium- and long-term fiscal and budget projections.

vii) The FC will do research to determine the cost and other negative implications of existing and proposed policies of the government.

viii) The FC will reflect on decisions regarding VAT and budgets taken in the past in order to better plan for the future.

Issued by Anton Alberts, FF Plus chairperson, 27 June 2018