How Treasury plans to constrain government spending, borrowing

Fiscal anchor legislation to be detailed in the mid-term budget - and national departments have been told to settle their debt with municipalities or face 'engagement' National Treasury Director-General Duncan Pieterse says the government is on track to provide a permanent, binding mechanism that would act as a fiscal anchor, and that it is addressing ongoing financial instability in municipalities. A fiscal anchor is a binding rule or target that constrains government spending and borrowing, keeping public finances sustainable. It aims to prevent future governments from repeating past fiscal mistakes. “Legislation has been drafted, the technical work is complete and we will be ready to provide an update in the [Medium-Term Budget Policy Statement] on 21 October,” says Pieterse. He was speaking at the RMB Morgan Stanley Big Five conference in Cape Town on Monday. Benefits A fiscal anchor lowers borrowing costs as investors trust that the government won’t default, reduces the risk premium charged for lending to the country, and locks in economic gains over the long term. In the budget speech in February, Finance Minister Enoch Godongwana said that “to sustain fiscal discipline, we intend to continue the engagements on fiscal anchors”. “We aim to introduce a proposal for a principle-based fiscal anchor in the Medium-Term Budget Policy Statement after thorough consultation in cabinet, parliament and with the public.” Pieterse previously said government plans to anchor sound fiscal principles in law through principle-based legislation rather than hard numerical targets. He repeated on Monday: “When we presented our plans in February, we indicated that we do not believe that legislating a hard numerical rule is appropriate.” A numerical fiscal anchor is one such as Canada’s that targets an annual deficit of below 1% of GDP, whereas a principle-based one may establish flexible standards, such as requiring that spending grow no faster than the expected rate of economic growth. Local government Pieterse acknowledges the ongoing challenges with municipal financial deterioration and service delivery failure, both of which have been in the headlines ahead of local government elections in November. Actions taken include: This week, National Treasury is “writing to national departments with outstanding balances to municipalities to verify those amounts and to make arrangements to settle outstanding balances”. He added that “where non-payment of municipal accounts persists, the National Treasury will engage those accounting officers to ensure that their debt to municipalities is settled”. Government will publish amendments to the Municipal Finance Management Act later in 2026 to addresses weakness in recurring financial management and identify financial stress earlier, support firmer action against failures, and assign clearer responsibility for corrective measures. Government will soon publish public-private partnership regulations for local government to unlock private sector investment in the infrastructure required to deliver basic services. Longer-term structural reforms are also under way, including a new white paper on local government being developed by the Department of Cooperative Governance and Traditional Affairs, and a review of the local government fiscal framework by National Treasury. While these structural changes will take time to implement, they are essential for sustainable improvement, he says. On track for fourth primary surplus Pieterse notes that South Africa has achieved primary surpluses (revenue exceeding non-interest spending) for three consecutive years – for the first time since the 2008 financial crisis – and is “on track to deliver a fourth”. This year’s primary surplus is projected at R131 billion, which is R100 billion larger than three years ago. “The latest monthly revenue numbers show collections running comfortably ahead of budget estimates despite the fuel levy relief. This reflects strong growth in corporate income tax collections.” He adds that “a growing primary surplus is a critical anchor of our fiscal strategy because as debt declines, the resultant fiscal credibility translates into higher growth and job creation by creating the enabling conditions for greater investment”. “We remain confident, however, that the debt-to-GDP ratio has stabilised in 2025/26 in line with our strategy, and that it will decline over the medium term.” This article was republished from Moneyweb. Read the original here.