It's time to get the constitution involved - Part 1

Finance minister Tito Mboweni has, in his past few budget speeches, consistently made reference to SA's fiscal woes. Yet suggestions from the National Treasury on how to adequately deal with these woes have not been forthcoming. Specifically, it seems to pay little attention to the practice of enshrining fiscal rules in the country's constitution.

Sections 213 to 230 of the SA constitution deal with the financial side of government. Yet these have a notable lack of rigid measures that can be utilised to rein in a fiscally imprudent government. Section 215, for instance, mandates that budgets across all three spheres of government — national, provincial and local — must "promote transparency, accountability and the effective financial management of the economy, debt and the public sector". Yet it fails to set out explicit rules that would ensure such efficacious financial management.

Granted, many of the sections contain numerous provisions that mandate certain frameworks to be implemented in the form of acts of parliament. But legislation is much more malleable than constitutional provisions, and unfortunately SA legislation tends to provide extensive wiggle room for bureaucrats to exercise largely unfettered discretionary powers, a practice that arguably contravenes section 1(c) of the constitution.

Looking at foreign constitutions can provide a much-needed blueprint for a possible amendment to the SA constitution that will advance fiscal discipline, restore order in the fiscus, and make extensive headway with respect to policy certainty. For instance, some of the nations that make explicit provisions in their respective constitutions for fiscal rules pertaining to balancing governmental budgets and/or efficaciously managing public debt are Germany, Hong Kong, Poland, and Slovenia.

  • Article 109(3) of the German constitution requires that both the budget of the federation and state budgets be balanced without revenue from loans. This requirement of balanced budgets is further enshrined in articles 110(1) and 115(2), which both prescribe the balancing of federal budget with respect to revenues and expenditures.
  • Article 107 of the Basic Law of Hong Kong requires the government to keep spending "within the limits of revenues ... strive to achieve fiscal balance, avoid deficits and keep the budget commensurate with the growth rate of its GDP".
  • Article 216(5) of the Polish constitution explicitly caps public debt at 60% of its annual GDP, but the government itself has instituted a practice of capping it at 50%. Article 220(2) of their constitution proscribes the financing of a budget deficit through the nation's central bank.
  • Article 148 of the Slovenian constitution requires that state budgets be balanced in the medium term without borrowing, or that a budget surplus must be achieved.
  • The Spanish constitution is, however, the one that provides most extensively for fiscal rules.
    Article 135(1) requires all public administrations to conform to the principle of budgetary stability;
    Article 135(2) prohibits the state and self-governing communities from incurring a structural deficit that exceeds the limits set by the EU for member states; requires that legislation determine the maximum structural deficit the state and self-governing communities may have as a ratio to its GDP; and mandates local authorities to submit a balanced budget.
    Article 135(3) prohibits the total volume of public debt in relation to the state’s GDP from exceeding the benchmark laid down by the Treaty on the Functioning of the EU (article 135(4) lays out the exceptions); and
    Article 135(6) mandates the autonomous regions in Spain to adopt the appropriate provisions to ensure effective application of the principle of budgetary stability.

The above is a twist of irony, given that the Spanish constitution itself reads much like a quasi-socialist document; something to be expected in a country with a rich history of socialist and anarchist movements, but something that nevertheless can be argued to defeat the very purpose of constitutionalism itself.

These types of fiscal rules might seem laborious to read through, but they can be summarised as striving to entrench two crucial fiscal practices: governments must ensure balanced budgets, whether annually or over economic cycles; and they must keep public debt below a certain threshold relative to GDP.

This article was first published on BusinessDay on 7 June 2021.

You can read Part 2 of this series here.

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