STELLENBOSCH UNIVERSITY

DEPARTMENT OF ECONOMICS

ECONOMICS 348

FISCAL POLICY IN SOUTH AFRICA

Krige Siebrits

(Department of Economics, Stellenbosch University)

Prescribed material prepared for the Economics 348 module

1
 PART I

INTRODUCTION

3
 CHAPTER 1
INTRODUCTION

1.1 INTRODUCTION AND STUDY OBJECTIVES

This chapter has two purposes. The first is to introduce you to some of the building-
blocks of fiscal policy analysis. To this end, it defines fiscal policy, outlines the respon-
sibilities of key organisations and participants in fiscal policymaking processes in South
Africa, and explains important institutional and statistical concepts. The second purpose
of the chapter is to explain the scope and structure of the sub-module (i.e., the main
topics covered in this sub-module and the connections among them).

After you have studied the contents of this chapter, you should be able to:

• Define the term "fiscal policy".

• List and discuss the responsibilities of key participants in fiscal policymaking
processes in South Africa.
• Distinguish between the institutional components of the public sector in South
Africa.
• List and explain the links between the components of the national budget in
South Africa.
• Explain the meaning of the term "fiscal sustainability".
• Explain the meaning of the term "fiscal stabilisation policy".
• Explain the meaning of the term "fiscal policymaking institution".

1.2 SOME BUILDING‐BLOCKS OF FISCAL POLICY ANALYSIS

1.2.1 What is fiscal policy?

Many different definitions of fiscal policy exist. The following one by Calitz and Siebrits
(2023: 409) is typical: "Fiscal policy may be defined as decisions by national government
regarding the nature, level and composition of government expenditure, taxation and
borrowing aimed at pursuing particular goals". Fiscal policy goals can be macroecono-
mic (e.g., economic growth), microeconomic (e.g., mitigating the negative externalities of
the consumption of tobacco products) or sectoral (e.g., the development of financial
markets) (Calitz and Siebrits, 2023: 410-411). A ten-session sub-module cannot cover all
aspects of fiscal policy aimed at these goals. Hence, this sub-module focuses on macro-
economic aspects of fiscal policy in South Africa. For the purposes of this sub-module,
therefore, fiscal policy can be defined as the use of government spending, taxes and the
deficit before borrowing to pursue macroeconomic policy goals. In addition to economic
growth, such goals can include job creation, price stability, balance of payments stability,

4
a socially acceptable distribution of income, and poverty alleviation. The pursuit of some
goals can contribute to the achievement of others: thus, economic growth is usually
accompanied by job creation that reduces poverty. However, trade-offs between macro-
economic policy goals are also common. For instance, maintenance of price stability
could force the fiscal authorities to limit spending on programmes aimed at poverty alle-
viation and income redistribution.
Four fiscal aggregates will feature strongly in this sub-module: total government
revenue, total government expenditure, the budget balance, and government debt. This
reflects its focus on macroeconomic issues. Note, however, that the only reason for this
focus is that the length of the sub-module prevents more detailed coverage of fiscal poli-
cy issues. The distinction between macroeconomic and microeconomic dimensions of
fiscal policy is artificial in the real world: the four fiscal aggregates listed above, and
their macroeconomic effects, are the outcomes of numerous decisions about expendi-
ture programmes and financing instruments with microeconomic and sectoral goals. For
example, the decision to introduce a carbon tax in South Africa may have been motivated
by environmental considerations of a sectoral nature, but it has also affected the total
tax revenue collected by the government and, hence, the budget balance and issuance of
public debt. And while poverty relief motivated the introduction of the temporary Covid-
19 social relief of distress grant for unemployed persons, this step has influenced the
budget balance and public debt via its effect of total government spending. The chapters
focused on South Africa will refer to some decisions with sectoral and microeconomic
objectives to explain important changes in the four main fiscal aggregates.

1.2.2 Who makes fiscal policy in South Africa?

The independence of the South African Reserve Bank (SARB) is a controversial aspect of
the macroeconomic policymaking framework in South Africa and elsewhere. The SARB
is goal dependent and instrument independent: monetary policymakers do not have full
discretion to choose policy goals and determine priorities (the primary goal of the Bank
is enshrined in the Constitution and the inflation target determined by the South African
government in consultation with the Bank), but have the freedom to choose and apply
various policy instruments in pursuit of the stated goals.1 Many other countries have
similar monetary policymaking arrangements. The reason for the adoption of such set-
ups is straightforward: monetary policymakers sometimes have to implement unpopu–
lar measures that do not yield immediate benefits, and insulation from political pressure
may be vital for enabling them to do so. In addition, central bank independence limits
politicians' scope to damage economies by abusing monetary policy tools for short-term
political gain. An obvious example of this would be to print money to introduce new

1 Section 224 of the Constitution states: "(1) The primary object of the South African Reserve Bank is to
protect the value of the currency in the interest of balanced and sustainable economic growth in the Repu-
blic. (2) The South African Reserve Bank, in pursuit of its primary object, must perform its functions
independently and without fear, favour or prejudice, but there must be regular consultation between the
Bank and the Cabinet member responsible for national financial matters".

5
spending programmes before elections even though it would cause inflationary pressure
later on.2
Unlike monetary policymaking, fiscal policymaking cannot be depoliticised. Deci-
sions about public spending programmes and their financing are inherently political and
cannot be delegated to non-governmental organisations insulated from political autho-
rity. It follows that governments can use fiscal policy instruments to boost the social
welfare and their political popularity ― and the two purposes can be mutually rein-
forcing or conflictual. This characteristic makes fiscal policy very complex but also fasci-
nating. The second and third parts of this sub-module will provide examples of possible
effects of political manipulation of fiscal policy instruments, while the fourth will explore
the scope for using policymaking institutions to prevent it. The remainder of this sub-
section identifies key participants in fiscal policymaking processes in South Africa and
outlines their roles.3 The scope of the discussion is limited to the fiscal policymakers that
feature most prominently in this sub-module.
Formally, the Minister of Finance is the most important figure in fiscal policyma-
king. Apart from being responsible for the implementation of the financial provisions in
Chapter 13 of the Constitution, the Minister has various statutory powers in terms of
acts of parliament. These include the authority to levy taxes, allocate the tax and non-tax
revenue of the state, and borrow funds domestically and internationally. Moreover, the
approval of the Minister of Finance is necessary for the issuance of all state guarantees
for the borrowing of money.
Two organisations support the Minister of Finance in the execution of these
responsibilities. The first is the National Treasury, a government department that mana-
ges the preparation of the annual national budget and exercises control over its imple-
mentation. It also coordinates the financial relations between the national government
and other levels of government (such as the provinces and local authorities). The other
is the South African Revenue Service (SARS), which collects tax revenues. The National
Treasury and SARS employ economists, tax and legal experts and other professionals
who advise the Minister of Finance and assist in the development of fiscal and tax poli-
cies. The two organisations liaise closely.
The preparation and implementation of budgets involve cooperation between the
Minister of Finance, the President and the other cabinet ministers, who are the political
heads of the government departments responsible for providing public services (e.g.,
foreign affairs, defence, policing, justice, education, healthcare, social development and
housing). In fact, the Minister of Finance does not take important fiscal policy decisions
without consulting or obtaining the approval of Cabinet. Another important forum for
consultation on budgetary matters is the Budget Council, which consists of the Minister

2 A well-known example of the political abuse of monetary policy instruments occurred in South Africa in
November 1984: facing a strong challenge from the Conservative Party in a crucial by-election in the
Primrose constituency in Germiston, the National Party Government tried to win votes by pressurising the
SARB into reducing the prime interest rate by two percentage points just before the election and restoring
it to its pre-election level soon afterwards. This episode became known as the "Primrose prime".
3 The remainder of this subsection relies heavily on Calitz and Siebrits (2023: 412-413).

6
of Finance and the nine provincial Members of the Executive Council (MECs) for Finance.
Discussions of fiscal policy matters in Cabinet and the Budget Council are complemented
by consultation between officials from the National Treasury, other national government
departments, and provincial treasuries.
As in other democracies, the South African Parliament holds the so-called "power
of the purse", that is, the authority to enact tax legislation and authorise the spending of
public money. The annual budget speech of the Minister of Finance accompanies the
tabling of the executive's budget proposals in Parliament. The budget only becomes law
once it is approved by Parliament. More generally, the Minister of Finance is accountable
to Parliament for all fiscal policy decisions.
One of the main requirements for effective macroeconomic policy management is
coordination between the fiscal and monetary authorities. This means that the two sets
of policymakers should consult regularly to align their policy priorities and to monitor
the overall economic impact of their policy actions. In South Africa, overall responsibility
for macroeconomic policy coordination also rests the Minister of Finance. There is regu-
lar consultation and active coordination among the Minister of Finance, the Governor of
the SARB and personnel from the National Treasury and the central bank.

1.2.3 Fiscal data and the structure of the national budget in South Africa

The International Monetary Fund (IMF) developed the Government Finance Statistics
(GFS) framework as an accounting system for public sector revenue and spending. It
provides definitions of fiscal aggregates and recommendations for recording the reve-
nues and expenditures of all public sector entities.4 The GFS framework makes it pos-
sible to generate internationally comparable fiscal statistics for four public sector con-
cepts: the national government, the central government, the general government and the
public sector. Figure 1 shows which parts of the South African public sector are included
in each of them. Unsurprisingly, the national government consists of all the national
government departments (such as the National Treasury, the Department of Defence,
the Department of Basic Education, and the Department of Labour). The central govern-
ment consists of all national government departments as well as extra-budgetary agen-
cies (the Office of the Auditor-General, the National Research Foundation, the Competi-
tion Commission, the performing arts councils, the National Lotteries Commission, the
Iziko Museums of South Africa, public universities, and many others), and social security
funds (the Compensation Fund, Road Accident Fund, and Unemployment Insurance
Fund). The general government consists of all the components of the central govern-
ment as well as the nine provincial governments and 257 local authorities. Adding all
financial and non-financial public enterprises (e.g., the Development Bank of Southern
Africa, Eskom, South African Airways and Transnet) to the general government yields
the public sector.

4 The purpose of the GFS framework is similar to that of the International Financial Reporting Standards
(IFRS) for companies. While the IMF encourages member countries to publish GFS-compliant fiscal data, it
doing so remains voluntary.

7
 Figure 1
Public sector concepts in the GFS framework

National government departments

Central
Extra-budgetary agencies
government General
Social security finds
government Public
Provincial governments
sector
Local governments
Financial public enterprises
Nonfinancial public enterprises

Source : Adapted from Calitz (2023: 10).

Given these compositional differences, it should come as no surprise that Table 1 shows
large differences in key aggregates for the national, central and general government in
South Africa in 2023/24.5 Thus, general government revenue and expenditure exceeded
the corresponding national government aggregates by R728.1 billion and R649.1 billion,
respectively. In contrast, the deficit of the national government was R79.0 billion larger
than that of the general government.

Table 1
Aggregates for various public sector concepts in South Africa (2023/24)
R millions
Total revenue1 Total expenditure2 Balance3
National government 1 821 809 2 133 494 -311 685
Central government 2 104 239 2 399 899 -295 660
General government 2 549 895 2 782 548 -232 653
Source: South African Reserve Bank (2025: S-69, S-72, S-75).
Notes: 1 Total revenue is the sum of cash receipts from operating activities and sales of non-financial
assets. 2 Total expenditure is the sum of cash payments for operating activities and purchases of non-
financial assets. 3 The balance is calculated as total revenue less total expenditure.

The data in Table 1 show that concepts such as "government revenue" and "government
expenditure" should be defined precisely when used in discussions of fiscal policy. While
it would not be incorrect to state that government expenditure in South Africa amounted
to R2 133.5 billion in 2022/23, someone who claims that it was R2 782.5 billion would
not be wrong either. And the difference between the two amounts (R649.1 billion) is not
small change! It follows that anyone who quotes fiscal aggregates should always state
the applicable government concepts as well (for example: "In 2023/24, national govern–
ment spending in South Africa amounted to R2 133.5 billion"). Government revenue con-
cepts should also be defined precisely.

5The statistics in Table 1 were compiled in accordance with the conventions in the GFS framework. Note
also that government budgets in South Africa run from 1 April of each year to 31 March of the next year.
These periods are known as "fiscal years".

8
For the purposes of this sub-module, it is useful to know the government concepts in the
National Treasury's budget documents.6 While the National Treasury uses GFS accoun-
ting conventions, it also presents fiscal information for two government concepts that do
not correspond directly to those in the GFS framework. These are the "main budget" (or
"national budget") and the "consolidated budget". You should make sure that that you
understand the difference between these two concepts and keep it in mind when you
work with South African fiscal data.
By law, all taxes, fees and charges collected by the South African Revenue Service
and national government departments must be paid into the National Revenue Fund. All
revenue and expenditures that flow through the National Revenue Fund form part of the
national or main budget. Hence, main budget expenditure is essentially the spending of
national government departments. Note, however, that administrative and service deli-
very activities financed from the National Revenue Fund do not necessarily take place at
the national government level: substantial amounts are transferred from the budgets of
national government departments to other public sector entities responsible for such
activities. In 2023/24, for example, R706.3 billion were transferred from the budget of
the National Treasury to the provincial administrations to finance the provision of basic
education, healthcare and other constitutional responsibilities of these authorities
(National Treasury, 2025a: 64). In addition, R157.7 billion were transferred from the
national budget to local authorities to finance municipal services (National Treasury,
2025a: 64). Furthermore, the budgets of most national government departments contain
transfers to extra-budgetary agencies. To name one important example: an amount of
R250.5 billion was transferred from the budget of the Department of Social Develop–
ment to the South African Social Security Agency (SASSA) in 2023/24 for the payment of
social grants (National Treasury, 2025b: 377).
Consolidated budget data are based on a broader concept of the government that
includes the national and provincial government departments, the social security funds
and some 145 other public entities. Some of these entities are government enterprises
that sell the bulk of their output to government organisations or departments at regula-
ted prices (and are therefore not businesses in the true sense of the word) or organisa-
tions involved in infrastructure development and financing.7 Most of them, however, are
extra-budgetary agencies. Note also that the consolidated budget figures include all
spending by the provincial government departments and extra-budgetary agencies (i.e.,
outlays financed by transfers from the National Revenue Fund and from their own reve-
nues). A final point to keep in mind when working with consolidated budget figures is
that transfers between government entities are not counted twice. Thus, the amount of
R250.5 billion transferred from the Department of Social Development to SASSA in

6The most important of these documents are the Budget Review and the Estimates of National Expen-
diture (both of which are published when the national budget is tabled in Parliament in February of each
year) and the Medium-Term Budget Policy Statement (which is published when the medium-term expen-
diture framework is presented to Parliament in October of each year).
7The revenue and expenditures of state-owned enterprises that sell goods and services at market prices
(e.g., Transnet and Eskom) are therefore not included in consolidated budget figures.

9
2023/24 appears on the budgets of both agencies but is included only once in the con-
solidated government expenditure figure.
Table 2 shows the links between the fiscal aggregates that feature most often in
this sub-module. The data are for the South African consolidated budget in 2023/24.

Table 2
The South African consolidated budget (2023/24)
Item R millions
Revenue, expenditure and the budget balance:
Total revenue 1 914 059
Current receipts 1 913 389
Of which: Tax receipts 1 763 821
Other current receipts 149 568
Capital receipts 670
Total expenditure 2 253 309
Current payments 2 087 020
Of which: Compensation of employees 723 624
Purchases of goods and services 315 514
Interest payments and rent payments on land 363 566
Transfers and subsidies 684 316
Payments for capital assets 103 843
Capital transfers and subsidies 62 446
Transfers in financial assets and liabilities 27 680
Budget balance -311 570
Gross borrowing requirement and financing:
Budget balance 311 570
Loan redemptions 144 395
Eskom debt-relief arrangement 76 000
Gross borrowing requirement 531 965
Change in loan liabilities 491 385
Of which: Domestic loans 445 691
Foreign loans 45 694
Change in cash and other balances 40 580
Total financing 531 965
Source: Adapted from National Treasury (2025a: 218).

Note from Table 2 that government budgets have two parts. The first includes revenues,
expenditures and the difference between them (the budget balance). The term "budget
deficit" refers to negative budget balances (the results when spending exceeds revenue).
When revenue exceeds spending, the budget balance is positive and called a "budget
surplus". Budgets usually show revenues and spending in disaggregated form. The basic
distinctions on the revenue sides of budgets are among tax revenue, non-tax current
revenue (e.g., licences, fees, and sales of goods) and receipts from sales of property and
other capital assets. In addition, revenues from the various types of taxes (such as per-
sonal income tax, company tax, value-added tax, and excise taxes) are often shown sepa-

10
rately. The "economic classification" of government spending distinguishes between
compensation of employees, purchases of goods and services, interest payments on pub-
lic debt, subsidies and transfers to firms and households, payments for capital assets
(e.g., roads, bridges, and school and hospital buildings) and payments for financial assets
(e.g., equity investments in as well as lending to public corporations). An alternative way
to disaggregate government expenditure is the "functional classification", which shows
the amounts spent on different goods and services provided by public entities (such as
defence, education, healthcare, housing, transport and communication).
The second part of governments' budgets has to do with the gross borrowing
requirement and its financing. The gross borrowing requirement (the total amount the
government needs to finance) is the sum of the budget balance and all loan redemptions.
Whereas a budget deficit increases the gross borrowing requirement, a budget surplus
reduces it. By far the largest portions of gross borrowing requirements are usually finan-
ced by loans in domestic and foreign financial markets. Another common distinction in
budgets is that between short-term debt instruments (e.g., treasury bills) and long-term
ones (e.g., government bonds). Governments with accumulated cash reserves can also
use such funds to finance gross borrowing requirements. Table 2 shows that the fiscal
authorities used R40.6 billion of accumulated cash reserves for this purpose in 2023/24.
Note that total financing must equal the gross borrowing requirement.
The budget balance shown in Table 2, which represents the difference between
the government's total revenue and total expenditures, is known as the "conventional
balance". You will encounter two alternative definitions of budget balances in this sub-
module, namely the current balance and the primary balance. Table 3 illustrates the dif-
ferences among these three definitions. This table is based on the same revenue and
spending figures for the 2023/24 consolidated budget as Table 2.

Table 3
Budget balances: The South African consolidated budget (2023/24)
Item R millions
Revenue and expenditure:
Total revenue 1 1 914 059
Of which: Current receipts 2 1 913 389
Capital receipts 3 670
Total expenditure 4 2 253 309
Current payments 5 2 087 020
Of which: Interest payments 6 363 566
Non-interest current payments 7 1 723 454
Payments for capital and financial assets 8 166 289
Budget balances:
Conventional balance [1 – 4] -339 250
Current balance [2 – 5] -173 631
Primary balance [1 – (4 – 6)] 24 316
Source: Adapted from National Treasury (2025a: 218).

11
Note that the current balance is the difference between the government's current reve-
nue and current expenditure. In the national accounts and elsewhere it is a measure of
government saving: a positive current balance implies that the government contributes
to the country's gross savings, whereas a negative current balance means that it dissaves
(that is, draws on the savings of the private sector to finance current expenditures). Such
dissaving has long been regarded as an unsound practice that has been described as
"selling the family silver to pay for groceries". The primary balance is defined as the
government's total revenue minus its non-interest expenditure (or, what amounts to the
same thing, the conventional balance plus interest payments on government debt). It
will become clear in Chapters 3 and 4 that the primary balance plays an important role
in assessment of the sustainability of fiscal policy.

1.3 THE SCOPE AND STRUCTURE OF THE SUB‐MODULE

The remainder of this sub-module discusses four topics: the sustainability of fiscal
policy, fiscal stabilisation policy, fiscal policymaking institutions, and fiscal policy chal-
lenges in South Africa. This section outlines the connections among these topics. It also
contains brief explanations of the meaning and scope of the first three topics. Other
chapters will expand on these explanations.
It is customary to say that something is sustainable when it can be maintained at
a certain level. The sustainability of fiscal policy is normally linked to the level of the
national debt: a fiscal position is regarded as sustainable when the debt burden is at a
level that can be maintained. In practical terms, the public debt is sustainable when a
country can service it (i.e., can make the required interest payments) and repay it (this
often means having the ability to raise new loans to redeem earlier ones). The reality
that public debt stocks grow when governments run budget deficits ― that is, when their
outlays exceed their revenues ― means that a close link exists between the sustainability
of countries' fiscal positions and the extent to which their fiscal policymakers adhere to
the budget constraint confronting all governments. While fiscal policymakers can have
numerous laudable macroeconomic, microeconomic and sectoral policy goals, the scope
for pursuing these goals is limited by the budget constraint and the imperative of main-
taining fiscal sustainability. Chapters 2, 3 and 4 develop this argument in more detail,
outline the assessment of fiscal sustainability, and comment on the past and current sus-
tainability of fiscal policy in South Africa.
Stabilisation of the level of economic activity is one of the macroeconomic goals
that fiscal policymakers can pursue. You have learnt in macroeconomics courses that
fiscal policymakers attempt to moderate fluctuations in economic activity by applying
countercyclical policies. These consist of expansionary measures (i.e., reductions in tax
burdens and increases in government spending) during economic downturns and con-
tractionary measures (i.e., reductions in government spending and increases in tax bur-
dens) during economic upswings. Chapters 5 and 6 discuss aspects of fiscal stabilisation
policy. Chapter 5 sets the scene by showing how the views of economists and policy-
makers about the effectiveness of such policies have evolved since they were proposed

12
by John Maynard Keynes in the 1930s. Chapter 6 discuss views about and the effective-
ness of fiscal stabilisation policy in South Africa from the 1930s to the present day. A
recurrent theme in these chapters is that fiscal sustainability considerations limit the
scope for fiscal stabilisation policy. As was suggested above, there is a strong stabilisa-
tion-based argument for raising government expenditure and reducing the tax burden
during economic downturns. But governments with large budget deficits and very high
public debt burdens have less scope to do so than their counterparts in countries with
healthier fiscal positions. In fact, once the danger exists that expansionary measures
could make the fiscal position unsustainable and trigger a sovereign debt crisis, policy-
makers may have no choice but to refrain from using fiscal policy for stabilisation pur-
poses.
Chapters 7 and 8 turn to an increasingly prominent theme in discussions of fiscal
policy, namely the role of fiscal policymaking institutions. These institutions are all the
rules that govern the processes of formulating and implementing national budgets, as
well as rules intended to constrain fiscal outcomes. A law stating that the Minister of
Finance and the National Treasury must determine total government expenditure before
entering into discussions with other government entities about their shares of that total
amount is an example of the first type of rule, whereas one that prohibits budget deficits
larger than 3% of the gross domestic product (GDP) exemplifies the second. The reason
why interest in fiscal institutions has increased across the globe is the belief that well-
designed rules can help to keep fiscal policy sustainable and to make it more effective at
stabilising levels of economic activity. Chapter 7 discusses this belief, which links the
theme of fiscal policymaking institutions to those of fiscal sustainability and fiscal stabi-
lisation policy. Against this backdrop, Chapter 8 summarises the evolution of South Afri-
ca's fiscal rules and comments on the strengths and weaknesses of the country's current
set of fiscal policymaking institutions.
The last two chapters focus on current fiscal policy challenges in South Africa.
Chapter 9 discusses the controversy about the desirability and feasibility of fiscal conso-
lidation measures (i.e., deliberate steps to reduce the budget deficit and the public debt-
to-GDP ratio) to reduce the public debt burden in South Africa. To this end, the chapter
summarises international debates about the economic effects of fiscal consolidation and
applies key lessons to South Africa. The last part of Chapter 9 outlines the implications
of the 2025/26 Budget for the fiscal consolidation debate in South Africa. Chapter 10
comments on the potential of institutional reforms (such as the adoption of numerical
rules) to improve the fiscal situation in South Africa and to strengthen fiscal stabilisation
policy.

1.4 REFERENCES

Calitz, E. 2023. The public sector in the economy. In Public Economics (8th edition)
(edited by E. Calitz, A.I. Jansen and F.K. Siebrits). Cape Town: Oxford University
Press: 2-19.

13
Calitz, E. and F.K. Siebrits, 2023. Fiscal policy. In Public Economics (8th edition) (edited by
E. Calitz, A.I. Jansen and F.K. Siebrits). Cape Town: Oxford University Press: 407-
457.
National Treasury. 2025a. Budget Review 2025. Pretoria: National Treasury.
National Treasury. 2025b. Estimates of National Expenditure 2025. Pretoria: National
Treasury.
South African Reserve Bank. 2025. Quarterly Bulletin (March 2025). Pretoria: South Afri-
can Reserve Bank.

14