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Original Articles

Macroeconomic balance or development? Towards a strategic framework for fiscal policy

Pages 359-376 | Received 01 Nov 1995, Accepted 01 Apr 1996, Published online: 27 Feb 2008
 

The intimidating budgetary challenges that face the new South African government demand sound and coherent fiscal policy planning. The government will have to develop a clear analytical framework to meet these challenges in a sustainable way. This requires clarity on the role, frame of reference, points of departure and objectives of the fiscal authority, that is, the institutions in control of government spending, taxation and borrowing at national, provincial or local level There is limited consensus on the goals, constraints and norms of policy, and much disagreement on their proper relationship and ranking. The tension between considerations of growth and of redistribution makes it difficult to set priorities.

This article suggests, first, that a strategic framework, which spells out the basic philosophy and mission of the fiscal authority, its strategic objectives, fiscal policy goals and targets, and policy norms, could be useful to systematise thinking on fiscal policy. In particular, the tensions between different goals, or between goals and norms, could be tackled constructively. Some tentative proposals on the content of such a framework are made. Secondly, the article argues that a more comprehensive view of fiscal or budgetary policy should be adopted. A useful point of reference is monetary policy in South Africa, in particular the formulation of the mission of the Reserve Bank as ‘the maintenance of the internal and external value of the Rand’.

The questions are: what should be the mission of the fiscal authority in South Africa? What should be the main objectives of fiscal policy, and how should they be prioritised? How should fiscal policy relate to the problems of poverty and underdevelopment? What are the norms and policy principles that should be employed?

A number of issues complicate thinking on these matters in South Africa. One is the curious dichotomy in fiscal economics; another is an awkward discord between opposing visions in the fiscal policy debate. Both of these relate to an underlying tension between macroeconomic and development considerations.

Notes

Professor, Department of Economics, University of the Orange Free State. The author gratefully acknowledges the comments of two anonymous referees.

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