SA's Fiscal Crisis
This is the last in a four-part series by Michael Sachs, extracted from his paper, Fiscal Dimensions of South Africa’s Crisis (the full paper can be found on http://www.wits.ac.za/scis). In the last article, he examined the extent and nature of South Africa’s debt burden, distinguishing between the level of debt and its trajectory in relation to economic growth. He argued that SA’s debt was not only an impediment to economic growth, but that it also risked undermining the progressive nature of SA’s tax system.
This is the third in a series of articles by Michael Sachs, extracted from his paper, Fiscal Dimensions of South Africa’s Crisis. In the last article, he showed how the real value of public services has declined over the past decade, and how substantial off-budget allocations to state-owned enterprises have come at a cost to the poor. In this article, he examines the extent of South Africa’s fiscal crisis as the country struggles to recover from the impact of Covid-19. He argues that the recent budget proposes a path of consolidation that will erode core public services further. It will also be difficult to accelerate the pace of economic growth in the face of a large and sustained negative fiscal impulse. But even if the consolidation achieves its targets, it is unlikely to alleviate the debt burden. Rising interest payments mean that rent is drained from the proceeds of production, with implications for economic growth and the distribution of national income. Without an acceleration in nominal GDP, it is difficult to see how South Africa will avoid a period of fiscal and financial disorder.