South Africa is flirting with a dangerous policy: economist

The commodity price windfall and relative buoyancy of economic activity might provide a temporary fiscal respite for the economy in the national budget this week, says Prof Andre Roux, Economist at the University of Stellenbosch Business School (USB). Structurally, however, South Africa is flirting with fiscal adversity, he said.

“The decade-long accumulation of government debt has elevated the government debt-to-GDP ratio to unprecedented levels. There is now a very real risk that in the years ahead social grants, civil service wages, and debt servicing costs will absorb the bulk of government revenue (tax).

“An immediate impact of this state of affairs is that government is simply not in a position to embark upon the expected policy approach to counteract recessionary conditions, such as a programme of fiscal expansion.”

In the longer term, capital expenditure by the government – especially on much-needed economic infrastructure – will be crowded out by far less productive current expenditure, he said.

Thinking beyond the near term

Roux said South Africans should not and cannot expect miracles, noting that the budget speech is not meant to be a blueprint for sustained economic recovery and transformation.

“When all is said and done, the budget speech is a three-year review of projected government expenditure and revenue. At the same time, the intended allocation of the revenue to various government programmes does give an indication of the government’s priority preferences and objectives.”

“This year’s budget speech might – more through luck than judgement – be relatively benign for consumers, taxpayers, citizens, and businesses,” Roux said.

He cautioned that sporadic, unpredictable strokes of fortune merely create an illusion of congeniality and mask the real challenges.

“Now, it is more important than ever before for this year’s budget to show a serious and plausible intent to curb the accumulation of debt. This requires a marked narrowing of the budget deficit by restraining the growth in government spending and/or raising tax revenue.

“The latter would be unfortunate in the light of the sluggish economic growth performance, the higher interest rate environment, and the vulnerability of the poor and the unemployed. With a view to the future, the budget speech will ideally mark a “rebooting” of government expenditure in favour of capital (as opposed to current) expenditure.”


In his recent State of the Nation Address (SONA) president Ramaphosa laid down a few potentially game-changing markers for socio-economic advancement, including the following:

  • Acknowledging that the private sector is the major contributor to growth, development, and investment; government should therefore create an enabling environment.
  • Government should not be seen, nor act, as a major employer.
  • Self-employment should be a major source of job creation.
  • The intention to reduce red-tape, thereby making it easier to do business in the country.
  • Initiatives aimed at security a reliable supply of electricity (including renewable energy sources).

“Hopefully, the finance minister will endorse these sentiments and elaborate upon them. Plausible and do-able action speaks louder than words. If it means making difficult and uncomfortable trade-offs when balancing efficiency with equity, then so be it,” said Roux.

Read: SARS is fining taxpayers who didn’t review their auto-assessments

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South Africa is flirting with a dangerous policy: economist