![Fact sheet | 8 Things You Need to Know About South Africa’s Fiscal Position [Cover]](https://iej.org.za/wp-content/uploads/2023/10/South-Africas-fiscal-position-8-things-you-need-to-know-fact-sheet-cover.png)
This fact sheet provides an overview of South Africa’s fiscal position, highlighting the need for a balanced, informed response to the country’s economic challenges. It draws on a detailed Policy Brief previously published by the Institute for Economic Justice.
In recent weeks, South Africa’s National Treasury has been advocating for significant budget cuts. They’ve presented South Africa’s fiscal position as a crisis, leaving some to believe that we are on the brink of financial collapse. However, deep cuts to social spending can have detrimental effects on people’s well-being and rights, further straining an already beleaguered public sector. To determine the validity of this fiscal crisis claim and the proposed cuts as a solution, we’ve conducted a comprehensive analysis.
1. Revenue shortfall, but not a collapse
While revenue is anticipated to grow by only 0.55% in 2023/24, missing Treasury’s target by R54.2 billion, this does not equate to a revenue collapse. To put this shortfall into perspective, it’s merely half of what the government collected in revenue in November 2022 alone. Weak performance in the mining industry, continued load shedding issues, and changes in company tax are the primary reasons behind this revenue shortfall. Value-added tax (VAT) also underperformed due to an increase in VAT refunds, attributed to business investments in load shedding solutions.
2. Planned spending and overspending
Government spending will exceed the budget by R67.8 to R105.8 billion in 2023/24, a substantial overspend. The problem arises from the fact that the government only planned for a 1.35% spending increase, which, when accounting for inflation, results in a decrease in real spending per person. The real issue lies in the inadequacy of planned spending, where deficit reduction takes precedence over supporting the population.
3. Long-term structural crisis, not an unprecedented emergency
The term ‘fiscal crisis’ paints a picture of an unprecedented emergency requiring immediate drastic action. In reality, such revenue shortfalls have been common in South Africa, both before and during the Covid-19 pandemic. Cutting spending in response to shortfalls in 2016/17 was followed by even larger shortfalls. It’s concerning that further cuts are considered a solution to the perceived fiscal crisis.
4. Overspending – A political choice and poor planning
A significant portion of the overspend is due to a higher-than-expected public sector wage settlement and unfunded budget submissions for essential social services. National Treasury’s planning inadequacies have contributed to this overspend.
5. Debt and deficit levels not abnormally high
South Africa’s debt levels are not at crisis levels. The debt-to-GDP ratio is in line with emerging market and middle-income country averages. The projected deficit, while higher than previous years, remains comparable to the deficit in 2019/20 and to the average of peer countries.
6. High debt service costs
Although debt levels are not particularly high, South Africa’s yearly debt service costs are relatively high compared to peer countries. This is driven by higher interest rates demanded by investors, a decline in demand for financial assets from emerging economies, and a large share of relatively more expensive long-term debt.
7. No short-term risk of debt crisis, but cuts could increase danger
South Africa’s debt profile lowers its vulnerability to a short-term debt crisis. However, austerity measures without a growth strategy could lead to a future crisis.
8. Treasury’s proposed cuts: A long-term challenge
Rather than rushed budget cuts, we recommend a thoughtful approach that considers the long-term. The government’s fiscal policy should prioritize social and economic development, employment, demand, and poverty reduction. We offer a set of recommendations that align with these objectives.