In the wake of the budget speech, many South Africans will be relieved there was no announcement of a significant increase in taxes. Others will welcome the stated intention to reduce the deficit and the debt-to-GDP ratio. But whatever comfort may be drawn from it should not blind us to the scale of SA’s fiscal and economic challenges.

Our economic indicators reveal an economy in profound crisis. While this has been exacerbated by the pandemic, it has deep roots. Over the past decade, SA has grown at about half the rate of other emerging markets. Investment has been falling in real terms. Government expenditure has been pushing upward, as has the tax burden on what is, in effect, a diminishing economy.

SA’s budget deficit — having been on a steady decline in the early 2000s, and even moving into surplus for a few years — has been growing. At 14%, the 2020/2021 deficit is the largest in history.

Even if official projections that it will be reduced to 9.3% in the coming year and 7.3% in the year thereafter are accurate, this still represents fiscal stress on a par with the world wars or the late 1980s.

SA’s only real hope lies in economic growth. This will not happen if the counter-productive thrust of policy is maintained. Demands for more intrusive empowerment policy, the threat of expropriation without compensation and the failure to seriously change course on the politicisation of the state and the governance pathologies that accompany it, all serve to disincentivise business and investment.  

“The economic growth outlook remains highly uncertain”, says the Budget Review. But if a major policy correction is not undertaken SA faces the certainty of a low-growth, low-employment and increasingly conflicted future.

Terence Corrigan, Institute of Race Relations

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