South Africa’s fiscal crisis is a result of rapidly rising public spending in an era of slow economic growth, but the accumulation of debt is now slowing economic growth.
Government’s response to the fiscal crisis has been inadequate: it has not reined in spending sufficiently, and the increase in tax rates has not resulted in higher revenues because of the crisis in SARS and slowing growth.
Public sector debt now exceeds R3 trillion, up from R900 billion in 2009 and R210 billion in 1992. This is more than 60% of GDP.
To address the crisis, government needs to tackle rising public spending. It also needs to ensure that the SOCs, and the industries in which they operate, are restructured.
Unless a new growth strategy is embraced, SA will be unable to stabilise public debt. Faster growth needs to be the primary goal for all policy.