For the first time, National Treasury called for public submissions prior to the Medium Term Budget Policy Statement, taking place on 11 November 2021. CDE made a submission on 17 September 2021, South Africa’s fiscal policy choices.
Like National Treasury, CDE believes that SA’s public finances are not sustainable. The country has a large, persistent deficit which emerged after 2009, and which has resulted in a rapid increase in debt.
Our view that there are only two ways to address the unsustainable character of our public finances: accelerated fiscal consolidation and faster economic growth.
In CDE’s view – and in the view of most analysts – the rapid growth in revenues in the mining sector reflect a range of temporary conditions, which means that the unexpectedly rapid recovery in tax revenues this year needs to be treated as a temporary windfall. In any event, even with this windfall, SA’s deficit will remain extremely wide.
Left unchecked, the relentless rise in debt will eventually lead to even steeper costs that will involve some combination of a fiscal crisis, a financial crisis, a crash in asset prices, and/or a rise in inflation. Alone or in combination, a crisis that manifested in any or all of these forms would devastate SA’s economic prospects for a generation.
In the face of this risk, we simply cannot afford complacency. We must address the country’s underlying macroeconomic imbalances.