The supplementary budget tabled in June indicated that SA’s existing dire fiscal position had taken a turn for the worse. The Fiscal Cliff Study Group has been warning since 2014 that SA’s public finances were developing in an unsustainable way. The growth in government revenue could not match the growth in spending, thus pushing government finances to the proverbial cliff.
These large deficits stem from aspects such as incorrect economic growth projections by the National Treasury. In the past decade SA’s annual economic growth potential declined from 2.5% to about 1.5%. The decline has been attributed to various factors, including uncertain government policy and structural challenges, while state capture and corruption amplified the problem.
The 2020 supplementary budget was tabled out of necessity in response to the economic impact of the Covid-19 crisis. Data from this budget shows that SA has now reached the fiscal cliff, as the sum of grants, remuneration and interest payments will amount to more than 100% of tax revenue during the 2020/2021 financial year.
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Warnings about SA’s push towards the fiscal cliff went unheeded for yearsGovernment expenditure on social grants, wages and interest on debt spiked while growth underperformed
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