Abstract

JOUBERT, Fanie  and  ROSSOUW, Jannie. What comes after South Africa's fiscal cliff?. Tydskr. geesteswet. [online]. 2021, vol.61, n.2, pp.471-489. ISSN 2224-7912.  http://dx.doi.org/10.17159/2224-7912/2021/v61n2a5.

This research provides insight into South Africa's prospects should the country reach the proverbial fiscal cliff. The definition of the fiscal cliff used in this article refers to the point where social grants, interest on government debt and public service salaries exceed the total income of the South African government. This point has already been reached in the 2020/21 fiscal year, but is expected to be of a temporary nature. There is, therefore, still room to fend off a permanent fiscal crisis, provided that the public service salary bill be contained. At the same time, the government will have to budget more realistically for lower economic growth and therefore lower growth in tax revenue. Academic literature on South Africa's fiscal cliff is limited, but the mainstream media (print and electronic) focuses on this issue frequently and extensively. The term "fiscal cliff" has, therefore, become part of the South African economic lexicon. The point where the fiscal cliff is reached is calculated by using the fiscal cliff barometer. The barometer shows that South Africa's fiscal position has weakened significantly over the past decade, partly because public service salaries and interest payments on government debt have grown too fast in relation to South Africa's potential and actual economic growth rates. The barometer readings are calculated as a ratio using variables for the estimated years to the cliff as well as the total years within the forecast period. The formula is calculated mathematically as: years to cliff (equation 1) total years forecasted In theory, values can range from one (1) to minus infinity (-∞). However, in practice, only values between one and zero are considered. A high value (e.g. 0,9) indicates a high probability that the fiscal cliff will be reached in the near future, while a 0 (zero) value indicates that the fiscal cliff will not be reached at all. The analysis of South Africa's fiscal sustainability, based on the barometer readings, commences with 2007 data. The results show a significant spike in the barometer reading (closer to 1) from 0 (zero) in 2007 to 0,717 in 2014. Hereafter, the barometer reading stabilises, and even shows a slight improvement to 0,119, based on the 2018 Budget data. By 2018, therefore, the impression was that the government had taken sufficient cognisance of the warnings with regards to the fiscal cliff to start implementing steps to avoid it. This all changed in 2020, however, when the Supplementary Budget presented by the Minister of Finance (Mboweni 2020b) showed that the fiscal cliff had indeed been reached. Stated differently, for the 2020-fiscal year, civil service remuneration expenditure, interest on government debt and social grant payments will exceed total government revenue. All other expenditure will now have to be funded from further borrowing by the South African government. While it appears that research on the fiscal cliff has had an impact on government policy, it is probably a case of "too little, too late". The most important contributions to the research to date may be summarised as (i) the creation of an awareness of the danger of economic disaster, as expressed in the phrase "fiscal cliff" in South Africa's economic lexicon, (ii) a clear focus on the problem in civil society and the media, and (iii) transparent reporting on the public service salary bill by the government. Should a more permanent fiscal cliff materialise, South Africa's future could include elements of a failed state, the result of which will be serious financial hardship for all South Africans. The government will find it increasingly more difficult and expensive to borrow from the money and capital markets, and there will be minimal funds available for service delivery. Interest payments on government debt will also be suspended or severely curtailed, thus contributing to liquidity problems for pension funds and the banking and insurance industries. The only option is avoidance of the fiscal cliff. This challenge awaits the South African government.

Keywords : service remuneration; economic lexicon; failed state; fiscal cliff; fiscal sustainability; government debt; government interest payments; social spending.

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