Concerns over SA's fiscal cliff raised ahead of Mboweni's Budget speech

The fiscal cliff study group first warned of the danger several years ago. It defines the fiscal cliff as the point that is reached when public servants’ wages, social grant payments and debt-service costs soak up all government revenue.

FILE: Finance Minister Tito Mboweni delivers his Medium-Term Budget Policy Speech in Parliament on 28 October 2020 in Cape Town. Picture: GCIS

CAPE TOWN - As Finance Minister Tito Mboweni prepares to deliver his 2021 Budget on Wednesday, South Africa is teetering on the edge of a fiscal cliff.

The fiscal cliff study group first warned of the danger several years ago.

It defines the fiscal cliff as the point that is reached when public servants’ wages, social grant payments and debt-service costs soak up all government revenue.

Wits Business School's Professor Jannie Rossouw said that the fiscal cliff focused on the government’s three main spending items – civil service pay, spending on social grants and interest on government debt.

“We reach the fiscal cliff when the total of those three items exceeds total government revenue, as we expect to happen in the current fiscal year – until 31 March 2021.”

Rossouw said that judging from the October Medium-Term Budget Policy Statement, there would be a slight improvement for about three or four years: “But we are at the precipice – the government must change its behaviour.”

What happens if South Africa falls off the fiscal cliff?

“We will then have to go to the IMF (international monetary fund) or other aid agencies, who will lend the government money under certain conditions.

“And we know what the conditions will be: reign in civil service expenditure, stop borrowing this much money, you cannot continue spending this much money on social grants. So, the government might just as well take the rectifying steps, before being forced to do so.”

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