National Treasury’s ‘fiscal crisis’ is a ruse, says think-tank

When is a fiscal crisis not a crisis?

Against the background of government having proposed belt-tightening to meet its fiscal obligations, the Institute for Economic Justice (IEJ) has rubbished claims that South Africa is in the throes of a major fiscal crisis.

Contained in its policy brief, which analyses “the true state of our fiscal position to address some real macroeconomic challenges”, the IEJ said it had considered policy options and argued that a new growth trajectory could be found.

“With respect to the immediate and acute reported ‘fiscal crisis’, it should be stated unequivocally that this is being exaggerated for political purposes,” it said.

Data does not support claims

IEJ executive director Dr Gilad Isaacs said: “Our analysis shows the much-discussed revenue shortfall is within historical norms and well within the government’s ability to close.

“The data does not support claims that we are standing on the edge of a so-called ‘fiscal cliff’ or ‘financial crisis’.

“National Treasury is likely stoking panic to push through unnecessary and unpopular budget cuts.”

Warning these budget cuts are “rushed and indiscriminate, currently being rammed through”, the EIJ said they were destined to “cause economic contraction” larger than 1.5% of gross national product (GDP), generating “a negative effect of more than three percent on GDP, even after 15 years”. It predicted a drop in GDP reaching 5.5%.

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The independent economic think-tank has suggested “these budget mismatches and the further pressures on the horizon provide an opportunity for the fundamental reform of South Africa’s fiscal framework in order to centre the role and potential of the budget in advancing developmental priorities”.

It proposed a strategy to “use some of the R459 billion owed to the South African government in the Reserve Bank’s somewhat obscure gold and foreign exchange contingency reserve account”.

“This is in keeping with other major central banks remitting profits to their respective treasuries.

“Even if the entire mismatch was closed in this way, it would increase the gross debt-to-GDP ratio by approximately two percent basis points only.

SA faces fiscal challenges

“In this scenario the debt trajectory would still be considerably lower than Treasury’s own debt-to-GDP forecasts from 2019, 2020, and 2021,” it said.

“While South Africa does face fiscal challenges, National Treasury seems determined to force through spending cuts and to terminate or limit programmes it is opposed to, including the highly successful social relief of distress grant and the Presidential (Youth) Employment Initiative,” said the IEJ.

National Treasury yesterday refrained from commenting on the IEJ policy brief.

University of the Witwatersrand economics professor Jannie Rossouw said: “I disagree with the IEJ on its proposals, which suggest a sharp increases in taxation.

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“The problem is that no cognisance is taken of the fact that the taxpayers can simply emigrate. “In addition, higher taxation on current taxpayers, will change their consumption and saving behaviour,” said Rossouw.