South Africa’s economy needs a shot in the arm, not austerity
- Thokozile Madonko and Fabio Andrés Díaz Pabón
Here are 3 key areas where more public spending would get results.
For the past 11 years, the South African government has pursued a policy of austerity. In recent years, government has reduced per capita spending (adjusted for inflation) by significant amounts. Spending on public services, for example, health and education, for each member of the population has fallen since 2019, from about R30,000 (about US$1,689) to about R28,000 (about US$1,576) in 2023.
National Treasury has confirmed the deterioration in public spending and investment.
But the austerity approach hasn’t worked. Unsurprisingly, the government has little to show for it. Per capita debt service costs continue to constrain the resources available for funding the works of the state. Government debt service costs are estimated to average R412.4 billion (about US$23 billion) per year over the next three years, which is more than other spending areas such as health and education.
In light of this, it is important that the government moves away from the old approaches. Now is not the time for more austerity.
The creation of a government of national unity after the country’s recent elections presents the perfect opportunity for a new approach.
To frame our argument, we quote the renowned economist John Maynard Keynes:
The boom, not the slump, is the right time for austerity at the treasury.
South Africa is in a slump, having experienced more than a decade of weak economic growth. GDP growth has averaged only 0.8% annually since 2012, entrenching high levels of unemployment and poverty. As a result the government must reflect on the allocation of public resources for the wellbeing and future of all South Africans.
Enoch Godongwana, the finance minister, will have such an opportunity in October when he tables the unity government’s first medium-term budget policy statement. The statement outlines government fiscal policy and the choices the government has made about what to invest in and what to borrow.
Budgets matter. Increasing public investment in key sectors can boost employment, support economic growth, provide a way out of an economic slump and protect people’s wellbeing (a necessary condition for any economy to grow sustainably).
Based on research by the Southern Centre for Inequality Studies at the University of the Witwatersrand over the past two years, we argue that the government should draw on evidence that investment in key sectors – care (health, educatio