The purpose of the paper is to examine the effect of fiscal policy variables on economic growth in south africa. Revised may 2017 abstract this paper estimated the distributional impact of the main elements of general government taxation and. South africas public debt and postcrisis fiscal policy story is concluded in section 6. South africas monetary and fiscal policy does seem a little disjointed and there is no clear evidence that our monetary and fiscal policy is coordinated. Fiscal policy, employment, and output in south africa. Ilan strauss on learning by doing the next phase for monetary policy reversing qe. Centre for health policy, for the centre for health policy university of the witwatersrand and the health economics unit university of. The economy of south africa is the second largest in africa, after nigeria. The graphic below shows south africa s monetary fiscal policy mix and the associated gdp for the last 22 years from 1994 to 2015. Policies to promote growth and employment in south africa jeffrey d. Fiscal space in africa, as measured by a debt threshold of 50 per cent of gdp, 20162018.
The proposed budget for 201718 totals of which revenue covers r1. Lewis july, 2001 the findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. Our solution integration of tax policy options into wider fiscal scenarios. Mar 21, 2016 a better fiscal policy for better south africa in the weeks since the budget speech the crisis enveloping the treasury has prevented serious discussion of the substance of pravin gordhans budget. As a regional manufacturing hub, it is the most industrialized and diversified economy on the continent.
In short, the share of mining in national output has more than. The national climate change response policy policy alignment the objective is to optimise policy coherence within sectors and across sectors in order to achieve adaptation outcomes that support development aspirations, this process will result in the integration of adaptation strategies in key sector plans, and. Introduction during the 1980s and 1990s, the vulnerability of emes to shocks was often exacerbated by high fiscal deficits, underdeveloped domestic bond markets, and largecurrency and maturity mismatches. The graphic below south africas fiscal policy in a nutshell over time.
Analysing the effects of fiscal policy shocks in the south. Policies to promote growth and employment in south africa. Understanding the effects of fiscal policy on south africa. Introduction having reduced its debt burden over the past thirteen years, the south african government again finds itself facing rising debt. The distributional impact of fiscal policy in south africa english abstract. This paper uses the 201011 income and expenditure survey for south africa to analyze the progressivity of the main tax and social spending programs and quantify their impact on poverty and inequality.
Principles and practice of national and subregional fiscal policy in south africas intergovernmental fiscal relations igfr system. Fiscal policy, public debt and monetary policy in emes. While the interest cost on state debt remains manageable at just below 12% of total expenditure, it is now consistently the fastest growing component of. Pdf fiscal policy, employment, and output in south. Fiscal sustainability and the fiscal reaction function for south africa. The theme of the fourth biennial policy conference of the south african reserve bank the bank held in 2012 was monetary policy and the challenge of economic growth. Chapter 4 presents a set of potential fiscal policy instruments that could tackle south africas disease burden.
Fiscal policy may be a good tool to curb unemployment in a country like south africa, where there are other factors. South africa s levels of inequality are even greater than those in brazil, another highly unequal country. Contractionary fiscal policy is seen as when government spending grows at a slower rate than the previous yearor has decreased. The south african economy has over the years been steered from the monetary side.
So it looks like south africa s fiscal policy is to spend spend spend and if we run out of money lets borrow money to spend spend spend. This page provides south africa fiscal expenditure actual values, historical data, forecast, chart, statistics, economic calendar and news. In 1994 south africa held its first democratic elections and emerged from over 300 years of white minority rule. Scroll over a bubble to see the gdp growth rate and the year in question.
Assessment of the past and future policy applications philippe burger1, ian c. This stance allows the government to borrow in a way that requires it to. The fiscal policy variables considered in the study include government gross fixed. In the two graphics only about 54% of the time policy was seen to be coordinated.
Price stability reduces uncertainty in the economy and, therefore, provides a favourable environment for growth and employment creation. Is the fiscal policy effective enough to curb unemployment in. As was the case in the past, economists from the policy arena, private sector and academia stimulated a lively debate. The decline in national saving in south africa has been attributed to the decrease in government saving, especially from the early 1980s to early 1990s tsikata, 1998. Pdf fiscal policy and economic growth in south africa. Quard decomposition identification scheme were used in the empirical analysis. A fiscal rule to produce countercyclical fiscal policy in south africa stan du plessis and wimpie boshoff 1 abstract this paper considers the role of fiscal policy as a component of stabilisation policy in south africa. South africas development objectives, expressed in the national. South africa s development objectives, expressed in the national development plan, rely on achieving higher economic growth and using public resources effectively. This paper aims to examine the effects of fiscal policy associated with increases in government expenditures, tax revenue and budget deficit on the south african economy. Average ratio of taxes to gdp in africa by fiscal policy stance, 20102015 37 figure 2. Principles and practice of national and subregional fiscal policy in south africa s intergovernmental fiscal relations igfr system. The available tools considered include excise taxes.
Evidence from developing countries, edited by gabriela inchauste and nora lustig, world bank, 2017. Fiscal consolidation, fiscal policy transmission, and current account. As the world bank, we stand ready to work with all stakeholders and support south africa to fulfill its development agenda and contribute to ending extreme. Exploring alternative finance and policy options for effective and sustainable delivery of housing in south africa for an equitable sharing of national revenue isbn. A more sustained theme has been fluctuating global financial conditions, mostly driven by united states monetary policy, and transmitted to south africa through the exchange rate and bond yields. South africa s fiscal policy appreciably reduces poverty and income inequality, and represent the highest reductions in the emerging market countries under study. As a general background to the discussion, the monetary policy framework followed in south africa is first explained in section 2. South africas use of fiscal policy and social spending as.
It means building balance sheet strength in the good times when revenue growth is strong rather than indulging in a spending fever. On the revenue side, the study highlights that fiscal authorities in south africa continue to rely on income, profit and wealth taxes as they account for a larger share. The countercyclicality nature of fiscal policy actions in south africa does not change after 1994 end of apartheid. Monetary policy and the challenge of economic growth. Can the effect be mitigated by public policy interventions aimed at improving the investment climate. South asia is poised to grow by about 7 percent in 2010 and nearly 8 percent in 2011, thanks to the strong recovery in india, good performances in bangladesh, postconflict bounce in sri lanka, recovery in pakistan, and turnarounds in other countries, including afghanistan, maldives, and nepal. Fiscal decentralisation in south africa, in managing fiscal decentralisation, ed. South africa restoring fiscal policy credentials south africa surprised markets by announcing lower budget deficits for fy12 and fy mediumterm fiscal consolidation to accelerate, with the deficit narrowing to 3% of gdp in fy15 infrastructure spending to rise, as south africa attempts to switch from consumption to investment summary. Increased investment spending would decrease the national debt of the country as a percentage of its gross domestic product, reduce government deficit and improve the economic health of the country, says margaret chitigamabugu. A particularly important issue in south africa is the extent to which fiscal policy affects national saving.
Pdf the cyclicality of monetary and fiscal policy in. Countercyclical fiscal policy in south africa south african journal. Pdf the purpose of the paper is to examine the effect of fiscal policy variables on economic growth in south africa. An overview of fiscal policy and unemployment in south africa south africa has been using a countercyclical fiscal policy which enables the government to respond flexibly to the effects of the economic cycle treasury, 2009. Second, a looser monetary policy, characterized by lower real interest rates, increases growth in the. Microeconomic policies are formulated in terms of the national industrial policy action plans 2010, 2014 and the south african trade policy and strategy framework 2010. Public debt and postcrisis fiscal policy in south africa. It shows the rand value of revenue collected by the south african government as well as the money spent by government.
Below the article from statistics south africa the south african government spent 7,3% more in 201718 than it did in 201617. The views expressed are those of the authors and do not necessarily represent those of the funder, ersa or the authors affiliated institutions. Corporation and denel, have requested fiscal support to continue operating. Moreover, the fiscal policy was designed to solve the employment crisis through significant growth increases. An underlying determinant of inflation is the broad expectations among south africans for. South africa was chosen as a case study as it is a developing country, where tourism is playing an important part in the social and economic development, and the new sustainable. We distinguish three categories of economic policies. If low growth were to persist, however, government would have to adjust its spending plans, and determine which policies to implement, downsize or delay. In general, the policy of fiscal prudence after 1994 resulted in a substantial decline in debt service cost, whilst the. The primary objective of monetary policy in south africa is to achieve and maintain price stability in the interest of sustainable and balanced economic development and growth.
Fiscal policy, commodity super cycle, business cycles. South africa is an uppermiddleincome economy one of only eight such countries in africa. The effect of fiscal policies on exchange rates is ambiguous. South africas monetary fiscal policy mix south african. Ersa shall not be liable to any person for inaccurate information or opinions contained herein. A tax is progressive if the cumulative share of a tax paid by the bottom income earners of. Some of the major instruments of fiscal policy are as follows. The orange line shows the surplusdeficit of the governments budget. The influence of the anc on south africas foreign policy. In other words, for the components examined, the tax and social spending system is overall progressive. The fiscal policy variables considered in the study include government gross fixed capital formation, tax expenditure and government consumption expenditure as well as budget deficit. Economic policy conduct in south africa is about micro and macroeconomic policies.
Budget is a policy process budgeting is at heart of policymaking, and needs to be consultative budgets require prioritising of policies, which is essentially a political process minister of finance requested cabinet to form a ministers committee on the budget subcom of cab budget council and budget forum, for provinces and. In general, the policy of fiscal prudence after 1994 resulted in a substantial decline in debt service cost, whilst the real growth rate of the economy increased considerably. It is the sister strategy to monetary policy through which a. South asias rebound since march 2009 has been strong and is comparable to that in east asia. The longterm impact of inflation can damage the standard of living as much as a recession. In a country as unequal as south africa, it is critical to determine the progressiv eness of the major fiscal policy instruments i.
The market and the bookmakers inform us about the anc succession battle update zaeconomist a blog on the south african economy and its financial markets by prof brian kantor on the market tells us about the anc succession battle. Fiscal policy in brief fiscal policy is focused on containing the budget deficit and slowing the pace of debt accumulation to maintain spending programmes and promote confidence in the economy. Fiscal policy measures south africa raises tax revenue to fund most public spending. In 1994, south africa had just emerged from its international exclusion and the. In addition, a key risk to south africa s ongoing fiscal stability is the increase in state debt cost. The distributional impact of fiscal policy in south africa. United states, south africa in miserable financial and economic shape blinder. Fiscal policy implementation in subsaharan africa1 prepared by victor lledo and marcos poplawskiribeiro authorized for distribution by johannes mueller july 2011 abstract this paper investigates economic, political, and institutional constraints to fiscal policy implementation in subsaharan africa. Is the fiscal policy effective enough to curb unemployment in emerging market.
Governments fiscal policy seeks to support structural reforms of the south african economy consistent with long run growth, employment creation and an equitable distribution of income. Firstly the share of mining in gdp stood at 11% in 1994, but has steadily declined over an eighteen year period to its current 5% in 2012. Second, for these elements, fiscal policy in south africa achieves appreciable reductions in income inequality and poverty. Fiscal policy, public debt and monetary policy in emerging. Pdf fiscal policy, employment, and output in south africa. Fiscal policy zaeconomist a blog on the south african. The history of the national treasury working paper by joel pearson, sarita pillay and ivor chipkin, public affairs research institute 2016 ismail momoniat.
South africa fiscal expenditure 19602020 data 2021. Apr 12, 2015 in other words, taxes in south africa are born by the rich, and the tax resources are redirected to the poor. Enhancing sustainable fiscal policy in south africa upspace. Its goal is to slow economic growth and stamp out inflation. The budget of a nation is a useful instrument to assess the fluctuations in an economy. The second type of fiscal policy is contractionary fiscal policy, which is rarely used. Pdf fiscal policy and unemployment in south africa. South africas fiscal policy is progressive, but is it enough. Official pdf, 30 pages world bank documents world bank group.
The cyclicality of monetary and fiscal policy in south africa since 1994. A coordinated monetary and fiscal policy would see the bubbles clustered together a lot more. With the aid of quarterly data covering the period 1990. Review of south africas intergovernmental fiscal relations system. Fiscal decentralization in south africa fiscal division of powers as demonstrated in table 16. In particular, this section provides an introduction to the role of fiscal policy rules in contributing to fiscal. Using fiscal instruments to achieve positive health outcomes is not a new strategy, but the analyses in this report suggest that they could be used to much. Fiscal policies for population health in south africa examines the potential for a set of fiscal policy interventions to reduce south africa s health burden. What strikes one initially, in moving from a developed to an emergingmarket economy, is the remarkable similarity in the monetary policy process.
Enhancing sustainable fiscal policy in south africa. Contents deloittes capabilities in public financial management. The results of this study are discussed and their implications for fiscal consolidation in south africa explained. The tools of contractionary fiscal policy are used in reverse. Macro policy mix and its effects on growth and the. Defence expenditure was high pre1994 and immediately after the first democratic election, but declined in the later years of the democratic south africa. Doherty j, mcintyre d, gilson l, thomas s, brijlal v, bowa c, mbatsha s. Health policy sa towards a health system that is fair. This update builds on our solid partnerships with the national treasury, statistics south africa, the national planning commission, and the department of planning, monitoring, and evaluation. In short, the share of mining in national output has more than halved in the postapartheid period. As such, the role and objectives of fiscal policy contribute to sustainable growth and development.
In a middle income country like south africa where the role of government is politically and socially important and controversial, future research could explore how the quest to enhance fiscal consolidation can affect political and social stability which may in turn endanger the sustainability of fiscal policy. Social and physical infrastructure was considered as a main pillar for boosting economic growth and employment. The 2017 budget tax proposals will raise r28 billion in additional revenue in 201718. When the budget is in deficit, government borrows to meet the shortfall. Delivers on government policy objectives in subsaharan africa, tax policies are chiefly targeted. The division of wealth and income in south africa remains inadequate to address apartheids crippling economic legacy, but south africa is facing the challenge head on. Microeconomic policies are formulated in terms of the national industrial policy action plans 2010, 2014 and the south african trade policy. The focus of fiscal policy in south africa on the long run interests of the economy by living within your means has been admirable.
Economics department po box 392 unisa south africa, 0003. While every precaution is taken to ensure the accuracy of information, the south african reserve bank shall not be liable to any person for inaccurate information or opinions contained in this publication. Fiscal space in africa, as measured by a debt threshold of 40 per cent of gdp 2016201836 figure 2. The graphic below south africa s fiscal policy in a nutshell over time. Introduction the 2008 global financial crisis gfc left the majority of nations e. Understanding the effects of fiscal policy on south africa hsrc. Olusegun ayodele akanbi corresponding author associate professor economics university of south africa. Contractionary fiscal policy south africas fiscal policy. Fiscal consolidation, fiscal policy transmission, and current. Exploring alternative finance and policy options for. Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nations economy. The distributional impact of fiscal policy in south africa gabriela inchauste, nora lustig, mashekwa maboshe, catriona purfield, and ingrid woolard ceq working paper 29 february 2015. Commitment to sound government remains committed to a sound and stable fiscal policy, public finances aimed at ensuring the sustainability of south africa s economic transformation, promoting jobs and investment, and ensuring that. Monetary policy operating procedures in south africa.
Thus, in pursuing these objectives, the study will help to answer the following questions. Breaking down the series into two components, the apartheid 19701993 and postapartheid 19942011 fiscal policy revealed the same countercyclical policies with a slope of 0. South africas fiscal policy south african market insights. Development plan, rely on achieving higher economic growth and using public resources. Countercyclical fiscal policy requires the government deficit and debt to increase during. South africas fiscal policy appreciably reduces poverty and income inequality, and represent the highest reductions in the emerging market countries under study. Analysing the effects of fiscal policy shocks in the south african economy.
376 1491 1043 1418 525 1343 40 531 886 362 253 588 315 647 685 861 1353 436 24 168 175 409 755 975 1543 1324 836 1391 1009 421 432 98 399 192 925 1273 643 1332 1379 655 115