Fiscal policy and redistribution in an unequal society south africa has made progress toward establishing a more equitable society. The distributional impact of fiscal policy in south africa english abstract. Pdf fiscal policy and economic growth in south africa. A publication of the cid south africa growth initiative. Fiscal consolidation, fiscal policy transmission, and current. 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 responsiveness, persistence and discretion european. A tax is progressive if the cumulative share of a tax paid by the bottom income earners of the population is lower than its share in income. South asias rebound since march 2009 has been strong and is comparable to that in east asia. Ersa shall not be liable to any person for inaccurate information or opinions contained herein. It therefore follows that in principle one can expect the two policy. Commitment to sound government remains committed to a sound and stable fiscal policy, public finances aimed at ensuring the sustainability of south africas economic transformation, promoting jobs and investment, and ensuring that. South africas fiscal policy south african market insights.
South africas fiscal policy is progressive, but is it enough. The views expressed are those of the authors and do not necessarily represent those of the funder, ersa or the authors affiliated institutions. Statistics south africa, national treasury and authors calculations. In particular, this section provides an introduction to the role of fiscal policy rules in contributing to fiscal. Below the article from statistics south africa the south african government spent 7,3% more in 201718 than it did in 201617. South africas fiscal policy appreciably reduces poverty and income inequality, and represent the highest reductions in the emerging market countries under study. 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. Automatic fiscal stabilisers could thus play an important role in complementing countercyclical monetary policy.
However, more needs to be done to improve the quality of service delivery although south africa s fiscal deficit and debt limits the fiscal space to spend more to achieve even greater redistribution. A paper presented at the centre for the study of african economies conference on. Complete information about south africa like capital, currency,lat long, flag, population,dial code, area, near by country south africa, cities in gauteng, south africa. Monetary policy remains in a tightening cycle, although this is subject to data outcomes.
If low growth were to persist, however, government would have to adjust its spending plans, and determine which policies to implement, downsize or delay. Jan 21, 2016 the south african reserve bank sarb and the national treasury nt, the respective custodians of monetary and fiscal policy, are naturally faced with the same set of macroeconomic conditions at any particular point in time. Analysing the effects of fiscal policy shocks in the south african economy. Fiscal decentralization and igfr in the face of the new challenges of environmental costs and the needs of promoting the green economy. Monetary policy is constrained by the fact that inflation has either been close to or above the target band for a. What strikes one initially, in moving from a developed to an emergingmarket economy, is the remarkable similarity in the monetary policy process.
Fiscal policy in south africa is now growth orientated. Public debt and postcrisis fiscal policy in south africa. South africas use of fiscal policy and social spending as. We distinguish three categories of economic policies. 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. Launched in 2008, the ceq project is an initiative of the. Social and physical infrastructure was considered as a main pillar for boosting economic growth and employment. 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. The 2017 budget tax proposals will raise r28 billion in additional revenue in 201718. Fortunately, in the 2014 mtbps, the minister of finance outlined a clear path towards fiscal consolidation in 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. The distributional impact of fiscal policy in south africa. Fiscal policy, commodity super cycle, business cycles. 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. Evidence from developing countries, edited by gabriela inchauste and nora lustig, world bank, 2017. Figure 1 public debtgdp in south africa percent source. In the case of exploding debt, government has to increase taxes or decrease expenditure. This paper uses an svar approach to discuss the cyclicality of fiscal and monetary policy in south africa. Economic policy conduct in south africa is about micro and macroeconomic policies. South african economy consistent with long run growth, employment creation and an equitable distribution of income. Poor fiscal capacity own revenue 4%, national grants 96% local government water, electricity, refuse removal, housing infrastructure, municipal roads significant fiscal capacity, but varies between municipalities urban metros over 95% own revenue, rural 30% national government. It is true that there is little evidence of fiscal policy being used intentionally as a countercyclical policy tool since.
African economy with the aim of explaining and providing the macroeconomic effects of fiscal policy changes in the country. 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. In the two graphics only about 54% of the time policy was seen to be coordinated. Gross fixed capital formation from government also has a positive impact on output growth. Fiscal consolidation, fiscal policy transmission, and. Contractionary fiscal policy south africas fiscal policy. Economics department po box 392 unisa south africa, 0003. Fiscal policy, employment, and output in south africa. Moreover, the fiscal policy was designed to solve the employment crisis through significant growth increases. The cyclicality of monetary and fiscal policy in south africa since 1994 cid faculty working paper no. Looking ahead, as south africa grapples with slow economic growth, a high fiscal deficit, and a rising debt burden, addressing the twin challenges of high inequality and poverty will require not. With the end of apartheid south africa experienced fundamental shifts resulting in significant changes in the energy policy context.
Stan du plessis, ben smit, and federico sturzenegger may 2008. 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. Initiative south africa10 asgisa are examples of macro policies directed towards human and capital investment. Fiscal, macroeconomic, and financial implications of climate change. 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. In short, the share of mining in national output has more than halved in the postapartheid period. Pdf the distributional impact of fiscal policy in south africa. With the debtgdp ratio at its postapartheid peak in 19967, debt service costs amounted to 15 percent of revenue, making it one of the largest expenditure items on the government budget. So it looks like south africas fiscal policy is to spend spend spend and if we run out of money lets borrow money to spend spend spend.
Department of economics, university of fort hare, alice main campus, private mail bag, x 14. Finally a third section proposes a fiscal rule that builds on the results in the first two sections to enhance the countercyclical outcomes of fiscal policy in south africa. The distributional impact of fiscal policy in south africa1 gabriela inchauste, nora lustig. The causal relationship between fiscal policy and economic. The objectives of fiscal policy have changed over time. Pdf fiscal policy, employment, and output in south. L1 macroeconomic and financial implications of fiscal policy. Ocran 2009 examined the effect of fiscal policy variables on economic growth in south africa. 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. Eastern europe, south africa, australia, and various developing countries e. The country fixed effects are countrys legal origin and countrys latitude. It is true that there is little evidence of fiscal policy being used intentionally as a.
In a country as unequal as south africa, it is critical to determine the progressiv eness of the major fiscal policy instruments i. 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. During the 1970s and early 1980s fiscal policy was centred on demand management. 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.
Monetary policy is constrained by the fact that inflation has either been close to or above the target band for a significant period over the past two years. Fiscal policy in an increasingly stable south african economy. The models are applied to test the effectiveness of. Apr 12, 2015 south africas fiscal policy goes a long way towards achieving income redistribution but poverty and inequality in south africa after taxes and spending remains too high. South africas public debt and postcrisis fiscal policy story is concluded in section 6. The results of this study are discussed and their implications for fiscal consolidation in south africa explained. The purpose of the paper is to examine the effect of fiscal policy variables on economic growth in south africa. 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. 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. Official pdf, 30 pages world bank documents world bank group. Assessing fiscal risks the nature of south african politics broadly speaking, there are two main influences on south african economic policy. Fiscal decentralization in south africa fiscal division of powers as demonstrated in table 16. South africa s monetary and fiscal policy does seem a little disjointed and there is no clear evidence that our monetary and fiscal policy is coordinated.
Understanding the effects of fiscal policy on south africa hsrc. Analysing the effects of fiscal policy shocks in the south. A particularly important issue in south africa is the extent to which fiscal policy affects national saving. To access fiscal policy and redistribution in an unequal society. South africa s fiscal policy goes a long way towards achieving income redistribution but poverty and inequality in south africa after taxes and spending remains too high. The case of south africa, as a free, interactive ebook that offers details on how each grant program impacts the rate of poverty in south africa s provinces, click here then click on free, and login or signup to find the title in your library. As was the case in the past, economists from the policy arena, private sector and academia stimulated a lively debate.
List of cities in gauteng, south africa with latitude and longitude. Pakistan, peru, philippines, singapore, south africa, thailand. Accounting for socioeconomic disparities in equalization grants for inclusive growth in subsaharan africa ssa a cross country case study. The cyclicality of monetary and fiscal policy in south. Almost everywhere in latin america, fiscal deficits were one of the criti cal problems that led to the debt crisis and rapid inflation during the. However, more needs to be done to improve the quality of service delivery although south africas fiscal deficit and debt limits the fiscal space to spend more to achieve. Price stability reduces uncertainty in the economy and, therefore, provides a favourable environment for growth and employment creation.
Understanding the effects of fiscal policy on south africa. The countercyclicality nature of fiscal policy actions in south africa does not change after 1994 end of apartheid. The global economic recovery remains uneven, as growth in the united states is gaining momentum but appears to be at risk of stalling in the euro area and japan. Since the end of apartheid, the government has used its tax resources to fund the gradual expansion of social assistance programs and scale up spending on education and health services. Although all policy frameworks have their strengths and weaknesses, public policy in south africa is constrained in particular by questions of efficacy and inability to influence the growing informal economy also know as the second. 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. The south african government last published a white paper on energy policy in 1986. Paul dunney november 2015 abstract the debate on global current account imbalances continues to develop, with growing interest in the macroeconomic instability and widening current account decits faced by emerging markets. As was the case in the past, economists from the policy arena, private. Local fiscal sustainability in south africa fiscal sustainability and measurement blanchart see burger 2001. List of cities in western cape, south africa cities in.
List of cities in western cape, south africa with latitude and longitude. Despite the large fiscal redistribution, however, south africa remains one of the most unequal countries in the world. Fiscal consolidation, fiscal policy transmission, and current account dynamics in south africa christine s. The outcome supported that government consumption expenditure has a significant positive effect on economic growth.
Olusegun ayodele akanbi corresponding author associate professor economics university of south africa. 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 low debttogdp gross domestic product ratio indicates an economy that. White paper on the energy policy of the republic of south. Sa in a fiscal mess in 1994, with deficit close to 10% and inflation around 20% first priority of new mandela govt was to get macroeconomic policy right achieved with stunning success but low growth second priority was to make the budget process more transparent and consultative key budget reform was introduction of 3 year. Fiscal policy and economic growth in south africa article pdf available in journal of economic studies 6025 september 2011 with 14,530 reads how we measure reads. Saharan africa, b3 east asia, b4 south asia, b5 europecentral asia, b6 and middle. Fiscal deficits have reclaimed their place as a pressing public policy issue around the world. Department of economics, university of fort hare, alice main campus, private mail bag, x 14, alice 5700. A coordinated monetary and fiscal policy would see the bubbles clustered together a lot more.
L1 macroeconomic and financial implications of fiscal policy mangal goswami sti imftaolam training activities are supported by funding of the government of japan introduction. Fiscal policy is the use of government spending and taxation to affect the economy allocation of resources, production, distribution of income. If fiscal decentralization is to be a reality, subnational governments must control their. South africas development objectives, expressed in the national development plan, rely on achieving higher economic growth and using public resources effectively. Monetary policy and the challenge of economic growth. Even after taking the fiscal package into account, the increase in south africas debttogdp ratio between 2009 and 2019 is. Enhancing sustainable fiscal policy in south africa. Defence expenditure was high pre1994 and immediately after the first democratic election, but declined in the later years of the democratic south africa.
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