Azra Hoosen | ah@radioislam.co.za
15 August 2024 | 08:00 CAT
2 min read

According to the Institute of Race Relations (IRR), South Africa’s public finances are in deep trouble, with government debt soaring to R5.2 trillion as of 2023/24. This debt crisis means that over 20% of every Rand collected in taxes goes just to paying interest on the debt, impacting vital services like health care and education.

IRR researcher Chris Patterson emphasises that strict fiscal discipline is crucial. He also suggests that to truly address the issue, the government needs to stimulate economic growth by securing property rights and moving away from policies that hinder investment and job creation.

In an interview with Radio Islam, IRR’s Hermann Pretorius outlined how South Africa transitioned from budget surpluses to a debt crisis. Between 2004 and 2006, South Africa enjoyed budget surpluses, which allowed the government to introduce programs like the SASSA grant system. However, the global financial crisis of 2008, which followed the Polokwane conference, marked a turning point. At that time, the more moderate economic policies of Nelson Mandela and Thabo Mbeki were replaced by the more radical spending priorities under Finance Minister Pravin Gordhan during Jacob Zuma’s presidency. This shift led to a surge in public spending, both globally and locally. South Africa’s spending continued to escalate at an unsustainable rate, resulting in a national debt that now approaches or exceeds 100% of GDP when including both government and state-owned enterprises’ debts.

“We believe there is a simple 4-step solution that would bring that crisis under control without going to the necessary extremes. Our research findings show that South Africa doesn’t have a crisis in terms of resources and assets available, it comes down to how they are managed, spent and whether the government is being efficient in its government spending,” said Pretorius.

The Institute of Race Relations (IRR) has proposed a plan to address this crisis:

1. Achieve a Primary Surplus: Ensure that government revenues exceed expenditures (excluding interest payments) in the first year.
2. Protect Social Grants: Avoid cuts to welfare programs.
3. No New Taxes: Commit to not increasing taxes.
4. Improve Efficiency: Government departments should work more efficiently and control spending.

“We have a problem where the irresponsibility of the Zuma years has not been taken on board by the current presidency, giving the treasury the necessary heft or power to curb public spending,” he said.

Pretorius pointed out that the National Health Insurance (NHI) is a good example of a costly government project. The Treasury has repeatedly warned that it will be very expensive.

“We have the Health Minister continually pushing this idea of the NHI being a necessary project, when it will add to the fiscal crisis and go in the opposite direction to what will get our finances under control,” he added.

Pretorius noted the government has a few options for funding: raising taxes, borrowing, printing money, or cutting spending. With the growing debt crisis, one major concern is that South Africa has lost about R1 trillion due to inefficiencies in the public procurement system.

“We are becoming at risk of not being able to manage debts. We are paying more on debt servicing costs than on hospitals or schools and it doesn’t have to be this way. There is a simple plan to get South Africa back on track through the #WhatSACanBe proposal by the IRR,” he said.

LISTEN to the full interview with Ml Junaid Kharsany and Hermann Pretorius, IRR Head of Strategic Communications, here.