FEBRUARY
2021
BACKGROUND In an age of acute inequality and slow growth, fiscal pressures are forcing difficult choices in the global South. The Covid-19 crisis will intensify these pressures and, while the pandemic will pass, fiscal distress is likely to remain. Choices made during the crisis could have social and economic consequences for years to come.
While South Africa decidedly has these challenges, it is distinct in several respects. South Africa has a developed and extensive fiscal state, with broad-based and effective taxes, transfers and social insurance. Public policy is embedded in constitutional arrangements that entrench social dialogue and accountability. Government issues rand-denominated debt into a deep pool of local financial assets. The budget institutions are strong, and fiscal data is comprehensive and reliable. These factors create the potential for a progressive and democratic solution to South Africa’s social and fiscal challenges. However, to realise this possibility, social dialogue needs to be grounded in evidence and a clear view of macroeconomic and fiscal choices.
PUBLIC ECONOMY PROJECT
PROJECTSUMMARY
These factors are particularly serious in middle-income democracies. Here, the tax base is smaller and more highly concentrated on an affluent, globally mobile minority, while access to sovereign borrowing is constrained by the inequities of the international monetary system. Public demands for action to overcome mass poverty and unemployment are more pressing, yet state capabilities are typically weaker. As a result, these democracies often many find themselves in a “middle income trap” of low growth rates, massive government transfers to alleviate the effects of rising poverty and inequality, and bitter divisions among social partners. Social provision is segregated between expensive private systems that cater to the affluent and a low-quality, under-resourced public sector. Relationships between the state and civil society are habitually adversarial, social cohesion is weaker and constructing the political coalitions needed to mobilise resources or sustain economic growth is difficult.
PROJECT SUMMARY The Public Economy Project begins the work of creating a fiscal policy foundation located in South Africa, with strong connections to Southern Africa and large middleincome democracies in the global South. The project builds analytical capabilities in macro-fiscal policy, public economics and public financial management. Its research generates authoritative, policy-relevant and accessible evidence, with the aim of supporting public deliberation and engagement among government, social partners and civil society.
PUBLIC ECONOMY PROJECT