This paper hopes to shed light on how South Africa arrived at the fiscal crisis that it currently faces. The Covid-19 pandemic has accelerated this crisis, and discussions are under way about how government should respond in the short term. The paper tries to focus on the structural factors that predate Covid-19 and how the fiscal crisis will define public policy over the medium term. To offer answers to these questions, I review fiscal data and policy development over the last two decades, in the hope that a better understanding of the road travelled will help illuminate the path ahead.

The structure of public spending and the dynamics of debt accumulation are looked at in some detail, but less attention given to taxation. The paper considers monetary policy only to the extent that it might (or might not) ease fiscal constraints. Macroeconomic trends are looked at insofar as they frame fiscal choices, but the broader context of the South Africa’s crisis – rising unemployment and poverty, extreme and entrenched inequalities, economic stagnation rooted in deindustrialisation and financialisation, and the slow but inexorable disintegration of the Congress movement – is left in the background.

Indeed, South Africa’s crisis is multidimensional, and a single lens such as fiscal policy is inevitably limited. Nevertheless, I believe it can help illuminate a wider terrain of historical change. As Schumpeter famously said, “the spirit of a people, its cultural level, its social structure, the deeds its policy may prepare – all this and more is written in its fiscal history, stripped of all phrases. He who knows how to listen to its message here discerns the thunder of world history more clearly than anywhere else” (quoted in Martin et al., 2009). No doubt an exaggerated claim, but there is truth enough in it.

Working paper by Michael Sachs