SA Pays High Price for Sluggish Economic Growth

Thys van Zyl, CEO of Everest Advisory Services, said in response to the Medium Term Budget Policy Statement (MTBPS) that while the improvement in South Africa’s fiscal position should be welcomed, it cannot replace the need for significantly stronger economic growth.

“It is encouraging that the government is making progress in bringing its debt burden and budget deficit under control.

Fiscal discipline is essential for investor confidence and economic stability. However, healthier public finances do not automatically translate into a more prosperous country. The government may be managing its budget more effectively while households and businesses continue to struggle to make financial progress.”

According to Van Zyl, the downward revision to the growth outlook should therefore receive at least as much attention as the positive developments in public finances. “When an economy fails to grow sufficiently year after year, the country does not merely lose the opportunities that could have been created in that particular year. It also weakens the foundation for future economic expansion.”

The MTBPS points to an improvement in the fiscal outlook, with government debt expected to begin declining as a percentage of gross domestic product (GDP). Treasury also expectstotal tax and non-tax revenue and National Revenue Fund receipts for the 2026/27 financial year to be approximately R54.1 billion higher than initially budgeted, with projected tax revenue revised upwards by R17.1 billion.

Van Zyl cautions, however, that higher projected government revenue does not necessarily indicate a lasting
improvement in the economy. “When businesses do not expand fast enough, fewer new jobs are created, while growth in salaries and corporate profits remains under pressure. Over time, this can limit the government’s ability to generate additional revenue from personal income tax, corporate income tax and value-added tax (VAT).”

“This is why stronger economic growth is not merely desirable, but essential for the sustainability of South Africa’s public finances. The more people who are employed and the more businesses that grow, the broader the tax base becomes, without the government necessarily having to increase tax rates.”

“The long-term sustainability of South Africa’s public finances will therefore depend not only on how effectively the government manages its money, but also on how successfully the country grows its economy. Fiscal stability should not be the ultimate goal, but rather the starting point for stronger economic growth.”

Van Zyl says the government’s continued focus on infrastructure and greater private sector participation in the economy is important, but these interventions must ultimately contribute to higher productivity and increased economic activity.

“When infrastructure improves, transport systems operate more efficiently and businesses have access to reliable energy, it becomes easier and less expensive to do business. This creates an environment in which private capital can be invested with greater confidence. It is precisely this investment that can strengthen the economy’s future growth potential.”

Van Zyl welcomed the temporary reduction in fuel levies, but emphasised that the measure can only provide temporary relief from high fuel costs. “Long-term prosperity cannot be created through temporary relief measures alone. It requires a growing economy, greater earning potential, responsible financial decisions and opportunities to save and invest over time.”

According to Van Zyl, South Africa must therefore guard against allowing short-term interventions to divert attention from the much bigger challenge. “The budget is necessarily about managing the government’s finances. However, the most important economic question is how South Africa will increase its future prosperity.”

“We cannot afford to become accustomed to low growth simply because the fiscal figures are beginning to improve. The success of this budget will ultimately be measured not only by how much the government’s debt-to-GDP ratio declines or how small the budget deficit becomes, but also by the extent to which South Africa’s economy becomes stronger, more productive and more prosperous in the years ahead.”