Speaking at this year's Tax Indaba at the Sandton Convention Centre, the chief of the National Treasury’s Budget Office, Michael Sachs, said he was troubled by the upward trend in the debt-to-GDP ratio of 42.5%. While the figure itself was not sufficient cause to resort to emergency measures – it is still low in comparison to many other countries – the structural debt gap could lead South Africa into permanent low economic growth.
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The most disturbing economic trend, according to Sachs, is that both commodity prices and demand are dropping on the back of the downturn in developing markets. In the past, slowing demand had been offset by an increase in commodity prices. As such, the country's mineral wealth could no longer guarantee an upward economic trajectory.
However, there was a bright spot in Sachs' otherwise gloomy presentation: he said his department's demographic projections have revealed a "window of opportunity" in 2060, when population growth would have stabilised, with the majority of the country's citizens in the 15-64 age group. This meant that there would be less pressure to spend on healthcare, education and social grants, unlike in many European nations with ageing populations. Quoting celebrated economist Thomas Piketty, Sachs said even 1% growth in GDP over time was enough to "profoundly change society" for the better and that spending on social welfare was seen as way to erase inequalities.
He said that to sustain current expenditure, government would have to make structural changes to taxes, grow the economy rapidly or shift spending priorities, as had been done in the past, when funds from the defence budget had been allocated to healthcare. Only an economic expedient was seen as viable currently, because an increase in taxes would have a disastrous effect on poor communities. He said that current fiscal spending was dependent on a GDP growth rate of 3% - double the current level of 1,5%.
Sachs said that there was an urgent need for stakeholders to come together to find solutions to the country's economic woes:
"We must find consensus on what is important to resolve the deep problems facing our economy. We need to build relationships between the state, labour unions and business. What we agree on is not as important as finding consensus."
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