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
The project aims to have the following impacts: 1. To produce a portfolio of evidence and analysis of macro-fiscal choices, the reform of the public economy and the design of institutions for public financial management. 2. To contribute to deliberating, learning and problem-solving among social partners, as they consider fiscal choices in an evidence-rich environment. 3. To create stronger networks for research collaboration on fiscal policy between South Africa, its regional neighbours and large middle-income democracies in the global South. The project will demonstrate the potential of these interventions by delivering high-quality research outputs. It will also undertake research and engage with stakeholders for exploring the institutional design of a permanent fiscal policy foundation in South Africa.
ACTIVITIES The project’s objectives in 2021 are twofold: 1. To consider the principles and architecture of a South African foundation for fiscal policy and public economics research. 2. To demonstrate the potential for such a foundation by delivering research that is rigorous, independent and policy relevant. To these ends, key activities over the next 12–18 months include: The preparation of a comparative scoping report, setting out options that South Africa should consider in establishing a foundation for fiscal policy and public economics research. This will include literature reviews; comparative analysis of institutional models; and engagement with think-tanks, experts and institutions in other parts of the world, particularly those that exist in large middle-income democracies. The report will also review the institutional landscape in South Africa and the potential for a new fiscal centre to contribute to policy and social dialogue. The publication of a May report on public provision that considers trends in public expenditure over the medium-term, drawing on the national budget and the tabled expenditure plans of provincial governments. Its focus will be on core areas of social provision including health, basic education, social grants and the criminal justice system. In addition to tracing past trends in resource allocation, the report will locate future expenditure commitments in the context of social, demographic, and economic evidence, with a view to gauging the impact of budget plans on the quality and extent of public service provision. The implications for intergovernmental fiscal relations, social policy and public sector compensation trends will also be explored. The publication of an October report on macro-fiscal choices and the public economy, which will coincide with government’s Medium-Term Budget Policy Statement. Intended as the project’s annual flagship publication, the report’s aim will be to explain constraints and choices to the broader public and the potential consequences of various options. It will include chapters and analytical content on the macro-fiscal outlook, the state of the public finances, social policy developments, and the regional consequences of South Africa’s fiscal position for BELN1 countries that rely on revenue through the Southern African Customs Union agreement.
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Botswana, Eswatini, Lesotho and Namibia
PROJECT SUMMARY | PUBLIC ECONOMY PROJECT
A research project on gender, taxation and the allocation of public resources that is centred on understanding the social power relations at the household, market and macro-level. The project will consider the interaction of gender with other stratifiers, such as race, income and location (urban vs rural) in order to understand how gender differences in economic activity affect the impact of taxation on men and women. A second area of focus will be on how to bring a gendered lens more effectively into the national budget process, building on lessons from past efforts to achieve gender-responsive budgeting in South Africa and the world. A research project on the political economy of public debt that will consider the impact on large middle-income democracies of a new fiscal consensus in the global north, which emerged within the context of low interest rates and ‘secular stagnation’. The focus will be on South Africa as a case study. A programme for engagement, dialogue and capacity building with government, constitutional bodies, business, trade unions, universities and civil society. The programme’s objectives include: Harvesting inputs on the potential for a fiscal policy foundation and integrating these into the scoping report. Disseminating the project’s research reports and using the evidence generated as a platform for social dialogue on critical macro-fiscal choices. Educating the public and building capacity around budget institutions, fiscal policy trades-offs, and the consequences for growth and social development in South Africa. Convening a conference on public economics and fiscal policy, in partnership with university departments and other institutions, to deliberate on the research outputs. Organising a series of dialogues between fiscal centres in the global South.
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PEOPLE AND RESOURCES The project will be incubated within the Southern Centre for Inequality Studies at the University of the Witwatersrand. The Bill and Melinda Gates Foundation is providing core funding for the first 24 months. The project will seek to augment these resources with programme-specific support and contributions from other donors. The core project team is composed as follows. 1. Michael Sachs (Project convenor) 2. Arabo Ewinyu (Research manager) 3. Imraan Valodia (Research fellow) 4. Phillip Krause (Research fellow) An advisory panel composed of individuals with expertise drawn from academia and government, helps guide the work of the project: 1. Tania Ajam | University of Stellenbosch 2. Zukiswa Kota | Public Sector Accountability Monitor 3. Ismael Momoniat | National Treasury 4. Russel Rensburg | Rural Health Advocacy Project 5. Andrew Donaldson | SALDRU, University of Cape Town 6. Geci Karuri-Sebina | Wits School of Governance 7. Mamokete Lijane | ABSA bank 8. Abba Omar | Mapungubwe Institute for Strategic Reflection A broader network of international and local partners is being developed.
FEBRUARY 2021
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