National Treasury has projected the country’s economy to grow by a rate of 5.5 % in 2021.
Tabling the Medium Term Budget Policy Statement on Thursday, the National Treasury said, however, that the economy is expected to shrink over the next three years.
“Gross Domestic Product [GDP] growth is expected to recover to 5.1 % in 2021 before declining to average 1.7 % over the next two years, a rate that is too low to meet the country’s development needs,” the National Treasury said.
The department said as South Africa begins to emerge from the shadow of COVID-19, it is confronted by deep-rooted social and economic problems. Among these – are the crises of poverty and unemployment.
“To address these realities, the national budget is highly redistributive. Personal income tax, which accounts for an average of 38.4 % of revenue over the next three years, is structured in a progressive manner.”
The National Treasury said social wage – combined public expenditure on health, education, housing, social protection, transport, employment programmes and local amenities – averages R1.06 trillion or 59.5 % of consolidated non-interest spending per year over the next three years.
“Government responded to the pandemic with emergency fiscal support to households and businesses.
“This included the special COVID-19 social relief of distress grant, whose 9.5 million beneficiaries bring the number of social grant recipients to 27.8 million.
Yet after a decade of declining economic growth, the public finances are in a weakened state, limiting government’s ability to provide additional targeted social and economic support.”
The National Treasury said the unemployment crisis has escalated, especially among young people.
“Over the last two years, government has augmented existing fiscal measures to mitigate joblessness with additional funding for the presidential employment initiative in the 2021 Budget and an expanded employment tax incentive.
“While government will continue to consider measures to support employment growth, joblessness cannot be solved by fiscal resources: it requires strong and sustained economic growth.
“The long-term decline in South Africa’s GDP growth rate is the result of structural weaknesses in the economy – including poor education outcomes – and external shocks. “Weak growth is compounded by the rapid increase in public debt, which has raised borrowing costs across the economy.”
The department said faster economic growth requires determined implementation of policy reforms to promote confidence, investment, competitiveness, entrepreneurship and job creation.