The proposed austerity programme could cut 0.16 of a percentage point from average annual growth and raise average unemployment 2.2 percentage points over the next decade
In late October, the Treasury released a second edition of its policy response to the country’s economic crisis. Like its original August version, it proposes a set of microeconomic, mainly supply side, measures aimed at removing perceived “inefficiencies” and “imperfections” in the operation of the free market. The document argues that the proposed microeconomic measures will stimulate macroeconomic growth in SA.
Having a full picture of the Treasury’s combined microeconomic reform proposals and its fiscal austerity proposal, the question is what the net effect of the treasury’s overall proposals will be on growth and employment.The table provides an estimate of the MTEF total expenditure reduction by comparing the MTBPS planned expenditure by economic classification over the next three years with estimates of corresponding expenditure based on 2019-2018 growth rates.
2. What if, following the cut in public employment in 2020, the number of public employees is adjusted further in 2021 and 2022 to ensure the government wage bill for those years is reduced by R68bn and R89bn, respectively?4. What if government transfers and subsidies, especially to households, are reduced by R155bn over the next three years?
Our model results show that the proposed fiscal austerity programme will shave 0.16 of a percentage point from the average annual growth rate and raise the average unemployment rate by 2.2 percentage points, over the course of the next decade.
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