SA COULD sustain its social spending commitments for decades but would be hard-pressed to implement all the new social policy proposals the National Development Plan puts on the table, says Treasury budget office head Michael Sachs.
SA’s huge expansion of social spending since 1994 has raised concerns among some commentators that it will face a "fiscal cliff" at some point and be unable to sustain current or expanded spending levels on health, education and welfare.
Mr Sachs presented the Treasury’s model to answer these questions at a World Bank-National Treasury workshop on SA’s fiscal framework last week. The model projected spending into coming decades.
In a scenario of moderate economic growth of about 3% and moderate population growth, current levels of spending are sustainable.
However, should growth stagnate at 2% or less, or the population grow much faster than anticipated, then social spending levels would be difficult to maintain. A sustainable path, according to the model, is one where SA’s debt level stabilises or declines.
Mr Sachs said spending on social grants was expected to stabilise and even diminish as a share of gross domestic product (GDP) over the next 15 years, even with a moderate increase in take-up rates.
Spending levels on basic education are also considered adequate as the school-age population declines over time. Spending on healthcare, however, would need to increase to maintain current levels of service or in the event of the introduction of a National Health Insurance scheme.
A growth rate of 3% would require "a structural increase in revenue" as health expenditure would need to rise to 6% of GDP for an NHI scheme to go ahead, from current levels, which are less than 4%.
Mr Sachs said this meant that additional revenue would be required — through taxation or a reprioritisation of expenditure. However, not all the new social spending policies could be realised.
New proposals include a dramatic expansion of vocational training outlined in the white paper on higher education. Also, reforms to social grants to provide unemployment support, as well as a large expansion of public employment programmes, are under discussion in the government.
"New social spending pressures are most likely to emerge in the area of unemployed youth," Mr Sachs said. "One of the purposes of the modelling exercise was to look at what these are as none of the proposals have been costed. "The model shows that we could possibly do one of these but it would be a tall order to do all three."