One way to try stimulate the South African growth rate would involve the old and controversial move of cutting taxes. That would include cutting both the Corporate Tax rate and significantly raising the minimum value for paying Income Tax, seeing as there is significant doubt about the central government’s ability to efficiently increase spending.

The cut in the Corporate Tax rate would make marginal investment projects considered by companies more feasible, as well as making South Africa more competitive in the international arena for Foreign Direct Investment – which is needed to short circuit the local savings shortfall. The same tax rate cut could also directly aid savings through companies themselves.

The alternative of an Income Tax cut would admittedly not have as significant an effect as a Corporate Tax rate cut in all likelihood. South Africans are on average spendthrifts and the extra income going to individual South Africans would probably be spent rather than saved, as is otherwise the case with the suggested Corporate Tax rate cut. Still, it would be a nice helping hand for those in the lower tax bands and might help win more support from the person in the street for the existing conservative fiscal policies.

The government’s spending deficit as a measure of Gross Domestic Product (GDP) would then rise but as pointed out by a reader to this site, as long as the final deficit as a percentage of GDP remains below the growth rate as a percentage of GDP then the total debt of the state as a percentage of GDP would keep falling (the economy would be growing faster than the debt burden). The South African state’s debt as a percentage of GDP has fallen to just above 35%. That compares favourably to Italy’s for example – all 200%+ of it.