Realising MDGs in South Africa

Abstract

This paper is one of the first applications in the region that looks at ways in which government might reach the Millennium Development Goals by increasing spending. The findings have immediate policy implications in various policy modelling areas, including fiscal policy design in countries seeking to grow their economies with broader thrust towards attaining MDGs. Reaching all the MDGs in South Africa within four years seems unlikely, even impossible, especially MDG4 and MDG5 (child and mother-related health goals), as the actual values are too far away from the target values. The results were quite promising for universal primary education (MDG2) and combating HIV-AIDS (MDG6), but in both simulations government has to borrow (from the domestic firms) to reach the MDG target. This is not sustainable in the long run, and increasing indirect taxes in order to reach the MDG target would harm households' spending, eventually reducing any benefits. This does not mean that little progress can be made to improve public health resources in South Africa. Instead, it suggests that government should weigh up carefully the impact of increasing spending against the risk associated with increasing taxation rates, spending levels and deficit finance.