The other options floated by Mogajane in media interviews include increased borrowing. “One way or the other we will have to bite the bullet,” he told 702 Talk Radio on Tuesday.
Reallocation of funds or raising the budget deficit are other possibilities he flagged in an interview this week in Business Day.
The Treasury is clearly in a very difficult space. The 2020/21 budget deficit was forecast in October to reach 15.7% of gross domestic product (GDP), while tax collection is expected to show a shortfall of almost R313-billion. And the renewed lockdown measures imposed in late December are weighing on commercial activity to such an extent that an economic contraction is seen in the first quarter of 2021 – following a 2020 contraction estimated at between 8% and 10% – which will further widen the deficit’s ratio to GDP.
“It is difficult to see where else the funding could come from. Also, there are already lots of different calls on existing government resources,” Razia Khan, chief Africa economist at Standard Chartered Bank, told Business Maverick. Think of SAA, the Land Bank and other SOE flops.
In response to queries from Business Maverick on the issue, the Treasury said: “Detailed financing measures, including any announcements on tax changes, will be announced on Budget Day in February.”
The Treasury is clearly highlighting its dearth of options ahead of the February budget, which will be unveiled by Finance Minister Tito Mboweni, who would probably rather be fishing or growing pot on his farm. His job is unenviable, to say the least.
“The fiscus is very constrained. So I think the National Treasury is clearly making the point that the money needs to come from somewhere – either taxes or spending reallocation,” Nazmeera Moola, head of SA Investments at asset manager Ninety One, told Business Maverick.
Taxes may be the quickest route, but one with its own set of economic consequences.
The small percentage of South Africans who pay taxes already have one of the highest burdens in the world in this regard. According to Trading Economics data, South Africa’s top tax bracket of 45% is among the 20 highest in the world, on a par with France and Germany, where it is probably safe to say that taxpayers get more for their buck.
Higher taxes could curb consumption and investment at a time when the economy needs all the help it can get to generate jobs. On the other hand, the Reaganite notion of trickle-down economics copied by the likes of Donald Trump is also a bit of a scam. And this is an emergency that is unfolding in one of the most unequal societies the world has seen, so as a one-off measure South Africa’s affluent classes may well have to bite that bullet. The return in saved lives and ultimately a rescued economy will be huge.
A significant hike in sin taxes, with the proceeds ring-fenced for the vaccine, is one option worth considering. This correspondent has floated this idea before in these pages, and the case now seems more compelling than ever.
The current third instalment of the prohibition on alcohol sales, like the previous two, was a response to hospital trauma units being overwhelmed by Covid cases and booze-related injuries.
That is seen by many as commendable and part of the sacrifice we must bear, but it also has immediate economic costs: lost revenue for the Treasury, jobs shed, businesses shuttered and the plug pulled on R5-billion in planned investments by South African Breweries. So when prohibition is lifted, why not be proactive and hike taxes on booze and tobacco? The government clearly wants to curb consumption of these harmful products, and higher taxes is the easiest way to do so. It may also reduce the perceived need to use the blunt instrument of prohibition, which is frankly tainted by its racist and classist roots and history.
Estimates for the cost of the vaccine rollout range between R12-billion and R20-billion. It’s probably also worth noting that this is a small fraction of the sums looted before, during and since the State Capture drama. If not for massive governance issues, South Africa could have afforded the vaccine without resorting to drastic measures like tax hikes. DM/BM
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Really??…..Say, what is the ratio of tax-payers to the total population?
Not much and falling fast, every year. Talk about ‘killing the goose’.
Yip. Not a lot of bang for our bucks in SA. We can only work to improve things.
What bang ? After paying amongst the highest taxes in the world, from your NETT income taxpayers have to budget for health, safety and security, pensions, education etc etc etc
Disgraceful and unconscionable beyond words! How much more must the dwindling tax-paying base be exploited and whipped by having to pay for this inept government mishandling, short-sightedness and plain stupidity of just about everything and the outright grand corruption of mammoth proportions!!!! They can find the R10,5 billion for SAA – another pure vanity and nonsensical project that will end in failure. Just squeeze the taxpayer – it’s the ATM that keeps on giving ad infinitum.
Only until they run out of patience, pack their money and move to pastures less parched!
Am I getting this right: prohibit the sale of alcohol and tobacco, then use the resulting excise tax so gained to pay for vaccine?
Yes, you got it first time ! Perfect ANC logic, that’s why they are successful – NOT !!
The problem is that the government does not let anyone dictate transparency or other safety mechanisms like ringfencing. Most resistance to tax increases for inoculations are due to the almost guarantee that if this is left in ANC hands, there will be major corruption. Already the government is trying and centralize and obfuscate the entire process, ensuring no transparency and no alternatives, setting up the stage for looting beyond the PPE scandal. All cynicism at this point about the ANC is entirely justified.
Yes, like the fuel taxes that are supposed to pay for road maintenance….
By 1 March we will know from second provisional tax returns what the impact was. Not going to be pretty
Not too many sins allowed these days. How about recovering some of the stolen billions to pay for the vaccines?
Wouldn’t a solution be to unban the sale of alcohol in licensed, on-sales premises only? Then make the establishments selling the alcohol responsible for preventing the over-consumption by their patrons just as they are responsible for ensuring social distancing. In this way, restaurants and hospitality businesses survive, jobs are retained and the state collects taxes. As it stands, the total ban gives support to the black market, tax-paying businesses close and the state functions even less effectively.