DENNIS DAVIS: Fix the tax net holes
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Last week, that very astute financial journalist Claire Bisseker wrote a devastating analysis in the FM concerning the state of the economy (, and the danger that we have passed the point where recovery is still possible.
Take but three indicators she cited: between 2009 and this year, economic growth averaged no more than 1.3%; the debt-to-GDP ratio in 2009 was 26%, compared with 81% for 2020/2021; and before Covid-19 hit the economy with a hammer blow, unemployment had reached 30%, with 16.3-million employed and 18-million on social grants.
Add to that the reduction in tax collection from the February budget figure of R1.43-trillion to R1.12-trillion — a drop of R310bn — and it’s clear that, unless you live in the make-believe world of Donald Trump, the economy is in the direst of straits.
Of course, the ultimate solution lies in a reconfiguration of the economy and growth of more than 3%. That requires immediate action to implement a few key initiatives, and a credible roadmap to be followed thereafter.
However, all that is on the table, other than a veritable library of policy proposals, is a commitment to cut expenditure by R230bn and to raise R15bn in taxes over the next two years.
While it is possible to raise R15bn, the question of cutting R230bn in expenditure over two years is far more challenging.
It also raises the vexed debate about austerity.
On this, the observation of Martin Sandbu in the Financial Times last week is salutary: "It is much harder to imagine significant cuts to public budgets today. Partly because the damage from past cuts is now visible and further ones are more difficult to justify. Partly because the pandemic itself focuses the political spotlight on inadequate public services and underpaid public sector and other key workers. Much more than a decade ago, budget shortfalls will now have to be covered by tax rises. There is no reason to expect those who benefited from the ‘fiscal responsibility’ of the past to give up the fight for their interests.
"If significant tax rises are indeed inevitable, the fight will move to where the heavier tax burden falls: which taxes go up and by how much. Expect this to be the fiercest battle over economic policy if, and when, we return to some semblance of normality."
This observation is surely applicable to SA: we should try to reduce current expenditure ...
Take but three indicators she cited: between 2009 and this year, economic growth averaged no more than 1.3%; the debt-to-GDP ratio in 2009 was 26%, compared with 81% for 2020/2021; and before Covid-19 hit the economy with a hammer blow, unemployment had reached 30%, with 16.3-million employed and 18-million on social grants.
Add to that the reduction in tax collection from the February budget figure of R1.43-trillion to R1.12-trillion — a drop of R310bn — and it’s clear that, unless you live in the make-believe world of Donald Trump, the economy is in the direst of straits.
Of course, the ultimate solution lies in a reconfiguration of the economy and growth of more than 3%. That requires immediate action to implement a few key initiatives, and a credible roadmap to be followed thereafter.
However, all that is on the table, other than a veritable library of policy proposals, is a commitment to cut expenditure by R230bn and to raise R15bn in taxes over the next two years.
While it is possible to raise R15bn, the question of cutting R230bn in expenditure over two years is far more challenging.
It also raises the vexed debate about austerity.
On this, the observation of Martin Sandbu in the Financial Times last week is salutary: "It is much harder to imagine significant cuts to public budgets today. Partly because the damage from past cuts is now visible and further ones are more difficult to justify. Partly because the pandemic itself focuses the political spotlight on inadequate public services and underpaid public sector and other key workers. Much more than a decade ago, budget shortfalls will now have to be covered by tax rises. There is no reason to expect those who benefited from the ‘fiscal responsibility’ of the past to give up the fight for their interests.
"If significant tax rises are indeed inevitable, the fight will move to where the heavier tax burden falls: which taxes go up and by how much. Expect this to be the fiercest battle over economic policy if, and when, we return to some semblance of normality."
This observation is surely applicable to SA: we should try to reduce current expenditure ...
