Treasury looks to tax hike to pay for SA’s vaccines

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As the government’s efforts to secure supplies of COVID-19 vaccines find growing success, the Treasury is considering raising taxes as one of several possible mechanisms to fund the biggest vaccination drive in South Africa’s history. More than 30m doses have so far been promised in direct deals with vaccine manufacturers and agreements with multilateral agencies.

Treasury director general Dondo Mogajane said the government viewed COVID-19 vaccines as a public good and was committed to financing their rollout, with or without support from the private sector and medical schemes.

“South Africa will not take us seriously if I can find money for SAA but not for vaccines,” he is quoted in a TimesLIVE report as saying.

The Health Department has estimated a maximum cost of R20bn to vaccinate the entire country, while more recent internal estimates done by the Treasury are far lower than this.

The Treasury is exploring a range of potential financing options for COVID-19 vaccines, including raising taxes, widening the budget deficit and reprioritising government spending.

The government also has scope to use provisions in section 16 of the Public Finance Management Act, which allows it to make appropriate funds available through Parliament in an emergency, outside of the budget process. ‘In my view this is a good case for emergency funding, because this pandemic can kill, and kill quickly,’’said Mogajane.

 

Judge Dennis Davis has backed a one-off solidarity tax or surcharge, says a Business Day report. A one-off “escalating” surcharge that progressively targets higher-income earners would be the most “equitable and efficient” solution, argued Davis.

Michael Sachs, adjunct professor at the Southern Centre for Inequality Studies at Wits University, said it would depend on the specific proposal, but in principle South Africa should borrow more to pay for the vaccine and it should be excluded from the normal fiscal framework ‘as an exceptional public good’.

In the context of this year’s R775bn borrowing requirement, there does not seem to be a good argument against borrowing an additional R20bn, unless it threatens to precipitate a debt crisis, said Sachs, a former head of the Treasury’s budget office. “The returns from the vaccine are so large, there doesn’t seem to be a strong case for why you would not borrow (more),” he said. “It is hard to argue that R20bn alone, which is so clearly required, is going to be the straw that breaks the camel’s back.” It is unlikely that the markets would read such a step as a departure by the Treasury from its commitment to fiscal discipline, he added.

Though Sachs is not against additional taxes, if South Africa were to consider a solidarity tax it should be aimed at addressing the exceptional nature of the wider COVID-19 crisis, rather than be targeted at vaccine acquisition. A solidarity tax should be considered in the context of “exceptional expenditure” over a period of a few years at a time of very low economic growth, which has created a “massive borrowing requirement and raises the potential for fiscal distress”, he said. “It’s a way of saying ‘how do we share the burden in this exceptional period’,” he said.

 

Full TimesLIVE report

 

Full Business Day report (subscription needed)

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