The suggestion last week by South African Treasury director general Dondo Mogajane said the government was considering a tax increase to fund the COVID vaccine roll-out has been slated by economists in a report in The Sunday Independent.
Professor Chris Malikane, director of the Macro-Financial Analysis Group at the School of Economics and Business at Wits University, reportedly told the newspaper the tax increase in a recession cannot be justified in both theory and policy.
“No well-trained economist would ever suggest raising taxes in a recession. It is the same as cutting spending in a recession, it is as horrible as it is incompetent. Any student of economics would be horrified by this proposal,” said Malikane.
ETM Analytics MD George Glynos agreed, adding that it was ridiculous that the government was bailing out the SOEs such as SAA but struggling to find funding for the vaccines. Glynos said it was insulting that South Africans were forced to pay for service delivery that never materialises to the degree promised and to also deal with the blatant disrespect by the politicians of what it takes for the private sector to generate enough productivity of which they fund the government through taxes.
“The alternatives would be to drastically shrink the size of the government starting with the public sector wage bill and to embark on a mass privatisation aimed at paying down South Africa’s rapidly rising debt,” he said.
Lara Hodes, an economist at Investec, said: “The fiscus is highly constrained. We know that increasing personal income taxes, especially during fragile economic times, is not optimal. Additionally, South Africa cannot continue borrowing unsustainably, as it risks an increasing chance of debt default and bankruptcy. A further reprioritisation of spending from non-critical areas should rather be considered.”
[link url="https://www.iol.co.za/news/politics/horrible-and-incompetent-economists-slam-governments-plan-to-increase-tax-517137cb-489b-463d-86fd-96d3a2a19ef6"]Full report in The Sunday Independent[/link]