Economists warn govt against further tax hikes to pay for COVID vaccines

National Treasury has suggested that higher taxes could be one way of financing the vaccines, which are critical for saving lives.

FILE: Treasury Director-General Dondo Mogajane at an inter-ministerial briefing on the coronavirus on 24 March 2020. Picture: @TreasuryRSA/Twitter.

CAPE TOWN - As the government scrambles to find funds to pay for COVID-19 vaccines, economists are warning against further tax hikes.

National Treasury has suggested that higher taxes could be one way of financing the vaccines, which are critical for saving lives.

Other options spelt out by Treasury director general Dondo Mogajane, in an interview on 702 on Tuesday, include wider reprioritisation of department spending and increasing the budget deficit by borrowing.

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It’s been estimated that the government needs to find about R20 billion to vaccinate two-thirds of the country’s population in order to achieve herd immunity against the virus.

Mogajane said the vaccines would be paid for as soon as they arrived while the funds would be found later on. But the issue is where the money will come from, and at what cost.

Economist Mike Schussler said: “If we increase taxes, it is really going to hurt – in a time when many have lost their jobs, businesses have been locked down and we have load shedding. So, to increase taxes on top of that will be very difficult for the economy.”

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Economist Thabi Leoka agreed: “You are essentially taxing a population that has been very constrained and under pressure – huge job losses and huge cutbacks by companies and you are then increasing that at a time when consumers and the economy are struggling. It’s going to put further strain on the economy. I think that’s a really bad option.”

Schussler said South Africans were already overtaxed: “We have one of the highest personal and company tax burdens in the world and increasing VAT is probably not a great way [to go] for a political election year.”

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He said the government should fund vaccines by selling off state assets such as wireless spectrum and profitable state-owned companies.

Leoka said this was one route, but added there was also room for further cuts to government spending, especially in departments whose activities have been curtailed by the lockdown, such as sport and recreation.

“We haven’t been efficient in cutting the fat. We have to cut the fat in areas that can result in an economic multiplier, where we can actually grow the economy and employ people. We need to cut in areas where it is a nice to have but it’s not crucial.”

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Schussler said further budget cuts could hit service delivery: “Government is going to have to realise that increasing taxes or the budget deficit or decreasing actual spending is probably not the sane thing to do when the economy is under so much pressure."

He said the government had many assets to sell – from spectrum, harbours, airports, to mineral rights and profitable state-owned companies.

“Yes, they might have to look for financing for six or eight months if they do sell something, but it might make a lot more sense.”

On increasing the country’s debt, Leoka said the question was always affordability. South Africa is already borrowing money to pay interest on its R4 trillion debt.

“Will we be able to afford paying back the debt?”

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