With the Treasury looking at ways to fund the large-scale rollout of vaccines, judge Dennis Davis has backed a one-off solidarity tax or surcharge.
His comments follow the news that the Treasury is contemplating several options to pay for the vaccine, including raising taxes, widening the budget deficit and reprioritising government spending — all of which are deemed hard choices in the context of SA’s already stretched finances.
But the benefits of finding additional money for vaccines far outweigh the cost of a protracted health crisis and repeated lockdowns that hamper business activity and strangle growth, say economists.
Though the government is in desperate financial straits, the economy cannot meaningfully recover until SA controls the Covid-19 pandemic, said Davis, who headed a committee established in 2013 to examine how the tax system aligns with the country’s growth, employment and fiscal objectives.
The new demands on the fiscus come at time when Covid-19 and associated lockdowns have battered the economy, with SA facing a revenue shortfall of R312.8bn.
The department of health estimates it will cost R20.6bn to vaccinate 67% of the population, the level that’s generally accepted as necessary to achieveso-called population immunity.
The Treasury said it would provide "detailed financing measures, including any announcements on tax changes" in next month’s budget.
A one-off "escalating" surcharge that progressively targets higher-income earners would be the most "equitable and efficient" solution, argued Davis.
A mechanism to ensure complete accountability and transparency for the use of the money would be required to avoid the kind of corruption and misuse of public funds that has been seen in areas such as the recent scandals around the procurement of personal protective equipment.
Michael Sachs, adjunct professor at the Southern Centre for Inequality Studies at Wits, said it would depend on the specific proposal, but in principle SA 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."
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 SA 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.
The DA’s Geordin Hill-Lewis, who estimated that the cost would come in closer to R15bn, said tax hikes would be "morally indefensible" in the face of the economic crisis and argued instead for further expenditure cuts and reprioritisation.
Sachs said 2021 "will see the biggest expenditure contraction in SA history" and reprioritisation is already "so large and unprecedented" that to add another R20bn would devastate the delivery of public services.
Assuming that the vaccine contains the virus and prevents further damaging restrictions on the economy and society, then SA "has to find the money to do it", said Sanlam Investment chief economist Arthur Kamp.
All three options — raising tax, cutting spending elsewhere or raising additional debt — are possibilities, and the Treasury may settle on some kind of combination of these, said Kamp.
LISTEN | Dr Anban Pillay answers our vaccine questions
Subscribe for free: iono.fm | Spotify | Apple Podcasts | Pocket Casts | Player.fm
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.