The government’s fiscal stance has shifted from one of consolidation to expansion, with its proposal to allocate R32.85bn for Covid-19 relief and to address the consequences of the recent unrest, the statutory body that advises it on fiscal issues said in parliament on Wednesday.
The Parliamentary Budget Office (PBO) which provides input to parliamentary committees on fiscal and economic issues also argued that the Treasury’s failure to adopt an expansionary fiscal stance in the first place contributed to the social insecurity and poverty that underlay the recent looting and destruction that devastated KwaZulu-Natal and Gauteng in July.
The Financial and Fiscal Commission (FFC) and the PBO made presentations to parliament’s select committee on appropriations on the Second Special Appropriation Bill which allocates R26.7bn for the R350 social relief of distress grant (SRD); R1.3bn to the department of trade, industry and competition for small business support; R700m to the SA National Defence Force for deployment; and R250m to the SA Police Service (SAP)S for deployment.
The Treasury has said that this extra spending will be funded by the tax bonanza arising from the commodity boom and would not affect the fiscal framework, which aims to reduce debt and debt service costs.
Treasury chief director of health and social development Mark Blecher told MPS that in the first five months of the fiscal year to end-August, R70bn more tax had been collected than that targeted — R47bn more corporate income tax, R12bn more personal income tax, R7bn more VAT and R3.9bn from the fuel levy. The reprioritisation of departmental budgets would not be necessary.
FFC research director Chen Tseng noted that the special appropriation of R32.85bn is double the amount of fiscal consolidation in the 2021 budget which reduced spending by R16.4bn.
“In other words the government has reversed here from a consolidatory fiscal stance for this financial year in the 2021 main budget at a significant margin towards a technically expansionary fiscal stance as it stands in this second special appropriation,” Tseng said.
“Essentially, we are spending more with this special appropriation for the good purposes of recovering from the unrest and the Covid-19 infection waves,” he said.
While accepting the need for the additional allocations to assist businesses and households, FFC programme manager Sasha Peters said the diversion of additional expenditure for this would undermine infrastructure and other expenditure supporting the nascent fiscal recovery and detract from the fiscal consolidation exercise aimed at reducing debt-servicing costs.
PBO director Dumisani Jantjies asked whether the special appropriations could have been avoided if the government had adopted a different fiscal stance that would have addressed the fragile social fabric and the effect of the Covid-19 pandemic.
A different fiscal framework would have allowed the government to provide continued relief to low-income households, which were already suffering before the pandemic and faced even greater hardship over the past 18 months. He also asked whether the economic destruction and political instability during the events in July could have been avoided if the fiscal relief been extended and fiscal consolidation had not forced the government to reduce spending on social security and economic transformation.
“Several years of fiscal consolidation have had a cumulative negative impact on employment, investment and economic growth,” Jantjies said. The fiscal choices made had increased social and political instability. The fiscal framework had to provide for increased spending.
“Even if the July 2021 events were initially orchestrated, the outcome shows us the political and economic damage of extreme poverty and the negative costs of extraordinary levels of inequality,” Jantjies said.
Blecher emphasised that trade-offs were necessary given high interest costs approaching R300bn a year. He noted that the Treasury had commissioned work on possible social relief measures to replace the SRD. The presidency was also working on a bigger antipoverty strategy.
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.