SA should cut corporate tax, raise VAT and maintain Covid-19 relief grants, while ensuring the poorest are not worse off, the Organisation for Economic Co-operation and Development (OECD) said in a report this week.
The government managed the Covid crisis relatively well and consumption and exports are supporting an economic recovery, the OECD said, but it warned inflation, which rose to 7.8% in July, and power cuts posed risks to growth.
SA's economy returned to its pre-pandemic size in the first quarter of this year, but rising prices and persistent power outages have held back growth as President Cyril Ramaphosa's promise to reform Eskom has failed to materialise.
“Our progress in tackling unemployment, poverty and inequality remains insufficient,” deputy finance minister David Masondo said on Thursday in a press conference at the launch of the report.
“Low levels of productivity and competitiveness are inhibiting growth,” he said, adding that was driving the government's focus on “structural reforms”.
The R350 monthly social relief grant introduced during the pandemic had provided crucial support for unemployed people and was “highly redistributive”, the OECD said.
However, finance minister Enoch Godongwana has previously warned making it permanent would be ruinously costly and investors have expressed concern about its fiscal affect.
The OECD is forecasting SA's economy to grow 1.8% in 2022, slightly below the Reserve Bank's prediction of 2%, and 1.3% in 2023, the same as the bank's forecast.
The government's R500bn support of the economy during the pandemic, equivalent to 10% of GDP, had helped growth rebound, Isabell Koske, the OECD's acting head of country studies, said at the press conference.
But she added: “The recovery has been interrupted by the consequences of Russia's invasion of Ukraine.”
Deductions are undermining the progressiveness of the tax system and reducing them would help reduce the country's high inequality and increase tax revenues, which are below the OECD average, Koske said.
Reuters
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