Ramaphosa’s economic advisory council proposes tax hikes for South Africa

Image credit: Twitter/The Presidency

President Cyril Ramaphosa’s Economic Advisory Council has proposed tax increases to help South Africa emerge from its recession.

The Council submitted a 100-page document to Ramaphosa as part of his efforts to come up with an economic recovery plan, Bloomberg reported on Monday.

Solidarity tax

It proposed fuel levy and estate tax increases as well as a three-year “solidarity tax” for South Africa’s higher-income earners.

At the same time, the Council warned against spending cuts, which it said could hamper economic growth and have other adverse effects.

“We risk having nurses and doctors being unable to provide health services because of medicine stock-outs, teachers paid but with no learning materials or classrooms, [and] police officials grounded in stations because there is not enough petrol to go out on patrol,” it said.

In this regard, the Council suggested that it may be “undesirable” for the government to attempt to meet the debt stabilisation targets announced by Finance Minister Tito Mboweni earlier this year.

Gross national debt will be around R4 trillion, or 81.8 per cent of GDP, by the end of the 2020/21 fiscal year, Mboweni said in June.

“Government will narrow the [budget] deficit and stabilise debt at 87.4 percent of GDP in 2023/24. Cabinet has also adopted a target of a primary surplus by 2023/24,” he added.

Stimulus package

However, Ramaphosa’s Council said the government should boost the economic stimulus package from 11 percent to 15 percent of GDP. It should also establish a business rescue fund to aid businesses affected by the COVID-19 pandemic.

The Council also urged the SA Reserve Bank to consider using targeted long-term refinancing. This would offer local banks long-term funding on attractive terms to increase lending.

With regard to Eskom, the Council urged the government to mandate the embattled utility to raise “large-scale concessionary climate-finance from the international community.” Eskom would in turn hasten the closure of its coal-fired power stations.

Ramaphosa appointed the Council in September 2019. It consists of local and international economists and technical experts and is supported by a secretariat from the National Treasury.

The President has called a joint sitting of Parliament on Thursday to present his economic recovery plan.

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