Dire record on budget choices
If the laundry list of budget cuts made to bail out SAA was unable to demonstrate the costs of bad political choices, it seems unlikely that the raging debate on how SA is to pay for its vaccine rollout will.
This week the Treasury revealed some of the thorny options for finding the money to inoculate the country: widen the deficit and add to SA’s crippling debt; increase taxes; or cut budgets even further, risking service delivery that is already parlous.
None of these choices is easy. But not securing vaccines, and leaving lives and livelihoods at the mercy of the pandemic, is unconscionable.
The threat of tax hikes has drawn special ire. Judge Dennis Davis, who headed a committee looking into the overhaul of SA’s tax system, backs the idea that the most privileged can and should take a one-off hit to help pay for vaccines, covering those who cannot. Lest we forget, tax hikes are already on the way, with R40bn pencilled in over the next few years, starting with R5bn in the 2021/2022 fiscal year. But in the face of billions wasted at state-owned enterprises and the government’s dogged but baffling effort to save SAA, the outrage over taxpayers footing an even bigger bill for vaccines is no surprise.
It is also galling in light of the Treasury’s own argument that hikes in recent years have generated less revenue than expected, and there is also evidence that they weigh on growth.
There is the option to borrow more. At a cost of R20bn — going on health department estimates — this is less than the government issues in bonds and Treasury bills each week. And the returns that will come from taking on this debt — securing vaccines and thereby the health of citizens and the economy — are deemed to far outweigh the costs.
Economists argue that the state could look for concessional finance from multilateral institutions to cover this emergency funding. IMF chief Kristalina Georgieva has told Business Day the country can access cheaper sources of financing. Still, taking on additional debt is not something to be decided lightly, especially with the ratings agencies waiting in the wings. Unlike a progressively targeted tax, everyone in the economy pays when the cost of borrowing goes up.
Reprioritising spending is the preferred option for civil society and opposition parties, especially if it means rationalising state departments and the many state-owned companies and agencies bloating government. It would certainly be a prime opportunity to start on the much-vaunted zero-based budgeting approach to find the money.
In this vein, is this also not an opportunity then to re-examine the foolhardy trade-offs made to save SAA? The R10.5bn granted in October will do little more than to make the airline a vaguely more attractive candidate to a strategic equity partner. But in an environment where the pandemic has left even the best aviation businesses struggling, nobody expects this lame duck to soar. Setting aside the technical problems, such as the bill apportioning money to SAA having already been signed, a decision to reverse the R10.5bn payment would rely on many of the same political principals who for a decade shrugged at unaffordable public sector wage increases to keep party political allies onside. They turned a blind eye to the corruption and hollowing out of institutions, and it was they who came within a hair’s breadth of yoking SA’s children to a catastrophically expensive nuclear future.
If a budget is ultimately a series of political choices, SA’s leaders have an atrocious record when it comes to making the right ones. It makes it most likely that SA will pay for vaccines through a combination of the three options. All come with some pain. A compromise package can spread it around and will no doubt ensure that President Cyril Ramaphosa’s cabinet can avoid making the kind of cuts that truly tackle excess or strip away avenues for political patronage. Meanwhile, it seems citizens will continue to be stalked by the only two certainties in life: death and taxes.
EVERYONE IN THE ECONOMY PAYS WHEN THE COST OF BORROWING GOES UP