Ramaphosa stimulus plan to cost R43bn
• Figure discussed at lekgotla also includes funds needed to assist ailing state-owned entities
The government will need R43bn to fund, among other things, the stimulus package announced by President Cyril Ramaphosa two weeks ago, aimed at stimulating an economy teetering on the brink of recession.
This is according to sources familiar with the discussions around the package at a cabinet lekgotla last week, the outcomes of which are set to inform Finance Minister Nhlanhla Nene’s medium-term budget policy statement in October.
No further detail has yet been made available, but the package would be based on “existing budgetary resources and the pursuit of new investments while remaining committed to fiscal prudence”, Ramaphosa said at the time of the announcement.
The figure discussed at the lekgotla last week was not limited to the stimulus package, but also included funds needed to assist ailing state-owned entities, sources said on Sunday.
The amount is lower than previous reports following the lekgotla. On Friday, the Mail & Guardian reported that Nene had told the lekgotla that R48bn would be needed for the stimulus package, while the Sunday Times reported that R59bn would be used to bail out stateowned entities in financial distress. These include the SABC, the post office and SAA.
Ramaphosa announced that the stimulus package — equal to only about a quarter of government’s budgeted interest bill for the current financial year – would include increased investment in public infrastructure; increased support for entrepreneurship and “employment opportunities” for women, youth and small and medium businesses; trade support measures for sectors such as sugar, ensuring that procurement is localised; and training for young,
unemployed South Africans.
While the size of the planned package seems insignificant, accounting for less than 3% of government’s budgeted expenditure this year, Nene has limited room to find the money. With GDP contracting 2.2% in the first quarter of 2018, the Treasury’s growth forecast of 1.5% for 2018, announced in February, is looking increasingly unachievable. The Reserve Bank has cut its growth forecast to 1.2%.
Economists have warned that the lower-than-expected growth will lead to tax revenue shortfalls, with Citibank’s Gina Schoeman saying shortfalls of about R19bn in personal income tax and R8bn in corporate income tax versus the full-year estimates could be expected.
Government’s financial constraints were also a consideration of the independent panel of experts that has recommended that white bread, bread flour, cake flour, sanitary products, school uniforms and nappies for babies and adults be zero-rated for VAT. This would mean an estimated loss of VAT revenue of about R4bn. The 19 items that are zero-rated represented a loss to the fiscus of about R23bn in 2015-16, according to the latest Treasury estimate.
Commenting on the panel’s report, judge Dennis Davis, who headed the Davis Tax Committee, said the Treasury would face a tricky challenge in implementing the proposed VAT relief in the fiscally constrained context of low economic growth. He said the panel had done the best job it could considering it had “very narrow wriggle room”, faced as it was with a parlous fiscal situation.
Davis said it was unlikely the Treasury would meet its budget targets this year because of the decline in the growth rate. He said the committee had been asked to alleviate the negative effects of the one-percentagepoint hike in the VAT “in circumstances where there is no money to alleviate anything”.
DA deputy finance spokesman Alf Lees said the proposals were “underwhelming” and would do little to cushion poor households from the VAT hike, which should be scrapped.