Expect a big jump in taxes to pay for South Africa’s coronavirus support plan: Dawie Roodt

 ·23 Apr 2020

While the contents of South Africa’s R500 billion plan to help South Africa coronavirus pandemic should be welcomed, the context surrounding the package should be cause for concern, says chief economist at the Efficient Group Dawie Roodt.

Key to this is the issue that South Africa’s state machinery is ‘characterised by corruption and inefficiency’, and the fact that South Africans will likely pay for the support package through taxes and other means in the coming years, he said.

“The measures that were announced will inevitably mean more state interventions and more power to politicians and bureaucrats; power that is unlikely to be rescinded.

“Radically reducing the chance that any support package will be implemented successfully; this does not bode well.”

Roodt added that the country’s economy was already in ‘deep trouble’ before the effects of the coronavirus were felt, primarily because of mismanagement and looting of state resources by the bureaucratic elite.

“This large scale and long-term plundering has left very little spare capacity to manage a crisis of these proportions, which means the financial measures announced will have a long-lasting and mostly negative impact on the state’s finances for many years to come,” he said.

“This, inevitably, means a significant increase in future taxes or a reduction in state spending which, in an environment of increasing need, will become even more politically unpalatable.”

He added that while the measures toward supporting the needy will go a long way, there are few things as permanent as a temporary increase in ‘support’.

Roodt said that he was also concerned about Ramaphosa’s use of loaded terms such as ‘a new social compact’ and ‘restructuring’.

“I am afraid we are probably entering a period of prolonged economic hardship, continued weakness in our currency, higher taxes, and more state intervention, marked and aggravated by an undermining of liberty and safety.”

Read: South Africa’s R500 billion coronavirus plan in numbers

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