Wealth tax and dip into pensions suggested for South Africa
The Parliamentary Budget Office (PBO) says that the National Treasury’s policy framework of fiscal consolidation and austerity measures has failed to deliver the expected results and recommends that it take a different approach.
Such as implementing heavier taxes on the wealthy and using public fund reserves—such as the Unemployment Insurance Fund (UIF) or the Government Employees Pension Fund (GEPF)—for investment.
The core function of the Parliamentary Budget Office is to support the parliamentary finance committees by undertaking research and analysis. The group presents its findings and recommendations to parliament, including pre-budget reviews.
The group presented its analysis ahead of the 2024 Medium-Term Budget Policy Statement (MTBPS) next week. It remained critical of the National Treasury’s approach to resolving South Africa’s economic crises, specifically its consolidation policy.
Economists and analysts widely anticipate finance minister Enoch Godongwana’s re-commitment to this policy when he delivers his address on 30 October.
The Bureau for Economic Research (BER) said that the minister faces a tough time balancing the country’s low growth prospects with burgeoning spending requirements, such as the growing public wage bill, but expects that the message will be one of austerity.
Economists at Nedbank agree, saying that the challenge comes from the higher public sector wage bill and debt service costs, which need to be contained.
“To achieve this, the government must contain spending growth in most areas and cut spending in non-essential areas.
“The Treasury has committed to shielding social programmes and infrastructure investment from expenditure cuts. However, it is tough to see the government achieving notable reductions in non-wage expenditure without spending restrictions on some critical functions,” the finance group said.
Tax the rich
The PBO heavily criticised the Treasury’s cost-cutting stance, saying that key indicators such as unemployment, poverty, and inequality, along with overall economic performance and debt-to-GDP ratios, have not improved since the initiation of fiscal consolidation.
Instead, there have been indications of increased social distress, deteriorating service delivery and adverse conditions for the poor.
“The ongoing fiscal consolidation framework, originally intended as a temporary measure, is adversely affecting the capacity and quality of essential services, including health and education,” it said.
“Fiscal consolidation, recognized as an austerity measure, has been linked to poor economic growth and increased social distress on a global scale.”
In 2023, the PBO noted that 14 portfolio committees recommended increased budget allocations to address emerging priorities and enhance the effectiveness of public spending. However, due to the Treasury’s austerity measures, only 3 budgets were adjusted—none in line with the recommendations.
The PBO said that the Treasury should adopt an “alternative economic policy framework focused on human rights” to enhance long-term growth prospects and reduce the debt-to-GDP ratio over time.
This involves increasing social spending (social grants) to cover more people with greater security (ie, bigger grant values) while pushing investment into public projects.
To achieve this, the office said that the Treasury should look to expand progressive tax reforms and redirect public sector reserves such as government pension and insurance funds.
Expanded tax reforms would include implementing taxes that target high-income earners, multinational corporations, and other wealth taxes “to increase government revenue without burdening the poor,” the PBO said.
For public investment, it said that the Treasury should use the recent deployment of the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) as an example of what can be done with other funds.
“The government is always able to leverage its full public sector balance sheet, including the Unemployment Insurance Fund (UIF) reserves and the Government Employees Pension Fund (GEPF), to fund a targeted fiscal stimulus for the economy,” it said.
In addition, the office said that the government should invest in job creation programmes, particularly in the public sector, such as an expanded public works programme and presidential employment stimulus as a way to combat high levels of unemployment.
The PBO said that 2024 MTBPS must prioritize long-term growth strategies over short-term fiscal targets, adding that “structural reforms proposed by the Treasury may deepen market concentration and inequality” if continued.
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