‘Tax hikes not needed to fund vaccine’

Budget revenue overrun of a conservatively estimated R45.8 billion would suffice to fund the rollout of COVID-19 vaccinations in South Africa – twice over

News that National Treasury is considering tax hikes as one of the ways to finance the country’s COVID-19 vaccine programme is baffling, according to Old Mutual Investment Group (OMIG) Chief Economist Johann Els. Not only does the suggestion run counter to government’s stated goal of cutting expenses rather than raising taxes, but Treasury may already have the means to cover this cost, he says.

“Something that hasn’t yet got the attention I think it deserves is that the latest figures from National Treasury show that we’re heading for a budget overrun. This is mainly because of higher-than-anticipated tax revenue last year, with the surplus possibly amounting to as much as R106 billion.

Figure 1 Old Mutual Investment Group estimates a revenue surplus of R45,8 billion. The Department of Health estimates that the country’s COVID-19 vaccination programme could cost R20 billion, suggesting that the budget overrun could be used to fund the vaccination rollout instead of raising taxes.

“Should even a portion of this windfall be realised, I see no need for government to raise taxes in this case, as has been suggested as a means to fund the vaccine rollout.”

The Department of Health has estimated that the country’s COVID-19 vaccine programme could cost up to R20 billion, with other Government estimates suggesting even lower numbers. In either event, the budget overrun could cover the cost of vaccinating the entire country, which is essential to accelerating economic recovery.

Els concedes that National Treasury might want to use this revenue to reduce the budget deficit as part of its fiscal consolidation plans. However, it has stated that this programme would focus on expenditure cuts and not tax increases.

“We were told last year that tax increases this year would aim to raise another R5 billion, which is small in the bigger scheme of total tax revenue. So, that is not unexpected or unreasonable.

“But it makes no sense to raise taxes when this is neither needed nor in line with their long-term plan. If anything, a budget overrun would be a welcome boon for the government to tackle the coronavirus through a comprehensive vaccine programme effectively,” Els says.

He adds that the extra revenue from tax increases would not only be insufficient to cover the vaccine costs, but raising taxes when the economy is so weak could be politically treacherous.

Even in the absence of an unexpected budget overrun, many other avenues are open to the government to roll out an effective vaccine programme, Els points out.

One route that has not yet been explored fully is to take up offers of assistance from the private sector to help with resources and procurement of vaccines to speed up the rollout.

“The President has spoken for years about public-private partnerships, but now it seems they want to go it alone,” Els says. “The private sector is ready and willing to help wherever it can, and can be a powerful partner with government to end this pandemic as quickly as possible.”