Here's how to pay for Covid-19 vaccine without hiking tax: Economists

18 January 2021 - 12:59
Higher taxes for individuals and on booze? Both are being mulled by government to help fund Covid-19 vaccines. Economists beg to differ.
Higher taxes for individuals and on booze? Both are being mulled by government to help fund Covid-19 vaccines. Economists beg to differ.
Image: 123RF/LEON SWART

The government should raise funds by other means, such as selling some of the state-owned enterprises, before considering raising taxes to fund the purchase of Covid-19 vaccines.

This is the view of two economists in reaction to a report that the National Treasury is considering a range of possible funding mechanisms to pay for the biggest vaccination drive in SA's history.

Treasury director-general Dondo-Mogajane told Business Day it was exploring potential financing options for Covid-19 vaccines, including raising taxes, widening the budget deficit and reprioritising government spending. The department of health has estimated a maximum cost of R20bn to vaccinate the entire country, while more recent internal estimates done by the Treasury are far lower than this, the newspaper said.

Economist Mike Schussler said the country's economy was so weak that the option to raise taxes was not an option.

Schussler said widening the budget deficit could put the country at risk of further credit rating downgrades.

He said raising taxes now in an economy hard hit by load-shedding and Covid-19 was not advisable.

“We need to look at this very closely. The fourth option that Treasury should look at is to look at what government can sell.”

This included the sale of some state-owned entities and the right to use some of the rail network by private operators.

“Many businesses are not making money. To raise taxes on individuals, businesses or increasing value added tax is going to be very counterproductive in my view,” Schussler said.

The vaccine is far more important than saving SAA. Reprioritising must be option one.
Economist Dawie Roodt

Another economist, Dawie Roodt, said the first prize for the Treasury to fund the vaccine purchase drive was reprioritising government spending by cutting expenditure in some areas.

“There are plenty of places where we should cut spending. The vaccine is far more important than saving SAA. Reprioritising must be option one.”

He said the second option could be to increase taxes, but this was the least favourable avenue.

Another option could be to borrow more money.

Roodt said there are alternatives, however, such as changing the legislation to allow private medical funds to assist in paying for this.

Roodt said another option would be to request other countries for grants to help pay for the vaccines.

“The best way [of funding the purchases] is by cutting back on spending. I can think of many places.”

Roodt mentioned the cost of bailing out state-owned entities and reducing the public sector wage bill.

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