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President Ramaphosa rose to his most challenging occasion in announcing a whopping R500 billion Covid-19 support package. Indeed, this next week will see the real hardships of a stringent five-week lockdown really take effect.
With a rising tide of social unrest, hunger and potential social disruption, the package had to quickly address the needs of the most destitute.
Putting cash into the pockets of the hungry was the most straightforward solution in the short term. Adding support for SMMEs and larger business is critical too to stem the tide of layoffs. All of this is costly.
While the country awaits the Appropriation Budget from Tito Mboweni to explain the sourcing of the swathe of relief benefits, the raising of the capital will, in itself, raise a host of broader questions as yet unresolved.
Firstly, these amounts will require a substantial re-prioritisation of existing spending just presented 60 days ago in the 2020/21 Budget. An amount of R130 billion for this purpose can affect domestic infrastructure spend at a time when such a build programme was one of the few expansionary aspects still open to government.
Ultimately, the support package is designed to save as many jobs as possible – but its funding also has to save as many jobs for the future too. That’s the tough part.
Wealth tax?
Secondly, while there have been temporary tax relief to the tune of R70 billion, someone has to pay. We will wait for details as to whether any type of ‘wealth’ tax is introduced to offset some of this benefit.
A further tax on monied South Africans has long been mooted – amongst a sector of the broader ANC Alliance, and whilst this was largely put on the back burner (along with broader tax increases) in the February Budget, calls for the imposition of this as part of the crisis measures may find favour.
How this issue plays out will also be an indication of the shifting sands of power and support that Tito Mboweni has – and perhaps too – that of President Ramaphosa himself. Should the funding not be accompanied by any personal tax increases, it will be seen as a victory for the Mboweni faction in line with the philosophy of the February Budget.
Certainly, any debate about a rise in VAT (still rumoured only 60 days ago) is no longer an option. And, attempts to kickstart the economy will also mitigate for lower corporate taxes keeping that part of government’s February philosophies largely in-tact.
Similarly, President Ramaphosa broached another vexed issue within his own party – that of taking money from the World Bank and IMF.
Indeed, accessing the Rapid Financing Instrument (and similar Credit Facility) would enable South Africa to potentially cover a large proportion of these costs. It would also be mixed in with more politically acceptable loans from the African Development Bank and New Development Bank (BRICS Bank).
Again, the ANC’s own historic reluctance to even consider this now comes into sharp focus. For the Ramaphosa-faction, taking the cash will also be seen as a victory although the lending agencies’ normal conditionality will largely be suspended at least at this juncture making it much easier to sell within the broader Alliance.
Faced with an increasingly threatened social-fabric – and potential political fall-out - the ANC now faces the stark choice of stabilising the social unease or sticking to moribund philosophies.
Lastly, President Ramaphosa spoke broadly about committing to structural reforms as part of the growth path to boost the country into the future. This is critical. Any emergency spending plan has to be predicated on the foundations of growth via policy reform. Just announcing large disbursements is clearly popular amongst those in need, but it requires a sustainable future path to offset the cost and forge an economic fightback well into the years to come.
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Make no mistake, when you inject an additional 10% of unplanned expenditure into a relief and stimulus package, you also understand the payback needed over an extended period of time. And this payback simply has to be based on a growth strategy – otherwise you are perpetuating dependency.
Unfortunately, the last decade as seen the failure of growth policies and its replacement with precisely the dependency seen on social income grants for millions of South Africans.
The rescue packages amplifies this dependency in necessary short-term measures. But the danger is that without the broad policy reforms – and thereby having the courage to confront the unresolved political bottlenecks within the ANC – the president is in danger of extending a reliance on the State for the survival of its citizenry in even more risky and fragile post-Covid conditions.
In welcoming this R500-billion package, an acknowledgement of the now critical needs to be more adventurous in economic policy and philosophy needs to be made. Covid-19 has placed the need for such reforms on steroids.
And the funding of the crisis will require much more than simply becoming a debtor nation. South Africa therefore must choose if it wants to be a country that falls into a debt trap or can creatively re-prioritise not only its spending but its policy framework to entice and encourage inward investment as part of a dynamic re-industrialisation re-awakening.
Covid-19 had made this an even tougher environment than before since a reluctance to invest in riskier jurisdictions does not play to the peculiarities of the ANC factional dynamics.
The best weapon to pay for the recovery and management of this crisis will be through economic growth. And for that, the ways of the past require a major turnaround. So, while big numbers can alleviate suffering in the short-term, the medium-term strategy will be essential in our sustained recovery and progress.
* Views expressed are the author's own.
