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.

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.

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