Any talk of fiscal expansion stepping into the breach when monetary policy authorities run out of the road is, at best, wishful thinking.
The only two developed countries that do have fiscal space are Germany, with a debt to GDP ratio of just under 60% and Australia, where the need for fiscal stimulus was touted this week by Reserve Bank of Australia Governor Philip Lowe. However, Germany’s relatively more favourable fiscal position notwithstanding, the most responsible way forward for the vast majority of developed, emerging and frontier economies would be to focus on fiscal consolidation so they can build up a buffer in the event of a real recession. They should do this by keeping a tight rein on government spending and redirecting spending to investments in tangible assets, preferably infrastructure, suggests Sanlam Investments economist Arthur Kamp.
However, many issues stand in the way of realising a wealth tax’s full potential, with avoidance at the front of the queue and the complexity and administrative burden close behind. Also, a wealth tax could very well have an impact on the incentive to save and create wealth. These emergency SOE rescue efforts will put significant pressure on South Africa’s already unsustainable fiscal situation. Kamp sees the Budget deficit this year potentially coming in between 5.5% and 6% of GDP versus the 4.7% budgeted in February.Short of a tremendous leap in growth, we are not going to get the revenue numbers budgeted for in February,” says Kamp.
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