Social welfare: Investment not debt, taxation and consumption - The Mail & Guardian

  • 📰 mailandguardian
  • ⏱ Reading Time:
  • 114 sec. here
  • 3 min. at publisher
  • 📊 Quality Score:
  • News: 49%
  • Publisher: 92%

South Africa News News

South Africa South Africa Latest News,South Africa South Africa Headlines

A rebuttal to Colin Coleman’s remarks at the National Investment Dialogue suggests South Africa certainly has a debt problem

Few questionable economic analyses and disproven solutions to South Africa’s economic and socioeconomic problems deserve responses. However, when the writer is an experienced business leader of Colin Coleman’s calibre, with a history of leading business at the heart of South Africa’s economy, a response backed by facts and objective realities of the country’s economic problems is warranted. column of 3 October, titled “SA doesn’t have a debt problem. It has a growth problem – and a solution”.

First, let me provide the reality of South Africa’s growth track record relative to its true peers, and not just the US and China, economies that are very different to ours, which Coleman uses to justify a state-led growth. From 2000 to 2009, South Africa’s trading partners’ trade-weighted economic growth averaged 4.5% while the simple average growth was 4.2%.

One of the most troubling views from Coleman, when he says South Africa now has the wind at our backs globally, has to do with his commodity price outlook. He says the commodity price cycle we have seen since the recovery from the Covid-19 pandemic is not a flash in the pan, nor is it a post-pandemic bounce-back, but a secular long-term response to a changing global economy driven by climate change.

To base a commitment to permanent spending like an employment incentive scheme on a source of economic growth and tax revenues that is highly uncertain, like a future commodity super cycle, will be a major policy mistake. The tragedy of this view is that politicians facing local government elections in less than a month and a national general election within two years, with a misfiring economy and record high unemployment, will find that idea appealing.

Economic growth might not actually rise as projected and the leakage from the imports will mean tax revenue collections will not rise enough to self-finance the increase in debt. In line with this, the other implication of the revised national accounts is that tax buoyancy, the amount of tax generated for each rand growth in the economy, is lower than previously thought, which further deems the view that the stimulus can be self-financing in the long run.

By fiscal year 2019-20, social spending had doubled to R1.4-trillion, accounting for 76% of total consolidated spending, which is a decline as a share of total spending. This resulted in South Africa’s credit ratings being downgraded to sub-investment, and consequently debt-servicing costs significantly rose from R66.2-billion in fiscal year 2010-11 to R204.8-billion by fiscal year 2019-20. The share of debt service costs in the total consolidated spending went from 7.5% to 11.2% over the same period and is projected to rise to 16.2% by 2023-24.

 

Thank you for your comment. Your comment will be published after being reviewed.
Please try again later.
We have summarized this news so that you can read it quickly. If you are interested in the news, you can read the full text here. Read more:

 /  🏆 2. in ZA

South Africa South Africa Latest News, South Africa South Africa Headlines

Similar News:You can also read news stories similar to this one that we have collected from other news sources.

Sanlam’s takeover of Absa investment unit will create BEE asset management giantAbsa Financial Service will exchange its investment business for a 17.5% stake in Sanlam Investment Holdings
Source: BDliveSA - 🏆 12. / 63 Read more »

Mboweni calls on business to adopt sustainable and socially responsible policies - The Mail & GuardianDemands were made on the budget and the result, the former finance minister said, was more borrowing, leading to more debt “and getting the country more and more towards a debt crisis”. 🙄 Yes… and we all have Stockholm Syndrome 🙄 Hardly two months in his resignation, all of a sudden he has wonderful ideas, but when he was minister of finance, he articulated raw dictatorship & arrogancy, criticising the idea of the 13th cheque and bonuses, paid to employees... What a change of heart!!!
Source: mailandguardian - 🏆 2. / 92 Read more »