The South African Federation of Trade Unions (SAFTU) has taken notes of media reports – especially a Business Day interview of Treasury Director General Dondo Mogajane published today – suggesting we will face an increase in taxes next month when the budget is announced, to pay for Covid-19 vaccines. The interview included Mogajane’s admission, “South Africa will not take us seriously if I can find money for SAA but not for vaccines.”
This interview seems to be damage control, because it comes on the heels of a Financial Mail report (14 January) which unveiled how, in reality, the Treasury is hellbent on undermining efforts to halt Covid-19:
“the Treasury was not convinced that a large volume of vaccines would be necessary. At the time, two studies on immunity in the Western Cape and Gauteng had just been released. They suggested that, given the significant antibody levels present in 30%-40% of the population in the two provinces, a ‘natural immunity’ was being built. In the Treasury’s view, if this was indeed the case, ‘why waste money on vaccines?’ a source says.”
We do not believe the quote is fictional, because the FM is very close to Treasury. If true, this is yet another demonstration that our neoliberal economic policy makers are completely indifferent to the suffering of the masses of the people. The loyalty of the Treasury, as Mogajane has repeatedly made clear, is to the New York credit rating agencies and the IMF, whose policies have inspired austerity in a South Africa that is already the world’s most unequal country.
SAFTU rejects any attempt to increase the burden the poor are already carrying through twenty-five years of neoliberalism and now austerity programmes. We suspect that the preferred tax increase for this ultra-conservative Treasury will be the Value Added Tax (VAT).
If this were to happen, it would be the second VAT increase in recent years, for in 2018, Finance Minister Malusi Gigaba raised the rate from 14% to 15%, although some additional zero-rated relief on essential products was provided as a result of social protest. The VAT is a regressive tax system that punishes the poor more than the rich, because aside from those zero-rated products, the amount of tax spent as a proportion of income by poor people is far higher than that spent by the rich.
Instead of increasing the VAT, the government should be putting far more efforts into acquiring a cheaper, generic vaccine; increasing the taxes on the rich and on corporations; halting Illicit Financial Flows by tightening exchange controls, along with lower interest rates and tighter exchange controls; and using Reserve Bank “Quantitative Easing” financial support to Treasury bonds, along with prescribed asset requirements on institutional investors.
Our explanation should be common sense in society. Above all, we need cheaper medicines because Big Pharma always price-gauges when it has illegitimate Intellectual Property to defend. For three reasons, we consider these to be illegitimate super-profits:
- first, so much public money has gone into subsidisation of the vaccine and treatments for Covid-19,
- second, most Western countries are selfishly ordering vaccine treatments to cover more than the number of people who live there (Canada by five times), generating a vaccine apartheid where white skins and fat wallets determine whether we live or die, with Big Pharma directing a vastly disproportionate share of its vaccine output to the West; and
- third, because this is a global emergency in which already at least two million are dead, perhaps three if ‘excess’ deaths are included.
In the case of highly-contagious Covid-19, even more so than with our prior pandemic, AIDS, an injury to one is an injury to all. The extremely rapid spread of the variant that first appeared in the Eastern Cape and is now in 20 other countries, suggests that the lesson from the 2001 Doha Agenda must be relearned: the exemption of AIDS medicines from the Trade Related Intellectual Property System. That exemption allowed generics to be provided free through our public health system and raised life expectancy from 52 to 65 years.
To be sure, Treasury does not control the World Trade Organisation negotiations, but it is a shame President Cyril Ramaphosa has not provided public education here, nor publicly campaigned on behalf of the South African-Indian challenge to Big Pharma’s IP. As outgoing head of the African Union, global vaccine justice along and the failure to support – much less achieve – cancellation of Africa’s massive foreign debt, will be considered his biggest missed opportunities.
The WTO Council meeting on January 19 should be one where rich countries change their stance on making information available for all countries to move towards rapid generic vaccines and treatments!
But we must also put more pressure on Treasury, simultaneous with the campaign for generic vaccines. SAFTU will be protesting against Treasury on 24 February, and we reiterate the calls made countless times for the following taxes to be introduced.
- Tax corporates and the rich! SAFTU insists on reversal of corporate tax cuts, ending absurd loopholes and setting the primary tax rate back to where it was in 1992: 52% (up from 28% at present). And the personal tax rate of 45% paid by rich individuals is not high enough to achieve redistribution, given the huge benefits they receive from residual apartheid privileges, including ultra-cheap labour in their homes, gardens and private security forces. Raising these rates will expand fiscal resources that we so desperately need to rebuild our state to provide effective services for all, to provide a Basic Income Grant, as well as to redirect funds that can help localise our economy and restore our industrial base.
We insist that in the world’s most unequal society, at a time inequality is soaring due to the pro-rich character of the lockdown, it is vital to raise the level of fiscal support through progressive taxation of both income and wealth. We anticipate a much greater multiplier effect if poor people have more to spend, since they import less than the rich do, and don’t sneak it out of the country into favoured tax havens or overseas stock markets.
- The debt/GDP ratio can rise, if funds are well spent! Government still pursues the objective of lowering the debt/GDP ratio, even though GDP has collapsed (probably by at least 8% in 2020 with no real end in sight to stagnation and decline). Tax revenues have fallen even further, by R300 million, pushing the public debt even higher. Nevertheless, the debt to GDP ratio is inappropriate as a measure of our ability to solve problems with state programmes.
South African debt is not out of control, and no country facing this magnitude of underdevelopment ever embarked on a programme to keep debt to GDP ratio at the current levels, especially when an unprecedented economic depression has hit us, what with recession characterising the majority of quarters since Ramaphosa took power in 2018. While the ratio appears to exceed 80% at present, up from 26% at its low point in 2008 before the prior world capitalist financial meltdown, there have been periods in history with much higher ratios.
In 1932, debt/GDP ratio was 125%, yet the decade that followed witnessed an exceptional growth in state activity, such as the introduction of major parastatal agencies and an active industrial policy that raised GDP by an average of 8% annually from 1933-47. (Because of the overall rise in state activity plus increasing labour-intensive manufacturing due to import-substitution, even the black wage rate rose more rapidly during this period than at any other time in the past century.)
In contrast, the current government’s austerity, aimed at meeting artificially-low debt/GDP levels, means Treasury is reducing expenditure by R21 billion in 2020/21 and 28,5 billion in 2021/22, plus cutting civil servant wages by more than R50 billion annually. If instead, Treasury considered a full accounting of the public sector ‘balance sheet’ to include our state’s mineral wealth, then as the International Monetary Fund noted in its October 2018 Fiscal Monitor, South Africa is the sixth most wealthy major state in the world whose full balance sheet could be measured at that time. It should be our wealth, not our income, that helps Treasury expand expenditure.
- Demand patriotism by the wealthiest and prevent their economic sabotage! Introduce a wealth tax on the top 0.1% immediately, given that these 35 000 South Africans have witnessed a rise in their share of the country’s wealth from 18% in 1994 to 30% in 2019. But given the lack of patriotism by the mainly white elite, additional decisive steps must be taken to retain our economic sovereignty – such as capital controls and prosecution of corporate thieves – to thereby halt illicit cash outflows, tax dodging schemes, tender fraud and corruption.
In the PwC 2020 assessment of the world’s most economically-criminal elites, India’s corporate class ranked first, with South Africa tying with China for second. Government knows well that corporations’ cream off 35-40% extra on the average procurement contract, as Treasury officials will admit, but they have done nothing to stop this. The Covid-19 looting spree by cronies of the government, and the ability of firms like Dis-Chem to price-gauge consumers, are only the tip of the iceberg. Steinhoff, Tongaat Hulett and VBS criminals still walk free, as the National Prosecuting Authority allows white-collar tsotsis enormous latitude: among nearly 220 000 cases successfully prosecuted in 2019-20, private-sector corruption numbers only 233.
There must be a tightening of exchange controls to halt this extreme form of economic sabotage. In 2019 the Treasury’s Financial Intelligence Centre recognised that 3-7% of our GDP is flooding out in the form of Illicit Financial Flows. This must come to an immediate halt, so that there is more funding available in South Africa that in turn can support vaccine acquisition.
The private sector funding we anticipate will be available, should include a cross-subsidisation from the vast private health insurance surpluses that have built up, since so much expensive hospital care for non-Covid-19 patients, especially elective surgery, did not occur in 2020. Health financing apartheid must end, and this is a no-brainer since if we acquire vaccines for all, the terrible burden of disease that caused so many Covid-19 hospitalisations and fatalities will be less destructive.
- Use the Reserve Bank’s Quantitative Easing capacity. There are many economists dedicated to “Modern Monetary Theory” who now convincingly argue that where there is no threat of inflation – and South Africa’s dipped to just 2% last year – there should be more willingness to boost the economy using central bank powers. These including “priming the pump” in the government’s bond markets, as did the SARB in March-April 2020, with a bit more than R10 billion. But a former Treasury deputy director general recommended this be raised to R20 billion per week, and one of Investec’s leading economists is also very critical of the SARB’s unwillingness to fund state spending.
We think the Treasury and SARB should follow the kind of policy the incoming U.S. president Joe Biden is about to introduce on Wednesday, making good on a pledge to give $2000 (R30 400) to each adult earning less than $75 000, as an economic stimulus and support to their households’ survival. This, in addition to funding vaccines, would help our society get through this period of socio-economic catastrophe.
We invite any politicians and officials in Treasury who have any disagreements with us, to speak up and explain why the country’s richest (and in most cases white) beneficiaries of Treasury generosity should not be asked to sacrifice, at long last.
If not, the idea that “South Africa will not take us seriously if I can find money for SAA but not for vaccines,” will be the basis for much more than disgust: we will be on the streets of Cape Town outside Parliament protesting Treasury with all our energies on February 24, if Covid-19 doesn’t fell us first.