Economists: No more stimulus at edge of fiscal cliff

People who hoped to hear more about additional economic stimulus or income support when the president spoke to his “fellow South Africans” on Monday night were left empty-handed.

So, how are we going to reboot the economy, and does the president’s Reconstruction and Recovery Plan have any hope of working?

No more mention of stimulus

Many people have asked why there is not more stimulus now that we are back in a partial lockdown, says Maarten Ackerman, chief economist and advisory partner at Citadel.

“The simple answer is that there is simply no money to do it. We are at the end of the road, facing a fiscal cliff and any stimulus would be very difficult to provide without pushing ourselves over that cliff.”

Prof. Jannie Rossouw from the Wits Business School agrees that government simply cannot afford any stimulus packages right now, as the country has reached the fiscal cliff. This is the point where civil service remuneration, social grants, and interest on government debt exceed total government revenue.

“The only contribution the government can make at this point in time is to remove bureaucracy and make it easier to do business. Why is it, for example, necessary to buy a car licence disk every year instead of being valid for the period of ownership?” he asks.

Economist Mike Schüssler points out that some industries, such as hotels, guest houses, restaurants, gyms, caterers and events are now in their tenth month of restrictions without any help.

“I honestly believe that government is failing the citizens of the country. Government should by now pay for staff salaries as the reduction in income is not the fault of citizens, and government is contributing to the reduction in income.”

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He adds that the liquor industry does not just pay taxes for its employees and companies, but also a massive amount of excise duties.

“They are in trouble. To not help them, means government is just an exploiter and gives nothing back. If we have to, we must cut the government wage bill to help the private sector recover from this. Government fails to deal with the pandemic with anything else but restrictions.”

He also emphasises that, “Government should step away from “all their slogans and preconceived ideas and they must help the private sector by reducing red tape, including BEE requirements, lower taxes and cap the salary wage bill, with no cadre employment, as political parties and government must not be same thing.”

Dr. Elna Moolman, head of SA macroeconomic, fixed income and currency research at Standard Bank South Africa, says on the other hand that they did not expect the president to announce any additional stimulus for the economy at this stage.

“There has been some progress on some of the government’s short-term objectives set at the end of last year and we would prefer government to continue to focus on implementation of the growth-supportive objectives already set last year, rather than announce any new measures. From a fiscal perspective, there is absolutely no space for more stimulus. It would indeed support confidence if government can stay the fiscal consolidation course set out last year.”

Rebooting the economy

Rossouw has a simple solution for rebooting the economy: government should allow space for the private sector, such as allowing private sector imports of vaccines over and above the government’s procurement attempts.

“Only private sector investment can now reboot the economy.”

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Ackerman believes that we have also not done enough to address some of the items that are keeping the government’s expenses bloated. “This is one side of the coin and the other side is that, although we are on level 3, it is a very different kind of Level 3. A large number or parts of industry, that were closed the first time when we were in level 3 lockdown, now remains open.

“We believe we must remember that the economic impact will be slightly less severe this time around than before. For example, there is currently a ban on alcohol, but not on tobacco products. Government would also probably even like to lift the ban on alcohol as soon as possible, as it is simply a function of hospital capacity at the moment.”

Moolman would like to see government focus on implementing the growth-supportive targets set out last year and implementing the fiscal consolidation plan.

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Schüssler says government must work to help business grow both here and in export markets, with better functioning borders to our neighbours and implementation of the African Free Trade Agreement.

“Market our products better in Africa and other export markets. Government must stop fighting against business but rather be a positive supporter of South African business, and neutral when it comes to things like labour disputes. Get the vaccine and also look at opening as soon as possible for all sectors.”

Reconstruction and Recovery Plan

Ackerman says the speed at which things are done is the problem. “It is probably much easier to get the economy going than to cut expenses. The government will have to agree in terms of how the wage negotiations have been developing and other negotiations around expenses that they would like to cut.”

He says the easiest way would be to get the economy going and get the multiple on-tax collection on top of that, which is fairly simple to do: by making sure that 2021 will be the year of implementation and executing on those reforms. “The quicker we can respond, the faster government can work together to achieve the solution to the challenges we face.”

Moolman believes that the plan will work. “If government can demonstrate that it is committed and able to implement the growth-supportive and fiscal consolidation plans established last year, it would have a positive impact on growth and on confidence.”

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Rossouw does not believe that the plan will work, because “government will have to take decisive action against corruption before any plans will have any credibility.”

Schüssler believes the plan will not work while any restrictions are still in force.

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