Experts warn of ‘social unrest ticking time bomb’ amid economic meltdown

The combination of an expected multibillion-rand revenue collection shortfall and the Covid-19 economic meltdown spells trouble, with experts worried about the state’s ability to sustain society and warning of a social unrest ticking time bomb.

With an estimated seven million job losses on the cards due to the Covid-19 crisis as the economy, which was already taking strain, buckles, the unemployment rate could go as high as a record 50%.

This means a smaller tax pool and less revenue for the government to spend on development and social programmes such as education, health and social grants.

Detailing the impact of Covid-19 on revenue performance on Tuesday, South African Revenue Service (Sars) commissioner Edward Kieswetter said the revenue performance would be lower than the February budget announcement by between 15% and 20%.

He said the agency could potentially face a revenue underrecovery of up to R285 billion, pointing this out as “a huge revenue risk” which kept those whose jobs were to collect taxes for the fiscus, like himself, awake.

Professor Andre Duvenage, a North West University political scientist, said the tax shortfall was devastating news and revealed the real picture of the trouble the country was in.

“We had a crisis coming out of state capture and now this,” he said. “It is a double whammy for our economy and unless we get some form of economic activity going, we will be in serious trouble. This is a tipping point and my biggest worry is the state’s ability to sustain society because that will lead to increased violence and social unrest.”

Siphamandla Mkhwanazi, senior economist at First National Bank, said the tax shortfall constricted the government’s ability to employ more people, or honour pre-existing wage agreements.

He said in the previous global crisis, SA was sitting on a budget surplus (meaning revenues exceeded expenditure), which allowed the state to cushion the economy against the shock.

“It did this by hiring more civil servants and ensured that households’ incomes are not significantly affected.

“In the current episode, government will not have that ability,” Mkhwanazi said.

He said, if not addressed, this would worsen inequality and potentially lead to social unrest, saying economic activity was set to contract significantly in the near term, mainly as a direct result of the measures adopted to suppress the spread of the virus.

“While the outlook remains highly uncertain, our estimates suggest [gross domestic product] could contract by between 7% and 10%,” Mkhwanazi said.

Jean du Toit, senior tax specialist at Tax Consulting SA, said taxpayers should expect aggressive tax collection from Sars in the coming months.

With tax base dwindling, he said Sars would have to rely on taxpayers who were still able to contribute, likely the rich, and that Sars may also look to bring those who previously did not declare their income back into the tax net.

“It looks like Sars officials are now returning to work and will likely be far tougher on those who are noncompliant, which means we may see a surge in audits as well… where the economy contracts it affects revenue of all types – companies go into loss positions and no longer pay corporate income tax,” Du Toit said.

According to the Tax Justice Coalition, hunger had been stalking South Africa long before the coronavirus pandemic.

It said Oxfam-SA had already put the number of people regularly experiencing hunger and malnutrition at 13 million.

The coalition said the largest survey since the lockdown began, conducted by the Human Sciences Research Council with almost 20,000 respondents, found that almost a quarter (24%) had no money to buy food.

According to the coalition, the delay of almost six weeks in the topping up of the child support grant by R300 on 6 May had contributed to endemic hunger among South Africa’s most vulnerable communities.

– siphom@citizen.co.za

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