SA cannot afford a large stimulus and it will not boost growth
Raising taxes reduces income and higher debt service costs crowd out important economic and social expenditure
There have been several calls for a large fiscal stimulus to support SA’s post-Covid recovery. While this seems reasonable, before SA can embark on a fiscal stimulus we need to answer two questions: can we afford it? And will additional spending raise economic growth?
The available evidence indicates the answer to both questions is, no. Though the recent supplementary budget allows for a substantial temporary increase in debt and spending in response to Covid-19, some have suggested the short-term increase in non-interest expenditure is insufficient. This is misleading, as it ignores the additional tax relief, the drawing down of government’s balance sheet through the temporary employee relief scheme, the introduction of the credit guarantee scheme and the monetary policy response. These measures provide immediate and direct relief to businesses to maintain productive capacity and support vulnerable and low-income households...
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