LETTER: Print money to replace lost aid

The withdrawal of US President’s Emergency Plan for Aids Relief (Pepfar) funding for HIV/Aids organisations provides an opportunity to comment on government spending and VAT (“Trump unleashes ‘tiger from cage’ on SA’s HIV battle”, February 27).

The argument economists make is that if the government spends more than it receives in tax revenue, the result is inflation. That seems to be the only reason given to not increase the so-called deficit.

The argument is that inflation is a monetary phenomenon. Put more money into the economy by “printing” it (which the government doesn’t do), and the additional spending ability fuels inflation.

If this is true, the source of the added money surely doesn’t matter. The money from the US doesn’t appear to bother these economists and hasn’t had inflationary effects. So, then, neither should money given directly (printed) by the government.

If the salaries of thousands of employees in these organisations have been taken away because of the US Department of Government Efficiency (Doge), the SA Treasury can step up and pay these salaries by recognising that the budget does not need balancing. In fact, the government must have a positive “deficit” in our current circumstances.

The rule that printing money causes inflation is a heuristic that does not apply now. It applies when there is full employment and the economy is functioning at near full capacity. Now, neither of these conditions is met.

Tax revenue is not required to fund government spending. We are being misled by whoever argues otherwise. The implications are vast. But the obvious one is that VAT does not need to increase to permit the government to meet its desired social spending.

Of course, this does not mean the cabinet can double ministers’ salaries. Let’s not be foolish. But it does mean schools can be built, hospitals refurbished, teachers reappointed and doctors hired to fill essential posts in public hospitals.

Howard Pearce
Rondebosch

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