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From a two-speed society to one that works for all

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Colin Coleman, a former CEO for Goldman Sachs in sub-Saharan Africa, is a senior fellow and lecturer at the Jackson Institute for Global Affairs, Yale University.

We have the opportunity to take bold steps to unite our country. The time is now, to bridge the divides, to wrap our arms around our fellow South Africans who are destitute, starving and jobless. This 10-Point Plan is a comprehensive proposal to turn the tide towards economic inclusion and dynamism.

 


South Africa is in trouble. No society can survive 50% unemployment, yet that’s exactly what our expanded unemployment rate can be expected to be by the end of 2020. Before Covid-19, South Africa’s economy was already in recession and the expanded unemployment rate was already at a frightening 42%.

No doubt, just this one aspect of our present reality represents an economic state of emergency for our beloved country. This reality, compounded by the now surging Covid-19 pandemic, reflects South Africa’s “Two-Speed Society”: one part modern, affluent, technologically advanced, skilled, mobile, dynamic and increasingly non-racial; the other, jobless, marginalised, unskilled, young, mostly rural or peri-urban outcasts, largely African, and increasingly restless, bereft of hope and condemned to poverty.

I propose a 10-Point Action Plan to forge one economy that works for all. Any economic plan should aim to create a fast-growing and dynamic economy, facilitating a seamless connected structure of opportunity and access for all, a “ladder” up and down the economy, driven on merit, recognising talent and rewarding hard work, irrespective of race, gender and class, with a hand up for the historically disadvantaged. This is what the 10-Point Action Plan aims to achieve:

  1. An intervention to put income in the hands of the unemployed and most vulnerable South Africans, thereby protecting livelihoods and stimulating consumption;
  2. The introduction of tax reforms to fund this intervention in a fiscally neutral way, making the tax system work smarter and harder for those most in need;
  3. A campaign to wage war on the rampant illegal economy in South Africa, and confront tax evasion, fraud, criminality and corruption, and bring an end to State Capture;
  4. Reengineering the Covid-19 relief fiscal plan to provide much-needed funding, either interest-free loans or equity, into struggling, but solid businesses;
  5. Supporting SMMEs to provide fuel to South Africa’s largest job-creating machinery, driving a new generation of entrepreneurs;
  6. Unlocking infrastructure blockages through public-private partnerships that reduce input costs and expand productive capacity of businesses;
  7. Introducing an E-Government initiative to transform and modernise the public service, making South Africa a capable country, with a smart and capable state;
  8. Negotiating a comprehensive resolution of Eskom’s capital structure and business model, to eliminate South Africa’s largest single fiscal and systemic risk, and bring stability to the country’s largest State-Owned Enterprise;
  9. Reviewing and redesigning South Africa’s industrialisation plan to create 5 million jobs over the next decade, by creating economic incentives to drive competitiveness, and position South Africa as a regional supply hub and gateway into Africa for global and local manufacturers; and
  10. An ambitious plan to end apartheid spatial planning and create integrated and densified urban centres, close to work opportunities.

We must do “whatever it takes” to grow one economy for all. This is an economy that should shield the poor from poverty, grow at 5% per annum, and add 5 million jobs by 2030.

Introducing a fiscally neutral basic income grant

I am convinced, as an emergency measure, South Africa now needs to introduce, in a fiscally neutral manner, a Basic Income Grant (BIG).

Applying the “International Poverty Line” benchmark of $2 per day, equivalent to around R1,080 per month, across 10.8 million unemployed (aged 18-59), people, this BIG would cost South Africa around R140-billion per annum, before annual inflation. Alternatively, one could with R140-billion target all 32 million adults with R365 per month, or all 23.4 million labour force participants with R500 per month. The merits of the alternatives should evaluate economic impact on poor households, simplicity and cost of administration, and speed and effectiveness of getting cash into the hands of the targeted beneficiaries.

Such a BIG should not only be seen as an expenditure, it is an investment, and may represent the best form of short-term economic stimulus this country could now introduce, particularly in this Covid-19 crisis moment. As the recipients are likely to spend the grant on essential items such as food, clothing and other essential household goods, we should see immediate benefits across the economy, including in value-added tax (VAT) payments and increased corporate tax.

Introducing tax reforms to fund the BIG

I present a plan, previewed with some of the countries’ leading tax experts, to reengineer the application of existing tax revenues and allocations, to make a BIG possible in a fiscally neutral manner as follows:

Waging war on the illegal economy

These tax reforms should also spur focus on tax compliance and enforcement, and encourage all South Africans to support SARS, and the state enforcement agencies in clamping down on the rampant illegal and unrecorded economy. SARS is working with the Davis Tax Committee to wage a war on tax evasion and avoidance, targeting R100-billion or more of non-compliance, aggressive tax planning such as transfer pricing abuse, base erosion and profit shifting, VAT fraud, corruption and other avoidance or criminal schemes. This campaign deserves all our support.

An increased focus on corruption, and the elimination of abuses within the state machinery, highlighted by the Auditor General’s reports on wasteful, irregular and unauthorised expenditure which he quantified at R94.6-billion for all levels of government for 2018/2019, is urgently needed. Government departments need to either penalise the culprits, and/or have the proportional funds removed from their budgetary allocations.

We have the opportunity to take bold steps to unite our country. The time is now, to bridge the divides, to wrap our arms around our fellow South Africans who are destitute, starving and jobless. The 10-Point Plan is a comprehensive proposal to turn the tide towards economic inclusion and dynamism. Growing our economy by 2.5% in the short term and 5% in the medium and longer-term must be our driving goal, with the doubling of our rate of job creation to bring formal unemployment below 20% by 2030.

It won’t be easy, but we can do it! DM/BM

This is an extract from The University of Cape Town Vice- Chancellor’s Open Lecture, titled, “From a Two-Speed Society to One that works for All”, delivered by Colin Coleman. Read the full speech here: https://www.news.uct.ac.za/downloads/media/2020-07-15_VCOpenLecture_ColinColeman_FullText.pdf

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