Post Covid19 and South African Economy By Kola Olapite

It remains an obvious fact that virtually all the sectors of the economy have been adversely affected by coronavirus pandemic and it would take proactive measures and aggressive economic policies implementation to put the South African economy back to the track. Analyzing the whole effects of Covid-19 on South African Economy, undoubtedly, the effects of the Covid19 pandemic is gross, inimical to economic stability, growth and development.

South African President, Cyril Ramaphosa.

For the nation’s economy to stage a comeback on the path of recovery, the following economic policies should be aggressively put to use:
• Monetary policy
• Fiscal policy
• Demand -side policy
• Supply- side policy

Let me quickly conceptualize and analyze the highlighted policies

It explains how South African Reserve Bank (SARB) uses interest rate and money supply to stimulate economic activities of the country. For instance, with the recent reduction of repo rate by SARB, South African economy will start seeing a gradual recovery, stability and eventual economic growth in the following ways;

The Positive effects of repo rate cut, such as easy borrowings at a low interest rate, an increase in the consumer spending, appreciation of South African currency, rand would definitely have a significantly positive effect on the economy.

A low interest rate will encourage the major economic participants to borrow money to stimulate business and economic activities in the country. The economic participants are;

• Businesses or firms
• Households or consumers
• Government

If businesses have more money resulting in accessing credit facility at a low interest rate, they tend to produce more goods and services, unemployment rate could be reduced while the goods and services produced by these firms would lead to an increase in the GDP of the country.

What is Gross Domestic Product?
GDP simply means an increase in the production of goods and services produced in a country in a particular year. On the other hand, an upswing in the country’s GDP could also be referred to as an economic growth

This explains how government uses taxation and government spending to stimulate economic activities of the country particularly when there is economic recession or downswing caused by natural disaster like coronavirus.
How can these 2 elements of the fiscal policy; taxation and government bring positive impact on the growth of the economy?

Let me start with an increase in government spending. A good example of an increase in the government spending is the R500b coronavirus relief package which has just been injected by the government into various sectors of the economy. One can easily forecast that this stimulus package will in no small measure cause an economic fluctuations, upswing in the economic activities of the country.

Economic activities such as, production of more goods and services, saving of some of the existing jobs, creation of new jobs, engaging in massive developmental projects, introduction of different palliative measures like unemployment benefits, provision of food parcels for the poor masses, giving of aids and grants to the less-privileged citizens, provision of free services to the poor ones and giving of cash subsidy and technical support to the manufacturing sector could be possible with an increase in the government spending and same will lead to economic stability and growth,

We need to let the readers know that South Africa uses progressive tax system whereby the high income earners pay more tax than the medium or low income earners and this could be coined as PAYE (Pay As You Earn). With this progressive tax system, the country can achieve one of the macro-economic objectives of the state which is equitable distribution of income and wealth.
How can taxation be used to stimulate economic activities of the state?
To start with, SARS (South African Revenue Services) is the government entity that is saddled with the responsibility of collecting taxes in the country. In my own opinion, I foresee quick economic recovery if some positive measures can be taken by the government via SARS to cushion the harsh effects of covid19 in the South African economy. The measures like, tax rebate, reduction of greenhouse taxes, tax returns etc. will encourage production of goods and services and an increase in the consumers spending which will lead to economic growth.

Conceptual analyses:
Tax rebate, as part of government incentives, simply means a reduction of tax payable by both individuals and business organizations.
Greenhouse tax- this is the tax payable by the manufacturing companies for polluting the environment through the emissions and carbon monoxide substances introduced into the atmosphere by their machines and equipment during production processes.
I am opined that tax rebate will definitely increase the disposable income and reduce cost of production of the people and manufacturing sector respectively. For instance, if government reduces the tax of manufacturing companies by 10%, its effect is as good as government giving 10% cash subsidy to the affected companies and this gesture would encourage them to be more effective and productive in their production of goods and services.

In the same manner, 10% tax rebate to individuals will make disposable income of the households to increase by 10% and this will allow them to have more money to spend on consumer goods and an increase in country’s consumers’ goods will necessitate an increase in the production capacity of the country.

What is a disposable income? Gross salary less total deductions.
Disposable income shows what you have left after tax and other deductions have been removed from your salary.

Lastly, the law of GDP growth states that the higher the production of goods and services, the higher the economic growth of the country’s economy.
The value chain of fiscal policy
Tax rebate Cash subsidy for production More goods and services are produced Consumers spending increase Economic recovery, and economic stability economic growth

To this end, all the measures that would lead to an increase in the production of goods and services should be put in place by the government as they serve as the catalyst for economic recovery, stability and growth. To be continued with demand-side and supply-side policies.


* Kola Olapite writes from South Africa

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