Good for the market may not be good for all
While the markets have reacted positively to Finance Minister Malusi Gigaba's Budget Speech, the local Church and civil society have raised concerns on the impact the budget will have on the country's poor and vulnerable. Fr Peter-John Pearson looks at the budget from a position of Catholic Social Teaching.
Minister Gigaba delivered his maiden Budget Speech under somewhat trying circumstances. His closeness to the Guptas and the outcome of the North Gauteng High Court, which found that he had lied under oath, gave the opposition parties the opening to challenge him on the broader political domain. There is wide speculation that he will go down in modern South African history as the first Minister of Finance to deliver only one budget speech as well as being the minister doomed to raise VAT for the first time in 25 years and certainly for the first time since the ANC came to power. He is also the minister who has had to deal with former President Zuma’s announcement before the ANC conference in December 2017 of free tertiary education, an announcement made without any reference to the National Treasury.
There were several reactions to his speech. The markets and the South African currency reacted positively. The rand strengthened, acknowledging that for the markets there was clarity in a number of policy areas and a commitment to deal with the growing deficit. Almost diametrically opposed to the market's reaction was the reaction of the trade unions, community organisations and civil society. They pointed out that the 1% increase in value added tax would add to the burden of the poor and that the much spoken-of cushion for the poor in increasing social grants and continuing a zero tax on certain basic foodstuffs was doomed to provide very little relief. The increased fuel levy, which the minister announced, would also adversely affect the poor as it would increase transport costs, it would be carried over into the pricing of just about every commodity. It could not be described as a pro-poor budget. Ahead of the budget speech Cosatu said it would not support “any attempt by government to balance budget shortfalls and deficits upon the backs of struggling workers. Workers are not the ones who have looted Eskom, SAA and the state.”
Part of my difficulty with this budget is that the increase in taxes actually impoverishes those whom it is meant to benefit. In Catholic Social Teaching (CST), “a tax system is evaluated in terms of its impact on the poor”. The American bishops some years back summed up CST when emphasising that: “First, the tax system should raise adequate revenues to pay for the public needs of society, especially to meet the basic needs of the poor. Secondly, the tax system should be structured according to the principle of progressivity, so that those with relatively greater financial resources pay a higher rate of taxation. The inclusion of such a principle in tax policies is an important means of reducing the severe inequalities of income and wealth in the nation.”
Fred Kammer puts it very well when he notes: “Progressivity has been fundamental to the Catholic tax tradition. It reflects our belief in the universal destination of all goods—that they must serve the common good—as well as our teaching about the stewardship of all created gifts, whose origin is God.” He says as stewards, this progressive responsibility reflects the teaching of Jesus in Luke 12:48. “From everyone to whom much has been given, much will be required; and from the one to whom much has been entrusted, even more will be demanded.”
He says evaluating the morality of tax systems means asking about the progressivity and regressivity of various kinds of taxes—the more progressive, the more moral. He concludes: “When looking for increased revenues, lawmakers should focus on taxation methods that are more progressive, asking more of those most able to shoulder increased responsibilities for the common good.”
It is interesting that in July 2017 commenting on President Trumps tax proposals, Bishop Frank J. Dewane of Venice, Florida, chair of the U.S. Bishops’ Committee on Domestic Justice and Human Development, expressed concern over a US House of Representatives budget resolution. “A nation’s budget is a moral document,” he said in a prepared statement. “Reducing deficits through cuts for human needs—while simultaneously attempting a tax cut, as this proposal does—will place millions of poor and vulnerable people in real jeopardy. Congress should choose a better path, one that honours those struggling in our country.”
At the end of the day for the faith community with its fundamental option for the poor, the budget must be evaluated not in the first place by the reactions of the markets, but by its impact on the poor. From this perspective, the budget has a considerable way to go before those who live at the margins of our society can call it a ‘moral document.
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