Phase out subsidies, extend tax base, BoB urges gov't
Mbongeni Mguni | Friday May 24, 2019 13:36
On Monday, central bank governor, Moses Pelaelo and his executives gave an economic brief to President Mokgweetsi Masisi and his Cabinet, which various sources say was ‘well received’ by politicians.
At the briefing, BoB experts presented a paper on funding options for the country’s industrialisation and transition into a high-income economy.
Addressing journalists a day after the Cabinet brief, central bank executives said infrastructure would be key to powering the country’s industrialisation and questions on how to fund such developments going forward were critical.
Head of research and financial stability, Tshokologo Kganetsano said the Bank’s studies had shown that blanket subsidies and tax exemptions were locking up public funding that could be better directed towards infrastructure development. “There’s a case for the gradual removal of some subsidies that constitute a large proportion of government budget and reallocate resources to infrastructure,” he said. “There’s also a need to broaden the tax base. That remains an option as well.” Pressed by BusinessWeek on the matter, Kganetsano said several subsidies were being misdirected, diverting funds that could be used for development.
“If you take VAT, you realise that certain food has been exempted and we all benefit from that,” he said.
“That is a form of a subsidy. As an example, I can afford to buy without a subsidy, but because government has subsidised these items because they want to target the poor, I also benefit even though I’m not the poor.”
“Fuel is another candidate for a gradual removal of subsidy. “Look at the price of petrol in Botswana and compare to SA. How much are South Africans paying?
“Even education is another candidate, but I don’t want to go into details. “We are saying ‘gradual removal’ not at-a-go because that would introduce some shocks into the economy.” Other subsidies were also being abused, such as in the seasonal agricultural inputs programme, ISPAAD, Kganetsano said.
“If you go to rural areas, because we know that government provides a lot of things for free and even people get paid for that, some will take a tractor to go and draw a few lines, then go and register to say they have ploughed two hectares and get paid by government.
“That’s a leakage and the subsidy is benefitting people who are not prepared to do serious farming,” he said.
On broadening the tax cover, Kganetsano gave the example of land that lies unused and untaxed around the country. “If you travel from Ramatlabama to Ramokgwebana, you’ll see huge chunks of land unoccupied. “You try to apply for it and you’ll be told it belongs to someone. “But it’s lying there idle.
“If you tax that land, the owner will be encouraged either to use it or lease it to someone who can use it productively.”