Economists weigh in on what living in an EFF economy would be like
CITIZEN.CO.ZA / 06 FEBRUARY 2019 - 06.00 / ERIC NAKI
Short answer: pretty disastrous.
The election manifesto of the Economic Freedom Fighters (EFF) is “populist nonsense” that will burden the fiscus, worsen unemployment and chase away investors, according to leading economists.
EFF leader Julius Malema is seen leaving after addressing supporters outside the Brooklyn Police Station where he opened a case against Pravin Gordhan, 27 November 2018, Pretoria. Picture: Jacques Nelles
Economist at Econometrix Sam Rolland said the EFF manifesto’s economic growth plan was the most radical of the large parties contesting the 2019 elections, but that did not mean it was realistic.
“The focus on a greater role for the state in economic development will undoubtedly place a far greater burden on the fiscus, first on account of the expanded spending programme the party has drawn up and, secondly, through crowding out of investment from the private sector and international community,” Rolland said.
Rolland and Dawie Roodt, chief economist at Efficient Group, agreed that funding for the plan would have to come from higher taxation.
“However, if the economy were to take a downturn, the lack of tax revenue would result in an unsustainable debt burden on government, which would result in prolonged periods of recession and capital flight from the economy,” Rolland said.
“The expected growth rates of 6% in the first two years and 10% in the next three are largely unrealistic, given that structural problems in the education system and availability of skilled labour limit the ability of the economy to grow anywhere near the levels envisioned in the [National Development Plan] without high levels of overseas investment and pro-growth policies that allow productivity to increase.”
Roodt was more scathing in his criticism of the manifesto, which was unveiled by EFF leader Julius Malema at Soshanguve in Tshwane at the weekend.
Roodt described it as unrealistic and an impossible wish list.
“It will cost hundreds of billions more, huge tax increases, will undermine the tax base and, ultimately, lead to weaker growth,” Roodt said.
He estimated the cost of putting it into action at R300 billion, or even more.
“But, keep in mind, it’s not only how much they will spend, it’s also the effect on the broader economy,” Roodt said.
Malema said his party would double the current social security grants payments for all categories. The party would raise the current R3,500 national minimum wage to R4,500 and hike wages for low-income workers such as domestic workers, cleaners, farmworkers and labourers to between R4,500 and R7,500, all at basic payments.
Mine workers would earn R12,500, matching the wages demanded by members of the Association of Mineworkers and Construction Union during the bloody strike at Marikana in 2012, which resulted in the fatal shooting of 34 miners by police.
Should the EFF win the election in May, the newly appointed minister of finance would be the most popular “Father Christmas”, with announcements of a series of sweeping increases in wages and social services.
However, all of this will be unlikely, as various polls suggest that the EFF will not be able to increase its electoral support far higher than the 6.4% it obtained in the 2014 elections.
Rolland said the EFF’s higher wage rates for labour-intensive employment were likely to be counterproductive to job creation.
“Without a growing economy, firms would be forced to lay off staff at these higher wages and increase the rate of unemployment. The plans for economic growth and current levels of productivity are insufficient to absorb labour at such a high rate,” Roodt said.
The envisioned greater role of the state would also open up opportunities for greater corruption and inefficient production, which would hinder the competitiveness of the country’s exports.
Rolland said the increased cost of social welfare programmes as proposed by the EFF would result in an additional estimated R13 billion in spending.
“The details outlined in the EFF manifesto would undoubtedly put a far greater burden on the taxpayer.
“Funding for a larger state would have to be covered through domestic tax revenue, barring efficient state-run industries like mining and manufacturing.
“Any shortfalls in expenditure would have to be covered by increases in the tax rate, which would place undue strain on the taxpayer and lead to a huge fall in household consumption,” Rolland said.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER