Summit TV's panel of tax experts analyse Trevor Manuel's Budget 13...

Brian Kantor, emeritus professor of economics at UCT and an investment strategist at Investec Securities, suggested on Friday that Trevor Manuel was not bold enough in increasing the Budget deficit to 3.9 percent when he presented his financial plan for 2009/10 this week.

Speaking to a Budget breakfast organised by Deloitte and Touche and the UCT Graduate School of Business, Kantor quoted what he said was a statement of John Maynard Keynes: "When you face depression, deficits be damned."

Why not print money?

The extra spending, Kantor said, "costs you nothing." He added: "There are no opportunity costs, why not print money to stimulate spending? Borrowing money costs less because of falling interest rates."

"We could have had a bigger deficit," he said. "Three point nine percent is a very small deficit. The ratio of debt to GDP of about 20 percent is very very low."

Kantor pointed out that the American debt ratio is around 100 percent.

He also reckoned that Manuel could have cut taxes much more. Moving the brackets does not do any good, he said. It doesn't reduce the tax take. In fact, he thought, it might even increase the amount taken. He recommended raising the tax threshold. "Cutting the tax rates should stimulate spending," he said. And he urged tax cuts to be targeted at investment, through investment incentives – with sunset clauses, so that "if you are going to collect you must do it now."

Asking how we got into this mess, Kantor told his audience that we have only ourselves to blame. "Monetary policy was much too aggressive," he said. "In June last year, household consumption was already in free-fall."

He blamed the Reserve Bank Governor Tito Mboweni for his reluctance to reduce interest rates managing a measly 50-basis-points at the end of last year. "But," he said, "he went to Davos and came back with a Damascene conversion. In January he was pressing for a two hundred basis point increase."

Kantor pointed out that 60 percent of the economy comes from household spending. "If households won't spend, the economy won't grow," he said.

Keynes' punishment

Keith Engel, the National Treasury's chief director of tax design, told Deloitte's guests, that one of the problems Treasury faces is: "We are not sure how long this is going on." He added: "Part of the difficulty is that we get punished for doing what Keynes wanted us to do." He suggested that foreign investors look at a ballooning debt, and the current political ferment here, and don't invest. "We do need to bring in capital," he said. "If the rand starts dropping, you bring in inflation."

He maintained that this country needs to be a model of stability and conservative economics.

Kantor agreed that what he was proposing might actually work too well. "Spending might work too well," he said, "and you'll get inflation."

I-Net Bridge

RSS
Digg
de.li.cious
facebook