Key to better SA is a growing economy

Hermann Pretorius says govt must realise that increasing taxes to fund wasteful spending would be disastrous

Media reports in recent weeks have suggested that the Minister of Finance, Enoch Godongwana, could announce tax increases in the November ‘mini budget’. Such tax hikes have been proposed as a means to fund the National Health Insurance (NHI) scheme and a Basic Income Grant (BIG), and to help prevent a full-blown debt crisis as government debt escalates beyond control. Already, the country is spending R1 billion per day servicing its debt.

Given the fiscal timebomb he inherited and the election boondoggles his party is desperately wanting to promise, Minister Godongwana deserves some sympathy for the unenviable predicament he finds himself in.

But the truth is that placing further demands on South African taxpayers already straining under the burden of high taxes and poor services will be the worst possible decision for the Treasury to make at this point.

Higher taxes will, at best, bring short-lived and negligible fiscal relief. The fiscal and economic crises currently battering South Africans are not caused by lagging revenue, but by dangerous and unsustainable government spending and economic policies that strangle growth in the crib. 

Key ingredient

Property rights, the key ingredient of economic activity from mining to agriculture, manufacturing to asset management, have been under relentless attack from the ANC, most prominently in the party’s drive to legislate for expropriation without compensation (EWC). Those efforts by no means ended with the failed attempt to vandalise the Bill of Rights by weakening Section 25 of the Constitution.

The Expropriation Bill currently before the National Council of Provinces (NCOP) represents a seamless continuation of those efforts. The Bill is no less toxic for being less prominent in the attention of the public. If it becomes law, hundreds of SOEs and government departments will gain the power to expropriate the land of South Africans without compensation, for an open-ended list of reasons.

The Expropriation Bill offers lip service to legal recourse, but allows property to be expropriated without a prior court order. This means that homeowners, investors, businesses, and farmers would only be able to act in defence of their rights after their rights have been trampled on and they have lost their property.

The ANC could send no clearer message saying that ‘Your property and investments aren’t safe here ‐ don’t invest in SA’ than the Expropriation Bill. It is a badly formulated, toxic law which is costing South Africa investors, jobs, and socio-economic upliftment through economic growth.

International best practice

Instead of raising taxes, the government must amend the Expropriation Bill to remove the EWC provisions and bring other sections in line with the Constitution and international best practice, as recommended by the IRR in its submission to the NCOP. Doing so would remove a major investment impediment and lay the groundwork for a sustainable fiscal recovery through the proceeds of a growing income tax base, a growing corporate tax base, and a growing economy.

A further step needed to get the engines of economic growth firing and avoid fiscal disaster is to scrap race-based employment and public procurement policies. Unemployment, black unemployment, and youth unemployment are all worse today than they were twenty years ago, when BEE was introduced. 85% of black South Africans have not benefited from BEE.

The socio-economic harvest of BEE has come up empty – an unqualified, irrefutable disaster. Against the 2007 estimate of the government’s own National Empowerment Fund that up to R2 trillion would be required to fund BEE transactions and black enterprise development, BEE has little to show for it but failure, corruption, and a wealthy cadre class leeching off all payment streams within the economy. The opportunity costs of BEE’s investment disincentives and skills flight for those outside the élite class of connected cronies are incalculable.

However, the damage done by failed race-based labour and procurement policies goes even further, with the collapse of infrastructure and Eskom.

Rent-seeking intermediaries

Race-based and cadre-rigged procurement processes have infested all levels of government spending:  billions of rands wasted without any value added. The cost to taxpayers is measured in tenders ballooned to grease the wheels of the ANC’s patronage network, leading to overspending on rent-seeking intermediaries, markups of thousands of percent, and incompetent service delivery.

The results of this systemic state capture are everywhere visible: potholes, stolen tracks, the terrifying emergence of bloodthirsty sector mafias, the collapse of Eskom, and the overall impediments to South African businesses of all sizes offering services, manufacturing products, getting goods to market, and generating the sectoral upward value-add of a healthy economy.

The fiscal disaster prompting the consideration of higher taxes is a direct consequence of a government addicted to unaccountable spending and fundamentally hostile to economic growth, which is the very key to a better life for all in South Africa.

Canning EWC will help unlock investment vital to economic growth. Scrapping race-based and cadre-rigged procurement and employment policies will reverse the collapse of the process of getting goods and services to market, whilst dealing more effectively with corruption than any commission of inquiry or lacklustre prosecutorial efforts.

Instead of BEE, a policy of Economic Empowerment for the Disadvantaged (EED), as proposed by the IRR, will ensure constructive corporate citizenship and economic redress that reaches those most in need, not just those most connected. The legacy of the state-mandated poverty of apartheid and the last two decades of ANC failure will be eradicated within a generation. The economic consequences of these straightforward policy changes would pull South Africa back from the brink of fiscal detonation, whilst ensuring socio-economic upliftment on an unprecedented scale.

The key to a better South Africa, Minister Godongwana, isn’t an extortionate, growing tax burden – it’s a growing economy.

Hermann Pretorius studied law and opera before entering politics and, latterly, joining the IRR as an analyst. He is presently the IRR’s Head of Strategic Communication. He describes himself as a Protestant, landless, Anglophilic, Afrikaans classical liberal.

This article first appeared on Daily Friend.