Dennis Davis simply is an exceptional fellow. He is a High Court judge. He is a television star. He lectures at the University of Cape Town. On top of all of this he plays a key role in recommending to the Finance Minister – now Nhlanhla Nene – on tax proposals and policy through his Davis Tax Committee. He spoke at the Cape Town Press Club and was interviewed by Donwald Pressly.
By Donwald Pressly*
South Africa needs (a message of) hope, says Judge Dennis Davis. Never scared to put his cards on the table – which he does without wading into party political issues simply because that would not be appropriate – he said that South Africa does not have much room to increase any tax at present. Even the increase in VAT announced earlier this year could have been avoided if the Zupta dark period had not messed it up for the poor in particular and the middle class in general.
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The problem with a VAT rise – which was increased in the February budget of then Finance Minister Malusi Gigaba – was it was the only mechanism to raise the tax so that South Africa’s fiscus did not tip over the cliff. At that point, a new source of tax was needed so that expenditure – which had grown exponentially during the Zuma years – did not hugely outstrip revenue.
So why was there still a need for yet another form of fiscal revenue? Davis says that corruption coupled with the growing cost of the administration – he did not go into detail but it implied the high cost of the public service – and the absence of significant economic growth had driven South African into a corner. It had to find another source of revenue. This was needed to underpin President Cyril Ramaphosa’s stimulus plan, recently announced.
He suggested that a tax on the market capitalisation on the top 100 companies may be the way to go. This was similar to the Economic Freedom Fighters’ idea of a sovereign wealth fund. But he emphasised that South Africans were now sick and tired of government corruption and misuse of tax resources. So any new fund must be managed by people who had integrity. No one would buy into a new form of tax if it were not “ring-fenced” and managed appropriately. “It should be managed by reputable people that we can all agree upon,” he said.
A fund could be set up drawing up to 100 billion each year. This could go to pay for specific upliftment projects which aimed to turbo-charge people out of poverty. It was most important that those who paid any new tax should not be able to say that the money would be mis-used or stolen. It was important that it did NOT go into the general revenue fund.
Such a funding plan should be combined with a massive meeting-the-people interaction by President Cyril Ramaphosa – who was likely to be re-elected as president of South Africa in 2019, he believed. He would explain why salaries in the public sector needed to be frozen for a period and other belt-tightening measures should be done. Davis believed that if there were set fiscal and development goals which were explained in simple terms to the person in the street, South Africans would buy-into such a plan, he believed. But as things stood now “we (South Africa) has run out of runway in relation to money”.
There was no fiscal room for the government left. The treasury could not raise VAT again. “No government in their right mind would do that (raise VAT) again.”
What about a punitive tax imposed on the rich? How about raising the top marginal rate of tax from 45 percent to 65 percent? Davis did not think so –  joking that he as a judge paid the top marginal rate himself. But studies had shown that big increases in marginal taxes – or indeed corporate taxes – did not raise the revenue for government as was expected. He argued that a one percent tax on the market capitalisation of top companies would be more easily accepted. He did not believe that Oxford economist – and a mentor of former Finance Minister Pravin Gordhan – Tony Atkinson’s ideas about massive marginal tax hikes could be applied with success in South Africa.
South Africa was known to “bounce-back”. He believed it could well be moving in the direction of doing so again. SARS reputation was being rebuilt. It was investigating tax fraudsters. It was important that the national prosecuting authority did its work in getting people into jail who were corrupt or did not pay their taxes. He believed that people in the Zupta thrall should be brought in and offered “deals”. If you do not pay up, you go to jail, but if you give information about the corruption, then you don’t go to jail. Those at the lower end of the corruption feeding chain could therefore, implicate those higher up on the feeding chain.
- Donwald Pressly is a veteran political and economics journalist. He is vice-chairperson of the Cape Town Press Club and former editor of The Cape Messenger.
