SA’s real crisis: Taxes, policy failure and corruption, not cost of living - Sindile Vabaza
Key topics:
Overtaxation erodes savings and drives households into debt
Policy burdens stifle small business growth and job creation
Corruption and state-led focus waste resources and block progress
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In his 1985 comic book, How an Economy Grows and Why It Doesn’t, American tax resistance advocate Irwin Schiff tells the story of a primitive society where people spend all their time fishing with their bare hands to catch a fish a day.
All their time is used up in this way, as any time spent doing anything else would likely result in their not being able to catch a fish to eat. Their total daily production is thus catching and preparing the fish for consumption, which essentially means they consume all they produce.
One day, one person decides to consume only half of their fish for the day, and save the rest for the next day. They want to also set aside time the next day to construct a net to catch more fish. They are thus able, in the future, to catch more fish, which leaves them better off than they were.
They now have various options with regard to their excess fish. They can keep some of the fish and do other things like grow crops, or they can “lend” fish to other people for a return so that other people can do other activities, or they can even take time off to develop some cultural activity that will enrich the whole community.
All this provides fertile ground for an economically and culturally evolving community, with diverse goods and services, higher levels of production and innovation and growing living standards enabled by the limiting of consumption in the present. The community engages in saving, which enables investment in productive and innovative pursuits. These then lead to even more goods and services, which improve the ability of individuals to meet not just their own needs but the needs of others in the community.
So how does this relate to the quagmire that is South Africa’s political economy?
I would argue that South Africa does not have a cost-of-living crisis, but a tax (savings) policy and competence/corruption problem. No national dialogue or clever schemes are going to provide relief to our populace or lead to the economic growth the country so desperately needs.
Tax (savings)
South Africans are overtaxed. That is part of the reason why so many people have so little margin to save or have to resort to debt to make ends meet. This is especially egregious in a growth constrained economy (more on that later), where wages have been stagnant. These high taxes, from income taxes to VAT to the exorbitant taxes on mobility (fuel and cars), are all justified by narratives of a “capable state” that requires ever larger amounts to “correct” the economy. However, tax money is wasted or simply hoovered up by patronage networks of people who are over-consumers rather than savers.
Meanwhile, as infrastructure and services which are tax-funded erode, hard-pressed and overtaxed South Africans must dole out even more to pay for healthcare, schooling for their children, extra security measures and even alternative sources of energy and water provision. It is obscene, unjust and unconscionable and ultimately means that we are confined to having a low-savings, high-debt environment.
Cars.co.za in a recent article gave an example of just how much taxes can affect vehicle prices in South Africa, using the example of an internal combustion car that retails for R500 000.
Example 1: Internal Combustion Engine (ICE) Vehicle
Assumed Retail Price: R500 000
Components:
Import Duty (25%):
R500 000 × 25% = R125 000Ad Valorem Duty (approx. 20.85%):
~ R104 250 (as calculated in the earlier example)VAT (15% on ATV):
~ R91 375 (using the validated ATV formula with duties included)Carbon Tax:
~ R8 000–R15 000 (depending on actual emissions)Tyre Levy:
~ R100–R200 (based on tyre weight)
The estimated Total Tax Burden is approximately R328 725 – R335 825.
This can represent 65–67% of the retail price, when all purchase taxes are included.
While people can quibble as to exactly what tax rates should be, what is clear to me is that South Africa needs significant reductions to income tax, company tax, VAT, fuel levies and various other taxes on mobility, together with reduced government spending, especially the public wage bill.
Policy and incompetence
Closely related to the tax problem is the policy problem in this country. One of the main reasons South Africans are taxed so extravagantly is to fund a policy environment that puts government front and centre in the development of our society, squeezing out or stifling private (individual) enterprise in favour of the highly ideological “capable and developmental state”. This is where the regulatory burdens on businesses, especially small businesses come from. This is what stifles the ability of small businesses to invest back ino the business and create more products and services and therefore job growth.
This state-led focus (as opposed to an environment of true market competition) also opens up plenty of opportunities for unscrupulous and often corrupt networks to pilfer money that South Africans could have used to save and invest, or that businesses could have invested to increase productivity and therefore growth and wages, and improve living standards.
What is clear is that whatever the supposed intentions, the policy environment in this country serves a political, big business (through regulations that stifle start-ups and competition) and labour aristocracy. Ordinary South Africans and small businesses which are and should be the lifeblood of this economy and society are left to shoulder the burden of this extractive and exploitative policy environment.
This locks more people out of the labour market and is the opposite of its supposedly inclusive billing. South Africa does not have a cost-of-living crisis, South Africa has a tax and policy crisis.
*Sindile Vabaza is an avid writer and an aspiring economist.
*This article was first published on Daily Friend and was republished with permission