Low tax equals high growth, Judge Davis misguided – Stephen Mulholland

CAPE TOWN — Judge Dennis Davis is full of noble, impractical ideas that are economically unsustainable, charges retired editor and publishing CEO, Stephen MulhollandWhat’s got Mulholland’s goat is Davis J’s letter to Business Day this week in which the learned judge backs increasing estate duty tax to address historical inequalities. For Mulholland, it flies directly in the face of entrepreneurial innovation, hard work and a free, capitalist economy, where those who create infrastructure, jobs and opportunities are penalised to the grave. One can only speculate that Dennis Davis’ heroes and mentors do not include Milton Friedman, whose wisdom and economic insights Mulholland quotes at length. It would be highly educational, not to mention entertaining, should Mulholland and Davis face off in a televised debate on the practical upliftment of South Africa society one day. A meeting of minds is somewhat unlikely. – Chris Bateman

By Stephen Mulholland*

It was with a sinking heart that one read in Business Day of April 18 a letter from Judge Dennis Davis, chairman of the Davis Tax Committee in which he states, inter alia:

“…it was precisely because the David tax committee shares the view that steps must be taken to deal with the disastrous patterns of inequality that the report recommended a significant expansion of estate duty, to be implemented immediately given that estate duty is already an existing wealth tax.”

Stephen Mulholland

It was the great Nobel Prize winner, Milton Friedman, who remarked that if we want less of something then tax it. It appears, thus, that our learned judge wishes for our country to have less wealth.

And, of course, every first year economics class will learn that consumption taxes reduce consumption. It follows remorselessly that a wealth tax will discourage folks from creating wealth. They will, for example, not start a new business and work their guts out to make it a success and thereby increase their wealth if they face the prospect of the state seizing a growing chunk of the wealth that has been created by those seeking their and their families’ self improvement.  

And, of course, if they succeed, creating value for consumes and opportunities for staff.

It appears it is not enough for Davis and his cohorts to have taxes upon income, such as dividends, which have already been taxed. Double tax, as it known and soon to be treble and quadruple tax. And, having paid taxes on their earnings and any wealth they have managed to slowly and painfully accumulate, folks then pay sales taxes, rates on their homes, death taxes (politely known as estate duty) and so on.

Just imagine, we are taxed for dying, a process which – aside from suicide – is beyond our control.    

The judge apparently believes that wealth falls from the sky rather than from the imagination, hard work and risk taking of individuals seeking, within a system of law and order, to improve their lot in life.  

So punish the risk takers, punish the dedicated, and punish the job creators who are hard workers and brave and clever risk takers. Punish the creators of shops, factories, banks, insurers, shopping centres…..hit them with capital gains taxes while they are alive and death duties when they no longer are.  

And, like most collectivist dreamers, hand the wealth over to incompetent and frequently corrupt civil servants who will, inevitably, dissipate it all and then return to the private sector for another helping of the wealth they had no hand in creating.

Read also: ANC cherry-picking Davis wealth tax findings could prove a disaster

Friedman had this to say about taxation:         

  • I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible. 
    The reason I as is because I believe the big problem is not taxes, the big problem is spending. The question is, ‘How do you hold down government spending? The only effective way I think to hold it down, is to hold down the amount of income the government has. The way to do that is to cut taxes.
  • You could not possibly maintain the current level of government taxation without the taxes being hidden, and they are hidden in two very different ways. They are hidden through withholding, but they are also hidden by being imposed on business, supposedly on business, when really, of course, business can’t pay taxes, only people can pay taxes.

If one looks around the world at national economic models it quickly becomes apparent that where taxes are low and simple economic growth and personal freedoms are higher, education levels are superior, health services better, personal safety greater, housing better and more affordable.”

Read also: Cash-strapped high income earners don’t have more tax to give SA – Matthew Lester

Thus low, simple tax rates and high growth go together.

The sooner Judge Davis grasps this obvious truth the better.

  • Stephen Mulholland is a retired editor and publishing CEO. In 1966 he founded the Sunday Times Business Times. He was editor of the Financial Mail and Business Day and SA correspondent of The Wall Street Journal. He was CEO of Times Media Limited and the Fairfax group in Australia.
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