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Instead of attacking the Reserve Bank and spending ever-increasing annual amounts of our fast-thinning tax base on creating, inter alia, a dependency-producing welfare state, a few key structural reforms will help turn the ship. That’s the opinion of Phumlani M Majozi, a senior fellow at African Liberty, who wants an update on President Cyril Ramaphosa’s much-vaunted cutting of red tape, a heavy slash in burgeoning government spending, reduced borrowing and a competitive education system. He backs up these assertions with salient facts and comes to the defence of Reserve Bank governor Lesetja Kganyago who favours structural reform instead of Zimbabwe-like tinkering with monetary policy. Bravely wading into immigration waters, Majozi also calls for better control of our porous borders and an immigration policy that attracts the best and brightest. Just juxtapose his graph of scary government spending with the stats on our shrinking tax base to know how pivotal the 2024 elections will be. – Chris Bateman
The structural reforms SA needs
By Phumlani M Majozi*
In recent years, my mission has been to advance laissez-faire economics, the sanctity of the family unit, the importance of personal responsibility, the importance of education and skills development, and the necessity for strong national borders. I advance these values because I believe that for South Africa to become a prosperous nation, it must adopt them.
South Africa’s dire economic situation is well understood by most South Africans. The people experience the effects of this moribund economy daily. I have often asked myself a question: who are the South African leaders who understand what needs to be done on policy to reboot the economy?
The governor of the South African Reserve Bank (SARB), Lesetja Kganyago, always comes to my mind. He has repeatedly asserted that South Africa’s economic problems are structural and cannot be addressed by monetary policy. Kganyago has also said South African policymakers must stop making promises that do not make economic sense. He is a strong man who has withstood pressure and defended his institution against political attacks.
Mr Tito Mboweni was largely sensible too when he was finance minister. In July 2020, Mboweni wrote, “The belief that we can spend our way out of low growth is misguided.”
The structural reforms are what will reverse the ongoing decline of South Africa that I highlighted in a column published in March 2021.
What structural reforms are urgent for South Africa?
The first one is the reduction of government regulations. Judging by his SONA (State of the Nation Address) last February, President Cyril Ramaphosa understands the importance of reducing regulations in the economy. My recommendation is that Sipho Nkosi – whom the president has appointed to cut the regulations in the economy – report back to the nation within the next six months. We deserve to know the progress on deregulation.
We must also deal with the rising government spending urgently. Excessive government is proving to be counterproductive. Popular economist Mike Schussler has written a lot about the problems of South Africa’s continuously rising government spending.
In his article published in Business Day in February 2021, Schussler wrote South Africans should not let the budget PR fool them; South Africa’s problem is that the government spends too much, and that wasn’t about to change. More than a year since this article was written, there are no signs the government is determined to slash spending.
The government money does not grow from trees, it comes from taxpayers. And South Africa has a very small tax base that is shrinking. Last March, Angelika Goliger, Ernst & Young Africa chief economist, wrote that the largest source of tax revenue in South Africa, the Personal Income Tax (PIT), had fallen in recent years. She writes that between “2003 and 2012, the number of PIT taxpayers grew by 7.0%. Since 2012, however, some of these gains have been eroded with a -2.1% decline in the number of taxpayers, according to data from SARS.”
She also says this is a matter that should be of great concern to all South Africans, as there are only 5.2 million individual taxpayers in 2020. These 5.2 million individuals, she writes, representing approximately 9% of the population, contribute 40% of South Africa’s total tax revenue. Goliger attributes this decline in PIT collection to two things. First, it’s a weak economy that has “reduced the ability of firms to grow, increase salaries and hire people”. And second, it’s the “emigration of skilled South Africans abroad.”
As the government expands, more of taxpayers’ money is required to finance its programmes – resulting in higher deficits – and higher debt as some of this money must be borrowed domestically and internationally. Many of the government programmes and entities could simply be transferred to the private sector through privatisation to help relieve the South African taxpayers.
Our education needs to become robustly competitive. Competitive education will be crucial in helping us to achieve rapid human development. The good attitude towards education is key to succeeding as a nation. It is not about fancy, air-conditioned classrooms; it’s about discipline and the high regard for education. The focus must be on achieving good, competitive test scores when compared to other major emerging markets.
Principled, determined, driven leadership that values education is also key to unlocking the potential of the country and laying the necessary foundations for a prosperous society.
Reforming and reducing welfare must also be one of our major goals. There is nothing appealing about the expansion of welfare as it is expensive and reinforces government dependency. In 1994, the number of South Africans who received government’s social grant was about four million. Today, that number is close to 20 million.
Now some people argue that we must factor in population growth when we study social grants post-1994. Fine. But this does not make the increase in the number of recipients right or sustainable. With an increasing population, we must still avoid the increases in social grants.
On taxes, there must only be one goal: that is to cut them to boost the economy. People must keep more money in their pockets. It’s their money; they can spend it better than the government. All these taxes we have increase the cost of living. The hardest hit are the poor.
Dealing with our immigration problems must also be a priority. In that process, we must eradicate xenophobia and advance an immigration system that attracts the brightest minds in the world. Our borders remain porous with millions of illegal immigrants now living in the country. Government must deal with this problem urgently as it’s already stoking chaos and violence in some communities.
Achieving rapid growth is dependent on the above structural reforms. Our leaders must act swiftly.
People like Mr Kganyago who understand how the economy ought to function, must be heeded. They are the ones who can chart a prosperous path for the country.
- Phumlani M Majozi is a senior fellow at African Liberty. His website is phumlanimajozi.com. Follow him on Twitter: @PhumlaniMMajozi.
- SACCI urges govt to speed up structural reforms to bolster economy
- Enoch Godongwana and reform – Jonathan Katzenellenbogen
- Band-Aids aren’t enough; we need reform – TreasuryONE’s Andre Cilliers
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