Research & Ideas
Taxing the Future, Confusing the Present
Written by Gavin Chait
"We are all in this together," said Trevor Manuel during his 2008 budget speech. It was a plea, not only to the new Zuma / Motlanthe alliance within the ANC, but also to South Africa's taxpayers.
Behind the glib remarks he was begging taxpayers, "Please keep paying."
The introduction of a presumptive turnover tax for businesses with revenues less than R 1 million a year is not a simplification. The 7.5% tax on turnover for the top bracket can be as much as 50% of profits. Businesses with a net profit of 15% of turnover, or less, will find that they are paying more tax, not less.
The reduction of the retirement age to 60 by 2010 introduces significant costs to taxpayers. Firstly, as a result of increasing life-expectancies (assuming that you don't contract HIV and die before you retire, you should live a long life). Secondly, as a result of the planned compulsory retirement scheme still to be introduced.
The R 60 billion extra for Eskom is only one part of an overall expansion of state expenditure and an increasing responsibility for taxpayers.
Hence Manuel's repeatedly stressed plea, "We are all in this together."
Because we aren't, really.
A mere 5 million South Africans pay tax. To support the other 40 million who require social grants, housing, subsidised electricity and water, education, healthcare and so on. As Winston Churchill said, "Never have so many owed so much to so few."
The majority of South Africans don't pay for the benefits they receive and enjoy voting for politicians who are willing to grant them more. The majority are even willing to tolerate the high levels of corruption prominently and proudly on display in the new ANC hierarchy.
Taxpayers, on the other hand, can justly claim that they are taken for granted by the government. The threat that taxpayers must comply to keep stability ignores who the biggest losers from a bankrupt state would be: those who depend on government grants for survival, and a narrow black elite whose sole talent is being a "black empowerment partner".
Any government can lay claim to the loyalty of taxpayers in two ways: they can apply force, or they can offer ostensible advantages to being in the system.
Loyalty oaths are a useful way of brainwashing taxpayer's children into supporting the system, but it is slow. Meanwhile, a government that has lost track of critical infrastructure, given up on dealing with crime, but continues to pay for Jacob Zuma's trial and the health minister's booze, has to rely on taxpayer's confusion to maintain loyalty.
It is a tenuous path.
In the past six months 12,000 traffic fines have been issued to people driving in the bus lane on the N2 highway. When road-rule infringers are a mere few hundred, then there are sufficient traffic officers and courts to deal with them. When there are 12,000? Expect some sort of amnesty because the government has no capacity to deal with these numbers.
The plethora of tax amnesties we have seen over the last few years are the only way that the state can deal with large-scale tax avoidance. Despite the South African Revenue Service's ever-increasing budget (at a cumulative annual rate of 15.2% since 2000), they would never be large enough to catch everyone.
If taxpayers start feeling that they're being ripped off and that they have no recourse to representation, then tax collection will decline. But, as taxes decline, it also undermines the ability of the state to extend its rule.
Some 40% of South Africans already trade only in the informal (out of government bounds) economy. They make up around 8% of the economy.
Word to the state: we are not all in this together.
If those of us who pay feel that we are not getting any value in return we can always stop.
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