Don’t raise taxes, get loot back from thieves
It would be unfair to increase taxes for ordinary citizens to plug financial holes caused by ANC government corruption, mismanagement and incompetent public servants.
The moral hazard of ANC leaders and politicians governing irresponsibly, corruptly and dishonestly with no consequences, and then passing the costs on to ordinary citizens, businesses and investors to pay higher taxes and alternative private public services, is simply unacceptable.
In Wednesday’s budget, taxes should not be increased – and at best be left broadly at the same levels; combined with targeted tax decreases to encourage investment in underdeveloped areas, stimulate new industrial sectors and job creation.
A better focus would be to recoup from the untouchably corrupt, and those who mismanaged public funds and strut around arrogantly with no fear of ever being brought to book.
Determinedly focusing on increasing efficiencies in the state would also help.
In 2019, auditor-general Kimi Makwetu reported that Transnet had racked up R49.9bn and Eskom R6.6bn in irregular expenditure the year before.
Not one of the 14 largest SOEs audited by the auditor-general received a clean audit.
An additional four – Denel, the SABC, SA Express and the SA Forestry Company – could not even make full disclosure of their irregular spending.
Bailouts of failed SOEs, agencies and government departments now amount to more than R2-trillion.
Corruption, mismanagement and crony contracts at Eskom have caused power outages that led to the collapse of thousands of companies, disinvestment and the loss of countless jobs.
In the auditor-general’s last audit, of the 257 municipalities and 21 municipal SOEs, only 18 municipalities managed to produce quality financial statements and performance reports.
Irregular expenditure by national and provincial governments rose 23% to R62.6bn.
In 2018, President Cyril Ramaphosa put the North West provincial government under administration for its appalling poor governance. By 2017 irregular expenditure in that province stood at R15.3bn.
Although Limpopo was handed back to the provincial administration after it was put into administration in 2011, irregular expenditure was over R1.3bn, and not one municipality in the province received a clean audit in the auditorgeneral’s latest audit.
Former treasury chief procurement officer Kenneth Brown said that in 2016 40% of the government’s then R600bn budget for goods and services was consumed by fraud and inflated prices from suppliers.
More than R1.57bn of poor and rural municipalities’ money was illegally invested in the cash-strapped VBS Mutual Bank — with not a single person yet held accountable. In North West, 15 municipalities are under administration because of corruption, mismanagement and incompetence.
The majority of the country’s 21 Sector Education and Training Authorities (Setas), which receive R10bn each year, lose money through corruption, mismanagement and incompetence. In 2019, R216m in irregular expenditure was incurred by 12 of the 21 Setas.
Consulting, advisory and auditing firms have siphoned off billions from the government in overcharges or poor advice.
McKinsey repaid R1bn in fees to Eskom after admitting to overcharging for work. Boston consulting firm Bain and Company charged $11m (R165.9m) for a contract to advise the SA Revenue Service on “restructuring”, only to admit later that its report was inferior.
The government has to put a greater effort into getting back money lost in such ways, from both companies and individual directors.
Last week, the high court in Pretoria set aside a contract between Eskom and the formerly Gupta-owned Tegeta Exploration and Resources company that amounted to R3.7bn. In 2019, it was reported that the Eskom board’s tender committee made a R659m prepayment to Tegeta in April 2016 — before the mining company’s own board had agreed on seeking a contract with the utility to provide coal for a decade to the Majuba power station.
Increasing value added tax (VAT), personal income tax or corporate tax in the budget will bring in very little, compared with going all out to recoup the money lost through state capture. There would likely be social unrest, rising populism and instability if VAT were increased.
Some calculations have been that an increase in VAT, which will hit the poor hardest, would bring in around R20bn to the fiscus. Increasing personal income tax, or not adjusting personal income brackets for inPerhaps flation, may bring in more than R10bn. There have been some suggestions to increase corporate tax, which may bring in around R50bn.
Increasing taxes will also be more costly, cause political instability, damage investor confidence, and ultimately come at a greater cost to growth, job creation and development.
Increasing corporate tax would also be counterproductive as it would deter companies from making new investments or creating jobs.
High-earning professionals are already emigrating en masse. The problem is there is little credibility in government — given the widespread corruption, and the lack of action against corruption in the public sector — to increase VAT, personal income tax or corporate tax. Raising these types of taxes while bailouts of SOEs continue, leaving the same incompetent people in charge, no credible restructuring plans or political will to hold people accountable, will mean that these taxes will disappear too.
Consulting, advisory and auditing firms have siphoned off billions from the government in overcharges
William Gumede is an associate professor at the School of Governance, University of the Witwatersrand