“Recog­ni­tion of the need to sus­tain the con­sti­tu­tion is sur­pris­ingly ro­bust”

Stephen Mein­t­jes An­a­lyst at Mo­men­tum SP Reid and co-author of Our Land Our Rent Our Jobs

Finweek English Edition - - COVER STORY POLITICAL ECONOMY -

We are miss­ing a great op­por­tu­nity to ad­dress the land is­sue once and for all via col­lec­tion of land rentals and in­stead we are re­ly­ing on a Euro­cen­tric model

of tax­a­tion.

1 What are the top three pol­icy is­sues that are de­press­ing SA’s growth rate?

Land, tax and state in­ter­ven­tion: we are miss­ing a great op­por­tu­nity to ad­dress the land is­sue once and for all via col­lec­tion of land rentals and in­stead we are re­ly­ing on a Euro­cen­tric model of tax­a­tion and a mis­un­der­stand­ing of Chi­ne­ses­tyle state in­ter­ven­tion.

China has emerged from to­tal com­mu­nism, but al­lowed pri­vate en­ter­prise to flour­ish [...] with­out, for ex­am­ple, im­pos­ing min­i­mum wages. This mis­un­der­stand­ing is lead­ing to a down­ward cy­cle of weak­en­ing eco­nomic growth in SA, strength­en­ing the be­lief of those who favour state in­ter­ven­tion and in­creased tax­a­tion, à la Thomas Piketty, author of best­selling book Cap­i­tal in the Twenty-First Cen­tury.

His cal­cu­la­tions on cap­i­tal re­turns do not ac­cu­rately re­flect the ex­tent to which the re­turns on cap­i­tal in­clude rent on land. His anal­y­sis is there­fore flawed in as much as it does not re­veal the ex­tent to which “cap­i­tal” grew faster than GDP due to un­col­lected rent.

2 What are the pos­i­tives? Can we strengthen and im­prove on th­ese?

Recog­ni­tion of the need to sus­tain the con­sti­tu­tion is sur­pris­ingly ro­bust de­spite the on­slaught of spe­cial in­ter­ests to the con­trary. We also have a world- class financial and cor­po­rate sec­tor and en­tre­pre­neur­ial po­ten­tial at all lev­els. To en­able the gov­ern­ment to get out of the way of un­leash­ing this, we need fun­da­men­tal tax re­form.

3.

3 What can we do in the short term to boost growth?

Roll out the gold mines tax for­mula to the rest of the min­ing industry (the gold mines tax for­mula has been i n place for many decades, and pro­vides that smaller mines with op­er­at­ing mar­gins of less than 10% pay no com­pany tax, whereas richer mines with op­er­at­ing mar­gins in ex­cess of 50% would pay com­pany tax at 40.5%), re­store site value rat­ing in ur­ban ar­eas (as used to hap­pen in SA prior to the in­tro­duc­tion of the Lo­cal Gov­ern­ment Mu­nic­i­pal Rates Act of 2004), and then in­crease rates and re­duce VAT and, later, other taxes.

4 SA has slid a fur­ther four places to 73 out of 189 coun­tries in the World Bank’s lat­est

Do­ing Busi­ness re­port. Do you agree that SA is slip­ping, and if so, how would you fix it?

Shift­ing from tax­a­tion to l and and other nat­u­ral resources col­lec­tion would lead to up­side sur­prise in eco­nomic growth, re­duc­ing the per­ceived need for i ncreas­ing state in­ter­ven­tion.

5 What would your strat­egy be to ad­dress the need for trans­for­ma­tion and em­pow­er­ment, while en­sur­ing an at­trac­tive busi­ness en­vi­ron­ment for in­vestors?

Recog­nise that there are lim­its to the ex­tent to which pub­lic sec­tor ten­ders can cre­ate enough “black in­dus­tri­al­ists” and go for thou­sands i nstead of hun­dreds ( of em­pow­ered i ndivi duals) by c r eati ng a mas­sively i ncen­tivis­ing en­vi­ron­ment for eco­nomic ac­tiv­ity in ru­ral as well as ur­ban ar­eas.

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