“Give a tax holiday for new businesses for their first five years”
Russel Lamberti Economist at ETM Analytics
1 What are the top three policy issues that are depressing SA’s growth rate?
A systemic and deliberate anti-meritocracy, overregulation and nationalisation of key markets as well as excessive taxation by a bloated public sector.
2 What are the positives? Can we strengthen and improve on these?
Our strengths include a past accumulation of capital that is still intact (albeit under strain), a legacy of skills and an innovative entrepreneurial culture. Income inequality is also one of the best things going for SA. It creates a desire to succeed and rise above. This latent energy of inequality needs to be harnessed by policies of economic freedom and the economy will soar. If it is harnessed by policies of entitlement and redistribution, SA will be lost.
3 What can we do in the short term to boost growth?
Slash taxes and state spending (cut spending more to balance the budget). Raise interest rates to balance saving and consumption, reduce malinvestment, and stop the unhealthy debt-based growth model. The lower taxes will cushion the short-term blow of higher rates for indebted households and businesses. This process will liquidate zombie assets and reallocate capital to where it’s needed most. Productivity will spike. Simultaneously scrap all trade barriers (import tariffs can be scrapped as part of the tax cuts). Lower the inflation target to 1%. Scrap exchange controls. Remove minimum wages, unban labour broking. Give a tax holiday to new businesses, regardless of size, for their first five years. Guarantee property rights to encourage investors. Allow the currency to strengthen.
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?
Make it easier to do business. Mainly, slash the burden of company taxation by scrapping provisional tax, making VAT payments less onerous, and lowering corporate tax rates. Then, deregulate the labour market and make hiring and firing less onerous.
5 What would your strategy be to address the need for transformation and empowerment, while ensuring an attractive business environment for investors?
The maths is quite simple. If SA does not create new wealth at a far more rapid rate, redistributionist policies will only leave everyone poor. The best form of empowerment is a just society with policies that foster rapid, sustainable growth. The number one priority is therefore growing the nation’s wealth sustainably, and that in turn requires the maximum amount of economic freedom. Employment, expanding opportunities and choice is the essence of empowerment.