Create jobs and taxes will flow in

It seems that Finance Minister Tito Mboweni and his advisors are well aware of the maxim that extreme care must be exercised when treating the goose which lays the golden eggs – in this case, South Africa’s taxpayers. Hence, there was comparative good news for those long-suffering souls in Mboweni’s budget speech last week … tax hikes, which had been planned, have been put on ice for the moment and, by adjusting tax brackets upwards, there is some financial relief for lower-earning taxpayers.

However, the tenuous and fragile nature of the government revenue system has been highlighted by Econometrix chief economist and director Azar Jammine. He noted that only 5.8% of South Africa’s population is paying about 92% of all personal tax. This portion of the population is also probably paying about 85% of all value-added tax (VAT).

Jammine said South Africa has almost seven million taxpayers out of a population of 60 million, and the government is heavily reliant on upper-income taxpayers to fund its expenditure programmes.

A positive sign Jammine noted was that the middle-income class is growing as a proportion of the tax-paying sector.

But those are the very people who are, proportionally, going to be pressured most by any tax increases.

South Africa is already towards the top of the table for high-tax nations, but increasing taxes further could hit revenue returns, employment and productivity.

On the other hand, the reality is that those seven million people paying tax are a fortunate minority in South Africa – because they have jobs and don’t have to rely on government grant handouts to survive.

The way to increase revenue for government is to create circumstances which are favourable for investment and, in turn, create wealth and jobs. The more people who have jobs, the more who can pay tax.

But, also, government’s out-of-control spending must be curbed.