Nene should heed Churchill’s tax advice
IN 1904, speaking to an audience at the Free Trade Hall in Manchester, England, Sir Winston Churchill famously said: “I contend that for a nation to try tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle”.
Churchill encapsulated the key economic belief that if a nation is to succeed, it must be able to grow itself out of financial difficulties – as opposed to taxing itself out – and that taxation to prosperity is futile and self-defeating. Fast forward 111 years and it would seem that the ANC-led government and Finance Minister Nhlanhla Nene have not gotten the message.
The tabling of the 2015/16 Budget is not good news for South Africa and there is no “good story to tell”. Personal taxation will increase for the first time in 20 years, the electricity levy will jump 60 percent, and hikes in fuel levies and Road Accident Fund levies will result in higher transport costs. The knock-on effect will mean food prices will soar, which hits the poorest South Africans the hardest.
Add to this stealth taxes – like sin tax – and you start to realise how the government is attempting to use taxation to solve its own unavoidable problems.
Corruption
It is crucial to not shy away from the reality that most – if not all – the problems facing South Africa are government’s fault, from the state of Eskom, SAA, SA Express and the SABC to widespread corruption and maladministration. An estimated R30 billion is lost to corruption every year.
Yet instead of going after those who steal from the state, the finance minister chooses to further burden those who comply with the law through tax increases. He is making the ANC’s problems, our problems.
The thread runs deeper though. Many in government do not believe that corruption actually exists, or at least choose to view it with little contempt. The president is on record stating that corruption is a “western concept”, and during Nene’s Budget speech he said that there were ”allegations” of corruption in the public sector. If you don’t believe something exists, or you don’t see it as a serious matter, why would you deal with it? If the public purse becomes strained, simply find the money elsewhere.
The problem with taxation to prosperity is that no one actually prospers, unless you’re corrupt of course.
What Nene should be focusing our tax revenue on is investment and job-creationled growth. It is disheartening to see that Nene announced no new radical incentive programmes, but only repeated the current figures of the manufacturing incentives. I wrote to both Nene and Rob Davies, who is serving his second term as minister of trade and industry, last year suggesting that money be made available to support entities like the National Empowerment Fund, unlocking its potential to provide affordable financing to budding black entrepreneurs. I even made a suggestion of venture capital funds to lure the private sector into supporting innovation and small business growth.
These suggestions landed on deaf ears.
Red tape
The problem is that this government is just unwilling to support these innovators and entrepreneurs by cutting red tape, providing mentoring, cheap financing and grants. If we really wanted to solve unemployment, the Budget would have poured billions into entrepreneurial development, research and development, manufacturing, innovation and agro-processing.
These should be key sectors to lead South Africa to growth and prosperity. In 10 years, 6 million jobs can be created.
The ANC often speaks of an “investment strike” by the private sector, which they are quite correct about.
Upcoming bills like the Licensing of Businesses Bill and Promotion and Protection of Investment Bill, added to the 2015 Budget, lend weight to why the private sector is withholding investment.
It is becoming increasingly more expensive to operate a business in South Africa. Increased taxes and regulation are simply no help for growth-led prosperity.
Nene has again revised our growth forecast from 2.5 percent to a meagre 2 percent for 2015. This amounts to nothing short of an admission of defeat. It is an admission that all else has failed, that the government has failed, that ministers have failed, and that the ANC has failed.
It is an admission that while our neighbouring countries grow at 5.5 percent, we simply refuse to address the root causes that trap us in an ever-declining economic environment.
Former US representative Sandy Adams said: “The road to recovery is to stimulate small business and innovation by reducing taxation, regulation and litigation.”
This should have been the theme that ran through Nene’s Budget speech. Every department in government should have been mandated to follow this lead. Instead, the minister gave the government the licence to further destroy the economy, preventing South Africans from becoming innovators in the world’s markets.