Helen Zille’s ill-timed call for a tax revolt at a time that the country is grappling with a multibillion-rand budget deficit has masked the real battle of ideas that we should be having in the lead up to May’s general election. File Photo: IOL
Helen Zille’s ill-timed call for a tax revolt at a time that the country is grappling with a multibillion-rand budget deficit has masked the real battle of ideas that we should be having in the lead up to May’s general election. File Photo: IOL

Elect a party with fiscal vision

By Kabelo Khumalo Time of article published Feb 1, 2019

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JOHANNESBURG – Helen Zille’s ill-timed call for a tax revolt at a time that the country is grappling with a multibillion-rand budget deficit has masked the real battle of ideas that we should be having in the lead up to May’s general election: fiscal policy.

In a multiparty democracy, the objectives of the party in power will undoubtedly sway fiscal and monetary policy. The same holds true for the pretenders to the throne.  

Is it then amiss that we have little detail on what our politicians think when it comes to taxes and reducing government debt?

The governing ANC in its election manifesto, besides unwisely proposing amending the mandate of the South African Reserve Bank, said nothing on how it would bring under control government debt and raise revenue should it return to power, as is anticipated.

Fiscal policy is far too important to be left to the device of economists and politicians alone.

Herein lays the apathy of South Africa’s electorate in that we have many a time elected governments to do as they please in framing fiscal policy.

Would it not be wise to elect a party that clearly outlines which tax regime they will pursue when in power?

Tax policy has both microeconomic and macroeconomic aspects and must be at the heart of public discourse. 

More so in a country bedevilled by excessive inequality and debilitating unemployment.

With public debt south of 50 percent of gross domestic product (GDP), would it not be prudent if parties running for the keys to the Union Buildings told us how exactly they will stabilise and reduce government debt before we hand them the keys to the kingdom? 

To their credit, Julius Malema’s red berets in their 2014 election manifesto did share their thinking on how they would raise revenue to fund the party’s wish list. 

At the time, the Economic Freedom Fighters said corporate and company taxes should amount to no less than 40 percent of the tax revenue. 

The left leaning EFF further stated it would introduce education and training taxes from all private corporations to a minimum of 2 percent of the total revenue of all corporations employing more than 25 people, while  customs and excise duties and levies would be hiked  by 50 percent.

I did not and do not agree with their proposals. 

But I welcome their forthrightness and empowering the voter to interrogate their tax proposals. 

In other democracies, the issue of tax policy is one that is sacrosanct to appealing to the electorate.  

The debate always boils down on whether we soak the rich for more tax or cut taxes on the middle class.

Canada’s Prime Minister Justin Trudeau ran his 2015 election campaign on the promise of giving the middle class a tax break, while proposing a tax hike for the wealthy.  

His argument was that when middle-class Canadians have more money in their pockets to invest and save, it benefits the country’s economy.  

His tax proposals prevailed and he became the country’s top politician.

Trudeau’s administration increased the tax rate for those earning more than C$200 000 (R2.05 million) from 29 percent to 33 percent upon taking office. However, the latest research has revealed that Trudeau’s top tax rate hike did not have the desired economic effect. The hike simply failed to bring in new revenue. 

Be that as it may, Canadians voted Trudeau into office largely due to his tax policy, thus giving credence to “government of the people by the people”.

Across Canada’s border, Donald Trump won the US election on a promise to build a wall and slash taxes for corporates and the well-to-do. 

He has not gotten his wall yet, but he surely gave tax relief to the rich. 

The jury is still out on the effectiveness of Trump’s $1.5 trillion (R20.45trln) tax cuts, but the fact remains that Americans got a tax regime they voted for. 

Faced with a R50 billion tax revenue shortfall, South Africa’s middle class are eerily quiet on the tax regime they would like to see.  

The irate voices of the working class and poor echoed through the corridors of the National Treasury when it hiked VAT last year – a decision that proved to be unpopular even for the liberal DA.  

Taxes are a bread-and-butter issue that should dominate debates in the lead-up to election, so that a government receives a clear mandate from the people on what fiscal policy they desire.

The streets of Paris are currently under siege from the Yellow Vest movements, which are demanding among other issues the re-introduction of France’s wealth tax on the country’s most wealthy.  

This is what happens when citizens of a democratic society are reactive rather than active participants in the democratic processes of their country. The Yellow Vests should have voted for or demanded a government that would reintroduce the said tax.

Oxfam last week said inequality was at record levels and called for a wealth tax to level the playing fields.  

Yes, South Africa’s inequality is unsustainable, but I argue that a wealth tax does not level the playing fields. We cannot tax ourselves to growth and equality. Broad-based economic growth calls on us to call for a balance between spending cuts and revenue.

Those arguing for taxing the rich more to arrive at a more equal society ignore the effects of the Laffer Curve.

Economist Arthur Laffer showed a relationship between tax rates and the amount of tax revenue collected by governments. He suggested that as taxes increase from low levels, tax revenue collected by the government also increases.

Laffer further showed that increasing tax rates after a certain point would cause people not to work as hard or not at all, thereby reducing tax revenue due to the government. 

It is not lost on me that on the side of the debate are those who are adamant that to lift the poor, you must tax the rich more.  

Scholars like Thomas Piketty have written extensively on the need for a robust wealth tax regime for South Africa to close the wealth gap. I will not repeat his argument here. 

The issue really is that as a voter I should be empowered enough to know what political parties plans to do to stabilise public debt, so that future generations don’t have to pay for it. The political parties must take us into their full confidence on what their tax proposals are before we get to the ballot box.

At the end of the day, two assertions hold water when it comes to the tax system: First, the tax regime ought to raise sufficient revenues to cater for fiscal obligations, and second, the tax system should reduce market-driven inequality. Tax revolt is not an option in the pursuit of closing the inequality gap. 

“Although there must be room in a democratic society for energetic debate concerning tax measures, the tax system cannot serve as a forum for protest against other perceived wrongs,” the Katz Commission’s first Interim Report in 1994 correctly stated.  


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