South Africa has reached the ceiling for taxes. The quality of the returns on taxpayers' money — in terms of public health, education and safety — is too low, the levels of official corruption, incompetence and wastage are too high, and the tax base is too small.
Elected representatives and public officials often treat taxpaying citizens with disdain and arrogance. Worse, they flaunt bling paid for with public funds and lack accountability. This has caused massive resentment.
The ANC sees raising taxes as a simple solution to a shortage of state income. Within the party there have been two views on taxes over the past decades. The popular one has been to raise taxes for high income earners and businesses. The argument is that the country is well-off but undertaxed and, importantly, taxing “the rich” will have less of a negative electoral impact on the ANC. Finance minister Enoch Godongwana represented this view when he last year said the state was not running out of money, all it needed to do was increase taxes.
The second view in the ANC has been to opt for raising VAT, because that is perceived to be spreading the tax over larger constituencies and is supposedly not a direct tax. However, many ANC leaders see VAT as more electorally damaging to the party, as it disproportionally impacts the lower-middle and working classes — the ANC's key constituencies.
The ANC's development model has been to increase taxes to recover losses caused by state inefficiencies, mismanagement, corruption and ideological and populist policies. This is offset with increasing social stopgaps, including welfare grants, while cutting capital spending, small- and medium-enterprises development, and research, technology and innovation budgets. This is the wrong approach to filling revenue gaps.
State failure, state infrastructure failure, state corruption, state incompetence and state waste cause business collapse, investment flight and entrepreneurial flight. It causes inflation, raises the cost of living for ordinary citizens and reduces the value of their money. But importantly, because of state failure, citizens pay a double tax: to escape state failure they have to use private healthcare, private education and private security, which should be seen as taxes.
Many corporates move their income and profits abroad. High-net-worth individuals, with extensive social capital, entrepreneurial skills and energy — a critical demographic for any country — leave because they are highly prized in other societies. Minorities who pay taxes are often marginalised or excluded from public institutions, reinforcing the perception that the public sector is for “blacks” and the private sector for “others”.
Before taxes are raised, the quality of the return on taxes — better public health, education and police — must be improved considerably. By doing so, the “social wage” — the quality, efficiency and reach of public services to all — is increased. This will eliminate the double tax, reduce inequality and foster social cohesion. It will also encourage the well-off to pay more.
Sadly, the reality is that tackling state inefficiencies, mismanagement, corruption and ideological and populist policies is politically difficult for the ANC, because it would mean taking on powerful interest groups within the party
South Africa’s public finances must be managed more prudently. The quality of democratic, state and public institutions must be improved. This can only be done if those appointed to manage the public services, state-owned entities and agencies are competent, there on merit, honest and held accountable. The elected politicians who call for taxes to be raised must cut the bling, the arrogance and their unresponsiveness.
Public corruption, waste and leakages must be credibly tackled — especially by politically connected elected officials and public administrators. The state must use South Africa’s diverse talent better — whatever their colour, ethnicity or ideology. State employment must not become an exclusive club for those connected politically, ethnically, regionally or by colour.
Elected representatives and public officials must be held personally responsible for corruption, mismanagement and waste. Voters must stop basing their votes on the past, colour, ethnicity, slogans or dancing and singing. They must be based on competence, honesty and care.
Pushing for taxes to overcome revenue shortages is the wrong strategy. The savings should be made in decreasing state inefficiencies, mismanagement, corruption and ideological and populist policies. The focus therefore should be to keep taxes at current levels or reduce them, and then aggressively increase state efficiency, cut corruption and incompetence. Populist, growth-restricting, ideologically fundamentalist policies — which collapse businesses, chase away investment and high-level skills, should be jettisoned. They include the Expropriation Act, which allows for the expropriation of property without compensation, and thus undermines property rights.
Sadly, the reality is that tackling state inefficiencies, mismanagement, corruption and ideological and populist policies is politically difficult for the ANC, because it would mean taking on powerful interest groups within the party.
• Gumede is professor of practice, School of Governance, University of the Witwatersrand, and author of Restless Nation: Making Sense of Troubled Times (Tafelberg)
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