Institutionalised Poverty: Taxation, regulation, and inflation in South Africa

South Africa has natural resources. It has intelligence. It has entrepreneurial spirit. What it lacks is a government that understands the value of stepping aside.

Source: wjgomes | Pixabay

Written by: Econ Bro

Poverty in South Africa is not some tragic accident or a cruel twist of fate. It is not about bad luck or the ghosts of colonialism/apartheid. It is the direct result of decisions made by the state, decisions that have turned what could have been opportunity into grinding, generational misery. Through punishing taxes, heavy-handed regulations, and a currency that is constantly being hollowed out, the government has managed to keep millions trapped in poverty while enriching a politically connected few.

Let us break it down.

Taxation

Nobody volunteers to pay tax. In South Africa, as in most places, you pay because you are forced to. Refuse, and the state does not just send a letter. It comes for your bank account, your property, even your freedom. Resist long enough, and violence eventually becomes an option. The only real difference between government and organised crime is that the former has better public relations.

Take a small-scale farmer like Thabiso, who grows sunflowers. What he earns from the soil does not go into new equipment or hiring help. A chunk of it is siphoned off to government departments. Some are corrupt, others merely incompetent, but all are bloated. If left in Thabiso’s hands that money could have been invested in growth. Instead, it vanishes into tenders and bureaucracy.

It is not just about Thabiso. If he produces less, so do the millers, oil pressers, shopkeepers. Less supply means higher prices. Fewer jobs. Lower output. The entire chain contracts. Everyone pays more, and the economy limps forward with a brick tied to its ankle.

The tax burden is absurd. Personal income tax can climb as high as 45 percent. Companies pay 27 percent. On top of that, there is VAT at 15 percent, fuel levies, customs duties, “sin” taxes, property rates, and municipal charges. By the time you are done, you are working half the year just to fund the government. What remains barely covers the cost of living, let alone saving, investing, or hiring.

And when people say, “But taxes pay for schools and hospitals,” ask them to visit a public hospital. Drive on a rural road. Look at the water situation in many towns. The truth is, where services still function, it is often because the private sector quietly steps in to do the work government cannot or will not.

Regulation

Starting or running a business in South Africa feels like playing a game where the rules change constantly and the referee has it in for you. The regulations are endless – zoning laws, permits, BEE codes, labour restrictions, land-use rules, environmental red tape. For someone like Thabiso, it becomes a bureaucratic obstacle course before a single seed is even in the ground.

This kind of regulation does not just slow things down. It kills opportunity. Big companies can afford legal teams and compliance departments. The little guy cannot. So, he is locked out. Innovation is smothered. Upstarts never make it past the paperwork.

For the end consumer, more regulation always means higher costs. The very communities these rules are supposed to protect end up paying more for basic goods and services, while getting less.

Inflation

Now, let us talk about money, or more precisely, what happens when the state creates too much of it.

Inflation does not come from greedy shopkeepers or workers asking for raises. It starts at the top, when the Reserve Bank creates new money to fund government spending. When there is more money chasing the same number of goods, prices go up. That is not a theory; it is a certainty.

When that happens, your savings lose value. The money in your account buys less with each passing year. This is not just bad policy; it is theft. It is a hidden tax that punishes the responsible. Those who save, who work, who plan are left poorer. Meanwhile, the government spends the newly created money as if it had earned it through effort.

The ones who benefit are the ones closest to the tap – banks, contractors, departments. They get the new money first, before prices adjust. By the time everyone else feels the squeeze, the connected few have already made their profit.

The usual objections

Some people, usually speaking from comfortable suburbs, say, “But look at Sweden or Norway. They have high taxes and big states, and they seem to be doing well.” What they overlook is that those countries became rich under freer systems. Much of their wealth was built before their current regulations/restrictions were put in place. Even now, many of them are facing high debt, stagnation, and declining living standards.

Others blame foreign powers. They say it is the CIA or Brussels or shadowy global interests installing corrupt leaders in Africa. Yes, foreign meddling exists. But no outsider votes in our elections. No foreign hand waves flags at our rallies or cheers thieves into office. That is on us. The failure is not that outsiders interfere, but that we let them.

What needs to change

South Africa has natural resources. It has intelligence. It has entrepreneurial spirit. What it lacks is a government that understands the value of stepping aside.

The road out of poverty does not require utopian slogans or billion-dollar aid. It starts with very basic things. Cut taxes. Simplify the rules. Protect the value of money. Let people work, build, save, and trade without having to ask for permission at every turn.

Until we demand that kind of freedom and stop making excuses for policies that sabotage our own future, poverty will remain the default condition.

Econ Bro (@EconBreau and @EconBreau2 on Twitter/X) is a Nigerian Austrolibertarian economist and an apprentice at the Mises Institute. Under the organisation name “The Freedom Institute” he teaches individual liberty, personal responsibility, private property rights, free markets, and sound money to mostly young people across Nigeria. Econ Bro is an Associate of the Free Market Foundation.