We need more taxpayers, not more tax
There should be no discussion on raising tax. If anything, higher tax brackets should be eliminated and taxes that hold back economic growth should be abolished.
South Africa must end its fixation on raising taxes and instead focus on broadening the tax base. Only 1.5% of South Africans pay 61% of all income tax; 7.9 million tax payers fund over 28 million grant recipients.
Even the National Treasury has admitted that it cannot afford to keep raising income tax, despite a R20 billion budget shortfall. The proposed VAT hike was poised to devastate our already flagging economy. And income tax bracket creep is already placing struggling households under more distress.
Raising tax only encourages the few taxpayers the country already has to find methods of evading tax or even leading to emigration as the financial burden becomes too much. And even when taxpayers don’t leave, more money extracted from their income means less money that they can spend more efficiently on improving their own lives.
And no, taxing the wealthy isn’t a silver bullet to solving our fiscal problems. The introduction of the 45% tax bracket in 2017/2018 actually had a negative impact on taxable income. The fact of the matter is that the more money you try to take from productive citizens, the less money they’ll be willing to pay.
A wealth tax is also an economically naïve and disastrous idea. Attempting to tax assets that haven’t realised an income is unworkable. And in many cases, a wealth tax is redundant. There is already a host of taxes on wealth.
South Africans are taxed on inheritance and estate duties, donations, security transfers, and real estate transfers. Dividends are taxed before they are even considered income. Property is taxed and citizens have to pay municipal rates. There’s capital gains tax, and an Ad Valorem tax.Moreover, the rich already pay far more tax than what they get out of the country.
There should be no discussion on raising tax. If anything, higher tax brackets should be eliminated and taxes that hold back economic growth should be abolished. A Capital Gains Tax should be sufficient for taxing investments, and dividend income should only be taxed under income tax. The 20% dividend tax should be abolished.
Rather than fenagle more and more ways to extract diminishing wealth from the country’s productive citizens, the government should be dedicated to creating more taxpayers and establishing a stable tax-base that is resilient to capital flight and mounting tax evasion.
To achieve this, the government must solve the fundamental issue in South Africa. Unemployment. Create more jobs, and those newly employed individuals become taxpayers. On top of this additional income tax, these individuals become richer consumers, producing more VAT revenue. Companies will also enjoy the economic growth that comes with a larger workforce and more consumers, being able to pay more in corporate income tax.
To solve unemployment, the labour market must be deregulated. Red tape that restricts the creation and operation of businesses must be cut. Trade unions must not be allowed to run roughshod over businesses, using coercion and industry-wide intimidation to push unsustainably high salaries that prevent businesses from growing and employing more workers.
Regulations that make it harder to take a risk on new workers must also be abolished. If businesses no longer have to worry about not being able to fire an unproductive worker, they will be more willing to take a risk on an inexperienced applicant.
Above all this, South Africa needs to abolish racialised legislation such as Black Economic Empowerment (BEE) and the racial quotas of the Employment Equity Act.
BEE is estimated to have destroyed R5 trillion and cost South Africa 4 million jobs. If those 4 million jobs all only paid R1000 in tax, that would already be R4 billion. Not to mention that all those incomes would enable children to have better education, families to receive adequate nutrition, and lead to a spread of wealth far greater than any welfare program.
It is imperative that BEE is abolished, allowing companies to conduct business unimpeded by government overreach, and create millions of jobs that will pull millions more out of poverty.
The Employment Equity Act prevents businesses from being able to employ whoever they want or need to hire and must instead halt the growth of their business to ensure they maintain the right demographics as decreed by the state. Rather, we should be encouraging businesses to employ anyone. Employ as many people as they can. The more employed people we get, the more value that is being produced in the economy, the more we can snowball towards economic success.
South Africa can solve its fiscal crisis. We can solve unemployment. The government must only abandon its ludicrous obsession with racial vengeance and allow our economy to grow.
Nicholas Woode-Smith is the managing editor of the Rational Standard and a senior associate of the Free Market Foundation.