Tightening the belt | by Amandla! editorial staff

by Mar 14, 2012Magazine

minister-pravin-gordhanHow is it possible for Finance Minister Pravin Gordhan to roll out a huge infrastructure programme requiring billions of rand and to slash the budget deficit (the proportion of government spending to GDP) from ––4.6% to –3% over three years without increasing taxes? This contradiction lies at the heart of Gordhan’s latest budget. It is evidence of the continuing dominance of South Africa’s financial elite.
They typically use the fearful example of Greece and of the international credit-rating agencies to scare the government into tightening its purse strings and foregoing on social spending.
But these are flimsy comparisons – they ignore that numerous nations with bigger deficits and greater social spending than Greece have avoided the same fate. Furthermore, recent evidence suggests that financial markets don’t take too much notice of the rating agencies.
Failing to tax them
In fact, markets are generally more concerned with a stable, growing economy – which in South Africa’s case requires active government intervention to overcome gross income and structural–economic distortions.
None of this is to say that such concerns are completely without merit – ultimately state-driven growth and redistribution cannot rely solely on bigger debts but must be paid for by increased taxes. In a country with an income distribution as abhorrent as ours and given our recent history – that burden must fall disproportionately on the rich.
Rhetoric and fanfare notwithstanding, Gordhan’s budget utterly fails to reflect this reality. A new tax on dividends (profits handed out to shareholders) and an increase in the capital gains tax (from selling property or assets) are held up as evidence that the government intends to take a fair share out of South Africa’s disgustingly wealthy. But these measures are more than cancelled by the abolition of a different company level tax on dividends, meaning they will ultimately generate a meagre R50 million. This is about R48 billion (note billion) LESS than what SARS last year estimated was lost in tax evasion by just 9 300 of the richest people in the country.
This amount is then further diminished by an over R10 billion decrease in the personal income tax which vastly favours – you guessed it – the wealthiest minorities. While those at the top will get R400/month back, those in the lowest tax paying bracket will get a paltry R57/month. So much for taxing the rich!
Dirty GEAR fingerprints
The dirty fingerprints of the much derided GEAR – Thabo Mbeki’s neoliberal policy cocktail − are plainly visible all over this scheme. That document enshrined a tax ceiling of 25% which, judging from statistics, appears to have originated in the negotiated settlement of 1994. A 25% ceiling is some percentage points below the US, a country with fanatical elite resistance to taxes and public welfare and some of the highest inequality rates in the rich world. Sticking to it means that the middle and upper classes get a tax break every time the government succeeds in bringing more people and businesses into the tax system. That leaves little room for a just redistribution.
Underneath the populist varnish, Gordhan’s plan leaves the most glaringly unjust pillars of the tax regime untouched – most notably VAT, which is paid in equal measure by all South Africans, poor and unemployed included, and which now comprises around one quarter of tax income. Meanwhile, the super-rich continue to dodge tens of billions in personal tax income. In addition to the 9 300 super-rich, SARS says it is now tracking down another 20 000 ‘High Net Worth Individuals’ earning over R7 million per year, but not paying any income tax at all.
It is inequality, stupid
Presently, the vast majority of the employed in South Africa earn too little to pay income tax, with half the labour force receiving under R3 000/month. Ironically the staunchest defenders of indecent wages are also the quickest to bemoan the narrowness of the tax base – as though a narrow tax base were not a direct product of income inequality.
Amandla! has previously drawn attention to the diminishing wage share of GDP and the growing tendency of profiteers to export their wealth abroad. These trends weaken the aggregate demand of the country and deprive the government of important revenue – inhibiting growth. A government not beholden to the interests of big business could tax at the top to prevent the exodus of capital and redistribute to the bottom to generate demand for goods and services that will encourage investment.
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