SA’s tax system and rediculouis defences

Swellendam: – It seems to be happening more frequently lately: using hypothetical arguments to silence criticism. One of the better known was President Jacob Zuma’s suggestion that things would have been better if Jan van Riebeeck had not landed in the Cape. Then there are those peculiar defences of executive bonuses despite poor performances based on the hypothesis that things would have been worse if they were not there. And hypotheses become particularly questionable when used as a veiled threat like “without BEE we would have had a bloodbath”.

Seldom are hypotheses as logical as they appear and even less so do the assumptions that underpin them reflect scientific Newtonian certainty.

So it was with a sense of let down that I saw the technique being used in a vital post budget debate a few days ago, (see Moneyweb report here) featuring a highly respected thought leader and jurist, Judge Dennis Davis, in a spat with another thought leader, economist Mike Schϋssler. The discussion was focused on South Africa’s tax burden, with Schϋssler arguing that we pay a lot of tax and get very little back for it; and Davis countering that this was “profound rubbish” if one considered South Africa as a whole and not only the middle and upper income groups. He then cited a World Bank assessment that South Africa had “the best tax transfer system in the world”.

This assessment has its own context. Apart from experiencing the global problem of massive corporate and other tax avoidance, we have highly efficient tax collection, but being the most redistributive in the world is by no means an accolade, rather a massive indictment. The level of redistribution is never a measure of government success, rather a failure to create the conditions in which people are able to care for themselves. All governments are “redistributive” to some extent, but that extent should be restricted to a minimum.

If “best” means most efficient, then there could be an avalanche of counter arguments. The transactional efficiency of a tax currency is notoriously difficult to measure. In the first instance real measurable value can only be determined in legitimate transaction which means freedom of choice, free moving prices, and alternative suppliers, all of which are absent in government transactions with the electorate. In the second instance, the tangible value of the government’s offering is extremely difficult to measure at the recipient level. Even more difficult is determining the net value after costs of not only collection, but administration and bureaucracy.

So Judge Davis reverted to hypothesis in his assessment of tangible value. He said: “In effect the tax and transfer system has created quite a lot of stability which otherwise wouldn’t be there. Of course it doesn’t go to you (middle and upper income South Africans) but that’s the legacy of apartheid I’m sorry to tell you.” He added: “If the tax and transfer system was to be fiddled with and it failed as a result, political instability could become unbearable.”

So to paraphrase one interpretation: accept the system or face dire consequences.

But to add another equally important hypothesis: the critical yet immeasurable extent to which our highly redistributive government has exacerbated expectations beyond reality and affordability, creating a perhaps even greater threat to national stability.

Even if we accept that the South African government has to be more redistributive than any other in the world, then the question can still be asked whether the beneficiaries of this redistribution are getting value for the money others are paying for. This is the real issue – one that was clearly missed in a facile relapse into rhetoric. The civil turmoil Judge Davis warns about is already upon us – not because of a shortage of tax-payers’ money to avert it, but mostly because of a failure of government at all levels to do what it is supposed to do with it.

That is not a separate discussion and it is the essence of what irks the average taxpayer and causing extreme frustration on all sides of the income divide. It explains in large measure why South Africa has one of the lowest levels in the world of trust in government among the informed public (17%). So here are a few hypothesis of my own: How much better off would the beneficiaries of tax-payers’ revenue be if:

The some R60 billion in maladministration and corruption annually was spent properly? (It is more than double what the Minister of Finance had to find in extra revenue);
The R250 million spent on Nkandla had been directed to the poor;
The public service was streamlined to ensure that salaries were far less than the current 12% of GDP, the 6th highest in the world;
And so one could go on. But as we know, the fish rots from the head and something I wrote in a previous article deserves repeating here: The supreme example of an utterly cavalier view of taxpayer’s money is the State President himself. He has surrounded himself with a cabinet of 35 – one of the largest in the world – bigger by far than the United States (16) and China (25), and each costing about R4 million a year. Cut that by half (both the number and their pay) and by sheer example alone you will suppress waste substantially, diverting more to where it is most needed.

Any discussion on the collection and allocation of tax revenue has to start here. It is less about what you have, but more about how effectively you spend it. That is ultimately far more relevant to social stability.

But to return to the main issue: the older (and hopefully wiser) one gets, one learns to appreciate the absolute futility of trying to live a life based on “if”, “if only”, “could of”, “would of” and “should of”. Let’s not muddy discourse with their random use.

Source: http://www.moneyweb.co.za/moneyweb-opinion/i-dont-believe-in-if-anymore/#.VPtUsWmJ5mZ.mailto

Advertisements
This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s