One of former British prime minister Margaret Thatcher’s best-known quotes is: “The problem with socialism is that eventually you run out of other people’s money”. I can’t help reflecting on this statement when wrestling with former DA leader Helen Zille’s tax revolt argument.
I should clarify that as things stand I think in principle it’s a bad idea. But I also think it’s a lot more complicated than the political argument that has taken place on the topic until now suggests.
It’s worth straightening the record a bit because one thing I know about basically all commentary concerning Zille is that it’s flagrantly inaccurate because commentators like to use Zille as a virtue-signalling process, which often requires a distortion of the facts to make their virtues seem more virtuous.
Zille’s argument was, from the start, not that South Africans should now begin a tax revolt but that if there are no prosecutions from the grotesque corruption what we have learnt about from the state capture commission hearings after some times passes, she would support it. It was a conditional threat, not an immediate campaign call.
However, I do think it’s a bad idea for three reasons: first, the argument works on the presumption that nothing has really changed in SA to remedy the corruption epidemic, and that’s palpably not true, starting with the early removal of the former president and the existence of the very commissions on which her arguments rest.
As a result, the government was forced to go to the place it least wanted to go, and that’s how we got the 100 basis point VAT increase, which, as Shoprite’s results show, has thrown the retail sector into a downward spin.
Second, I think it’s hypocritical for people in government to endorse, even conditionally, a campaign that would make their own jobs harder. It’s just too Machiavellian for my taste.
And third, even for the best of reasons, a tax revolt is a blunt instrument. As DA leader Mmusi Maimane says, better politics would be to win the elections on the arguments and do a better job at implementing policy.
Oddly, though, this doesn’t end the discussion because, although it’s not widely known, SA actually is in the midst of several tax revolts. In a sense, Zille is reacting to the political pressure that is building up within her support base and the support base of other parties too.
Political memories are short in SA, but if you were to cast your mind back to the 2017 budget you may remember that a new top tax bracket was introduced — 45% for those earning above R1.5m. This is a very typical move for a left-wing government because there is really no political downside and lots of upside in soaking the rich. But there is a huge economic argument about whether it's a mistake, because often higher taxes result in lower net tax income.
SA’s experiment is actually an excellent case in point. At the time of the 2017 budget this new tax bracket alone was expected to increase revenue by R16.5bn. And it was not the only measure. Some R6.8bn was supposed to come from the increased dividend withholding tax, and a few more billion from under-adjusting for bracket creep.
It’s worth noting that these increases have in effect resulted in SA’s personal income tax being the highest it has been in recent history. The personal income tax burden has increased steadily in the past decade, from 8.3% of GDP in 2010/11 to 9.8% in 2017/18. There was also a one percentage point increase in personal income tax rates for everybody but those in the lowest income tax bracket in 2015, and below-inflation bracket creep adjustment in 2015/16 and 2016/17.
So how has all that turned out? As it happens, badly. In 2018, instead of the R482bn the government was supposed to garner, in fact it got R460bn, which was R21bn less than budgeted and miles less than the R16.5bn increase it was expecting. There was an increase of about 8.6% in personal income tax revenue, but nothing close to what was needed or anticipated.
As a result, the government was forced to go to the place it least wanted to go, and that’s how we got the 100 basis point VAT increase, which, as Shoprite’s results show, has thrown the retail sector into a downward spin.
Treasury officials are now fretting about SA’s “tax buoyancy”, the rate at which tax increases result in actual increased income. In the past, it’s been excellent. But the 2018 result shows it’s weakening, and the Treasury is now openly admitting that tax avoidance is on the increase.
All of that makes eminent sense. Over the past nine years the ANC has been flagrant in its overexpenditure and callous in its tax increases. That’s creating a new political dynamic, and whatever you think of Zille’s call that alone is worth acknowledging.
As Margaret Thatcher would say …
• Cohen is Business Day senior editor.
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