South Africans have reached the point where they disagree on a key pillar of the postapartheid framework: those with the financial means are taxed and the money is used to help cushion and possibly uplift the poor.
This pillar is key because of the nature of SA’s capitalist democracy, which professes political and social egalitarianism while — in US economist Arthur Okun’s words — “generating gaping disparities in economic wellbeing”.
Such a system requires a compromise that is only effective to the extent that those being taxed can see that the poor are benefiting from their taxes. Yet it’s clear from the recent uproar that society’s faith in the workings of this mechanism is, at best, in doubt. Hence the pushback against the proposed increase in VAT, first by two percentage points to 17%, and then by a single percentage point over two years to 16%.
The proposed increase in VAT has come while the SA economy has been growing below the rate of population growth, and incomes have at best stagnated (especially for middle-income earners) over the past 15 years. Data shows that people at the bottom end of the middle-income scale have had to turn to public services.
At the same time, the quantum and quality of public services have declined, meaning every rand of public expenditure on health or education — which has been in decline for more than a decade — buys less, and increasingly poor public services.
Under the guidance of the “two M’s” (president Thabo Mbeki and finance minister Trevor Manuel) redistribution worked to the extent that those being taxed believed their taxes were benefiting the poor. Also, those being taxed had their incomes rising at the same time because economic growth was so much faster than it is now.
Redistribution isn’t working. This despite National Treasury statements that the budget is highly redistributive because the social wage — expenditure on health, education, social protection, community development and government employment programmes — accounts for 61% of expenditure after deducting interest payments.
The real issue is the quality and quantum of the social wage. The bucket used to transfer financial assistance from those with the means to those without has proved to have too many holes. Those holes include corruption, grand theft of public resources, and the overall inefficiency of the state and its various institutions.
The latest quality of life survey by the Gauteng City-Region Observatory — a partnership between the universities of Johannesburg and Witwatersrand, and the Gauteng provincial government — is revealing. The survey found the percentage of the Gauteng region that uses public health has increased from 62% in 2013/14 to 66% in 2023/24, while users of private health have dropped from 28% to 23%.
Users who are satisfied with public healthcare have dropped from 66% to 57% over the same period, meaning the state has failed to maintain a decent service, a point that is confirmed by the recent report on Helen Joseph Hospital. By contrast, users who are satisfied with private healthcare rose from 93% to 98%.
Take another measure: water. The percentage of Gauteng residents who regard water as always being clean dropped from 85% in 2015/16 to 60% in 2023/24. The percentage of residents who are dissatisfied and very dissatisfied with government initiatives to grow the economy and create jobs has increased from 60% (split equally between the two categories) in 2015/16 to 81% (42% being dissatisfied) in 2023/24.
No wonder 76% of Gauteng residents (up from 51% in 2011) disagreed with the statement that government officials adhered to the principles of Batho Pele (putting people first).
Redistribution, as Okun explained in his 1975 work Equality and Efficiency: The Big Tradeoff, involves a compromise. Some might call this compromise a social contract. Implicit in the compromise is tolerance for redistribution involving some inefficiency — not all the money taken (through taxation) from the pockets of those with the means will reach those without.
Hence, Okun’s leaky bucket analogy (the unresolved technological problem): “the money must be carried from the rich to the poor in a leaky bucket”. The question is how much leakage will those with the means tolerate? Okun suggested 10%-20%.
The reaction of South Africans to increased taxes suggests urgency in closing the leaks and finding out how much leakage most taxpayers can tolerate.
• Sikhakhane, a former spokesperson for the finance minister, National Treasury and SA Reserve Bank, is editor of The Conversation Africa. He writes in his personal capacity.
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