Another side to the BIG issue: what’s the plan when SA cannot afford any more tax?

SA’s taxpayers can ill-afford further financial pressure.
Image: Shutterstock

The basic income grant is the BIG issue on the table this year, as Finance Minister Enoch Godongwana prepares his inaugural Budget Speech. At the State of the Nation address (Sona) earlier this month, President Cyril Ramaphosa bought government a bit of time in making a more permanent decision on the grant, opting instead to extend the Social Relief of Distress (SRD) Grant for a further year.

Promised the President in his Sona address, “During this time, we will engage in broad consultations and detailed technical work to identify the best options to replace this grant. Any future support must pass the test of affordability, and must not come at the expense of basic services or at the risk of unsustainable spending.”

Sound sentiments, but then what is the plan to fund the BIG? I believe that there are limited options at government’s disposal, and the most likely of the proposed funding mechanisms is also that which is expected to cost the private sector and tax-paying citizens: tax hikes.

The budget deficit remains at an all-time high. There is some additional revenue in the current commodity cycle and weaker rand, but these are cyclical, and cannot be incorporated into a longer-term forecast with any degree of certainty. This means there are likely to be tax increases on the table.

While there has been some recovery in tax collection, it is still sluggish, and that a value-added tax (Vat) hike, personal income tax increase or the implementation of a so-called ‘wealth tax’ would only add more pressure to a diminishing tax payer base. A small portion of the population already pay an inordinately high amount of tax, and the risk is that we will begin to lose this source of revenue should we see further increases — either through tax avoidance or the immigration of highly-skilled individuals.

Most corporates can also ill-afford increasing taxes. This year’s Sona has been widely hailed as the most pro-business speech to dateWhile the Congress of South African Trade Unions (Cosatu) believes that a viable option to fund the BIG could be through adjusting the corporate tax from 27% to 30%, the reality is that we need to grant these companies the leeway they need to create jobs and bolster our economic recovery, which the President acknowledged in his speech.

Momentum’s own economists have listed the country’s high level of poverty and the government’s plan to introduce new grants among the main risks to the country’s fiscus in 2022. While it noted that tackling inequality was necessary, it said that this would become increasingly challenging considering that South Africa already spends 3.3% of its gross domestic product (GDP) on social expenditure.

There is no disputing that the social need remains dire. According to a panel appointed by the Department of Social Development, the International Labor Organization (ILO) and the United Nations-backed Joint Sustainable Development Goals Fund, 20% of households fall below the food poverty line — equivalent to a monthly value of R595. The SRD Grant did the important job of supporting the unemployed during the pandemic, lifting millions of people above this food poverty line. It offered a welcome bit of relief for those who found themselves unemployed and under extreme financial pressure — however, it is far from enough to successfully pull people out of poverty, and it is not a sustainable model in the long term.

Concerns have also been raised by invested parties that the BIG may create a sense of dependency on the state, while another contingent argues that a functioning social grant sees little negative effects in developed countries. Van den Berg says that in South Africa, there are deep-rooted systematic issues that need to be addressed in order for a grant to do the job for which it’s intended; that is, to act as a lifeline for those facing extraordinary circumstances, allowing them to get back on their feet.

So, what should the plan be? I believe that government’s plan of enabling businesses to thrive is a good one, and should be the primary focus.

The President was right in saying that it is private sector which creates the majority of jobs, and so we desperately need to free up businesses, allowing them the runway they need to recover and to grow. We need to relook labour legislation, so that businesses are not discouraged from employing more staff. Consider how much red tape is needed to start a business, or the onerous process that an informal trader must complete to gain a trading licence. We need to relook our framework so that it will enable, rather than curtail.

We must create the jobs that give people meaning, and empower people to be self rather than state reliant.

Hannes van den Berg is CEO of Consult by Momentum

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Socialists running out of money to steal.
One can never begin to address the “inequality” issue when incentivising people not to work and procreate like crazy!!!

The taxes we declare to SARS are the least of our problems. Those are the known taxes on income and capital that are calculated according to a formula, penned down on paper, and paid over to the state. Those transparent taxes are comparable to international standards.

The more harmful taxes are the hidden ones like the fuel levy that comprises 50% of the price per liter, excise duties, import tariffs, sin taxes, sugar tax, the cost effect of labor laws and wage demands from militant labor unions, BEE that is a 30% tax on capital and dividends, the impact of the inefficiencies of government monopolies like Eskom, the economic impact of the Mining Charter and local beneficiation requirements, the redistributive municipal rates and taxes regime that transfers capital from property owners to Cosatu members at municipalities, security of tenure laws, and the cost of crime. SARS never invoice us for these taxes nor do they issue a penalty if we fail to pay. These taxes are a de facto surcharge, or penalty, on business activity.

The most insidious form of taxation is the most destructive by far. The average taxpayer does not understand that inflation actually is a stealth tax that multiplies the effect of all the other taxes. Like with all the other taxes, the inflation tax is totally within the government’s control, at least initially. This brings us to the unavoidable destination for all socialist nations. When the populist ruling party is about to lose power, the taxpayer is maxed out, and the lenders have walked away, the politicians turn their sights to the lender of last resort, the Reserve Bank.

Then, they use the very efficient and very destructive tax of hyperinflation to destroy all the debts that are denominated in local currency and they flood their support base with worthless currency. This tax destroys civilization as we know it.

A (correctly) bleak picture which without the removal of the causes, ensures our path down the Zimbabwe road.

Corporate income tax is peanuts in any event. Well less than half personal income tax, hiking that from 27 to 30 is pointless. Hike VAT to 20% is good for 6 or 7 months. Slash tax rebates in half and hike super tax to 50% and the year is almost covered. What are people going to do? Complain?

The starting point on grants must be to jail the thousands of government workers that fraudulently claimed the R350. And for long, at least five years no parole; grant fraud is a special kind of low.

Rapidly running out of taxpayers and then you want to incentivise people to do nothing???
INSANITY !!

So Cosatu wants to increase company tax to 30%, but will also demand, yes, demand wage increases next year and every year until the end of the world. The logic? Guaranteed business closures and more unemployment. They need to stay out of forums where critical thinking is required.

The only solution to avoiding social melt-down and keeping the desperate alive is to institute a form of financial relief based on some input, be it community work, volunteer social work, internships or basic skills training: no input no cash.

The only viable and easy to source funds is from an increase in VAT on a selective basis – a new BMW would cost you 18% VAT, a power pleasure launch, a second holiday home, a luxury watch (sorry Fikile), jewellery above a price point etc etc.

The wealthy in this segment can afford to tone done their extravagances slightly and at least will be seen to be financially contributing to society.

It’s been destroyed by the ANC we all know, but the option is a little less luxury to avoid a lot more mayhem.

Cosatu and logic are 2 mutually exclusive concepts never to be mentioned in the same articles !!

Something to look at is like how OECD funds social welfare. By social welfare contributions. Across OECD such contributions are the biggest slice of revenue pot (26% versus 24% income tax). Ours is 1%

Such a scheme would inflict a cost on all workers, even those that do not pay tax presently.

One for all and all for one and all that jazz

I thought the idea of BIG was that it would replace other social grants, thus saving that cost and a lot of admin effort.

Lynne

I think they differentiate the old age and child grants from the income grants. A levy on all workers whether they pay tax or not would generate a fair amount of money and be a test of ubuntu… Though not enough if the income grant is going to go to tens of millions of people.

End of comments.

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