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The global breakdown of citizens’ government expectations

Andrew Bradley of Fiscal outlines how many countries are increasingly losing the tax income they need to be able to provide necessary services.

SIMON BROWN: I’m chatting now with Andrew Bradley, CEO of Fiscal. You put out a great note last week on the implications of a broken social contract that is existing. My thought was, he’s talking South Africa. [However] he’s not – he’s talking absolutely globally. 

Andrew, you’re talking about this breakdown between citizens and their government expectations. [With] my parents, my grandparents, there was always a strong expectation that the children would get a much better lifestyle and the like. Among many things, one of those things that is starting to break down is the gap between the haves and the have nots is starting to widen, in a sense reversing the gains made in the previous century.

ANDREW BRADLEY: Well, I think the very essence of life in everything that we do is the expectation that things will get better. And I think for many decades that’s exactly what has happened. The standard of living and quality of life has improved, and there are a number of reasons that economic growth has happened. The essence of our social contracts with governments is that they will take care of us, and in return, we will pay taxes. And that’s the way societies have been built in sort of communistic countries, where ‘everyone being equal’ had that intention as well. But for various reasons, it didn’t quite work out that way because they didn’t have the economic growth that they were anticipating. 

The problem that we have now is that for our governments to be able to provide those services – and we are seeing that in many countries around the world – they’re not getting the tax income that they [need to be] getting to be able to provide those services. So people are starting to see cutbacks in terms of the services that governments are providing. They should be providing policing, education, healthcare. And many of those are starting to fall by the wayside, which has seen standards of living and quality of life dropping. Alternatively, those that can afford it have been able to put those services in place for themselves; but those who can’t have been progressively seeing their standards of living dropping sort of commensurately with that.

SIMON BROWN: The point is, when you talk around this, you think, ah, the Venezuelas and the Zimbabwes of the world – and that’s true. It absolutely is. But actually, it’s the UK and the US as well. I’ve seen this before. There was a report out a week or two ago that some of the biggest companies on the Nasdaq, the Amazons and the like, pay zero Federal tax. In other words, they’re there in those communities, they’re in some cases putting businesses in those communities under pressure or out of business, but they’re not giving back to that community.

ANDREW BRADLEY: Yes. So one, as you correctly say, thinks of it as a third-world problem, but the reality is, if you just take the UK as a fantastic example of it, they’ve seen those standards dropping quite substantially because their tax base has been eroded. If you take South Africa, as well, the prevalence of some of the global companies – and I think when President Biden came into power in the US one of the things he said was that, of the sort of Fortune 500, the top 500 companies in essence in the world, 90 don’t pay any taxes at all, not a cent. And so from that perspective, how do countries now start providing the services they have in terms of social contract?

When you also then take in the UK, as I said, with a company like Amazon coming in and particularly in lockdown, it’s taken away the services of other well-established stable companies that are providing services to those communities who are taxpayers, who then create the full circle in terms of uplifting standards of living, the rug is being pulled out from under them by the likes of Amazon coming in. Amazon is just one example. If you take Google, what it has done as well in providing a different, completely different service, a phenomenal service. 

But in those countries where they providing the services, [they are] taking away the other standard services that are provided by tax-paying companies. You saw Australia trying to now make Google pay for some of the information that they’re getting and content for their platform.

You’re now trying to get other countries, also in Europe, going to the large tech companies and saying, well hang on Facebook, you’re earning all your income from our citizens, but you’re giving back nothing to the tech space.

So these dynamics are very, very fluid. It was inconceivable a month or two ago to even think that we had a global tax rate to keep our young countries. But now all of a sudden they are saying, hang on, we need to sort this out. 

So the problem and the challenges here I think are relatively easy to identify. How they’re going to be resolved is very, very complex and very difficult, because they are going to do fundamental changes to the way things currently are, and the implications and consequences of those are difficult to contemplate.

SIMON BROWN: Yes. Janet Yellen’s proposal is a great idea. A quick last question. Obviously, there are implications for our savings and our investments. This is going to have challenges. One of those is that in many cases we might have to be paying for our security, education, healthcare, and so on. This has real-world implications going forward.

ANDREW BRADLEY: Most definitely. From a South African context, we’re really seeing that with private healthcare, private education, private security. So all of those things for various different reasons are already starting to evolve. But if you look at companies that provide these services that are potential investment opportunities for us, it’s almost what I’d call sort of a horse-and-buggy cart versus a car. So, if you in 1900 invested in the best horse-and-buggy cart maker in the world, saying this is going to be a great investment for the future, it was an absolute disaster because something called a motor vehicle came along and even the best horse-and-buggy cart maker hardly exists today. In these inflection points, there are going to be significant winners and insignificant losers. So, just like there was with the pandemic, those companies that could operate virtually did phenomenally well, and those that couldn’t saw disaster. 

So with all these changes of tax bases, new social contracts, new services, there is going to be a significant shifting of the sands, and we have to keep our wits about us.

SIMON BROWN: And some of those winners and losers will be countries or will be entire economies. 

We’ll leave it there. Andrew Bradley, CEO of Fiscal, I appreciate your time again this morning.

Listen to Monday’s full MoneywebNOW podcast here 

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I can tell you that I am not keen to pay tax because the South African government are incompetent criminals. I would rather give to those I trust.

Governments and Municipalities every where spend, then look to see how they can fund their largess. The individual has an income and must then budget to make ends meet.
Our own Municipalities are ready to RAISE tariffs to Fund their own wanton excesses. The more the home owner pays the less he gets in return, whilst Municipal salaries go through the roof.

The service in this country is so bad they should scrap the whole concept of a government

Tax is the highest expense on our budget. It was not always so. I think the whole world is being slowed down by these huge tax payments. The government has no concept of economy – if they were a private company they would have been bankrupt long ago. Government employees are grossly overpaid and still want to strike for more, don’t they realise that their salaries are paid for by others who earn less and have have had to make huge sacrafices over covid while they sat at home watching Netflix on full pay?

We don’t need more taxes we need more efficient service from our governments.

Tax in South Africa, under ANC rule, is feeding the criminality and looting of the country. A tax boycott is possibly the only thing left to save the country.

End of comments.

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