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What SA would look like at 5% growth over 40 years

Book review of Andrew Purves’s ‘No Debt, High Growth, Low Tax’.

With no natural resources and sited on tiny specks of land, Singapore and Hong Kong consistently rate as among the freest and most prosperous nations in the world. Both island nations have no public debt, low tax rates, high growth rates and yet provide levels of public service that are the envy of developed nations.

Hong Kong has been able to maintain an average growth rate of 5.4% since 1974 – an astonishing achievement over 40 years. Since 1990, Singapore’s growth has averaged around 5%, and hit a nerve-shattering 15% in 2010, though this has slowed in the last two years. Unemployment in both states is negligible.

What is the secret behind this phenomenon and can we learn anything from them? Hong Kong has nearly double the financial reserves of the UK and Singapore’s per capita GDP now exceeds that of the US.

In ‘No Debt, High Growth, Low Tax’, Andrew Purves, who grew up in Hong Kong, unravels the enigma of these two misfits in the economic firmament. This is the latest in a batch of books exploring the financial alchemy behind the world’s more prosperous economies.

Yes, both Hong Kong and Singapore have low taxation and are famously business-friendly, but so are many other countries with far lower levels of prosperity. Other studies have looked at the Confucian work ethic as somehow unique, or the fact that the populations of both Singapore and Hong Kong are inured to authoritarian leadership and will therefore tolerate whatever laws are dumped on them. None of this adequately explains the astonishing economic performance of these two island states, whose governance models have been copied to a greater or lesser extent across Asia.

Using land value

What these two territories have in common – apart from their low tax and high growth – is that the state is the largest land owner and collects economic rent on the land, or what is more commonly understood as Land Value Tax (LVT). Both are densely populated and land is limited, yet both have managed to expand in size by arrangements with neighbours or reclaiming land from the sea.

Purves provides a few interesting examples of how Hong Kong managed to finance public facilities by charging rent on appreciating land values. One such example is the Mass Transit Railway. This shows how these governments tackle public finances with a keen sense of business dynamics. The government leased the land for the railways to the Mass Transit Railway Corporation (MTRC) at ‘pre-development’ prices, along with development rights on land above the stations.

The MTRC built shopping centres, offices and apartments above the train stations – on which it collected rent used to fund the building of the railway network. As the development rolled out, the value of the land increased proportionately, as did the rental income. A similar method of financing was used in the early years of the London Underground. Based on this model, Gautrain and e-tolls could have been financed for a fraction of the eventual cost by using enhanced land values to subsidise the construction.

The reason Hong Kong has such low tax rates is that the government, which by law owns all land in the territory, generates most of its revenue from the sale of new leases.

Stephen Meintjes and Michael Jacques, authors of ‘Our Land, Our Rent, Our Jobs’, argue that a similar system of collecting rent on land could eventually replace all other forms of taxation in South Africa. While most land in SA is privately owned, this system would force owners of unproductive land to make their land economically productive in order to afford the rental – as happened in Taiwan and Japan at the start of their great industrialisation.

Purves says he started to research Hong Kong and Singapore to find their commonalities and to assess whether this would point the way to a better economic system for a world in desperate need of one. He dedicates the book to the people of Cuba where, like Hong Kong, all land is owned by the state. By following the leasing arrangements developed in Hong Kong, Cuba could avoid “the damaging effects of absolute private ownership of land,” he says.

Singapore’s model of land ownership mirrors that of Hong Kong. The Singapore Land Authority owns 140 square kilometres, about 20% of all land, on which 5 000 buildings are placed. In total, 58% of Singapore’s land is owned by the state. It continues to purchase land for development and resells this land under leasehold title for periods of between 60 and 99 years.

The corporate tax rate in Hong Kong is 16.5% and a maximum of 17% for individuals. In Singapore the rates are 17% for companies and 20% for individuals, though most people pay substantially less than this after accounting for rebates and deductions.

Income inequality in these island states is higher than the welfare-wedded economies of Europe, but is much lower than in SA. But perhaps income equality, like the War on Drugs, is a hopelessly unachievable goal. It’s certainly a magnificent policy tool for the dirigistes who want to meddle with every corner of the economy in pursuit of what they call equality. Perhaps, as Russell Lamberti of ETM Analytics suggests, we should welcome income inequality and positively foster it as a way to pull the masses out of poverty.

In SA, the government has set a growth rate of 5% as a necessary target to bring down unemployment. If that’s the case it should pay close attention to two countries that have consistently achieved this, decade after decade.

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what a waste of space – why not go for 10% – 15%? just after mandella came to power the financial times wrote a leader to say mandella’s first visit overseas should be to visit lee kwan yew. well that was a great help to the country wasn’t it?. south Africa is in Africa when I last looked and Africa is not asia – it never was and will never be. so why don’t u get back to reality and deal with what the country has available. some wealthy people – so start taxing them till the pips squeak. a special add-on tax to pay for the education crisis. estate tax, wealth tax – go for it. and then we come to land – to which no one has the answer except the EFF – all land to be owned by the state which is rented out to users – which is not too different to what the writer wants – except that ALL land will be taken over for special govt bonds repayable at some future time – like “as die perde horings kry”

Dear Robert-in-Sydney – although we have grown accustomed to the flagrant lack of punctuation and the grammar F-ups in your posts, the misspelling of Mandela as “mandella” is unforgivable. Clearly you emigration to Australia has instantly and simultaneously boosted the average IQ of both Australia and South Africa. My question to you again is this – if you are so blissfully happy in Australia with its roaring economy and oh-so-safe socioeconomic environment (read: nanny-state mentality) why do you insist on trawling the pages of Moneyweb to shout “doom on you” to the saffers who decided to make the best of what we have here at home. Is it a way for you to justify your premature evacuation from a beautiful country (which definitely has its problems but trumps Oz on any day) to Sydney where you are now very safe but seemingly bored?

For someone who advocates EFF policies , what are you doing in Australia? Its a capitalistic white country!! Zimbabwe is where you actually belong. If you really believe in EFF policies you could at least live in one which also promotes land and company grabs, and is anti-white. You’re confused sir.

hang on someone said said aus is a nanny state bar none – make your minds up!

Dear Robert-in-Sydney – although we have grown accustomed to the flagrant lack of punctuation and the grammar F-ups in your posts, the misspelling of Mandela as “mandella” is unforgivable. Clearly your emigration to Australia has instantly and simultaneously boosted the average IQ of both Australia and South Africa. My question to you again is this – if you are so blissfully happy in Australia with its roaring economy and oh-so-safe socioeconomic environment (read: nanny-state mentality) why do you insist on trawling the pages of Moneyweb to shout “doom on you” to the saffers who decided to make the best of what we have here at home. Is it a way for you to justify your premature evacuation from a beautiful country (which definitely has its problems but trumps Oz on any day) to Sydney where you are now very safe but seemingly bored?

coming from a country where your president is unable to count coherently I find your comment on grammar interesting to say the least. also your fragrant plagiarism of Robert Muldoon’s comment on the relevant IQ’s of aus and nz when a kiwi migrates to aus – is extremely worrying. be that as it may it might interest you that the new “sa” offer far more welfare benefits than aus (or indeed most western countries) when you take into account the incredible growth in govt and provincial employees – which clearly has not come about because the sa economy is growing – in fact it is declining.

You’re just trying to wind us up, aren’t you? No-one who is intelligent enough to have made enough money to emigrate to Oz would ever vote for the likes of EFF.

on the contrary – I am trying to make you guys see sense. speak to any middle class “black” African – and I guarantee the majority will say they vote anc in provincial elections and eff in the national elections – as the eff is the ONLY party capable of defeating the anc at a national level. now I know from your lily white suburbs and clubs, this might be difficult to comprehend. – BUT this is what is happening at the very moment. as regard intelligence – as a previous nz prime minister said – “every time a kiwi migrates to aus – the IQ of both countries increase!” (Robert Muldoon)

These guys write these books with rosy scenarios and are never around to explain why it does not work, especially in Africa. Stay at home and stop commenting about Africa, till you have lived here and stayed here to help sort out the problems you will know nothing about Africa. Robert stop chirping from the fence about us, come back and help or keep quiet and start thinking about the problems coming your way in Oz. maybe you will have moved on to another country when you realise what’s coming your way, at least we are here addressing the problems.

I have said this before – but I will say it again. once a true democratic political party is in power – one who is prepared to tell it as it is – to take hard decisions and one who are for the masses THEN i will think of returning. now the ONLY party that fits that description is the EFF and indeed I will be canvassing for them in Canberra outside sa house at the next general election to get as many expats to vote for them . however the way the rand is tumbling its best I delay my return as long as possible!!!!

Why are you living in Aus? You did admit last week that you did ran away after 1994 election. The question this morning is: Are they (Aus.) a “true democratic political party” I think deep down in your heart you hope that we don”t make it here in SA and then you can justify your move down under

I have said it before. WE DON’T WANT PEOPLE LIKE YOU HERE STAY WERE YOU BELONG!!!

Robert, if you are not playing the fool then you don’t know what you are talking about. Those who think that opportunistic and hapless EFF is RSA’s saviour, or that whites are singularly to blame for the poverty and inequality in RSA, are the very same people that, given the opportunity, will not only perpetuate but worsen the current status quo.

@pwgg – yes, like that buffoon Monsieur Piketty who pronounces on things he knows SFA about.

Yes, I can see countries in this continent achieving massive progress using such economic policies. But underlying the success of such an approach is an industrious work ethic, a high sense of responsibility from civil leaders and administrators, not blaming everybody else except ourselves for our woes and NO CORRUPTION. Unfortunately we are no where near that. Entrusting the State with the assets of productivity in this country, with their current reputation of non-delivery, will not work here so long as we have not resolved the abovementioned.

The State will save us?

The State only takes from Peter to give to Paul. That’s all.

I don’t understand if the state is the largest land owner, how can entrepreneurs go to the banks and obtain loan funding and use the land as security to start businesses. Maybe in Hong Kong with 6500 people per square km everyone can have the same 15 square metre shop that sells plastic crap and fridge magnets but our economy is different. Additionally good luck in convincing the tribal chiefs in the former homelands to give up unproductive land. Our Prez is a traditionalist – the real African king.

Please…. not the EFF. That will take us deeper into trouble.

Don’t be ridiculous.

In any production system with dependencies we have what is known as a constraint. This is the weakest link or bottleneck if you like. This determines the production as each unit of produce has to pass though it. There is always a constraint – one may address one issue but the [new] constraint will emerge elsewhere.

In countries growth is constrained by factors such as capital availability (hurdle rates too high), structural imbalances, ageing populations, inefficiencies (BEEE, redistribution of see capital etc), human capital, access to markets (trade barriers), poor governance (corruption) and land availability.

In places such as Hong Kong and Singapore, land is at a premium and constraints on real estate would conceivably hamper growth.

South Africa is however, different. The principal constraints on growth are poor governance (read ANC), high cost of capital (read ANC) and poor availability of human capital ( read ANC). The latter can be summed up in the trashing of the education system, exclusion of workers from the economy based on their race and driving the best human capital overseas.

Unfortunately insulin injections are not effective for the vitamin B12 deficient.

What a sad life robertinsydney must lead; nothing to do other than comment on moneyweb. Some have said he should come back and help sort out the country …. as if we don’t have enough clowns already.

I think you are right, I will stop inviting him back to help, after 20 years there he is totally out of touch with SA and lets keep it that way.

actually I run a very busy boutique accounting, taxation and retirement admin practice on the northern beaches of Sydney. I also offer specialised services to a number of accountants in Sydney PLUS look after clients as far away as perth – want to join me – I cld do with some help!

What SA would look like at 5% growth over 40 years?
Well that is an unhelpful daydream.
A more relevant scenario would be what SA would look like at 0,005% growth over 40 years.
Note that I am an optimist – it may very well end up being -15%…

Robert I am an Aussie and I feel obliged to comment as I lived in Aus for 30 years and in S.A now for 20 years and I think I understand the relative strengths and weaknesses of both countries and certainly more about post 1994 South Africa than someone who has not lived in it.

Preaching EFF policies that have failed every time in every country from Russia to Zimbabwe is just daft. Anyone with half a brain knows that the only way out of the mess we have gotten ourselves into is clean, small, affordable, competent government along with some of the innovations the Indians have come up with like having corporate’s invest DIRECTLY in social welfare and equality projects instead of paying tax. Why did this do this? To stop the money vanishing in the middle like it does here.

To try AGAIN to make the weak strong by making the strong weak (plan EFF) fits squarely into Eisenstein’s definition of insanity which is to continually do the same thing and expect a different result. Unfortunately the people of South Africa have become so desperate waiting for ANC promises to come true the EFF’s regurgitated 1970’s socialist/communistic rhetoric is finding fertile ground.

If you want to comment on this country come and live in it.

I am a south African citizen with a new id book. I will be voting in the next sa general elections when the EFF will make sweeping gains – mainly at the expense of the useless and divided DA. only then will the changes that should have been brought in in 1994 be introduced – hopefully starting with land and righting the wrongs of the 1913 native lands act.

Why would someone who doesnt live here wish the EFF on those of us who choose to stay?

Dude, do you actually WANT SA to fail…?

You seem to think that your opinion is going to be how it will roll out here in SA. Delusional to even think that there are enough idiots who think that a party with communist ideals will actually sway the majority of votes, who actually want a decent life…like we do.

The ANC will never give up power…ever.

You have so much to say …come back here then and contribute, bring your family back and your mates…add value…then you actually have a right to comment.

So Robert you would support the Australian government returning ownership of all land back to its original inhabitants?

This would include of course your house which is no doubt in an area of Sydney that had people force-ably removed from it during the “British invasion” Or would you want that excluded? The northern beaches of Sydney were extensively settled by the original inhabitants of the continent for exactly the same reasons you live there. I am sure they want it back.

The history of pretty much all colonies is pretty much identical it is just that some nations have chose to build on what exists and have gone on to be winning nations by focusing on moving forward. Yes there are things that need to be fixed here. Living here this is something I am involved in and intimately aware of. I just think there is a better way to do it than making false promises and being fixated with the now pretty much dead economic construct of nationalization.

As you seem focused on land redistribution I urge you to google the success of these projects here. It is a mixed bag to say the least. It is not a simple issue. I also urge you to understand the demographics and make up of the tax base available to fund these things.

Did you know for example that less than 1% of the population representing 8% of all personal income tax payers contribute 54.25% of all personal income tax?

I know you can make an educated guess about the demographic of that population and the inevitable conclusion is that South Africa has one of, if not the, most re-distributive taxation systems in the world. It is an economic reality that the country cannot loose those taxpayers by threatening to confiscate their land, pensions etc.

Each one that leaves the country makes a hole in the tax base that is not filled leaving the country poorer and less able to meet its objectives.

So you see the solution to the problems is not as simple as populist rhetoric. It needs to be inclusive. It needs to build on what exists for the good of all. Not tear it down.

I would be interested in your comments.

@taxpayer – indeed is my land able to be taken -NO – why because there was a major legal case dealing with this in the 90’s – called the Mabo case. You can google it. But in essence the law recognizes that indigenous Australians have a prior claim to land taken by British crown before 1770-if the indigenous people had continuously inhabited the land. This is now law. May I also suggest that you locate max du Pérez’s excellent article in today’s news 24 entitled ‘the painful birth of a new order” which echoes exactly the comments I have been making – and I don’t even live in the country!

Yes I know the case and it raises more questions than answers.

It altered and rejected the legal concept that Australia was a “Nobody’s Land” (Terra nullius) and took the view that the rules for a settled colony were the same as a conquered colony. Native Title needs to be contested and won and even then current interests usually trump native title. None of this changes the fact that Australia was invaded and the land stolen. If you stand on your principles you should be asking the Australian Government to do what you want the EFF to do. Give it all back. Which of course will never happen because the majority would be disaffected.

That is the glaring difference between the countries. In South Africa the minority took the majority’s land and that was bad.

In Australia the majority took the minorities land and that was OK. Same as the U.S. Either your principle is correct or it is not. Cant have it both ways.

An interesting scenario would be what would SA look like without the ANC’s gross misrule, or more accurately no-rule, over the past 20 years. Imagine if all the billions stolen, wasted and corrupted were spent efficiently.

Equally what would South Africa look like if not for 40 years of National Party misrule?

As the article says Singapore isn’t free, it’s authoritarian, and basically a police state. The other thing of course is that these countries only appear to have low taxes, because they shifted the government’s income to something they don’t call tax. That’s not to say it isn’t a better way of taxing.

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