Is the Judge Davis tax review committee an economic CODESA?

The first report of the Judge Davis tax review committee on small business is due next week. It sounds like the economic CODESA so many have hoped for. Its remit from National Treasury is to to assess our tax policy framework and its role in supporting the objectives of inclusive growth, employment, development and fiscal sustainability.”

But will it have the nerve to recommend scrapping all income taxes and vat? For these are larcenous and nations have no more right to rob citizens of what they make than shoot them.

If Elsa produces shirts and the State enters her shop taking thirty out of every hundred, they could just as well break and enter her wardrobe.

And it is well known that income taxes and vat shackle growth and so destroy jobs. When Trevor Manual was Finance Minister he reduced corporate taxes from 30%pa to 28%pa and said that would create more jobs. And it did.

In the new Saldanha IDZ corporate taxes are being slashed by nearly 50% to 15%pa. They will create 6000 jobs in the first year, according to UCT Economist Barry Standish. So the question one hopes the Judge Davis committee will answer is why not make them 0% and create 12000 jobs? And then why confine IDZs to small enclaves when by making South Africa a full blooded tax haven it will become the world’s first choice for businesses which are locationally neutral?

Then there is the murcky matter of business cycles for the committee to resolve. These are the house booms and slumps that have grounded Western economies every eighteen years sincenthe start of the 1833. They cost at least one million South African jobs in 2008.

This slump has been rampant for most of a decade. What happened is that land prices surged and so ramped up house prices amidst the sound of champagne corks popping in mortgage departments across the country. This lending frenzy sucked credit from the rest of the economy as lenders frantically wrote mortgages knowing that if they could just recover the first years interest then house values will have likely risen enough to cover the loan.

The reddest face was Gordon Brown’s whose budget speech in 2007 asserted that “We will never return to the old boom and bust.”

Meanwhile the business of providing the working capital needed to keep the wheels of industry and commerce properly oiled dried up and jobs shrank.

When unemployment exceeds 25%, as now in South Africa, Spain, and Greece (the worst amongst all G20 nations) it is predicted that a whole generation of young adults will never find a wage contract.

The committee also knows that collecting income taxes and vat is a precarious business because as people are not keen on being robbed they find ways to avoid taxes, like bartering. Every year thousands of tax consultants also make a living filling in forms and structuring new ways to avoid taxes. In 2012 Mr Keith Engel the then Chief Director of Legal Tax Design at National Treasury praised South African tax practitioners for invariably being one step ahead of his department. He has since stepped out into a partnership at one of the Big Five, a curious appointment considering his frank admission. Or is he a spy for SARS, a fiscal double agent?

Just to make things more difficult for Justice Davis he will also find that the National Development Plan is silent on tax policy. South Africa’s newest panacea will therefore be stuck in the mud for the three years that his committee sits.

Or perhaps this will tempt the Committee to get right back to the basics and acknowledge that the only sure way to become wealthy, other than by redistribution through begging, borrowing or stealing, is by working the land, by opening a lid into this immense treasure casket called earth and helping oneself to its fruits through the sweat of one’s brow.

There are eleven million hectares of arable land which is unused and sufficient for five million unemployed and six million others who must surely be desperate to escape the life threatening dangers of living in overcrowded and rusty corrugated iron suburbs.

With an arable hectare any indigent and illiterate but able-bodied citizen can become a millionaire, or live the life of one, by hand-building an estate, in a few years of toil.

And a hectare has no entry cost when income taxes and vat are gradually replaced by land use charges; by a rates and taxes surcharge on land.

Then one pays to the fisc only what others might pay to prevent its use by someone else.

PS  If you would like to help pay for a professional submission to the Davis Committee based on the Constitutional principles of reasonableness, rationality and equity then please make a

donation to www.sacprif.org

Image courtesy of : http://www.moneyweb.co.za/mymoney/moneyweb-tax/tax-hikes-the-way-forward/

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