BUSINESS DAY LETTER: Katz and Davis tax doubts
The defining tip for Finance Minister Pravin Gordhan’s medium-term budget must surely be to ask Prof Michael Katz and Judge Dennis Davis why their respective tax commission and committee decided that the state must principally tax work and wealth (private property) and not just land rents, a rates and taxes user-charge aimed at the inexhaustible and unearned gifts of nature.
In their reply Katz and Davis must be asked to explain carefully why they dismissed the fact that unearned land rents are different because they are inelastic; that is the supply of land does not diminish one iota even when rents are taxed at 100%. On the other hand, the capture by the state of the hard-earned fruits of work, savings and shopping (through income taxes and VAT) increases the costs of goods and services.
These discourage supply as the Laffer curve, a measure of elasticity, illustrates. For taxes on work and wealth can barely top 25% before production stops.
Finally, let them explain precisely why they advised that such shortages do not lead to economic distortions such as landlessness and unemployment, which are forbidden in section 25 and (indirectly) section 229 of the Constitution.
If no sensible reply is received, my final tip is for Gordhan to file a complaint against all those tax accountants and lawyers who signed the above reports on the basis that they were conflicted. That is, if they did not sign in favour of income taxes their careers would be on the line.
26 October 2016
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