Radical economic transformation and inclusive growth demands a Constitutional tax-haven
If there was a competition to find the most ill-advised source of public revenue, SARS penal tax code would win hands-down.
It targets South Africans for working and investing, and then besets them again for doing it better. At issue, and however one wishes to excuse it, income taxes and vat are rank theft of private property. SARS forms alone would make St Matthew blush. A seamstress who makes sixteen shirts a week and gives up four to SARS suffers the same loss as if her wardrobe was ransacked. At least she is insured at home.
It is therefore with some glee that, after one hundred years, SARS death-rattle in taxing persons is being played out. It does not matter if SARS demise is based on corruption; for the tax-suits to cut private deals with taxpayers to reduce their tax burdens.
For the Constitution is adamant about SARS funeral plans regardless of what their employees might get up to.
And the Constitutional case is doubly sound; that income taxes are bad for the economy and that the alternative of land rents, a rates and taxes user-charge, will make all other ideas for radical economic transformation and inclusive growth look like mashed pumpkin; a pitiful boarding school dish.
Here are the three specific Constitutional demands on SARS if it is charged with a pro growth tax-haven like Hong Kong and Singapore; distinct from tax-evasion shelters like Bermuda and Panama:-
First, the National Government is restricted to levying only those taxes which were defined in Schedule 4 Section XXV of the Interim Constitution:
“The National Government and provincial governments shall have fiscal powers and functions which will be defined in the Constitution”
Second, section 228 of the Constitution (implicitely) demands that the taxing powers of the Provinces:
“May not be exercised in a way that materially and unreasonably prejudices national economic policies, economic activities across provincial boundaries, or the national mobility of goods, services, capital or labour.”
On the basis of what is good for the goose is better for the gander, the state is therefore constitutionally restrained from imposing dead-weight taxes that burden work and wealth. These losses are a measurement of how far taxes reduce the standard of living of the population.
Estimates of the damage which personal taxes wreak are measured as the ratio of the total of income taxes and vat to the loss of production through dead-weight taxes. In USA Professor Mason Gaffney has calculated this ratio to be 1:1. There is no reason why a similar ratio will not apply to South Africa. The loss of GDP here in 2016/17 would be R1.265 trillion, an average R84 000 per annum for each of the 15 million families. Professor Martin Feldstein has calculated deadweight taxes reaching 1:2, a R168 000pa annual loss.
Third section 25.5 (explicitly) demands that:-
“The state must take reasonable legislative and other measures, within its available resources, to foster conditions which enable citizens to gain access to land on an equitable basis.
This requires that the state stops taxing hard-earned work and wealth and concentrates on collecting unearned land rents. Then the price of the 27 million hectares of unused/vacant arable land as well as countless urban stands will become a recurring rates and taxes charge. That finally makes land accessible to the poor. It returns to the state the common-wealth which is owned by all citizens in undivided shares; the bounty of the earth and the value which state spending creates and sustains through the infrastructure and services which it supplies.
The difference is that taxes on nature’s endowments are deemed “inelastic”. So 100% of natural rents can be taxed without any diminution in supply of land or the spectrum, without any economic distortion. This is not true of man-made assets which “walk” when taxed and are termed “elastic”. Laffer’s curves corroborate this.
Whether the indigent and illiterate can afford land depends on its fecundity. In practice, working an hour a day with simple tools and low carbon inputs a 250m² allotment in Cape Town will yield all the vegetables and fruit needed for a family of four. It can save (say) R8500pm; R3500pm in food, R2000 in house rent, R1500 in transport and R1500 in not having “to do” crime. Mr Mosima, a colleague earned ±R20 000pm growing spinach on a 700m² plot in Wynberg.
The Dervaes family’s Los Angeles homestead famously grows and processes 3 tonnes of food on 470m² of land ( https://www.youtube.com/watch?v=NCmTJkZy0rM.)
As for the availability of land in South Africa there is a total of 122 million hectares. If the 15 million South African families are allocated an equal share, then each family will have 8.5 hectares, of which one is arable. In 2007 Frost and Sullivan, an international market research company, calculated 27 million hectares of unused, arable land. There are also countless unused grazing hectares and urban plots.
And anyway what town planning scheme permits land to remain unused? Each parcel in South Africa is zoned as residential, commercial, farming and so on. If every unused hectare pays rates and taxes equal to that which anyone else would pay for its exclusive use, then owners would be obliged to grow, rear, build and make things just to pay to pay the rates.
This is the short-term device to promptly eliminate unemployment. People become millionaires on a hectare of land as the Bordeaux garagiste vineyards, the Majorcan orange groves and the Tete tobacco out-growers.
In summary as soon as SARS targets land rents, not work and wealth, so economic growth will ratchet up and the need for social grants will end. Vice-president Ramaphosa should know that no changes to the Constitution are needed. Better that he thanks ex-President’s F W de Klerk and Nelson Mandela for the miracle economic legacy that he and they left to South Africa.
Registered Professional Valuer
Member SA Institute of Valuers
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