A letter to Minister Gigaba

Dear Minister Gigaba

Radical economic transformation and inclusive growth is entrenched in the Constitution; South Africa’s economic miracle.

Congratulations for casting sticks and stones at those dreary orthodox economic bones that have failed South Africa’s landless and jobless.

Nevertheless it is a mystery why the ANC adopted those IMF and World Bank strategies which nearly bought the world to its knees in 2008. And queer that they have stayed on the table for so long.

For the Constitution anticipates the radical disruption of economic policy that you seek.  In section 228 it demands that the taxing powers of the Provinces (and therefore the National Government too):

“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.”

You may ask how income taxes and vat can prejudice national economic policies.  But if there was a competition to find the most destructive source of private wealth and public revenue, SARS penal tax code would win by many lengths.  That is because it targets South Africans for working and investing, and then grasps at them again for doing it harder and better.

Apart from discouraging wealth creation income taxes and vat are a form of theft and so doubly illegal.  A seamstress who makes sixteen shirts a week, of which SARS takes four, suffers the same loss as if her wardrobe was ransacked.  At least she is insured at home.

And anyway, as explained further below, there are sources of finance which will satisfy South Africa’s budgetary demands without thieving.

Seeing that what is good for the goose is OK for the gander sec 228 means that SARS is constitutionally restrained from imposing any and all “dead-weight” taxes; those that burden work and wealth.  Using Emeritus Professor Mason Gaffney’s 1:1 ratio of loss in GDP relative to income taxes and vat, SARS is therefore forbidden from capturing the R1.265 trillion of income taxes and vat in 2017/18.  That is the expected loss of production from levying these taxes.  It is an average R84 000 per annum for each of our 15 million families.  Professor Gaffney is Professor of Economics at the Department of Economics,  University of California.  Professor Martin Feldstein estimated the ratio of taxes to loss of GDP at 1:2 in his Working Paper No. 5055 for the 1995 National Bureau of Economic Research.

The precise dead-weight losses in South Africa for 2017/18 are hidden somewhere in Treasury’s budget.  But it is massive because of the costs of collection, including avoidance and because prices of all goods and services must rise.  They will be passed on.  This reduces the demand and so their supply.

The Constitutional case is in fact doubly beneficial.  Income taxes ruin the economy but the alternative of land rents, a rates and taxes user-charge, excluding improvements will make idle land prices fall and so become affordable. This is as 25.5 explicitly demands:-

 “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.

The needed reasonable legislative and other measure is simply to stop taxing hard-earned work and wealth and concentrate on capturing 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.

The consequences of Treasury preferring land rents to personal taxes is that “inelastic” land rents can be taxed at 100% without any diminution in the supply of land; without any economic distortion.  This is not true of “elastic” taxes on man-made revenues and assets which “walk” when taxed.  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 450m² allotment in Phillippi, Cape Town will yield all the vegetables and fruit needed for a family of four.  It can save (say) R6500pm;  R3500pm in food, R1000pm in house rent, R1500pm in transport and R500 in not having “to do” crime.  Mr Mosima, a colleague earned ±R20 000pm growing spinach on a 700m² plot in Wynberg.

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.

But what town planning scheme permits land to remain unused, to be idle?  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 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.  That complies with sec 27:-

“Everyone has the right to have access to … social security including, if they are unable to support themselves and their dependents, appropriate social assistance.”

And every able-bodied South African can support themselves with 450sqm of arable land and an hour to spare each day.

If he did not know before Finance Minister Gigaba need not change the Constitution.  Better that he thanks ex-President’s F W de Klerk and Nelson Mandela for the miracle economic legacy they left to South Africa.  And if he doubts this then he should take a trip to Singapore and see how land rents transform economies.

Peter Meakin

Registered Professional Valuer

Member SA Institute of Valuers

gibaba

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