This might reach you out of the blue but I hope it is timely. It reveals the bold Constitutional economic miracle and extraordinary legacy of the 1996 Nelson Mandela and FW de Klerk pact. Sec 228 and 25.5 were the inspiration for the following down-to-earth solutions to South Africa’s jobless and landless pandemic and low economic growth.
South Africa’s Constitutional Tax-Haven
Sec 228 implicitly prohibits income taxes and vat by rejecting all taxes which “unreasonably prejudice national economic policies.” This anticipates a South African tax haven like Hong Kong and Singapore, not the evasion-havens of Bermuda and Luxembourg. Hong Kongers and Singaporeans are amongst the ten wealthiest in the world in GDP per capita per purchase power parity (GDPPPP) without mining or agricultural sectors. They are five times wealthier than South Africans with personal and corporate tax rates which are fifty percent lower than ours. Hong Kong also has no vat or sales tax.
The Chinese are renowned for their work ethic, and these are free-trade zones. But it is physically impossible for anyone to work five times harder than others. The lesson is that lower taxes attract foreign investors and these enterprises buy the plant and equipment needed to make labour more productive. Those who calculate these things, such as Prof Nicolaus Tideman Professor of Economics at Virginia State University, reckon that GDPPPP will rise by 25%pa when personal taxes are eliminated; when the economic hand-brake is released.
Funding the Income and VAT shortfall.
But how do countries fund national budgets without income taxes and vat? In Hong Kong and Singapore shortfalls are met by land rents. These are a rates and taxes surcharge, excluding improvements. In Hong Kong they contribute 35% of the budget. In South Africa 100% of the R1 trillion income taxes and vat (2016/17) can be captured from land rents. They amount to an average of ±R700pm for each of South Africa’s 120 million hectares; more in Bishopscourt, Stellenbosch and Montague Gardens than Bishop Lavis, Still Bay and Montagu. The monthly land rents due on each property in 2016/17 would be the current Municipal Valuation, a land price proxy, adjusted for inflation and divided by 200, the long term p/e ratio of land prices.
The capture of land rents in place of personal taxes will see unearned and unused land prices falling. This is an equitable measure, as sec 9, and explicitly anticipated in sec 25.5 which demands that land becomes affordable and so “accessible” to all. After all humans are land animals. Not having ±500sqm of arable land to feed and house ourselves properly and getting on with our peaceful worldly tasks is constitutionally perverse. And it is not as if land is scarce. Frost and Sullivan have counted 27 million hectares of unused arable land.
With affordable land South Africans will become as free as yeomen and women of old; free to walk away from unwanted wage contracts and to become as rich as they want in working the land. There one can become a millionaire on a hectare. This will also end the involuntary proletarian, landless condition. There can hardly be a more transformative Constitutional provision.
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