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Judge Dennis Davis has arguably popularised the judiciary and demystified law more than any of his learned colleagues, but often at the cost of descending into the arena of conflict; as perhaps evidenced by this excoriation of his Tax Committee conclusions by an activist foundation.
The South African Constitutional Property Rights Foundation (SACPRIF) is an old protagonist when it comes to Judge Davis’ views and recommendations on our taxing system, but here they literally accuse him of being a light-weight, neo-liberal whose conclusions endanger the very foundations of our economy.
It certainly catches the eye when a body with some respected members calls a judge ‘disingenuous and untrustworthy”. Their justification for that makes for fascinating reading, especially given that they take the debate into the sticky and hotly contested terrain of land taxes… – Chris Bateman
By Peter Meakin*
The South African Constitutional Property Rights Foundation (SACPRIF) has clashed with Judge Davis four times and found him disingenuous and or untrustworthy. At the very least.
The Davis Tax Committee conclusions must therefore be taken with a teaspoon of salt.
Our first reservation was when he put his signature to the 1994 interim report of the Katz Tax Commission (KTC), without recusing himself, as any decent practitioner should.
The bizarre assumptions in the KTC would make the grisliest lawyer blush, but not our commissioner. He and his colleagues looked us all in the eye, as it were, and in their introduction to the preliminary 1994 Katz report solemnly declared that taxes should be spread about as widely as possible:
“Requiring a considered balance between direct and indirect taxes, and between taxes based on income, transactions, resource use and consumption, and also require a balanced presence in the system of taxes on capital or wealth. The Commission recognises that economic stability cannot be promoted through attempts to shift the tax burden predominantly onto any single dimension of economic activity.”
This may sound level-headed but there is a deep chasm of unintended consequences between hard-earned, manmade revenues (wages, salaries, savings and investments) and the unearned takings which freely bubble up from natural resources or state spending on infrastructure and services (land rents, spectrum hire and mineral royalties).
The crucial issue is that 100% taxes on land rents does not reduce the earth’s surface by one centimetre. But however small personal taxes might be, goods and earnings will walk across borders to avoid or evade personal taxes. Arthur Laffer drew graphs about this on Ronald Reagan’s napkin. And that is why in common parlance, nature’s assets are deemed inelastic, and man-made things elastic.
The least harm to the economy, the lowest distortion to GDP and job creation, is therefore a single land tax regime (against the Katz dogma) where the supply of goods and services will rise and fall with demand, unhindered by personal taxes and landlessness.
And this is not nit-picking. When the state helps itself to the fruits of citizens’ work and wealth, but also wants to end the jobless and landless condition, it is like trying to speed up a car with the hand brake on. That is why income taxes and vat are described as “deadweight losses” or the “excess burden” of taxation. They lower GDP growth by up to 25%pa according to economists like Prof Tideman who calculate these things.
The effect of targeting work and wealth to fund government, and not capturing land rents, has resulted in an unparalleled and divisive land price bonanza since 1994. According to ABSA the average urban residential plot on their data base has risen seventeen times to R630K in Q1 2016, more for smallholdings.
This escalation is internationally unprecedented. It is more than four times the local Consumer Price Index. It is also akin to injecting arsenic into the body politic of South Africa because the landless do not benefit from windfall profits on land. South Africa is therefore currently divided between the landed who want higher (subsidised) land prices and the landless who do not. Mr Malema has his eye on this dysfunction.
Our second clash with the Judge was when he chaired the Katz Commission’s 8th Report on a South African Agricultural Land Tax. It was so riddled with errors that National Treasury rejected it. Mason Gaffney, Professor of Economics, University of California caricatured the Davis findings in faulting a land tax based on market value because it“does not account for the ability-to-pay principle.”
His committee lost sight lost sight of the fact that the landless are not able to pay, precisely because they are landless. With land they can save R4000pm in growing their own food and earn tens of thousands of rand, off the fat of a hectare, in rearing a few hundred pigs a year or a few thousand rabbits.
Our third problem with Judge Davis came after SACPRIF’s submission to the Davis Tax Committee (DTC) in 2014. Cecil Morden a Treasury official and an ex-officio member of the DTC, providing technical support and advice, pre-empted the committee’s findings by declaring in Parliament in 2013:
“This radical restructuring of the tax system (the land tax) is not supported. No major developed, emerging or developing country has managed to solely rely on one tax only, and (SACPRIF) submits the same proposal regularly. National Treasury rejects the proposal.”
In failing to contradict Morden the judge allowed a boorish Treasury official to steer the DTC conclusions to reject not only Henry George’s legendary single-tax theorem but its endorsement by classical economists like Adam Smith, David Ricardo, the Physiocrats, and more recently a handful of Nobel prize winners. No Nobel economist has ever endorsed the income tax.
Morden was also uninformed of China’s special economic zones which are eliminating personal taxes. Likewise Hong Kong and Singapore are on the way to becoming single land tax states. These two richest nations on earth in terms of GDP per capita per purchase price parity (GDPPPP), are today able to replace all personal and corporate income taxes with land rents, a rates and taxes user-charge excluding improvements.
When we objected to Judge Davis about Mr Morden’s ignorance the judge wrote to assure us that the DTC would give the fairest of hearings to all. He did not deliver on that promise because the DTC macro-economic reports did not once mention land taxes or rents, in any form.
The fourth time was last week when he was asked why he had rejected the SACPRIF submissions in the corridors of Parliament. He replied that he did not believe our “figures”. He meant that the R940.6bn income taxes and vat budget for 2016/17 could not be raised from the land.
This is nonsense because, de facto, R940.6bn is the country’s surplus product-the cash value of things which are due to the state not citizens. It will therefore exactly match the sum of the median (market) land rents in each suburb/township in South Africa; as calculated annually by SARS. These rents are also a surplus.
They are user-charges, like rates and taxes excluding improvements. They amount to an average R 7 838 pa per hectare across the 120 million hectares that is South Africa. The precise land rents due on each erf will be a multiple of the median rates and taxes currently being paid in each neighbourhood.
Those of us whose brains may not rise to the top floor nevertheless understand instinctively that it is better to tax the unearned benefits which citizens land(s) enjoy rather than the hard-earned fruits of their sweated brows.
Apart from being the fairest and the one which will provide work for all the 8.5 million unemployed it also avoids all those messy SARS collection procedures; the forms, the threats, the punishments; the invasion of privacy, the taking of private property, the reliance on good governance.
We therefore request Minister Gordhan not to appoint Judge Davis to probe the governance of SARS because he is not only conflicted but even if SARS was governed by the twelve Apostles it is the taxes on work and wealth that is holding back our economy. And land is not man-made so it is not wealth in the same way that pigs and rabbits are.
- Peter Meaking is chairperson of the SACPRIF Management Committee. He is co-author with Prof Nicolaus Tideman of “Land tax versus Income tax” a paper read at the November 2014 UCT Conference Income Tax in South Africa: The First 100 years and published by JUTA in in 2016. Prof Tideman heads up the Economics Department at the University of Virginia.
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