Taxes: Feeding an incompetent state?

2017-03-03 19:18
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Cape Town – This year will be the worst ever for South African taxpayers and the next two years are projected to be even worse, said Garth Zietsman, statistician at the Free Market Foundation. 

Expressing his own views and not that of the Free Market Foundation, Zietsman said in 2017 Tax Freedom Day falls on 23 May – two days later than last year. Tax Freedom Day is the day on which South Africans will have earned enough to pay all the taxes levied by national government for the year. 

“In other words, if we were required to pay all our taxes upfront, we would have to pay government all the money we earn through 22 May, and, only after that date – that is from 23 May – could we start thinking of it as our own,” Zietsman said. 

Between 1972 and 1994, taxes have increased as a proportion of the economy by 67% and government spending by 80%. Since 1994, the increases have been 38% and 16%, respectively.

READ: Taxpayers foot bill for largest revenue shortfall in 8 years  

Toward the end of National Party rule in South Africa, there was a big rise in government spending and a drop in revenue when the governing party at the time tried to appeal to new voters as they faced their first free election. 

“During the first few years under ANC rule, government had to reduce spending and increase revenue to deal with the debt inherited since Apartheid, but eventually (and probably inevitably) spending increased sharply until the budget deficit became a problem,” Zietsman said. 

In 2008 when the financial crisis caused a recession there was a decrease in profits, which resulted in a drop in tax revenues, although it did not impede government spending at the time. 

How bad is South Africa’s situation by international standards? 

According to Zietsman, there is plenty of evidence that an increase in the size of government tends to slow economic growth.

“For an economy the size of ours, government is larger than necessary. The vast amount of revenue spent on government consumption alone is especially bad for growth. We are, in effect, eating our seed stocks rather than planting them. Last year also saw a shrinking rate of investment.” 
 
By international standards, South Africa has a large number of state-owned enterprises, performing functions that can be better executed by the private sector. In addition, too many of them are loss-making and being subsidised with tax revenue. 

Too heavy a tax burden - a threat to liberty?

The “bad – and worsening” – tax levels reduce how much you, personally, benefit from the work you do and get paid for, Zietsman said. “Already, only about 60% of your labour goes toward your own welfare. Every year, you lose another day or two, and, for every generation, an entire month is lost. In 1972, for every rand given to the government, you kept R3.33. Now you keep R1.58 – less than half.”

READ: 'Stop plucking the goose that lays the golden taxes'

A government that has access to a larger share of the economy is supposed to get stronger, said Zietsman. “Any country needs a strong government to avoid becoming a failed state, although the need and ability of a government to be able to draw on available revenue – and the ease with which it is done – becomes a threat to liberty.” 
 
There are various checks and balances in place that control the “threat to liberty”, said Zietsman, but increased power makes the task more difficult. “Especially if there are shifts in the size and strength of some branches of the state relative to others.”

Zietsman said the poor performance of various government departments, such as Water and Sanitation, Police and Basic and Higher Education, makes government appear incompetent. 

“As taxpayers, do we really want to use the little economy we have left to feed this monster indefinitely?”

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