11th May 2010
We wish to thank Minister Gordhan for having
heard us in respect of the dysfunctional and perverse nature of the
Reserve Bank. His draft Bill is a small step in the wrong direction
but at least for the right reasons. The Reserve Bank remains a
fiefdom, acting in the interests of a small club. The strength of
the Rand, in spite of both the Ministers of Finance and of Trade and
Industry agreeing to the Rand having to be devalued, proves it. We
will engage the Minister more on these issues as the Bill is
discussed, but now wish to point out that the scope of these
discussions must be broadened to consider a reform of the monetary
system, failing which we will not even have begun dealing with the
root causes of inequality and poverty.
I suspect that in Minister Gordhan's chest a
socialist heart beats hard. So does it in mine, but I am also a
libertarian. We must grow out of 19th century models and define a
21st century path towards the emancipation of the socially
oppressed. This path is not about creating a proletariat state, but
rather a state of bourgeois citizens. A very large bell curved
middle class with small fringes of poverty and extreme wealth at its
Yet, the Minister told me in Committee that
the priority is to take care of the poor, not of the middle class.
But where is the poor to grow into but into a middle class? Looking
at where we are at and where we are moving towards, one almost
suspects that in adherence to 19th century strategies, the
conditions for a popular uprising are progressively being created.
We have a 25% unemployment rate, which will
grow dramatically after this opium-like soccer extravaganza which
has dislocated so much of our scarce resources with little or no
compounding long-term financial benefit. The nation's debt is being
raised from R526 billion to R1.3 trillion by 2013, with the hope of
stabilizing it by 2015 on a deficit of revenue over expenses limited
to 4% of GDP. If growing at the same rate, by 2015 the debt will
rise to R1.7 trillion with a possible annual debt servicing cost
nearing the education budget; these figures not including the
explosive skyrocketing municipal debt.
The only way of servicing this "stabilized"
budget with a deficit at 4% of GDP, or to begin repaying the debt,
is through raising taxes, cutting expenditure, hyperinflation or a
miraculous vast broadening of the tax basis flowing from a period of
We are heading for higher taxes and
inflation, no matter how strongly one denies it. Inflation is really
a tax on poverty, savings and the middle class. Eskom has told us
that it still requires an additional R200 billion in funding and has
no plan to meet its costs beyond 2017. There was no reason for us
to borrow from the World Bank for the present financing, but it was
expedient for the Fiscus to keep this as a merely contingent
liability. But the next financing will undoubtedly be raised through
Plus Eskom will require additional tariff
increases over and above the absurdly high amount it just received.
There are about 5 million income tax payers
in South Africa, which include all the members of this House, who
support a 50 million population, most of whom receive one or more
items of social assistance. Proportionally, we have one of the
largest welfare states on the planet. According to a recent KPMG
report, we are subjected to some of the highest personal income and
corporate tax in the developed and semi-developed world. Even
Sweden has a corporate tax lower than ours to balance its high
personal income tax.
Being at the top of both such tax categories
is unheard of. Rightly or wrongly, the 5 million taxpayers have to
use our after-tax money on private security, private schools,
private retirement funds and private hospitals because our tax money
does not provide us with satisfactory policing, education, social
security and healthcare. We parliamentarians have passed a law to
make sure that we do not need go to public health facilities for
which we would need no insurance.
The present fiscal policies will push vast
segments of the middle class into poverty or conditions in which
they will have no significant disposable income. Yet, this is the
very middle class of consumers which the government's Industrial
Policy Action Plan predicates having to become larger and larger so
as to support with its demand the local manufacturing of goods in
lieu of imports. If the middle class goes, the country goes.
We need to rethink the entire tax system and
with it how wealth is distributed in South Africa. The Anglo-Boer
War was perhaps the last major structural rearrangement in the
distribution of economic power. Since then, a small club of
traders, commodity extractors and beneficiators has generated the
income and progressively supported with its demand the production of
goods. Those providing them soon organized themselves in monopolies
and sought the government's protection from external competition and
thrived even during sanctions. The State taxed everyone to the tilt
to create infrastructures. In the combination of these factors a
middle class emerged, which does not really own this country, but
pays for it all. The debate on the Industrial Policy Action Plan
still moves within this paradigm.
Take the Exchange Control Act. Every year
since 1994 we have been told that its restrictions are being eased.
But no-one tells us or can rationally justify why in hell we need
such a monstrosity that even countries like Zambia have long
abandoned. The fact is that the Exchange Control Act, which is
enforced at the absolute discretion of the Reserve Bank, does not
bother the big guys who have had no problem getting all the required
approvals to pack their companies up lock, stock and barrel and move
them to the London stock exchange. And who cares for small and
medium businesses struggling under it?
We need to establish as soon as possible a
tax commission representing the overwhelming majority of those 5
million tax payers who have no resources or attention to hire high
profile firms of chartered accountants to defend their interests
whenever we discuss tax legislation or hold public hearings.
When did any of us in this House or in the
galleries or any of our friends hire a chartered accountant to
interface with the Treasury in all its byzantine intricacies?
Never, we usually shut up and pay up. And the Treasury's attitude is
that it's really all their money, and they just need to decide how
much it is fair for them to leave us with; and how they can take it
in the most secure and painless way. The small circle of big guys
who own the country know how to protect their interests and usually
have no problem with the greatest tax burden being by means of
vat taxation, which
they can easily elude or pass through.
Because things are now going to get worse
for the bulk of the unrepresented tax payers, it is imperative to
implement our Standing Committee's recommendation that a citizens'
tax commission be established as soon as possible; failing which we
better begin asking ourselves how much can one milk the meek and
benevolent middle class before facing a tax revolt.
DR. MG ORIANI-AMBROSINI MP
082 556 0240