Budget Vote 9

By Dr MG Oriani-Ambrosini MP


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 ends.


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 prosperity.


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 taxes.

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 paye and 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.




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