Taxed to death, SA works informally

Reaganomics, the idea that cutting taxes frees up so much cash that economic expansion and tax takings actually increase, arguably brought the longest, fastest and most sustained global economic advance in human history – from the mid-1980’s until now. It’s a lesson that passes our politicos by, and so South Africans increasingly move beyond government’s reach, into an informal sector that is bigger than we imagine.

Following last year’s surprise increases in capital gains and dividends taxes, 2013 will certainly bring higher tax on legal tobacco and alcohol consumption, and possibly a “rich tax” of 42% (from 40%) on people earning more than R617 000 a year, to 45% for those getting more than R1.5 million. Then there’s a mooted “graduate tax”, and ideas to take more from mining houses.

This is old school stuff, well within the ambit of Britain’s Labour shadow chancellor Denis Healey’s 1972 promise to “tax the rich until the pips squeak”. It fits with the modern “Occupy” movement of Western countries that “the 99%” of people carry society’s financial burdens while the richest 1% benefit.

In SA, politicians argue only about how taxes should be spent, with the opposition reacting to misallocations by calculating what could rather have been bought – Bill Clinton’s 1992 dictum that “the era of big government is over” seemingly beyond their ken.

Treasury forecasts a jump from over 15 million to 19 million people on state grants by the end of the next financial year. This is funded by a taxpayer base already severely prejudiced. Right now, says Adcorp economist Loane Sharp, 1% of SA households pay 24% of all tax, with 4% of taxpayers carrying 40% of the burden. The Occupy movement’s sentiments are inverted here.

Taxpayers are an easy target for a Sars which, despite expensive foreign consultants, is probably no more efficient than any other state department. Pips squeaking, South Africans are moving beyond its grasp.

Stats SA says that almost half (46%) of South Africans are “idle”, including 74% of adults under 24 years. Most unemployed are young, black African and have never worked before. Opposite stand the formally employed, of whom almost one third (30%) are temps. Union membership has fallen to a point where unionised civil servants outnumber all other unionised workers put together. Still, we lose more man-days to strikes now than during the days of “rolling mass action”.

In this milieu, you’d expect starvation, but we don’t have it. Why not? Because, says Sharp, South Africans aren’t actually jobless to anything like the degree government fears. Rather, he told a Free Market Foundation briefing last week, they’ve reacted to especially high taxes and restrictive labour policy (the World Economic Forum puts SA at 138th most restrictive out of 142 countries) by going informal.

Adcorp research puts “expanded” unemployment at not half of people able to work, but at just 17%, with the difference between government’s fears and reality coming from an informal sector of quick expansion.

Meanwhile, local workers are out-competed in the formal economy by migrants free from our minimum wage and dismissal protections. SA has thus absorbed 3.5 million Zimbabweans, leaving close on that number of our own people effectively excluded from our formal economy by laws meant to “protect” them.

–        Paul Pereira. (First published in The Citizen, 12 February 2013)