Media release: Radical economic transformation means South Africans keep and control their own money

23 May 2017
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Radical economic transformation should mean exactly that – radical action. The ANC talks of radicalism but perhaps because it has yet to set out what this really means, it continues to promote policies that perpetuate apartheid era thinking. Taxation policies, exchange controls and regressive financial services legislation are backward-looking to an era of state intervention, authoritarianism and control of citizen’s lives. Since 1975, the Free Market Foundation (FMF) has actively campaigned on these and other apartheid era laws and proposes real radical transformative policies ahead of the 2017 ANC policy conference in June.

Apartheid separated not only the various races and ethnicities of South Africa, but also the people (of whatever race) from their ability to keep and control their money. Apartheid mentality held that the State was entitled to the money of the people and set about levying large taxes, overregulating financial services and often prohibiting citizens from moving money in and out of South Africa via exchange controls. Not much has changed.

A radical economic event would be allowing citizens to keep and control more of their own money, not levying more taxes on an overburdened, small taxpayer base and introducing intrusive financial legislation that interferes with individual freedom.

The vaunted Financial Advisory and Intermediary Services (FAIS) 2002 Act has been a disaster for South Africa’s developing economy. The Act requires financial service providers to comply with various ‘duties’, examinations and qualifications which incur certain compliance costs other top of taxes and burdens already imposed by other laws. The cost of compliance has negative (intended and unintended) consequences, such as fewer jobs; increased costs passed on to consumers; and reduced innovation and product range. The result is dramatic deterioration in consumer choice and experience and the virtual decimation of the transformational and burgeoning independent black insurance broker fraternity – the very opposite of radical economic transformation.

Wealth or inheritance taxes are a backward step in a developing modern economy and should be shelved, in light of the Davis Tax Committee’s developing mandate. Saving, and thus investment and growth, occur precisely because individuals want to leave as much as possible to their children. Anything else is a disincentive to save.

Adopting a flat tax would be radical economic transformation. A flat tax – as opposed to a progressive tax – means the ratio of tax to taxable income is the same at all levels of income. It replaces the various tax bands that feature in a progressive tax regime with a single rate. A “true” flat tax makes no provision for exemptions and provides no special dispensation for low-income earners who should be exempt from paying tax on personal income. A low flat tax is fairer, would broaden the tax base, and improve incentives to invest, make tax evasion more difficult and less lucrative, increase economic growth, raise local investment and create new jobs by increasing real wages.

Exchange controls are counter-intuitive, encouraging domestic investors to seek out any suitable foreign investment to hedge against future uncertainty in the local economy. They show that government has no confidence in its own policies. A real radical departure from apartheid taxation thinking would be to scrap exchange controls.

FMF director Jasson Urbach said, “SA is in a position to send a strong signal to the rest of the world that our economy is open to business. Eliminating exchange control, a remaining vestige from the apartheid regime will ensure the rand returns to its true value”.

Government continues to increases sin taxes on alcohol, cigarettes, fuel, imports, etc. ostensibly to curb consumption. Similarly, taxes imposed on income and earnings reduce the means by which to buy. All taxes diminish the incentives and zeal of entrepreneurs to risk capital and sacrifice time and energy, they interfere with the ability of individuals to pursue their goals, workers have smaller disposable incomes. This creates a vicious cycle of less saving, less capital formation, lower labour productivity and lower real wages.

For radical economic transformation to occur, this apartheid mentality must be fundamentally challenged and the people of South Africa must be allowed to keep more of their own money so that they can decide for themselves how, when, and where they wish to invest it.

Ends

Note to the Editor

This media release is the third in a series of ten in which the Free Market Foundation (FMF) will provide alternatives to the various policy discussion planks of the African National Congress’ 2017 National Policy Conference.

Previous media releases in this series:

ANC Conference must adopt real radical economic transformation – not more of the same paternal statism

ANC Conference must reject ICT White Paper and Hate Speech Bill for South Africa to drop Apartheidesque communications policy

You can access more in-depth documentation regarding the above on the FMF’s website:

FMF submission to the High Level Panel on taxation

FMF submission to the High Level Panel on exchange controls

FMF submission to the High Level Panel on the Financial Advisory and Intermediary Services Act

The FMF will be hosting a media briefing on 21 June 2017, that will provide an overview of the FMF’s alternatives as well as our vision for Radical Economic Transformation.

 



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