Ideas matter | The economy won't grow while government punishes success

South Africa's first democratic elections took place on 27 April, in 1994, now known as Freedom Day. For South Africans who had been denied their civil liberties for centuries – through various iterations of big government incarnations that oppressed people based on the colour of their skin – 27 April can rightly be seen as one of the most important dates in this country's history, and indeed that of the world. Over the course of the last year – with the fight against the COVID-19 pandemic as justification – the policy decisions and actions of this government have shown us just how brittle freedom is, and how vital it is for citizens to hold elected officials to account.

It is difficult to create wealth at the best of times. Now, with no objective measure provided by government for when the lockdown and state of disaster will end, business activity and individual entrepreneurship have been reduced to brute survival. This is not the economic freedom South Africans need and deserve. More government controls in the economy – in the form of expropriation without compensation, National Health Insurance, prescribed assets, and the continued government-enforced monopoly that is Eskom, as the most prescient examples – will not achieve the 5–7% economic growth this country needs.

Without the freedom to keep what you earn, to have the property you acquire protected, to interact voluntarily with people in business and in your personal life to mutual benefit, Freedom Day rings hollow. Meaningful economic growth, the kind that would be truly transformative for the majority of South Africans, requires the state to step back and allow people to create wealth for themselves, instead of being forced to depend on various forms of welfare. When a given government operates on the assumption that it knows best how people should live – and that only those with the necessary political power have the knowledge required to make the best decisions on behalf of 60 million people – the policies that flow from that will inevitably inhibit all citizens’ scope of individual life and decision-making.

There are myriad inhibitors on business-creation, and more broadly, economic growth. The World Bank, in its 2019 Doing Business Report, placed South Africa 84th out of 190 economies (compared to 32nd in 2010). Small- and medium-sized businesses are the backbone of the economy, yet there has been no talk of exempting them from at least some regulations and taxes. Even those businesses that manage to get off the ground have to contend with an inconsistent electricity supply and, when they manage to grow and hire more people, they face the prospect of increased taxes.

The South African environment does not encourage and incentivise success and wealth creation.

The government's own insatiable need for more and more funding – with the concomitant crowding out of the private sector – is affecting middle- and low-income South Africans the most. One of the many ways in which the state collects revenue to fund its projects is through the fuel levy. Many citizens who cannot work from home have to travel to work, using taxis and buses. When the fuel price increases, the taxi driver or owner pays more at the pump, and those costs are passed on to customers. After the latest fuel price increase in early April 2021, the fuel levy or other taxes make up around R6.26 per litre – around 36% of the total price. As BusinessTech explains, filling up a 50 litre tank will cost R866 for 95 octane, and R855 for 93 octane. R313 of this total is for taxes. The General Fuel Levy and the Road Accident Fund Levy make up the biggest parts of the fuel price. For South Africans who do not have personal transportation, government-imposed costs on transport make it all the more difficult for them to move around and possibly to find work.

With the government under increasing fiscal strain (the debt-to-GDP ratio will hit 100% within the next few years), those who currently wield political and bureaucratic power must come to realise that they cannot 'stimulate' the economy indefinitely, and redistribute people into prosperity.

Capital, much like a river, follows the route where it encounters the least resistance. In a post-pandemic world, those countries that implement the politically difficult yet necessary reforms to free their markets from red tape and excessive political considerations will attract the most investment and best people to tackle social ills. There are people in government who know what must be done – time will tell if they have the stomach to allow South Africans' the truly transformative economic freedom that is rightfully theirs.

This article was first published on City Press on 27 April 2021.
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