LETTER: A taxing dilemma
Deadweight taxes raise the average cost of living by R60,000 a year per family
So many advisory panels have disappointed on President Cyril Ramaphosa’s watch that his high-level economic panel risks failure too. To avoid this, they should be only tasked with determining why economists disagree so fundamentally on what to tax.
Adam Smith’s classical school argues for a single tax on nature’s gifts, such as land and the spectrum. This is because they are inelastic (fixed in supply) whether taxed or not. Handfuls of Nobel prize winners concur. Frank Knight, founder of the Chicago school of neoclassical economics in the 1920s, denies the differences between man-made and natural assets. In his Risk, Uncertainty and Profit he argued that land has value because adventurers needed to be compensated for finding it and killing off the prior inhabitants.
The state subsidises land prices when it chooses not to tax unearned rents. The less it taxes land, the more land prices rise. That is why landlords do not pay tax but advance cash to the SA Revenue Service and wait for land prices to rise. GDP suffers when the state plumps for taxes on the hard-earned fruits of work, investment and consumption, and then punishes citizens more for working harder, investing more aggressively and shopping round the clock.
What a way to woo investors! The neoclassicists also ignore the fact that deadweight taxes raise the average cost of living by R60,000 a year per family higher than necessary, by 25% of GDP.
The panel’s “must read” is the 2018 wealth tax report by the Davis tax committee and the 2018 medium-term budget policy statement on land taxes. Most income taxes and VAT should be binned in favour of land taxes. This was not reflected in the ANC manifesto, nor the 2019 budget. Nor is it mentioned in the national development plan.
Section 228 of the constitution bans all taxes that flout state economic policy of growth and jobs.
Peter Meakin, Claremont