Sometimes as a South African, one does not know whether to laugh or cry in response to news headlines. A recent instance is seen in comments made by Jimmy Manyi – infamous for his “over-concentration of coloureds in the Western Cape” remark – on the state of the South African economy.
“Government must find a way to tax funds in the private sector. That is the duty of government. The duty of the private sector is to create jobs, but it does not want to come to the party,” Manyi said during a panel discussion at the convention of the SA Property Owners Association (Sapoa).
It is our government’s duty to find ways to tax the private sector. Indeed.
Government has certainly been succeeding in this regard. Following this year’s budget speech, we noted that the capital gains tax inclusion rate and fuel levy have both increased. Furthermore, Finance Minister Pravin Gordhan indicated that a ‘sugar tax’ would be introduced in future. All of this follows the personal income tax rate increase in 2015.
Manyi’s statement, and similar comments made by other influential individuals, leave many of us wondering: why can’t government and ivory tower intellectuals figure out the ‘mystery’ that is our poorly-performing economy? The key to resolving the second part of Manyi’s comment lies in the first.
When people are told that it is the government’s mandate to find ways to take their money away from them, it should come as no surprise that they become less interested in attaining the valuable skills or starting the new businesses that would enable them to earn more. Why bother, when the lion’s share of your income will go to the government?
South Africa is a particularly hostile environment when it comes to entrepreneurship and job creation; in addition to high tax rates, there are many factors that impede economic growth:
Registering a company is a murky and expensive process. Labour regulations are highly prescriptive, so employers and employees cannot enter agreements on their own, mutually-beneficial terms. Minimum wage laws make it prohibitively expensive to hire unskilled individuals and provide them with on-the-job training. Regulations and regulatory compliance drain financial and other resources from businesses. And so on, ad infinitum.
The result? Only 1.4% of South Africans between the ages of 15-64 own established businesses. The new business ownership rate is not any better. Perhaps most significantly, businesses in the ‘informal’ sector of our economy will never be equipped or incentivised to grow if these massive barriers stand in the way.
I’ve spoken at length to my Rational Standard colleagues about the massive, untapped potential that South Africa has. This cliché will never be realised, though, if those in government do not understand that they are hampering economic progress in this country. And so, tragically, George Orwell’s somber words ring true: “In our society, those who have the best knowledge of what is happening are also those who are furthest from seeing the world as it is.”