The leader of the Democratic Alliance (DA) Youth, Luyolo Mphithi, appeared on SABC News in September 2018 to talk about the DA’s position on the notion of so-called free higher education. The position was made clear: The DA supports free higher education for ‘deserving’ students, and will fund this by taxing the private sector.
When asked where a hypothetical DA government would find the R6 billion that NSFAS would need to fund such a programme of providing free education to deserving students, Mphithi responded that taxing the private sector is not out of the question.
Here’s the relevant quote from Mphithi, which is heard at the very end of the interview:
“We to need also be able to look at where can we tax? Can we tax the private sector? Increase the tax when it comes to, you know, business, company tax? Those are the types of things that we need to look at. Because I don’t think we are treating the private sector as the way that we need to treat them. We are treating them with gloves. So we need to do more…”
The private sector, as far as the DA is concerned, is being treated with gloves by government.
What is the private sector?
To understand the problem inherent in the DA’s utterances on this topic, we need to understand what the “private sector” is.
Most people immediately think of large corporations, but the private sector is nothing more than you and I. Everyone and everything that is not part of the political class — broadly, government on all levels, entities that only do work for government, and public education institutions — are part of the private sector. Taxis, spaza shops, hawkers on the side of the road, refuse collectors, micro-businesses, subsistence farmers, mega-corporations, private schools, churches, clubs, sports, associations, individuals, etc., are all part of the private sector.
The private sector, as a general rule, operates according to market forces. When there is demand for something, they supply it. When something is free or cheap, they buy it. Most importantly for this context, when something is expensive, they avoid it.
‘Gloved’ treatment of the private sector
After the 2018 budget, BDO South Africa noted that personal income tax and corporate taxes were already at their limits, which forced government to raise the value-added tax (VAT). Ferdie Schneider, National Head of Tax at BDO, said South Africa has reached the “tipping point” on the Laffer curve.
This means that if we are taxed any more, government will in fact be collecting less revenue, as businesses as rich South Africans scramble to immigrate their wealth abroad or restructure their affairs here to protect what they have. It could also lead to less capital investment as businesses spend more on taxes, and, eventually, to a complete exodus. Investopedia explains the Laffer curve succinctly:
“For every type of tax, there is a threshold rate above which the incentive to produce more diminishes, thereby reducing the amount of revenue the government receives.”
Schneider also drew attention to stealth taxes like the fuel levy, which generally contribute to the statist burden that the private sector labours under in South Africa.
Other than taxes, the private sector is also heavily regulated.
Government has the power to impose price controls on fuel, on the ICT industry (the DA also supports ‘free’ data, by the way), and, once the Economic Regulation of Transport Bill becomes law, on transport services. In the early 2000s, government nationalised all mineral and petroleum resources, thereby unceremoniously expropriating vast amounts of property without compensation. Financial services laws today prohibit small micro-finance businesses from starting up in rural areas, among many other inefficient and burdensome constraints on the industry at large.
Finally, let us not forget about government’s completely anti-enterprise vision for South Africa. This includes everything from expropriation without compensation, to plans to nationalise private medical care into one State monopoly, to labour laws and regulations that act as if the employee is the only party to an employment relationship. This government does not favour the private sector in the way the DA thinks it does.
The private sector is not being treated with gloves. Instead, it is over-taxed, over-regulated, and generally over-burdened with government’s political agendas. The DA, in this context, does not propose to lessen that burden.
Indeed, how can one claim the private sector is being treated too generously when government is threatening to seize property without compensation? When Coca-Cola South Africa is shedding jobs in the wake of government’s disastrous sugar tax? When ordinary South Africans cannot make heads or tails out of the growing pile of regulations and taxes that they must comply with if they wish to start a business?
Government is omnipresent in the private sector’s affairs.
“Experience” as a criterion for employment
At an earlier point in the interview, Mphithi takes aim at the private sector on another point: Their human resources standards.
Mphithi said that a significant amount of graduates from South African universities are unemployed despite their qualifications. He said the DA believes that “experience” should be removed as a usual requirement for employment, as it is impossible for those who have just left university to have experience.
But with the massive burden that business operates under in South Africa, how can Mphithi and his DA superiors be surprised that the private sector does not appear to be doing everything in an ideal fashion?
Operating a business in South Africa has been made unaffordable for most people, which is why graduates are sitting unemployed rather than becoming entrepreneurs, and why businesses are doing their damnedest to avoid hiring risky employees. They demand experience because it’s one more thing that lessens the likelihood that the business and the employee will be stuck in the CCMA and Labour Court for the next few years. A graduate with prior experience, especially if they had an amicable relationship with their former employer, is a far safer choice than a graduate with no prior experience.
The DA should be far more concerned with making it attractive for businesses to want to take chances with inexperienced, as well as totally unskilled and unqualified people! This can only be done if the regulatory environment is of such a nature that if the relationship between the employee and employer does not work out, it does not mean the employer needs to spend the next few years in court.
Better yet, the DA should seek to make it easy to create one’s own business in South Africa. A general exemption from all regulations and all taxes for businesses with an annual turnover of under R500 000, is an example of a policy that a liberal party that is serious about private enterprise would take.
The DA is not the liberal choice in 2019
This brings me to the key takeaway from the interview: The Democratic Alliance is not the liberal choice in this year’s election.
Over recent years, the DA has tended more toward adopting populist ‘sounds good’ policies, like ‘free’ higher education and ‘free’ data. It has adopted a draconian anti-choice alcohol policy in the Western Cape because of public pressure, not because of anything remotely related to liberal principles. In Johannesburg, the JMPD continues to spend time ticketing drivers in the suburbs (and harassing prostitutes trying to eke out a living) than cleaning up the violent crime in the city centre.
This is not to say that there is a liberal option in this election. There simply is not. But the DA needs to be punished at the ballot box, in the hope that they will come back from a failed election realising that they have erred in going down this route. The DA will only return to its liberal principles if its constituency tells it in no uncertain terms that they do not approve of the direction the party is going in. There are better options to pick in 2019, even if you’re still a DA supporter at heart.