This is a response I wrote to an article from ( a Finance quip I presume). I being a generalist often stay clear of specialists in their natural habitat; but this particular piece began as disdain for the Finance Minister’s mention of “tax evasion” and “profit-shifting” in the  Mid-Term Budget Speech and descended into a pie chart-laiden blanket discussion of the fairness of the fiscal policy, geopolitics and a rather unbalanced comparison of South Africa’s fiscal policy with that of the US and countries which collect 50% of their GDP in tax revenue.

I put myself in the safekeeping of my erudite audience who will call me out on my own bullshit.  The article is titled “Who Pays South Africa’s Tax” by Jayson Coomer – the link provided in the excerpt. (The article begins with the suggestion that Nene delivered the speech “with all those EFF-student-stun-bombing backing vocals”, another (not-so-lettered) quip?).

Yesterday, while Minister Nene was doing his thing in parliament with all those EFF-student-stun-bombing backing vocals, I got a bit prickly when he started talking about “tax evasion” …

Source: But who pays South Africa’s tax? | Rolling Alpha

Pie-Chart on Pie-Chart

Here’s the [edited]  reply I left in my honourable friend’s thread, in it I try to loosely address some of the points made in the article and I’ve tried my best to stay on topic, which I concede was difficult.

You’ve raised some great points.

On the Classes

I often try to avoid using “class” as a term very loosely because its meanings as a social construct and economic one could be confused. Tregenna & Tsela (2008) among many other studies on income dynamics in South Africa argued that the high income individuals (“the rich” as you call them) are not particularly affected by our progressive tax system, as they have been shown to be much better at protecting their income than middle to lower income earners. Depending on which year you choose to look at income tax contributions you may find the middle-income earners contributing a greater deal.

The National Treasury did however agree that a situation where most revenue from an emerging economy being sourced from individuals was unsustainable, as industry should be expected to provide a much larger contribution to the national coffers. It may evade some, but the issue isn’t really one group of income earners carrying the yoke of the tax burden, it is the lack of upward mobility.

piecing the pie together

After social transfers, SA achieves a moderate GINI coefficient (as a measure of inequality) and this may be misleading as these transfers are mostly palliative. Social spending is a very large, and expensive band-aid. The system still allows the rich to preserve their WEALTH; and that is why despite the fear-mongering – the privileged are still privileged and there’s no reason as yet to take that privilege elsewhere as is implied in the article.

If the top 1% make more than the bottom 50% combined, there’s nothing wrong with that income being padded by a tax scheme that bears in mind the unequal distribution of both income and wealth in the country. The bottom 20% in South Africa according to StasSA account for roughly 4% of consumption. Social transfers aren’t creating much competition for goods and services, and the major portion of consumption in the economy is disproportionately concentrated in the top 10%.

The Romney comment in particular caused an uproar because many were still reeling from a recession largely not of their own doing, he forgot to mention that a large part of that 47% had paid state taxes, and seen most to all of their taxes refunded through tax breaks and social transfers. You haven’t said it but I read it in one of the comments, tax is not a charitable donation and if it were, high networth individuals would pay less of it. It is there and it is high because we understand that at parity,being a millionaire in SA provides as much bang for your buck as any other similar economy.

Apple PIES and pumpkin pies

I too love the high drama of US politics, but often it’s better to provide a like-for-like comparison. I do believe it is not an attempt to be disingenuous, but you may have had similar success in driving home your point by comparing South Africa with a BRIC, upper-middle income or other emerging economy. The economies you compared South Africa with used colonisation or subjugation of other peoples (slavery) to beneficiate their own population (like the 50% tax-GDP nations Denmark, Belgium etc.). In other cases there is high state ownership and control (Norway, Cuba) of strategic industries and resources. From the introduction I presume that would not sit well with many of the “privileged”.

The ideas are mostly good, but I fear the delivery may mislead someone who isn’t prepared to take them further (whether they are opposed to or for them). It’s often difficult to make an amoral argument when it comes to taxation, and while you qualify your stance at the end you do however imply the existence of an “unfairness” with little evidence that that is purely an economic imbalance. So I assume that what is being suggested by that caveat is that while there may be moralistic or non-materialistic arguments put forward, you are not prepared to be engaged on them. Fair enough.

you can have the last slice

If it were a cogent argument on taxation as part of our fiscal policy, you would have went into the impacts of illicit outflows as you began the article. You do not go on to make a case for or against them, instead highlight that the “rich” pay most of the tax and if their needs do not get primacy in public spending, they will take the money they’ve earned using state-provided amenities and migrate to a state more deserving of their wealth. Had you investigated the issue you’d  find that the movement of  currency into tax havens is eroding our tax base, inhibiting growth, heightening inflation and worsening poverty.

That is why we tax sometimes, when the wealthy or large corporation has run out of things to do with their money it is better returned to the system. Money from illicit flows is often tied to transactions on the fringes of legality, and seldom results in innovation or capital formation. Sadly, that was not discussed in the article. I feel like you made a meal of those pie charts mate.

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