Some items for the new government’s in-tray
13 May 2014
Posted by: Author: Mark Barnes
Author: Mark Barnes (BDlive)
We have just successfully completed our fifth free and fair election.
If you were just about to be appointed the president of the Republic of South Africa, what would be the top priorities on your first 100 days to-do list?
These, in no particular order, would, from a businessman’s perspective, be my top eight, or so:
1. Completely replace personal income tax with a consumption tax. The logic for being taxed on what you use rather than what you earn is compelling. What if we simply had a VAT rate that was calculated every year to balance the books of South Africa Inc ? The rate would be derived rather than preset, each year in advance, based on the projected expenditure of the economy.
Different rates could be applied to different categories of goods and services so that the objectives of fairness, primary needs and even a proxy for progressive tax could be met. Basic foodstuffs and primary healthcare could, for example, be zero rated while jewellery, say, could be subject to the highest rate.
Tax would be automatically levied at point of sale and electronically transferred to the fiscus. The cost of collection and administration would be all but eliminated, the balancing of the books would never be more than a year out. Fabulous.
Personal tax would be zero. Fabulous. No more tax avoidance/tax evasion debates.
There should also be no capital gains tax. It sterilises capital which otherwise would circulate back into the economy. Many shares are simply held onto because the 15% capital gains tax is seen as more of a certain negative effect than a potential market correction could be. No inheritance tax should apply to sums passed to children during the lifetime of the parent. You’ll get the tax when the kids spend the cash (which would otherwise remain locked up in dynasty vaults).
2. Constitute a representative, nonpolitical board to oversee government expenditure. Representatives of business, big and small, financial experts and perhaps even academics should preside over the spending of our taxes, not only representatives of the popular vote.
The board, commission, call it what you like, should be chaired by an independent expert, not a politician. Call him or her the minister of finance — it is not the title that matters, it’s the process of appointment and the mandate.
3. Sell SAA? If you can. Maybe don’t quite sell it outright, but, for goodness sake, do a thorough and objective assessment of its economics, put a time limit on realising that plan, choose a leader of management and then leave him alone to get on with implementing it.
No noneconomic overrides, no vetos, no ministerial interference. If we can’t prove that we are on track to do it ourselves within 18 months, then partner with an international player to attract the right expertise and achieve the necessary economies of scale. It’s a business, a tough, internationally competitive business, and we keep getting patriotic about it. No.
4. Education free for all citizens, compulsory up to 16 years old. There is broad consensus that education is at the core of the eventual victory over poverty, but the poor can’t access it. The total spent on education across the population, if you include the full, after-tax cost of private education, is probably enough to educate all of our people equally and properly. If you fail, you pay. If you’re over 16, you can leave. If you want to study at a tertiary level, you have to pass the entrance exam. Allowing people in who don’t clogs up the system and lowers the standard until we can’t compete — then we hire foreign expertise. No. At the very least, education costs should be tax deductible, surely?
5. Privatise utilities. We don’t seem to be getting Eskom right. We don’t seem to be getting municipal water right. In fact we seem to be getting these utilities spectacularly wrong. I don’t know why.
I do know that we don’t have to invent the wheel!
Utilities have to be managed the world over. Electricity and water aren’t optional extras.
There are any number of case studies to support privatisation, in the name of efficiency and providing the right service at the right price, internationally. Why do we insist on this remaining a government function? What is the issue? Is there some national imperative being served, or is it just stubbornness? Get over it, do the right thing. Prescribed assets may have a role to play here.
6. Centralise healthcare management. We need to properly oversee and manage, and sometimes direct, the balance between the different approaches required to be taken across the spectrum of broad-based primary healthcare to world-class specialist facilities. Again, we can draw on worldwide experience on how to deal with this. From paint-by-numbers rural diagnosis to cutting-edge technology. If ever there was a case of first and third world coexistence, we have it in this field. Diverse applications more often than not require central co-ordination.
7. Eliminate exchange control. For all intents and purposes exchange control no longer exists for the average person. A good many of us couldn’t afford to use in full the family or annual allowances available to us anyway. The majority of the voting populace remain unaffected by exchange control, as ever they have been. So what’s the problem?
Like so many of the things on this list, it is more about mind-set change than actual consequence. It’s about growing up. It’s also about confidence. I have no doubt that the foreign direct investment will far outweigh the chicken-run money, and if we can’t find a better way to persuade people to leave or increase their capital here, we have bigger problems to deal with.
A cage is not the solution.
8. Inviting African strategy. Africa is the hot destination for world capital investment right now. China has earmarked half of its foreign investment for Africa, supposedly without preconditions or special deals.
We need a strategy that maintains our position of leadership and invites foreign interest. Beyond simply having the profile we need on the world stage, we also have to create an enabling rather than prohibitive set of investment rules. No more nationalisation speak, no more 20% of this or government rights to that — that is just not how the game is played by the winners.
Those are my mainstream suggestions. But no "to do" list for a country could be considered complete without some more radical disrupters and game changers. Here are just three.
1. Cancel BEE (black economic empowerment). It really hasn’t worked as a policy to broaden economic participation in the economy by the population at large. It has worked in transferring wealth to a few, and that was probably to be expected and a good thing in its own right, but it’s enough already.
In fact, it will probably be found to divide more than empower, contributing more to entrenched inequality than spreading wealth. BEE has also brought with it a whole bunch of issues that surround the uniquely South African concept of tenderpreneurship and allocation of economic entitlements. If we apply our taxes properly, empowerment will follow as a natural consequence of our demography. Equal opportunity will better serve us than pre-selected participation.
2. Disenfranchise voters over the age of 75. We really need to hand over the reins of our country to those with less baggage. In business, the benefit and competitive advantage that come to the fore when the old guys step out of operations and into wise counsel is proof enough. We need to get past our past. Our children need to be voting for someone they know.
3. Prescribed assets. Yes, I know. How can we take such a move backwards? Outrage.
But you have to consider alternatives to the mess we’re in now with regard to the source and application of funds in infrastructure.
What if part of company tax (bearing in mind that in my world there is no personal income tax) were specifically applied to maintenance and infrastructure development in the industry where a company operates. Who could object?
There are some themes and central messages here. We should by now be confident enough to embrace and trust one another enough to discard some of the perceptions and strictures of our past, and enter into partnership as South Africans, as one nation.
If business, labour and government don’t find accord we will surely keep losing ground as the once leading economy of Africa.
With our current out-of-line views. our participation in endeavours such as the Brics (Brazil, Russia, India, China, South Africa) bank will likely be stillborn. The invitations will simply stop coming and foreign visitors with investment mandates will just go to places where the regulatory environment and spirit of partnership are more attractive than ours. We have to go out of our way to demonstrate our destination as the winner.
We have to move away from being unrehabilitated products of apartheid. Of course, this will require boldness, risk and trust. To see our way through this complete healing we need leadership and time.
The rest of the world and its capital have choice and don’t need to wait for us. It’s a simple choice, really. Do we wander about in the wilderness, forever scarred by the damage of our past? Or do we stand up, make demonstrable change that tells the outside world and our inside citizens that we’re irrevocably on a track to get over it, to emerge in fulfilment of the rainbow promise we all voted for the first time?
Our born-frees need something more than liberation from the past to vote for next time.
This article first appeared on bdlive.co.za.