Every year the fear of God is put into income taxpayers as accountants and other experts jostle for attention-grabbing headlines regarding personal tax increases. Managers and professionals all go to experts’ presentations on how to handle this coming tax increase.
Yet every year the minister of finance gives “billions back in tax relief”, the Treasury spin machine tells us, and the media sees no irony in the contradictions. This has been going on for nearly a decade or so.
In fact, in the last decade only one tax rate increase has taken place, while Treasury has only partly given personal taxpayers inflation relief. So the parades are all PR and marketing from all sides.
The tax burden on individuals increases as inflation lifts salaries, but tax brackets increase at half the inflation rate. So the small rise in brackets is then announced as “tax relief”, while the under-inflation adjustment should be called a “tax increase”. There is no increase in the actual tax rates, but ever-lower incomes get higher marginal tax rates.
In fact, the minister almost always talks about tax relief, while the markets and commentators foolishly cheer as they try their best to make some positive noises about the “well-balanced budget”.
But looking at the numbers, one can see that they tell a different story. Personal income tax was 7.3% as a percentage of GDP at the start of 2007. In the third quarter of 2016, that ratio increased to 9.6%.
SA income taxpayers have gone from 18th-highest personal income tax burden to 14th-highest in the world. The trend is up and is likely to be that for some time to come.
Company tax income to GDP, while only 4.7% of GDP in 2015, is still higher than all Organisation for Economic Co-operation and Development (OECD) countries. Yes, SA has one of the highest and consistently high-income tax regimes in the world!
SA has one of the highest overall tax-to-GDP ratios in the world today. World Bank data shows SA is also part of the world’s highest regional tax area.
We have been in the top 20 highest tax-to-GDP countries for about a decade now and were always in the top quarter. Now the tax burden is being raised by new taxes such as carbon and sugar taxes.
The graph shows just how high SA tax-to-GDP is and has been since 2000.
The alternative facts we have been living with tell me that one need no longer wonder why the South African economy is growing at half the rate of the world and a third of the rate of Africa. It also explains why Southern Africa, the region in the world with the highest tax rate, also has the highest unemployment rate.
South Africans get little value for the high tax burden if one compares education and health outcomes across countries. Very large class sizes and too few doctors given the size of the population are just two examples, while our public service wage bill is the fourth highest in the world.
It’s simple: companies and people who add value do not want to give up so much for so little in return. So the investment dries up as taxes increase, and employment growth suffers, and more people want services.
Ever more promises are made, and the cycle starts yet again. The tax burden is increased and sold as tax cuts. But those firms with calculators and information see the wood for the trees and quietly stay away.
A very prominent CEO told me, “When money arrives it is a fanfare, but when it leaves it is silent. Be worried when businessmen say nothing,” as this is a good indication that their attention is elsewhere.
You should worry when accounting firms and analysts play along and tell you how good the balancing act was. They are either blind and deaf or have sold their souls.
Mike Schüssler, founder of Economists.co.za, has won the South African Economist of the Year award twice since 2005.
This is a shortened version of an article that originally appeared in the 23 February edition of finweek. Buy and download the magazine here.