The South African Revenue Service is again moaning about its latest shortfall in tax collection. It collected R1.28 trillion instead of the projected R1.3 trillion – a difference of about R20 billion.
When added to previous years’ shortfalls, that number is far greater. Now Sars is on a crusade for so-called tax morality. But how reckless and irresponsible is its crusade to enable government to rake in more wealth from productive citizens and foreign investors while corruption runs rampant and the state continues to strangle economic freedom.
Tax avoidance and tax morality cannot be considered without due regard to the broader political-economic context in which we live. Many South Africans are rightfully concerned that when they hand over their hard-earned income to Sars, it is going to disappear into a pit of criminality, unnecessary state bureaucracies, and funding of the lavish lifestyles of officials.
For instance, there has been much talk of a “tax revolt” by civil society against a corrupt and inept government. South African Airways and Eskom, perpetually mismanaged state-owned enterprises and highly ineffective market competitors, have been awarded several billions in bailouts over the last few years, which are more than likely to continue.
When law-abiding citizens pay taxes, they think the money is to be used for necessary social services, not for vanity departments like “sport” or “arts and culture”, or bailing out state companies like SAA which need not exist at all.
Can anyone with a straight face make the claim that the South African government is spending money more wisely than taxpayers themselves otherwise would? Section 195 of the Constitution requires the government to use resources efficiently, economically, and effectively. In light of the absolute and irrefutable fact that government does not adhere to this provision of our highest law, by what standard should we accept the notion that the government is entitled to as many of our resources as it wants?
When considering taxes, it is always important to bear in mind the fact that the wealth an individual or business has, was earned by them on the open market. While tax avoidance, and, at worst, tax evasion are certainly questionable from a legal perspective, morally they amount to nothing more than producers keeping more of what is truly theirs.
And because taxes are an involuntary affair, it needs to be as painless as possible for the law-abiding among us to pay our due. Government has made it painful in the extreme by being unashamedly corrupt and anti-enterprise.
Tax avoidance would not be necessary for businesses and ordinary people if tax rates were reasonable within the societal context. A high tax in a country with excessive levels of incompetence and criminality among officials, for instance, begs for avoidance.
No reasonable board of directors would seriously consider flushing hundreds of millions in wealth down the drain by paying it over to a scandal-ridden regime if they can legally avoid doing so. Wealthy individuals will also go to great lengths to ensure their income tax burden is as low as humanly possible.
Promises of change in the future are useless. The change needs to precede the handing over of the loot.
There is also the question of spending. The South African government seems unwilling to tighten its belt, even though there is ample room for it to do so.
It could eliminate several national and provincial departments at the stroke of a pen. Eskom, SAA, and a host of other humiliating state companies can be immediately sold, or at least closed down. The unions in this regard must simply be stared down. Vanity projects like the unaffordable National Health Insurance could also be shelved.
If the government wants to make up the difference between its target and what it actually collects in taxes, it needs to significantly cut what it spends, just like ordinary citizens have had to spend less as our tax and regulatory burden has increased.
It is often said that money should be taken out of politics to stem corruption. But for state corruption to end, it is politics that needs to be taken out of money.
In a system where there are high levels of economic freedom, and where society can keep more of its money rather than having to sacrifice it to the state, corruption is lower.
One need simply note the general correlation between the Fraser Institute’s Economic Freedom of the World report and Transparency International’s Corruption Perceptions Index. Countries with more economic freedom (that is, less state involvement in the economy) have lower levels of state corruption.
To ask for tax morality is deeply condescending, especially within the context of South Africa’s current political morass. Deeply entrenched corruption, mismanagement and vanity projects are not exactly encouraging to taxpayers.
Plainly, the government does not even deserve what it is already collecting.
South Africa will continue to bleed billions while we keep on following the trajectory of ignoring the principles of economics and the tenets of the rule of law.
That government collects less and less revenue as it grows more and more corrupt and infringes more and more on the free market and the rights of citizens, should not be surprising. Only when citizens are respected as taxpayers and as the masters of government, not its servants, can a sincere conversation about tax collection be had.
Martin van Staden is legal researcher at the Free Market Foundation and is pursuing a master of laws degree from the University of Pretoria. He is author of The Constitution and the Rule of Law (2019).