‘Slash Waste, Cut Taxes’ offers simple steps to boost growth – IRR

Putting value for money at the core of all public procurement and reducing VAT to 11.5% are the core recommendations of the second paper in the IRR’s Blueprint for Growth series, Slash Waste, Cut Taxes, published today.

This comprehensive set of policy solutions charts a viable path to economic growth in South Africa. The second paper, Slash Waste, Cut Taxes, was launched today with an online briefing in which its author, IRR Fellow Gabriel Crouse, discussed his findings with IRR CEO Dr John Endres and IRR head of strategic communications Hermann Pretorius.

Slash Waste, Cut Taxes recommends two crucial changes to bring about rapid improvement, both fiscally and economically: implement the Zondo Commission recommendation to put value for money at the core of all public procurement, and reduce VAT to 11.5%.

Crouse writes that, cutting BEE premiums, “which are estimated to be around R17 billion per annum, would simplify procurement to improve transparency (which) in turn will improve corruption control to the value of an estimated R150 billion ‘Zondo Dividend’”.

The report recommends using “the first R100 billion of the Zondo Dividend to pay for a VAT tax cut ... from 15% to 11.5%, with either a further VAT cut to follow or else a General Fuel Levy cut of about R2.20 per litre”.

“The initial VAT cut is estimated to leave R31 billion in the pockets of the 70% poorest South Africans, where it is likely to be much better spent than by the government.”

Crouse notes that “(international) experience shows that cutting VAT stimulates economic growth”, adding: “Black business is expected to benefit directly from a share of roughly R30 billion of the VAT cut that is not passed through to consumers, and from improved governance, and improved consumer demand in pertinent nodes of the heterogenous market. This benefit outweighs losses by reducing BEE premiums.”

He concludes: “The upshot is that cutting BEE to cut VAT will stimulate growth in the economy, and revitalise the Rainbow Republic for the benefit of all, but especially poor, black,  unemployed people whose ranks have swollen in the BEE era.”

In today’s briefing, Dr Endres urged South Africans to familiarise themselves with Crouse’s “remarkable piece of research” and the “very practical” solutions arising from it.

“What the report reveals is shocking, especially (data on) the state becoming bigger and bigger and its effectiveness going down faster and faster.

“The very obvious conclusion is that we need to cut down the state, and make it more effective at the same time. This is a big ask ...the state is a huge beast. But the report’s very practical proposal is that one small change to make the state more effective is to make it spend its money in a cost-effective way, on a value-for-money basis, as the Constitution requires. It is very simple.

“The second thing you can do, very simply, is to reduce the size of the state by cutting VAT, and leaving more money in the pockets of consumers and in businesses. You stimulate the economy by doing that, and you can reap the rewards.”

Dr Endres said the key “take-away” was the importance of focusing on economic growth. South Africans must demand from politicians, business and civil society that “ways must be found to spark economic growth”.

The published report can be read here.

Media contacts: Gabriel Crouse, IRR Fellow Tel: 082 510 0360 Email: gabriel@irr.org.za   

Hermann Pretorius IRR Head of Strategic Communications Tel: 079 875 4290 Email: hermann@irr.org.za

Media enquiries: Michael Morris Tel: 066 302 1968 Email: michael@irr.org.za

Sinalo Thuku, 073 932 8506 Email: sinalo@irr.org.za