Do we get it? - Newsi

2 February 2022 - ‘Comment: So reports suggest personal income tax and VAT will both increase. We get less and less but have to keep feeding the rapacious, wasteful state. At the weekend our local councillor said residents must fix fucked-up traffic signs as Johannesburg Roads Agency can’t.’ Earthy disillusionment permeating her words, this was Ferial Haffajee on her Twitter account last week. A colleague responded, ‘Do you think she’s starting to get it?’

Terence Corrigan

‘Comment: So reports suggest personal income tax and VAT will both increase. We get less and less but have to keep feeding the rapacious, wasteful state. At the weekend our local councillor said residents must fix fucked-up traffic signs as Johannesburg Roads Agency can’t.’

Earthy disillusionment permeating her words, this was Ferial Haffajee on her Twitter account last week. A colleague responded, ‘Do you think she’s starting to get it?’

Actually, I think that Ms Haffajee does get it, at least far more than most of the commentariat. She has previously pointed to the implausibility of the National Health Insurance scheme in light of the dysfunction of the state that would administer it. She also recognised the foolishness of linking COVID relief for tourism enterprises to their BEE status. 

I think that she understands that what is afoot in South Africa is at best misguided, and probably something a lot worse.

Whether she (or South Africa as a whole for that matter) understands the full context and implications of what is before us, is another matter.

South Africa’s economy has underperformed for a decade, while the scale of needs that it has been called to provide for – both legitimate and venal – has grown. The rands-and-cents gap between resources and ambitions was always one that without fundamental course correction would produce an unpalatable set of options. We now seem to have reached the point at which for millions of ordinary people, this is going to become a reality. Whether in their paypackets, or after a trip to the supermarket, they will cede more money to the state.

The mooted tax increases are justified by the proposed introduction of a basic income grant, in other words, a general welfare measure to stave off the worst consequences of poverty. The door to this was opened by the relief measures introduced during the pandemic. Once conferred, it’s difficult to do away with them, as they come with a compelling moral narrative.

Nic Spaull of Stellenbosch University wrote about it thus: ‘That logic says that whether or not government can create jobs, it has a moral responsibility to prevent destitution at all costs. The right to a minimum amount of food or income is bound up in an understanding that all people have worth and their basic dignity must be protected, irrespective of the cost or the consequences.’ But, of course, it’s not just those morally legitimate claims that have the state eying a larger share of the income of its subjects; it’s the crooked and venal ones too, along with an overlay of sheer indifference and incompetence. This is no doubt what Ms Haffajee means when she talks about ‘the rapacious, wasteful state.’ And she’s entirely correct.

Bemoaning corruption is a national pastime in South Africa. There are few state institutions that have been exempt from this (and they are matched by more than a few in the private sector). In 2007 – that’s way before ‘state capture’ was a catchphrase, or Jacob Zuma was president – Kgalema Motlanthe declared that corruption had taken hold beyond anyone’s imagining: ‘This rot is across the board. It’s not confined to any level or any area of the country. Almost every project is conceived because it offers opportunities for certain people to make money. A great deal of the ANC’s problems are occasioned by this.’

Even now, the full extent of corruption may not be known – although the first part of the Zondo Commission’s report puts names and numbers onto it – but it can fairly accurately be guessed at. Indeed, a report produced last year by Unite 4 Mzansi – a project headed by the SA Institute of Chartered Accountants and a number of business personalities – estimated that R1.5 trillion had been lost to corruption between 2014 and 2019.

Yet even this does not even begin to touch on an equally important matter, which is that South Africa gets sub-par returns (putting it mildly) for its extensive spending. From the quality of our schooling, to the reliability of our infrastructure, to the state of public safety, South Africa all too often chases failure and decline. That the state effectively lost control of swathes of the country during the riots in July last year should be adequate evidence of this. Or take a look at the Auditor-General’s reports on the country’s municipalities. South Africans’ taxes buy them a government, not much governance.

And so, after taxes comes a wave of bills for private sector alternatives to services nominally available from the state. That is, for those fortunate enough to be able to afford them.

And this is while government planning going back decades has been premised on what the president likes to call a ‘capable state’. Ms Haffajee nailed it a while back, writing about NHI: ‘It is built on the assumption of an efficient, capable, tech-savvy and clean government, when the experience of the majority of South Africans is exactly the opposite, since the era when government first made the public health changes that made for better lives.’

Frustratingly, the ANC has an ideological commitment to a large state. It sees this as the pathway to development. The developmental state, with something like South Korea in mind. And this would allow ‘the people’ to take control of their destiny. In an article published in 1997 in The African Communist, it was argued: ‘This is one of the central reasons why the democratic movement must resist the liberal concept of “less government”, which, while being presented as a philosophical approach towards the state in general, is in fact aimed specifically at the weakening of the democratic state. The purpose of this offensive is precisely to deny the people the possibility to use the collective strength and means concentrated in the democratic state to bring about the transformation of society. The effect of such weakening would be to enhance the strength and impact of other centres of power in society, with the resultant disempowerment of the people. Reference here is to the wide variety of important centres of power which, thanks to the apartheid inheritance, are decisively controlled by the white and privileged section of the population.’

There is something farcical about this now. A reasonable debate is to be had as to whether an activist state would be a propellor for growth and development, and how it should interact with the private sector and civil society. (Personally, I think there is something to be said for an active developmental role.) But this is hardly even a debate that South Africa can have, since the state in South Africa is not capable of fulfilling this role. A state that cannot provide a reasonable degree of security, guarantee a reliable supply of electricity or maintain street signs (or, one might add, issue drivers’ licences) is hardly in a position to pick winners in global trade competition.

It’s not just that the state is incapable, but that it has been incapacitated. Key here is that the ANC purposefully decided in the 1990s to politicise the state administration and take control of ‘all levers of power’ in society. The exposure of the activities of the ANC’s cadre deployment committee – the minutes of which were released via the Zondo Commission – has provided hard evidence of just how extensive and corrosive this system is. Much consternation has been expressed about the fact that the committee was ‘recommending’ judicial appointments, but since the judiciary was mentioned specifically in 1997 as one of the ‘levers’ to be commandeered by the ANC, it’s hard to understand why this should be jarring.

To my mind, the fact that the committee was fielding CVs was its most concerning feature – it’s hard to see what else this represents than an alternative, and illegal, recruitment system. This alone would fatally skew and distort the lines of authority and incentive within the civil service. Rejecting this perversion of constitutional governance, and introducing a meritocratic, career-based and politically impartial civil service is non-negotiable for turning governance around.

This is not on the table at the moment. President Ramaphosa defended cadre deployment to the Zondo Commission with considerable energy. (Let it not be forgotten that he was in charge of it while deputy to Zuma.) No change, therefore, is likely. President Ramaphosa’s repeated commitment to building a ‘capable state’ is about as believable as – analogy fails me – former President Zuma’s blamelessness in the national malaise, perhaps?

All of which has done great damage to what South Africa has so desperately needed since the 1990s, and particularly over the past decade: robust, wealth-creating and job-generating growth. This would in turn provide the wherewithal for the state’s programmes. The ANC quite sensibly acknowledged this in 1998: ‘The resources in the hands of the state should be expanded on an on-going basis, primary among which sources should be a growing economy. A concerted campaign around the issue of tax morality; efficient management of public resources and a ruthless campaign against corruption; a rigorous system of monitoring re-prioritisation within departments and agencies with appropriate penalties for defaults at all levels; and other such measures are required.’

Given what has happened in the intervening period, this is almost comically ironic. Incidentally, this remark is taken from the same document that called for the commandeering of all those ‘levers of power’. The irony could not be more profound: while recognising the need for a growing economy, it set up the system that could only prevent the economy from doing so.

Meanwhile, South Africa has been in the grip of ongoing economic retardation. South Africa’s macro-economics were fairly well managed in the first decade-and-a-half of democracy. Treasury maintained a level of professionalism that was often lacking elsewhere. Real GDP growth reached a high point in 2006, at 5.6%, with growth the following year being marginally lower, at 5.4%. Still, had this been sustained, South Africa would look very different today. The National Development Plan had targeted 5.4% GDP growth as its goal. But then came the global financial crisis and the cumulative and ever-growing effects of misgovernance. The best South Africa has achieved since then was 3.2% in 2011. This was long before COVID.

Meanwhile, government expenditure accounts for a higher percentage of GDP than ever before: 19.6% in 2019 (pre-pandemic), the continuation of a trend that has been decades in the making. Fixed capital formation, the engine of growth, meanwhile stood at only 15.3%, just under over half the target of 30% set by the National Development Plan. And while concerns have been expressed by many observers about the expansion of the state in the economy, and the ‘crowding out’ effect on private investment, it’s hard to discern much concern from the greater part of South Africa’s political leadership. The notion of a state-heavy economy is decidedly appealing in these circles, and with such initiatives as income grants, the NHI and a massive infrastructure build on the table, it is being planned for.

Ismail Momoniat, a long-serving and highly respected official at National Treasury, put this in perspective, noting that pretty much all the gains made up to 2007 have been reversed over the subsequent years. And as correct as Mr Momoniat may be, it should not be forgotten that just as the state was incapacitated by choices, so has the capacity of the economy for growth been.

Here, South Africa has been afflicted not just by corruption or administrative incompetence, but by a hostile policy environment. Obliquely, even the government acknowledges this, coyly choosing the descriptor ‘policy uncertainty’. In fact, part of the problem is that the trajectory of government policy has been established with sufficient certainty to be a deterrent to investment and doing business – although at times with enough confusion built in to prevent sensible planning around it.

Much of this is ideological. Race-based empowerment policy has done very little to drive growth. Quite the contrary in fact. European businesspeople have identified it as the central hindrance to investing in South Africa. Yet it is seen by the government as non-negotiable. Nothing is as strong a disincentive to investment as a threat to property rights – but the signature policy drive of President Ramaphosa’s administration has been for Expropriation without Compensation. This is frequently understood as a measure directed at land, but given the state of public finances, land would likely only be the start of it. The state is, after all, ‘rapacious’, and there are more valuable assets to be seized than farms…

In Parliament in 2019, President Ramaphosa responded to questions about his approach to prescribed assets – in other words, forcing pension funds to invest in state-mandated projects – by refusing to give a direct answer. He did, however, note that ‘our resources are now depleted’. Make of that what you will.

The upshot is that a smaller economy feeding a dysfunctional state means a tougher life with fewer opportunities for each individual South African.

Last year, data from Treasury projected a noticeable drop in the number of taxpayers from the top income tax brackets. In the 2021/22 fiscal year, the number of taxpayers earning R1.5 million would decline by 9.6%; those earning between R1 million and R1.5 million, by 13%; and those earning between R750 000 and R1 million by 1.1%. This would, according to the information available at the time, see revenue from these taxpayer groups falling by some 8%, or R22.6 billion.

The very people that the state needs to fund it and to drive the economy are heading for the exit. This is a bleak situation, and an unhappy outlook. But it is not a hopeless one. South Africa retains enormous opportunities that could, with some simple but fundamental reforms, be leveraged for the foundations of a successful future.

The question, then, is not only whether we understand the individual acts of state abuse to which South Africa is being subjected, but also whether we can recognise how they have arisen, and then muster the fortitude to change it. In the coming months, this may be a very pertinent issue indeed.

https://www.newsi.co.za/opinion/do-we-get-it

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