Parks Tau’s R100bn fund: Unconstitutional and destructive – Ivo Vegter - Biznews

Ivo Vegter

If South Africa wants growth and job creation, the last thing it needs is to let government raise and disburse a R100 billion fund.

The minister against trade, industry and competition, Parks Tau, has proposed to confiscate the 3% of after-tax profits that companies are required, under broad-based black economic empowerment (BBBEE) legislation, to spend on “enterprise and supplier development”. He wants to use it to fill up a R100 billion slush fund, instead.

The new fund will be controlled by the National Empowerment Fund (which reportedly played a leading role in designing the proposal), to be used exclusively to fund black-owned enterprises and SMMEs.

Multinational companies that don’t want to hand over equity to black partners will be allowed to contribute an “equity equivalent” of a staggering 25% of the value of their South African operation. This strikes me as an excellent reason to close a South African operation and take your investment somewhere less rapacious.

Companies that fail to cooperate with Tau’s Great Heist can be penalised by being refused various government favours and permission slips, including having import tariffs levied, being allowed to do business with the government, and having mergers and acquisitions approved.

“Perverse”
Writing in these pages, Sara Gon rightfully called the plan “perverse”.

Summarily expropriating private property for redistribution is unjust. When a company manages to pay all its costs, including its taxes and employees’ salaries and wages, and manages to make a profit despite the awful business conditions created by government failure in South Africa, every cent of that profit is hard-earned income for the owners. Since they take all the downside risk and absorb all the losses, they ought to be entitled to all the profits, if they make them.

Last year, the corporate tax rate was lowered from 28% to 27%, which was a welcome move. With this proposal, the trade and industry minister effectively countermands the minister of finance, by levying an arbitary 3% tax on net profit for a new “transformation” fund. This makes the tax burden even heavier than it was before.

Governments are never good at picking business winners. Diverting capital from those who have proven to be productive, to hand it to those who have proven not to be productive, is throwing it down a bottomless pit. Just the other day, I wrote that wealth redistribution always leads to wealth destruction.

I wrote: “Leave those who have demonstrated the ability to create value, and create wealth, free to do so. Wealth is created when individuals have a maximal incentive to work, to save, to invest, to take risks, to invent, and to trade. This virtuous cycle of wealth creation leads to a thriving economy that benefits everyone. Government intervention to redistribute wealth can only ever destroy wealth, on balance.”

“Unconstitutional”
Anthea Jeffrey, writing for the Institute of Race Relations (IRR), says that the proposed fund is unconstitutional on at least four grounds: it violates the founding value of non-racialism, it violates the prohibition of unfairly discriminating on racial grounds, it violates the requirement that all government revenue be paid into the National Revenue Fund (and not the National Empowerment Fund), and it violates the requirement that all public expenditure must be “competitive and cost-effective”, which it wouldn’t be if companies are excluded from tendering for procurement contracts as punishment for failing to contribute to Tau’s slush fund.

Business has also vowed to oppose Tau’s proposal. Khulekani Mathe, CEO of Business Unity South Africa (BUSA), told News24 that the proposal was “ill-advised”, and “won’t work”. BUSA would not let it go through without a challenge, she said.

The Democratic Alliance (DA), which supposedly participates in cabinet decisions as a member of the Government of National Unity, has “strongly condemned” the plan, in part because it has not been brought before cabinet for discussion and approval.

Its spokesperson for trade, industry and competition, Toby Chance, issued a separate statement pointing out that “BBBEE has proven counterproductive in closing our inequality gap with the majority of funding missing the mark in terms of stimulating high-growth enterprises”.

Read more: Amazon & Microsoft hiring spree: 100+ jobs available in South Africa
He is also concerned that it will become just another “slush fund”, and promises to “closely monitor the rollout of these funds in this Parliament and ensure that they deliver sustainable economic growth and job creation for all”.

Closely monitoring a train wreck isn’t really helpful, but I suppose the DA has limited power to do more.

The Daily Friend’s resident cartoonist, David Doubell, pointed out the sad reality that any fund established by the government is likely to be drained by patronage, corruption, inefficiency and waste. A day later, a Daily Maverick cartoonist, Rico, had a similar take, picturing pigs at the trough.

Quod erat demonstrandum
It is instructive to see what government has done with R100 billion before. It likes the R100 billion number. It’s big, it’s round, it draws attention. Like Dr. Evil’s dastardly plan, it sounds serious. And it pays for a lot of luxury mansions, fast cars, and shopping trips to Dubai.

In the middle of 2020, then finance minister Tito Mboweni said the National Treasury had set aside R100 billion to support government’s response to job creation. The announcement came a day after Statistics SA announced that unemployment had gone up to 30.1% in the first quarter of the year.

“The Economic Support Package sets aside R100 billion for a multi‐year, comprehensive response to our jobs emergency,” he said. “The President’s job creation and protection initiative will be rolled out over the medium‐term [over the next three years].”

Well, at the end of three years, the unemployment rate was 32.6%, and that was the lowest it had been ever since Mboweni announced the anti-unemployment fund. At last count (quarter three of 2024), it stood at 32.1%, still two points higher than it was before the government blew R100 billion on job creation.

Quod erat demonstrandum.

This proves that if we want nice things, like lower unemployment, letting government raise and spend R100 billion in funds is counterproductive. It would be better if that revenue had never been collected in the first place, so the private sector could use it to grow.

Leave profits with private sector investors, and economic growth will look after itself. Leave the economy free to grow, and job creation will look after itself. R100 billion government funds only make things worse.

Ivo Vegter is a freelance journalist, columnist and speaker who loves debunking myths and misconceptions, and addresses topics from the perspective of individual liberty and free markets

https://www.biznews.com/thought-leaders/2025/01/24/r100bn-fund-threat-to-growth-jobs-ivo-vegter

This article was first published on the Daily Friend.