Ismail Lagardien: Taxation gives power to elite

Ismail LagardienI set out, as I usually do on a Sunday night, to write this column, to write about tax, smoothing the hypothesis that striking an average tax rate over any period can minimise the economic costs of raising tax.

As in most cases, unless one is wedded to “the scientific method”, real world events imposed themselves on the act of writing.

There is some logic to this segue.

I first came across the concept not in economics, but when I looked at the political economy of public finance during the Napoleonic Wars.

When I sat down to write this column the act of writing took on a life of its own.

Let me apologise, again, and say that a brief weekly column cannot fully explain many of the complexities and contestations around theories of economics, finance or banking . . .

Let me remain, then, on the topic of public finance management, and the ways that states manipulate taxation and expenditure.

The post-apartheid state has relied extensively on taxation to fund political programmes to roll back historical iniquities and create new opportunities for communities across the countries.

That is not unusual, nor is there any harm in spreading wealth and opportunities.

Whether one agrees with this or not, taxation is, arguably, the most legitimate and respectable mechanism for redistribution of wealth, building prosperity and establishing durable institutions.

Only the most romantic of idealists may imagine that a reduced or non-existent tax base can continue to fund welfare and build durable safety nets for the most vulnerable members of society.

What does seem to have happened in South Africa is that the livelihood of the recipients of social security, the poor, the vulnerable and those folk who live and work on the margins of the economy, have been tied to the political manoeuvres of the ruling party.

With the controversies around social grants, we have yet another public service delivery failure in the making.

We should be careful not to jump to conclusions – the grants may well be paid on April Fools’ Day.

What has become clear, nonetheless, is that in some twisted throwback to ancient practice the state-party nexus has established, by accident or design, a body of people whose fortunes are tied to centres of power far from poverty and misery.

Their fates are decided in gaudy boutiques and gauche homes somewhere in Pretoria or Sandton.

It’s difficult to ignore the ways in which the dangerously sentimental past has sought to legitimise the louche bourgeois lifestyles of the most respected among our former liberators. Never mind.

It is certainly true that people in towns and villages around the country make up the ruling party’s strongest support base.

Very many of these supporters are dependent on social security grants which the state-party nexus can withhold at any time.

With very little effort, we can see parallels between this power that the state-party nexus has over the poor, and the way that rulers have historically controlled communities and societies.

For instance, there was a time, centuries ago, when monarchs, aristocrats, emperors and satraps across the world – from Songhai in West Africa, across Europe and the Ottoman and Persian empires to Far East Asia – waged war against rivals in search of power, land and more taxes.

The plan seemed simple, at the time.

More land meant more people, more people meant more taxes and, of course, military recruits to build armies and then start all over again.

This was especially prevalent in Europe and in the Songhai Empire.

Recruits were drawn into empires and militaries by various means of coercion and consent.

They were prepared to fight and die for their leaders.

How often have we heard the refrain that people were prepared to fight and die for Jacob Zuma, or even Hlaudi Motsoeneng?

Indeed, history has very many examples when the poorest of the poor would rather go to wage war against people in distant lands than starve to death.

The key to control over taxation and expenditure, in this context, was to create and manipulate docile bodies, people who would, without much question, work, pay taxes, and enjoy the safety and security offered by the state as a public good.

We find ourselves, now, in a situation where social grants, a necessary public good, became a means for extorting loyalty and support for the state-party nexus.

While there is no evidence that the social security grants are purposefully being withheld, uncertainty has slipped into the welfare system. This is worsened by two facts. Revenue collection has been destabilised.

Less money is coming into the system and tax collection is faltering.

The other is that the South African Revenue Service (and the National Treasury) has become the latest battleground in the country’s war with itself.

The theory of tax smoothing may have lost its appeal, but manipulation of taxation and expenditure to shore up power remains in vogue.

Dr Ismail Lagardien is executive dean of business and economics at NMMU.

Leave a Reply