Katz commission member Pierre du Toit argues that critics haven’t read the report
SOUTH Africa is finding that tax reform within a real democracy is very different from the old days. Regardless of the Katz Commission’s specific terms, submissions came from a much wider representation of society and were much more fundamental than those received by probably any tax commission before it. The people were simply claiming the tax reform process for democracy.
In the breadth of its own consultation and the openness of its deliberations, the commission took this democratic process further. In its evidence before the Parliamentary Standing Committee on Finance it subjected its interim proposals to strenuous debate in public, and with elected representatives of the public. Together with the Standing Committee, it then received further evidence on its interim recommendations.
Against this background, one would expect that the social dimension of such a report would be in tune with the reconstruction and development programme, would be responsive to the need for social justice, and would approach the plight of the poor with constructive empathy.
Yet, if one read certain sections of the financial press in the past weeks, one would think that the Katz Commission went out of its way to burden the poor to the benefit of the wealthy. What then is the real social dimension of this interim report by the commission?
In the first place, the commission makes no apology for its recommendations that tax reform should enhance growth in the economy. In that fundamental it is directly responsive to the RDP’s macro objective. The government’s White Paper on the RDP describes its commitment to addressing poverty and inequality, and then continues: “This can only be possible if the South African economy can be firmly placed on the path of high and sustainable growth.” The commission also seeks to support the RDP’s social objectives as regards poverty and inequality.
In its recommendation on personal tax the commission proposed a unitary rate that would remove gender discrimination and smooth the disproportionate burden on the taxpayer brackets between R20 000 and R80 000 a year. The RDP White Paper highlighted the need for both.
At the time of printing the report, however, the new rate structure still contained one anomaly — in the category of single-breadwinner families, broadly between R10 000 and R20 000, the new dispensation would actually result in some increased tax burden. The commission pointed this out, quantified the cost of removing it (some R500- million), and suggested that government may need to find the funds elsewhere in the budget.
If there were any doubts as to the commission’s intentions, they were removed in the hearing before the Finance Committee where I recorded, with the emphatic concurrence of each one of the other commissioners present, that under no circumstances would the commission support an increased burden on the poor to subsidise the wealthy or even the less poor.
Those who reported, like a large Cape daily, that the “poor face(d) a tax blow”, neither read the report properly, nor listened to the evidence on which they reported.
In another example, the proposal to scrap the child rebate (a credit against tax of R100 or R150 per child) is reported as another attack on the poor, despite the clear motivation in the report that these rebates “gave some R500-million of relief where it was needed least — to families wealthy enough to pay income tax”. Would it not be far better to spend that money in targetted relief or in raising the threshold for tax to the proposed R10 000 a year?
When the commission looked at alternative sources of funding for gender equalisation and relief at the certain lower income levels, it considered that the tax deduction on contributions to pension funds and certain provident funds should be subjected to a maximum.
Not only would this provide additional funds to a fisc under pressure, but it would correct a socially undesirable position where savings — in some cases well beyond any retirement needs — are effectively subsidised by the poor in the form of this loss of revenue.
Unfortunately there were some people who launched a vigorous defence of vested pension rights and the accrued savings of pensioners — neither of which is remotely under attack now, nor will come under attack by this commission. The result was the same as shouting “fire” in an old-age home and did little to enhance the debate of socially responsible tax reform.
The social dimension of the commission’s proposals can be seen even in the vexed area of zero rating more items under VAT. Removing VAT on various goods and services will in most cases result in more benefit to the wealthy than to the poor.
How does one explain to someone dying of hunger that you were prepared, wastefully, to throw half the so-called relief in the lap of the wealthy?
This argument of course collapses if alternative poverty relief does not effectively reach the very poor. But
it is reasonable to give this democratic government, far more in touch with the streets and the shanties, the chance to show that they can do
better with direct relief than Rina Venter in the days of Barend du Plessis. The commission warned in its report that if alternative relief is not effective, it would revisit the issue of zero ratings.
The commission’s commitment to social justice, compatible with the ultimate RDP objective of lifting people out of poverty through a vibrant economy, runs like a thread throughout its Interim Report.
Other examples of this are found in the proposals to extend tax deductions for NGOs, to assist small business, or to enhance foreign investment towards growth and job creation.
In its continuing deliberations the commission will continue its quest to enhance social justice. This includes, in the ultimate sense, an economy that adds economic liberation to the miracle of political liberation.