In my Chairmans Address to the Annual General Meeting of the Free Market Foundation on 15 August 2002, I reported that this year the news regarding public affairs is mostly not good. To take the favourable side first, we can still say that fiscal policy remains sound and we heartily welcome a reduction in Income Tax rates. I do not personally favour the capital gains tax, but stated that provided it is used to redistribute the tax burden, not to increase it, and provided that inflation is again brought down, and kept down, it is acceptable. Under high inflation, a capital gains tax is an iniquitous impost on non-existent income which enable the government to profit twice by the inflation which it has itself caused. It first gets real value from the money which it creates out of nothing, thereby expropriating real resources from others. Then it calls the increase in prices, which it has created, a capital gain, and taxes it.
On monetary policy, the news, until recently, was, of course, bad. We are all aware of the fall in the Rand and the rise in inflation which has taken place. Attempts have been made to say that the inflation was caused by the fall, but I fear that the truth is the other way about. The international market detected the increase in the money supply in South Africa even before it had reported in rising prices and marked the currency down accordingly. Fortunately, there have been recent signs that the Reserve Bank is again taking appropriate action to bring inflation under control.
The other trend which we have to deplore in the strongest terms is the increasing practice of Parliament of passing legislation which gives unfettered discretion to ministers or officials, thereby delegating the legislative function from Parliament to the Executive. There can be no doubt that this is unconstitutional and this fact has been affirmed by the Constitutional Court in several cases. Yet the government and Parliament go on doing it to the extent that it begins to look as if they are deliberately trying to see how much law-breaking they can get away with. Is this the example that the government wishes to set to its citizens? Is this the spirit in which they wish their citizens to approach the payment of taxes?
Author: Mr Michael ODowd is the Chairman of the Free Market Foundation. This article may be republished without prior consent but with acknowledgement. The patrons, council and members of the Foundation do not necessarily agree with the views expressed in the article.
Article of the Week\15 August 2002
