Ahead of finance minister Enoch Godongwana’s postponed budget speech on 12 March, the leader of the Economic Freedom Fighters (EFF), Julius Malema, has advocated for an increase in corporate tax and the imposition of an additional wealth tax as policy alternatives to the ANC’s exploitative desire to hike VAT in a desperate attempt to raise revenue.
Malema argues that the affluent, rather than the economically disadvantaged, should bear the burden of taxation. These are misguided policy positions that can be challenged on both practical and philosophical grounds.
Businesses in the country are already burdened by a corporate tax rate of 27% in an economy whose growth rate has averaged only 0,8% annually since 2012, so any increase or additional tax would likely compel them to pass on the costs to consumers. This means the cost of living would continue to rise, thereby affecting the very poor people Malema claims to represent – a clear case of self-sabotage.
According to Business Tech, investor confidence in the economy remains relatively low due to factors such as stringent regulations, high crime rates, and infrastructure gridlock. In this context, Malema’s proposals would likely prompt capital flight, exacerbating existing economic issues. It’s important to not underestimate the fact that capital is highly mobile in a globalised world. If the economic conditions in a particular country are not favourable, it simply relocates to more market-friendly environments.
The chief economist of the Minerals Council, Hugo Pienaar, has correctly contended that these tax proposals would also discourage investment. The reason for this is that there are only 133 000 super-wealthy South Africans with a taxable income of over R1.5 million. Attempting to raise R45 billion for basic income grants from these wealthy taxpayers would require an excessively high tax. No business would invest in such a context and place itself at the mercy of high taxes.
Consequently, the country would lose many much-needed jobs. While Malema and others have undermined foreign direct investment and championed a ‘developmental state’, the reality is that no country can solely rely on the state for job creation. A diverse economy that includes foreign investment is essential for sustainable growth and job opportunities.
Beyond these practical objections, Malema’s proposals for excessive tax falter philosophically and constitute what the late French economist, Frederic Bastiat, termed “legal plunder” in his 1850 magnum opus, The Law.
Bastiat’s concept of “legal plunder” underscores a critical tension in the taxation debate: the principle of consent. To be clear, businesses should pay tax to the state. However, this tax should be limited, designated solely for funding the construction and maintenance of infrastructure that supports business operations. This tax is important because businesses consent to it in recognition of the crucial role that infrastructure plays in their daily operations.
When corporate taxes are levied for purposes beyond the essential function of providing basic infrastructure, the essence of voluntary contribution is lost. They become a form of legalised theft because they are imposed on businesses that do not consent to them.
An obvious counterargument is that businesses have a social obligation to contribute taxes for the society from which they profit. The problem with this perspective is that it implies that the profits of businesses are a collective good, which is not accurate. Businesses earn their profits by providing value and engaging in voluntary exchanges with consumers. They also fairly compensate the employees that provide value to them.
Profitable businesses, because they are profitable, are already contributing their “fair share” by giving consumers what they need and want. Paying additional, unnecessary overheads to a largely corrupt state, is simply political extraction.
They do not coerce anyone into purchasing from them. Therefore, every cent they earn rightfully belongs to them, and they have the freedom to use it. While businesses should be encouraged to engage in philanthropy, such contributions must remain voluntary, affording them the autonomy to decide when and how to give.
At the heart of the issue lies a society that is wedded to the belief that excessive taxation is morally justifiable solely by virtue of law. This notion is misguided, and we should engage with it critically.
