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Sunday, January 1, 1989
Deformed reform

At a black businessmen’s seminar late last year, Martin Sweet, senior manager legal services, Charter Life, discussed certain new taxes.
His comments are most relevant for those of us struggling to save in a highly inflationary environment, perhaps by utilising some of the excellent life assurance products on the market today.
Mr Sweet pointed out that new taxes like SITE, MTC. VAT and CTT had been implemented while estate duty, donations tax and GST were on their way out. Not much has come out of the Margo recommendations. More is being squeezed out of the existing system by reducing allowances and removing concessions. All this is too often first revealed in a press release after scant, if any, consultation.
Tax collection by retroactive law has become an accepted part of tax policy making sensible tax planning difficult, if not impossible. This raises the level of uncertainty in investment to such a degree that business confidence is being undermined.
Said Mr Sweet, “The plain fact is that the Department of Finance is forever resituating its goal posts wherever it perceives itself to be at a disadvantage. Tax reforms have given way to what amounts to extortion with government increasing taxes under a cloak of reform. These masked tax increases undermine its credibility and place in serious question its financial integrity.
“The inevitable question,” he noted, “is whether tax reform has been abandoned in the face of government’s failure significantly to curb the huge rate of state spending’? It should be noted that economic instability is the ultimate product of inefficient government so is more taxation which will feed into the spiral.
“Economic stability, not more taxation will restore harmony.” Mr Sweet added that the state must curtail spending. One of the means at its disposal would be to ensure a leaner, and more efficient public service. Without that, the aim of single-digit inflation remains a sick joke.
In recent press reports it was interesting to note that taxpayers will have to meet a staggering bill of R30 billion just for the salaries of the ever-growing public sector. The public service salary bill is more than half the country’s R53 bill ion national budget, and a quarter of the country’s gross national product. The state budget has shot up from about RIO billion in 1978 to around R58 billion this year, despite the State President’s promise to rationalise and reduce the public service when he came to power ten years ago.
South Africans are being taken for a ride as more than half their tax goes to pay the huge public service required to carry out Government policy with its duplication and triplication of facilities.
It is more than passing interest that the United Kingdom, which has enjoyed growth, has been able to reduce maximum marginal rates of individuals to 40% and corporation tax to 35%. Less than a decade ago, the UK taxpayer groaned under maximum rates of over 80%. Who would ever have imagined just ten years ago, that we would envy the British their tax system’?
Mr Sweet concluded, “Perhaps the best message I can leave with you is don’t stop planning, don’t stop working. Make it happen by striving to be the best, by being enthusiastic about getting better. The economy and the tax changes made in 1988 might not be as we would like them to be. But you will find that to those companies and individuals that have really thought about what they do, who understand their business and follow through, the state of the economy and the tax changes are virtually irrelevant. Those firms will grow stronger and stronger. Don’t worry about what the economists have decided for you, you decide what you want for yourself in the South African economy.”

Copyright © Insurance Times and Investments® Vol:2.1 1st January, 1989
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