On Wednesday, Tito Mboweni, our former money mandarin, now Minister of Finance, will announce the country’s annual Budget. Many are intrigued to see what the speech will include as it is likely to set the tone for the next five years.
The breadcrumbs of the 2019 Budget were probably already laid down in President Cyril Ramaphosa’s SONA speech, but the detail is, of course, in the Budget.
For my part, I wonder whether the minister will fall into the well-worn tropes of a fiscal cliff – a constrained budget and endless austerity. This minister, unlike all our previous ones, happens to know first-hand where our money comes from, since he was responsible for creating it for nearly a decade.
In one of the most interesting moments in the history of South African fiscal policy, the newly minted Minister of Finance tweeted, in response to queries about taxation, a portion of the famous biblical parable from Matthew 22:21: ‘[r]ender unto Caesar what is due to Caesar’.
This was an amazing moment for two reasons. First, our Minister of Finance had just compared himself to Caesar. Second, in just eight words the minister exposed the underlying myth of taxation, albeit perhaps inadvertently – neatly illustrating that taxpayers are not the government’s source of money.
On the face of it, this famous refrain appears benign. It has often been peddled by politicians as an appeal to the moral virtue of paying taxes. One should, however, be wary of taking this synoptic gospel on face value, for there is another side to this coin.
Part of a longer parable, this passage is about revolting taxes and tax revolts. Perhaps this is of interest to the outgoing Premier of the Western Cape, given her recent predilection for a tax rebellion.
The scene is set in Judea. The Romans were occupying Jerusalem and had imposed a highly regressive poll tax on the local inhabitants, based upon their ethnicity. The tax was cash-based. It forced the people in this conquered territory to adopt and use the Roman currency (the Denarius). Predictably, this measure proved extremely unpopular. Unlike an income tax which is triggered when you earn something, this tax is imposed regardless of your earnings and so it forces people into wage labour or to sell their produce in return for this currency.
The Roman empire was at this time paying its soldiers in Denarius. In order to ensure that this currency had purchasing power in occupied Judea it was necessary to compel demand for it through taxation. In a clear exercise of sovereignty over this conquered territory, the Roman empire forced goods and services to be denominated in their currency. (Not unlike the United States which forces the world to buy and sell oil in US Dollars.) A per capita or poll tax was an extremely effective means of driving demand where it did not exist before.
Understandably, it triggered a tax revolt. The rebellion was repeatedly crushed by brutal means. This conflict lasted for decades preceding Jesus’ arrival in Jerusalem. In the parable from Matthew 22:21 Jesus is confronted by the proxies of the contemporary religious establishment. Threatened by his presence, they intended to find a way to get rid of him. Given the context of an ongoing tax revolt, cemented in the religious and national identity of Judea, they asked Jesus whether it was acceptable to pay the Roman tax.
It was a rather elegant trap – to answer yes would cast doubt on his credibility, suggesting that Roman sovereignty over Jerusalem should be respected. To answer no would constitute sedition, exposing him to arrest. With sheer linguistic genius, Jesus squares the circle and answers with a double entendre. One that confounded his adversaries then and continues to confuse contemporary readers to this day.
Rather than the overly simplistic sense that Jesus was only extolling the virtues of paying tax, a more fundamental point is being made. That is about where the money comes from in the first place. Jesus subtly suggests that the man-made money only had value if it was accepted and used. Taxation only indirectly assisted the Roman occupation, but accepting their currency as payment for goods and services was critical to sustaining it.
We often fall into the trap of referring to government expenditure as “taxpayers’ money”. The conventional wisdom of our day is that taxes “fund” government expenditure. The truth is that it is actually the other way around.
When you pay your taxes in a currency which is issued by that state, you are not funding its operations. Rather, you are acceding to using and generating demand for its currency. Taxes don’t fund a currency-issuing sovereign state, they underpin the purchasing power of its currency.
This biblical allegory is not far removed from South Africa’s history of revolting taxes and tax revolts. For more than a century a racially based poll tax was imposed on the majority of South Africans. This form of taxation was only properly repealed in 1990.
The poll tax was a highly regressive cash tax imposed on people regardless of their earnings. Its clear purpose was to drive demand for the currency. Its effects were, in many ways, more successful than brute force military occupation and direct conflicts in the colonial effort to push people off their land and out of their traditional occupations. Hundreds of thousands of mostly young men were propelled into the arms of a wage labour market – onto the mines, commercial farms and government public works. The dramatic effects can be seen still to this day, with large-scale unemployment and mass urban migration.
Unsurprisingly, in 1905 when the precursor to the universal poll tax was expanded in what is now KwaZulu-Natal, it triggered perhaps the last direct battle against colonialism. In 1906 chief Bambatha kaMancinza launched an extremely brave struggle against the colonial administration, often cited as a historically notable example of a tax revolt. The consequences were extreme. A full-scale war erupted, and, in the wake of a bloody battle between Bambatha’s forces and the colonial administration, more than 3,500 people died.
Although the poll tax has been abolished, we continue to live with regressive taxes, many of which have been increased of late. Among this list is the increase in value-added tax (VAT), as well as the increased taxes on fuel. Unfortunately, these increases have been driven by the misguided belief that taxes fund government expenditure. The sickening implication of these elevated taxes is an increase in the cost of living, particularly for the poorest in our society.
I hope that our new Minister of Finance can lift the country out of the self-mutilation of ever higher regressive taxes and constrained government spending. After all, the former Reserve Bank Governor used to personally sign our currency notes. Surely “Caesar” hasn’t forgotten where our money comes from? DM