As we move into yet another round of discussions and predictions around the 2020 Budget speech, it’s perhaps worthwhile taking a step back and revisiting the theory of why we pay tax. 

Tax is the heartbeat of the modern economy, and it’s premised on an implicit contract between the state and its citizens. As the state collects money from the tax base and spends it on areas that benefit society (like improving infrastructure, healthcare, and education), it is expected to deliver on this implicit contract.

This is where the theory conflicts with what is more often than not a different reality. Money collected through the tax system is meant for the good of all citizens, especially the impoverished. The socioeconomic benefit is premised on moral behaviour and if this contract breaks down because of low tax morality or ineffective government policy and tax administration, the result is that people’s basic or constitutional rights are violated. 

This affects the poor and economically marginalised first, arguably those who have the greatest need for government’s delivery of its implicit contract.

So, the question is whether the South African government is delivering on its implicit contract and whether its delivery is imposing a serious constitutional breach on South African citizens. What is clear is that the 2020 Budget speech must move beyond the usual rhetoric and broad articulations about the need for change and implement plans, policy and reform that protect not just our economy, but our basic human rights. Remember, economic costs have social consequences.

As South Africans, we have some straight-up challenges. Government debt sits at around 70% of GDP, which the Minister of Finance expects to rise to an astounding R4.5-trillion in the next three years. This debt is not productive, because our economy has contracted by 0.6% on an annualised basis. In addition, should South Africa lose its remaining investment-grade rating, the prospect of more SOE bailouts, billions lost in capital outflows and FDI will have us facing a social crisis that threatens to destabilise even further.

This would contribute to more job losses (especially worrying in demographics where one job loss can affect up to four people), disappearing social and education grants, the removal of critical subsidies on electricity and HIV/Aids programmes, and food insecurity.

Back to the implicit contract: we are asking the wrong questions when we stop to consider what Mboweni will and will not include in the 2020 Budget. Instead, we should ask whether a fundamental relook at South Africa’s current budget process is needed, and a deep structural review on tax administration itself. 

What the minister needs to deliver are clarity and certainty.

This need to bring clarity starts in three areas, so my personal expectation of the Budget would be:

1. A Budget based on what we need, not what’s been done before. 

The government needs to collect more tax revenue and allocate it more effectively. We must look at what is required, what the rating agencies and IMF are expecting, and then actually implement it.

Success resides in the actions, not the words and speeches. It’s obvious that we cannot increase VAT again, nor can we blindly focus on the “revenue line” by increasing on already overburdened personal taxpayers who are already feeling the pinch of limited fiscal drag.

If the private and public sectors cannot genuinely mobilise and change the country’s course, an IMF bailout may be the only option to trigger a mandate that changes the course through forced policy reform. 

While this may bring the certainty South Africans require, it would require meticulous planning to mitigate the redirection of budget allocation and spending from social subsidies and social programmes. What it will bring is clarity, investor confidence and certainty.

2. A Budget that seeks to employ the skills we already have. 

We have the intellectual capital to change course. We simply need the political will and a plan to empower our technocrats in the areas of government that need it the most. Because tax revenue pays the public wage bill, it’s easy for resourcing costs to become a zero-sum game if we aren’t putting the right people in the right roles and aren’t careful to avoid a bloated human resource cost.

We’re seeing this play out in many of our SOEs. Let the people with the right technical and sector skills run the company profitably. The government can remain the key shareholder, but it should step away from any belief that it runs the companies concerned. Take the dividend, but leave the experts to make it a significant return.

3. A Budget that takes a meaningful relook at tax administration.

The Budget speech should also address the SARS audit function, looking at the way compliance is enforced. For example, rather than focusing on companies that already have multiple levels of internal assurance, SARS should be drawing in those that don’t. By widening the tax net, we will create more opportunities for revenue collection. 

While we commend the new commissioner on his efforts at rebuilding trust, you can’t meaningfully win back trust if you don’t make some structural change. Trust will fizzle out if you don’t change the way SARS audits taxpayers. The current system drives up costs on both sides, increasing the internal cost of compliance for taxpayers and inefficiently using SARS’ limited resources. 

The flaw is that we are “going after” those who are inherently compliant and in effect abusing them, whereas we should be focusing on increasing the tax net and driving compliance around those avoiding or not delivering on their part of the implicit contract.

The time for clarity on the way forward has never been more urgent. We cannot separate our fiscal policy from the human rights imperatives enforced by our Constitution. Tax is a duty, but also a benefit to be realised for all, and that means using our public revenue effectively and efficiently. 

Maybe for once, the minister’s speech will reflect this. BM

Treasury has asked for input ahead of the Budget speech on 26 February. Tweet your thoughts to @TreasuryRSA.