Rotary Aurora learns about SA’s intricate economy
He breaks it into three underlying themes
Economist Chris Hart talked to the Rotary Club of Benoni Aurora about what he called “the budget, populism and junk” on March 14.
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Hart gave his take on the current economic landscape in South Africa and explained how different elements contribute to his current stance.
He explained how the state’s decision to drop charges against former president Jacob Zuma between 2007 and 2008 weakened the integrity of South Africa’s new Constitution.
Hart said when the charges were dropped against Zuma, it was done for political reasons and that South Africa created a culture of impunity at the top, which increased over the 10 years he was president.
“To keep the charges away, every single institution of the state, which was negotiated in our Constitution, had to be compromised,” he said.
Hart said this was when South Africans and investors lost faith in South Africa’s constitutional democracy.
“Now, we are seeing our Constitution fighting back,” Hart said.
He said that in the past eight years South Africa has had what he calls the ‘three triples’ and that things are getting worse.
The first triple is the triple problem of poverty, inequality and unemployment.
“I think it is only an unemployment problem which has poverty and inequality as a consequence,” he said.
Hart explained that to solve unemployment, opportunities must be created and he believes this can only be done by securing investments.
“The triple problem is basically an unemployment problem, so it won’t solve other problems, but it will certainly make other problems diminish,” he said.
“It is an economic fact of life that our economy is too small for our population. We have 16 million employed people and we need to employ another 12 million.”
The next triple is the triple problem related to deficits, namely the current account deficit, the budget and the household deficit.
The current account deficit is the deficit the country has with the rest of the world.
“The budget deficit is what the rating agencies are all looking at,” he said.
He explained that South Africa must raise taxes to cover its budget deficit but the problem is that households are also in deficit.
“In other words, the tax base is in deficit and if you raise taxes to cover your budget deficit, you are raising taxes for an already exhausted tax base,” he said.
Hart said the South African tax base is narrow because there are not enough people in the tax base.
He also said that it is shallow.
He said, for example, that if a person earns R360 000 per year, the margin is about 30 per cent per year, which is equivalent to a third of the person’s income.
He said the United States define this amount as the poverty line.
“To resolve the triple problem and the triple deficit, in particular, South Africa is making triple mistakes,” she said.
He means the first mistake South Africa is making pertains to labour.
He said that although labour unrest is not unusual and happens globally, it is particularly high in South Africa.
Hart said people were investing to avoid South African labour rather than investing in South African labour.
“This is a problem because our problem is unemployment,” he said.
The second mistake we are making, according to Hart, has to do with regulations.
“Our regulations are escalating at an incredible rate and are strangling the economy,” he explained.
Hart said the third big mistake we are making is all about taxes.
“When we start to raise taxes, the economy is throttled and depleted,” he said.
He said that by raising taxes, South Africa was shifting resources from high multiplying activity (from the private sector) to low multiplying activity (to the government sector).
“We want to try and tax the end of the value chain, rather than try and tap the value chain because you want the value chain to generate multiplying activities through the economy,” said Hart.
He explained that when the value chain is tapped into, multiplying activities are diminished.
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