“How do 52 million South Africans share equitably in their 122 million hectares, especially when those hectares vary so enormously in value? … No prizes for guessing it cannot possibly be done without taking a long hard look at the phenomenon of land or economic rent – and then collecting the community created value that it represents. Moreover if, as is possible and advisable, we do that instead of taxing the application of labour and capital, guess what, we’ll get the application of a lot more capital as well as the jobs that go with it.” Stephen Meintjes, The Star, Johannesburg
South Africa is strategically important for the West. Like many countries in Africa, it is resource rich but the benefits are not shared by the whole population. High levels of unemployment are leading to increasing conflict and violence, undermining the brighter future hoped for when apartheid was abolished.
The authors set out a proposal to unleash their country’s potential for growth in a way that benefits investors and the poorest by reforming taxation – a blueprint for other developing countries. The rapid development of Taiwan and South Korea in the 1950s and 1960s owed much to a similar, business-friendly tax reform.
Governments today tax social ills like tobacco and alcohol to discourage use, but why tax work and investment? The result, the authors reveal, is to make half the country economically unviable, yet economists have long known that a tax on ground rent does not have this adverse effect. As Adam Smith put it: “Though a part of this revenue should be taken … in order to defray the expenses of the state, no discouragement will thereby be given to any sort of industry.”
All governments need do is collect the value they create and stop taxing the value created by labour and capital. To achieve this, the authors propose replacing most taxes with land value rentals and, in the case of mining, rolling out the tried and tested gold mine tax formula to the rest of the industry, thus stimulating development and creating more jobs.
Such a regime would encourage the owner of land to put it to its best use or sell it for someone else to do so. It would also make viable public investment in new infrastructure projects. These would become self financing, because the uplift in land values, due to the improved amenities, would automatically be captured in higher rentals payable to the government, a kind of virtuous circle.
Stephen Meintjes studied law at Stellenbosch and Oxford where he was a Rhodes Scholar. He has spent most of his career in investment research and management and is frequently quoted in the media, including radio and television. He is currently Head of Research for Imara S. P. Reid. Read more about Stephen on his author page.
The late Michael Jacques, a chartered accountant and then lecturer at the Faculty of Commerce of the University of the Witwatersrand, worked with Stephen Meintjes on the submission to the Treasury of various proposals on windfall taxes, royalties and general tax reform.
Keywords: Tax reform, Land value taxation, South Africa, Fair taxation