Taxes roll in while all else in the public service fails. Ever ask why?

26 Oct 2014 | Tony Leon | Sunday Times

THERE were no laughs in Wednesday’s sombre medium-term budget speech by Finance Minister Nhlanhla Nene. But, given its grim context and the pain inflicted on South Africa by the markets, it evoked the gallows humour of Samuel Johnson: “When a man knows he is to be hanged, it concentrates his mind wonderfully.”

The “fiscal space” in which government vanity projects can be indulged and hard choices can be ducked has disappeared. Nene donned the hair shirt — even if he dared not whisper the word “austerity” — although some of his more ideologically inclined colleagues seem committed to their bling ways.

Like a faded suntan, the sunny tales of the “development state”, 5% annual growth, “countercyclical spending” and “a good story to tell” have been replaced by the more frigid world of tax hikes and spending cuts.

 After Wednesday’s speech, I thought the following snapshot might be an accurate summary of the state we’re in, with a post office which can’t deliver letters but whose directors award themselves 25% pay rises; a dozen turnarounds at South African Airways which cannot fund its way and other delights of a failing state:

“These things are the result of rotten government. To this very day, the government is pouring money down rat holes, and the people know it. The police are underpaid, the hospitals understaffed, the roads are disintegrating, the people left to build shacks for themselves on stolen land; yet there is no end to the minister of finance’s demand for more money.”

Actually, this paragraph of vivid vitriol was penned on January 26 1992 by the then editor of this newspaper, Ken Owen, on the ills of the dying National Party government.

His words are a reminder today that it has never been the fate or luck of South Africa to enjoy sustained periods of good governance, whether the administration is National or African National.

A week ago, President Jacob Zuma underlined this point when he compared his “persecution” over Nkandla with the lack of criticism for the PW Botha airport in George, although one suspects the public benefit of the latter will outlive that of the former.

Zuma’s point of comparison is striking: when you set the bar at ankle height, even my dachshund can leap over it.

An antidote to our rather depressing economic situation was provided on the same day as Nene’s speech by the insightful, down-to-earth Investec boss Stephen Koseff. He reminded a Cape Town audience that the National Treasury and revenue service have immeasurably improved in the past 20 years, both in terms of performance and transparency.

He also provided a clue as to why taxes are so better collected, even though there is a R15-billion hole in revenues — a reflection on low growth and not a failure of collection: “When Pravin Gordhan was in charge he hired a bunch of old whitey CAs to help with the collection.”

So for our efficient and communist tax collector, now minister of local government and traditional affairs, pragmatism, not ideology, prevailed.

I was struck by this point about why the collection of taxes seems to be an ideology-free zone of admirable efficiency and not the dumping ground for the friends of the famous and the centre for semi-unemployable cadres that seem to be the hiring principles on the boards of so many failing state enterprises.

I found the answer buried in the pages of a remarkable book written in 2007 by Paul Collier, then director of the Centre for the Study of African Economies at Oxford University. In a library of tomes about bad governance in poor countries and some useful solutions, The Bottom Billion stands out.

On the puzzle of good revenue collection in a sea of state dysfunctionality, he offers this insight: the function of raising tax revenue was taken out of the traditional civil service because there was no realistic prospect of making the traditional system work. But as to why so many governments in the developing world, along with South Africa, went for the radical option on revenue but not on service delivery, he says the answer is “depressingly obvious”.

“Governments benefit from the revenue, whereas ordinary people benefit from basic services.

“Governments were not prepared to let the traditional civil service continue to sabotage tax revenues, because governments themselves were the victims.

 

“They were prepared to leave basic service delivery unreformed because the governing elite got its services elsewhere.”

The FW de Klerk administration did not reform the revenue service, the ANC did. But De Klerk certainly reformed the political space back in 1990 because he alone, in comparison with his five NP predecessors, could both read the writing on the wall and not assume it was addressed to someone else.

His government had essentially run out of money and its ideology could no longer be sustained, let alone funded.

Now, 24, years later, the successor government is also running out of money. Here’s hoping this tight space leads to another “wonderful concentration of the mind”.

 • Leon is the author of Opposite Mandela (Jonathan Ball) Follow him on Twitter: @TonyLeonSA OR on Facebook: facebook.com/TonyLeonSA