Garach Inc

CONTEMPLATED VAT INCREASE OF 2% - CONSEQUENCES???

Has the Government considered the consequences of a 2% VAT increase on both the poor as well as the economy?

VAT is a broad-based tax levied on consumption and it is easy to collect but it is a regressive tax which hurts the poor the most and in the long term, it shrinks the economy resulting in a further loss of jobs. With a 35% unemployment rate - the highest in the world - and this number growing, we can least afford to be in this position.

The South African economy for the past decade has been growing at around 1% of gross domestic product (GDP) - a weak economy showing no signs of improving. Yet the government continues to spend more... and more. There is no end to wasteful, irregular, inefficient and fraudulent expenditure. Everyday you read newspapers or watch television of people in the State milking the system for personal gain without impunity.

The government fails to understand the meaning of spending money to receive fair value. The Zondo Commission Report bears testimony to goings-on in State Owned Enterprises (SOEs), of which the Government is involved. There are around 700 SOEs at national, provincial and local levels. Government debt to GDP has risen to over 75% - unacceptable for a developing economy. So what must be done to protect our people and the economy from the triple curse identified in 1994 which is was then - Poverty, Inequality and Unemployment?

Read on... How do we fix the problem of Poverty, the Economy & Employment?

Professor Dilip Garach

HOW DO WE FIX THE PROBLEM OF POVERTY, THE ECONOMY & EMPLOYMENT?

Each year the Finance Budget must be viewed in the context of strengthening democracy. Our government should be building blocks since 1994 to eliminate poverty, create employment, and grow the middle class. But instead, a few elite have been enriched at the expense of the majority, widening inequality and unemployment.

Multifaceted Strategy:

Raise Revenue
Cut Expenditure
Reduce Debt

Raising Revenue

South Africa is one of the richest mineral resource countries in the world. Yet unlike our BRICS counterparts, our economy has stalled. The Government must create an enabling environment for business to thrive.

Basics to Fix the Economy:

Well-defined policies - Monetary, Fiscal, Land Reform.
Strengthen institutions - Treasury, Reserve Bank, SARS, Judiciary.
Tackle crime and corruption.
Relax labour laws.
Reduce interest rates.
Promote Education and Training.
Promote Small Medium Enterprises - key job creators.
Establish a School of Entrepreneurship.
Encourage Foreign Direct Investment (FDI) in physical infrastructure, not just stock markets.

Growing GDP from 1% to 2-3% will raise revenue, increase employment, and grow the taxpayer base - all vital for a sustainable economy.

Informal sectors like the Taxi Industry must contribute. The 2006 Tax Amnesty didn't bring lasting benefits. Should SARS crack down further or introduce new amnesties?

There's a growing tax morality crisis. High Net Worth Individuals ask: "I pay tax, but what do I get in return?" They pay for private education, medical aid, and retirement - while government wastes their tax money.

Government Spending

Fiscal Consolidation means cutting expenses and reducing debt - just like families must live within their means.

SOEs must be classified as:

Strategic - e.g., PRASA - should be operated privately but with government ownership.
Non-strategic - e.g., SAA - should be sold off. Use proceeds to fund programs like the NHI.

NHI is the elephant in the room. Without strong foundations, it will collapse and become another failed SOE.

We must build a middle class through employment and opportunity. We need politicians with a blend of leadership, strategy, and management - people who can restore South Africa's pride and potential.

- Professor Dilip Garach