Readers may be forgiven if they believe that the title of this article refers to Eskom. It does not, although Eskom’s proposed savage increases in the price of electricity may well prove to be a catalyst in persuading the Minister of Finance to revise some of his tax policies. Policies which were admirable ten years ago, for example, in reducing the maximum marginal rate of income tax on individuals and simultaneously increasing the threshold at which it applied, now appear regressive in the minds of the poor.
They have the perception that the perceived rich and the manifestly rich get richer by the day while they get poorer. Although income tax may not affect them, VAT on the price of inflation-linked goods and services certainly does, not to mention other costs such as electricity, water and sewerage services, all of which attract VAT.
When Shakespeare’s Comedy of Errors was first performed at the Globe Theatre in 1594, it was still the great Elizabethan age. It was 1603 before James the First acceded to the throne. Historians rightly emphasise the pageantry, the patriotism, the heroism of Elizabethan England, but behind the glamour and the adventure lay a fragile financial system writes B E V Sabine in a Short History of Taxation published by the Institute of Taxation in London in 1980 to mark its Golden Jubilee. His almost apologetic title belies a scholarly work covering one thousand years of taxation.
Apart from, to a limited extent, customs and excise duties, the Elizabethan system failed to tax adequately the new wealth of the rising gentry and middle classes. That, writes Sabine in his eloquent treatise, was the fatal flaw in Elizabeth’s fiscal policy, which failed to tap the increasing wealth of the nation. Her failure to do so was the cause of the eventual bankruptcy of King James the First, and the perilously close bankruptcy of England in the 17th century.
In the years that followed, a large number of indirect taxes were introduced: a heavy tax on each fireplace or stove; taxes on beer and spirits (plus ça change, plus c’est la même chose – the more things change, the more they stay the same!), salt, sugar, tea, candles, leather, coal, soap and windows. There was even a tax on rents that a tenant was obliged to deduct when he paid rent to his landlord. How the tax was collected from millions of tenants has never been explained. There was even a curious tax on marriages, births and burials but little appears to be known about the mechanism of its collection.
None of these taxes seemed to work. The poor became poorer. The combination of compassion for the poor and the assumed economic advantages of exempting necessities, led inevitably to the emergence many years later of what appeared to be an ideal tax (if that is not an oxymoron) – a levy on luxury goods. “Every man’s contribution”, said Adam Smith at the time, “is altogether voluntary, it being in his power to consume, or not to consume, the commodity taxed”. There was also an attractive moral overtone to the tax, as it acted in a general way as a sumptuary tax, that is, in the interests of the State, it discouraged excessive spending.
Later still, of course, the concept of a true income tax with exemptions and abatements and allowances for children was accepted. This was in line with Adam Smith’s first principle that the subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities.
In order to alleviate poverty in our country and without in any way wishing to descend into the political Colosseum, is it not time for the Minister of Finance to tap the increasing wealth of our nation, which his Elizabethan predecessor lamentably failed to do? The rich could contribute proportionally more income tax in the form of a surcharge on income tax and estate duty. In addition, the zero-rating of other essential municipal charges for VAT purposes would help enormously.
It is difficult to see how else revenue can be raised to assist the poorer sections of the community in the short term. Laissez-faire has not succeeded.
The definition of rich, of course, would be a matter of much debate and, ultimately, a matter for Government alone. And your correspondent, no doubt, will be pilloried for even suggesting the idea of higher taxes for some. Save up your rotten fruit and vegetables to throw at her as the Elizabethans did to miscreants locked up in the pillory!
Penelope Webb is a former tax partner in a large international accounting firm.