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DEATH & TAXES Why Do Taxes Increase?

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If a competition were held to find the most common rhetorical question, there is little doubt that this one would win – why do taxes increase?

How many readers remember General Sales Tax? The introduction of the Sales Tax Act in 1978 not only brought about an entirely new consumption tax with a wide impact and considerable complexity, but it also heralded the importance of indirect taxes. The starting rate in 1978 was a very modest 4% but, over the years, the rate increased to 13%. Following the repeal of GST, VAT was gazetted in September 1991 at the rate of 10% but, in less than two years, the rate was increased to 14%.

It was a former National Party Minister of Finance, who retired into the obscurity from whence he came, who said that taxes are a good investment because they always increase. And they certainly did under his tenure. It must be said immediately that Minister Trevor Manuel is entirely exempt from any criticisms or strictures that may follow. By any local or international standards his period in office has been quite remarkable and most honourable.

Nevertheless, politicians as a genre possess similar qualities wherever in the world they reside. The overwhelming temptation is to promise tax cuts at election time but, once elected to the realities of high office, tax increases inevitably follow – except with dear Trevor!

Most readers probably regard political promises with some cynicism, representing, as they do, the tools of the trade of a modern politician. They probably assume that this is a 20th century character defect but an announcement in November 2008 confirmed that spin doctors were at work in the 16th century.

The Mary Rose was the greatest warship of the Royal Navy and was the pride of King Henry V111’s fleet, but on 19th July 1545 it suddenly sank during the Battle of the Solent with the loss of all 400 crewmen.

The ship sank within minutes and it was one of the great tragedies of the Tudor dynasty.

The official explanation for the disaster was that it was a freak capsizing. The giant top-heavy vessel was blown over by a huge gust of wind it was said. Recently, however, a team of maritime experts has discovered that a French cannonball sank the ship. French superiority over English seamanship would have been politically unthinkable to the government and people, and a false reason for the disaster was published. It has taken more than 450 years for the truth to emerge.

Few politicians are exempt from allegations of bending the truth. Shortly before the 1979 General Election in Britain, the Labour Party leader James Callaghan claimed the Conservatives would double VAT in order to pay for the income tax reductions they were promising. Margaret Thatcher dismissed the allegation by asserting: ‘we will not double it’. Her words were strictly true but disingenuous. Within months of taking office she increased the rate of VAT from 8% to 15%. It was not actually doubled until shortly after the 1992 General Election when the rate was increased to 17,5%

The trail of broken political promises and tax increases has a long and surprising history. Plato (circa 428 – 348 BC) was the great Athenian philosopher that was a pupil of Socrates. Of his numerous writings, The Republic is perhaps the most influential as he refers to the concept of a ‘noble lie’ in which he asserts that lying is not merely forgivable but admirable, as long as it is done for moral reasons. Plato was a member of the governing class and was making a profound case for rule by an elite group of wise and disinterested philosophers.
He made it clear that only the ruling classes were allowed to lie, and then only in certain circumstances for the good of the state:

“… It will be for the rulers of the city, then, to use falsehood in dealing with citizen or enemy for the good of the state; no one else may do so. And if any citizen lies to our rulers, we shall regard it as a still graver offence than it is for a patient to lie to his doctor, or for an athlete to lie to his trainer about his physical condition, or for a sailor to misrepresent to his captain any matter concerning the ship or crew, or the state of himself or his fellow sailors … and so if anyone else in our state is found telling lies he will be punished for introducing a practice likely to capsize and wreck the ship of state…”

Plato’s ‘noble lie’ was a kind of parable. It was false and deceitful, but it was nonetheless benign in its consequences because it ensured social harmony and made the population more inclined to care for the state and one another.

In any democracy, the public should have a healthy scepticism about the claims and practices of politicians. But in the final analysis it is a government’s duty to collect the right amount of taxes in as fair a manner as possible for the greater good of the country. It has never been an easy task and sometimes mistakes are made, such as the ill conceived Regional Services Council Levies which, thankfully, were abolished in 2006.

On reflection, to consider the question posed at the beginning about why taxes always increase, we can confidently assert that, in South Africa, at least, they do not. How many countries can say that?

Penelope Webb, who for some years has worked in industry, is a former tax partner of a large international accounting firm.