Tito Mboweni should cut expenditure and stimulate growth, not raise taxes

Finance minister Tito Mboweni has called on South Africans to provide advice on how to get the economy growing again.

Many economic and market analysts are predicting a rise in VAT from 15% to 16%. However, any increase in the VAT rate would be devastating for the poorest and most vulnerable members of society and plunge them into deeper levels of poverty. VAT is a regressive tax that disproportionably affects the poorest members of society. The tax burden on a given product, which is the same for the rich and the poor, consumes a larger share of a poor person’s income than that of a rich person.

To permanently help the poor, history has demonstrated that what is required is greater levels of economic growth. The proven and surest path to increased economic prosperity is through less government intervention — not more. Deirdre McCloskey, professor of economic history at the University of Illinois in Chicago, says: “What permanently helps the poor is what we have done in the past two centuries — make the global wealth pie bigger. How much bigger? A factor of anywhere from 30 to 100 times. The poor — your ancestors and mine, for example — got better off, radically so, not by redistribution or trade unions or regulation, but by economic growth on a unique and immense scale.

No he should increase expenditure. Cutting expenditure does not lead to growth. Does nobody understand Keynes anymore?

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