South Africa, like many countries in Africa, is resource rich but the
benefits are not shared by the whole population. High levels of
unemployment are leading to increasing conflict and violence,
undermining the brighter future hoped for when apartheid was abolished.
The authors set out a proposal to unleash their country's potential for
growth in a way that benefits investors and the poorest by reforming
taxation--a blueprint for other developing countries. The rapid
development of Taiwan and South Korea in the 1950s and 1960s owed much
to a similar, business-friendly tax reform. Governments today tax social
ills like tobacco and alcohol to discourage use, but do we want to
discourage work and investment? The authors reveal that it is to make
half the country economically unviable. Instead, the government needs to
collect the value it creates and stop taxing the value created by labor
and capital. To achieve this, they propose replacing most taxes with
land value rentals, similar in effect to the tried and tested gold mine
tax formula. This reveals a potentially rich source of government
revenue that would allow the burden of taxation to be shifted off
investment and labor, thereby encouraging more development and creating
more jobs. Such a regime would encourage the owner of land to put it to
its best use or sell it for someone else to use. It would also make
viable public investment in new infrastructure projects. These would
become self-financing, because the uplift in land values due to the
improved amenities would automatically be captured in higher rentals
payable to the government, a kind of virtuous circle.
