Growing the economy and creating jobs

This is the fourth in this weekly series of ideas that will be quick to do, have a major impact across the whole of South Africa and cost little. This was posted to Facebook on 23 August 2025.

What?

Government should reduce the maximum company tax to 15% in three years’ time but announce and commit to it now.

Why?

1)              We have increasing numbers of people who cannot afford enough food for their children who are literally dying of starvation. This is not OK.

2)              If you ask all the unemployed people whether they would prefer a handout or a job, they will tell you they want a job.

3)              If you ask them whether they prefer a EPWP “created job” (which pays considerably less than minimum wage) or a job working for a company – they will tell you that they want a “proper” job.

4)              Crime and poverty are inextricably linked.

5)              Most people do not want the risks and uncertainty inherent in starting your own business – they want jobs.

6)              If we ask government to “create jobs” as they have been trying to do over the past two decades – they must extract more tax from private enterprise to do this, which means fewer jobs can be created in private.

7)              In contrast, new jobs in private create more tax revenue – so assists government. It’s not a zero sum – both benefit.

8)              The thinking that the concept of Government “creating jobs” causes is dangerous. It implies that giving someone work and pay is worth doing in and of itself. It places sustainability and doing things that need doing on a lower level. If Government wants to give more services to the people, it should be laser focussed on doing so in the most cost - effective way, so that it can afford more of the services. If this means hiring less people and more computers – so be it. The best way government can “create jobs” is by spending on infrastructure which directly creates work by building or fixing things we all need and also makes South Africa a more investable destination for foreign fixed direct investment.

9)              So – in summary, we want more companies to invest in South Africa and we want our existing companies to grow.

10)   We are not an easy place to invest in, we have poor roads, poor rail transport, unreliable electricity, water and sewage and of course a high crime rate. All of these reduce company profits.

11)   Given all those negatives, we need to let companies keep more of their profits to make us an attractive investment destination. This is not a new idea, many countries (such as Mauritius and Ireland) have rapidly expanded their economies by lowering company tax.

12)   There is another important point – it’s not just a case of “letting rich foreign companies get richer by taxing them less”… After tax profits are what companies use to grow their business (i.e.: capital). They can do so in no other way. Even if a company buys one new piece of equipment to increase production, it has to use its accumulated retained after tax profit to do so. They either spend the profit itself to grow or promise the future after tax profits to a bank for a future number of years in exchange for which the bank will lend them the money that they need to grow today. Even venture capital or equity investments are predicated on there being a future large(r) after tax income stream.

13)   The above are simply unavoidable facts. Government cannot make companies more profitable, but they can increase the amount of that profit they leave with the companies so that they can grow. All the other negatives about our country are going to take a long time and a lot of money to fix. To get that money – we need the economy to grow – which is another way of saying that we need more private investment.

14)   The problem with lowering tax rates is that it takes years for the economic growth that lower taxes bring to increase the profits and thus increase tax income for government. In the meanwhile, government may not have enough tax income for the work it needs to do. Delaying the decrease but announcing it three years in advance will unlock investment now – because companies will predict that they will be able to afford the expansion by the time that it starts bearing fruit. It takes years for an investment decision to result in a new factory then production and then sales and thus taxable profit.

15)   The investment in new buildings, equipment and so forth that one company makes now brings immediate profits to other companies supplying those – growing the tax base and creating jobs well in advance of the decrease in tax rate.

How?

1)              The two biggest political parties will need to stand together and sign a promise to this effect as it will only be successful if business trust.

2)              It may be wise to commit to reducing it to 22% after three years and then down to 15% after two more years.

Why not?

1)              If the economy does not grow, this will create a budget deficit of about R130b.

This is true, but it is a risk worth taking to get ourselves out of a downward economic spiral (population is growing faster than GDP). The promise of lower future company tax together with the economic growth positive effects of the transfer of ownership of RDP homes etc as outlined last week, the crime reducing ideas of the two weeks prior and other elements to come in this series make it unlikely that we will suffer this.

2)              Company tax is a tax on the rich, so lowering this advantages them and not anyone else.

This not quite accurate. Companies are entities or “things” in their own right. The people who own them only get to spend profits on themselves if they take money out of the company as dividends. This is taxed by the  “dividend tax”  before it gets to the individuals who own the companies. So a typical company will pay 27% company tax and if it declares a dividend then the owners must pay another 20% DT.

Referendum

Please give a “like” to this on facebook if you would support this being instituted.