WEALTH – THE GREASE FOR THE WHEELS OF THE ECONOMY
As South Africans we often shake our heads at the intention and implementation of our country’s economic policies. A mixture between socialist and communist policies often makes us feel that the government is trying to exclude us and drive us away – and many have taken that feeling which has been the push that has resulted in emigration. The country has suffered a huge brain drain and drain of capital as taxpayers have sought greener pastures elsewhere on this planet. In this month’s Financial View, we look at why the government should be embracing and encouraging people to get wealthy as opposed to always trying to take things away.
The ability to create wealth and enable individuals to get wealthy is a result of a functioning capitalist and free market economic system. People with money have the ability and are prepared to take risk in the hope of achieving a better return that will outperform inflation. Sometimes wealth may have been obtained in a prior generation but the fact that wealth exists, benefits society as they play several important roles in the economy:
Investment: Wealthy individuals often have surplus funds that they can invest in various assets such as shares, bonds, property, and businesses. This investment provides capital for economic growth, job creation, and innovation. Entrepreneurs often rely on wealthy individuals to take risk and put up initial funding to start new ventures.
Job Creation: Wealthy individuals often own or run businesses, which are significant sources of employment. They create job opportunities by starting new companies, expanding existing ones, or investing in companies that need capital to grow.
Consumer Spending: Affluent individuals tend to have higher disposable incomes, which means they can spend more on goods and services. Their consumption patterns can drive demand in various sectors of the economy, stimulating production and employment.
Philanthropy: Many wealthy individuals engage in philanthropic activities, donating money to charitable causes, foundations, and non-profit organisations. Their philanthropy can address societal issues, support education, healthcare, and research, and contribute to the overall welfare of society.
Innovation and Entrepreneurship: Wealthy individuals often have the resources and risk-taking capacity to pursue innovative ideas and entrepreneurial ventures. Their investments in research and development can lead to technological advancements, new products, and improved processes, driving economic growth and competitiveness.
Tax Revenue: Wealthy individuals typically contribute a significant portion of total tax revenue due to their higher incomes and assets. This tax revenue funds the public sector, including infrastructure, education, healthcare, policing, and social welfare programs, benefiting the economy as a whole. Having wealth allows you to be a spender in an economy. Purchasing both staple items and discretionary items increases the flow of money through the economy that benefits the various enterprises and employees that receive it.
What is good for business, is usually also good for employees. Lower tax rates and less red tape lead to economic growth, more jobs and increases in individual income. Per the last Quarterly Labour Force Survey (QLFS) South Africa’s unemployment rate is sitting at a very high 31.9%. While the number seems high the detail actually paints a worse picture.
The unemployment rate is calculated by looking at the unemployed by a percentage of the labour force. What is ignored though is another 3m “discouraged work-seekers”. These are individuals who are of working age but have become disheartened to the point where they no longer would work even if offered a job. Add these into the sample and then the unemployment rate is a staggering 40%. 2 out of every 5 people of working age are not working. A lack of jobs is a massive problem in the country, everything possible should be done to grow the economy and all investment in new businesses should be encouraged.
Unfortunately, our government has the wrong idea and seems to be going out of their way making it difficult to start new business and trying to chase away the wealthy. We have the Expropriation Bill and National Health Insurance Bill just waiting for the president’s pen. Further we have discussions of the confiscation of wealth from the rich through “wealth taxes” and transferring it to the less financially well-off. The problem is that this would remove the incentive to invest and build successful businesses, and the economy as a whole would suffer. The very people the politicians claim they want to help, would be the first to lose their jobs during a recession, disinvestment or mass emigration.
It is not rocket science, the government and the municipalities should be the facilitators of economic growth. They should provide the environment that enables business to operate. This would include being clean, well-lit, safe and tidy with good infrastructure. This would include reliable electricity and water supply, reliable road and rail transport. The places where employees live should also be safe, well-lit, tidy and offer good schooling, sports facilities and medical resources. In such an environment, the private sector will happily invest and provide the jobs, which will result more employment and in a bigger tax base and more to go around for everybody.
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