TEAL: The Big Picture:

Direct Democracy Forum (DDF) Policies are heavily reliant on TEAL as an alternative way to tax an economy. We argue that we would rather tax the whole economy with very small levies than tax a small segment of the economy very heavily. The outcomes in terms of tax paid are very similar but the spread (of the burden) is very different.

TEAL will enable the funding not only of the conventional tax burden but also the funding of a Basic Income Grant and an Advancement Grant. The advancement grant is split into two components, the actual advancement grant and a left-behind grant, the latter to compensate all those who will have already missed the advancement grant per se. 

Not wishing to get too carried away without taking stock, this page summarises these applications and their cost, based on a very conservative estimation of the expected GDP for 2017.

TEAL is based on the GDP and it’s relationship with what we call the Total Economic Activity.

First, the flow of money through the banking system is about 30 times the GDP (see here).  If you have any doubt about this, the Payment Association of SA (PASA) estimated in or before 2017, that R350 Billion is settled EACH DAY through the National Payment System. That amounts to some R1 Trillion every three days.

Second, each Rand Passing through the banking system represents both a deposit and a withdrawal in and out of the banking system. We call this the doubling effect.

We expect the GDP for 2017 to be in the region of R2.8 Trillion. The flow of money through the banking system should be thirty times that amount 2.8 X 30 = R84 Trillion and the doubling effect would put the Tealable amount at R168 Trillion.

There is an additional factor which, to be conservative, we shall ignore for the purposes of this exercise, which is that an additional amount of about 37% of the settlement figures for which there is no inter-bank settlement, are settled in-bank, for example FNB clients will pay to FNB clients, and so on. So the R168 Trillion should actually be R168*1.37 or R230 Trillion.

TEAL , THE BIG PICTURE:

Application 

% of R168 Trillion

Teal Trillions of Rands

Target Trillions of Rands

Annual Target

Fiscus

0.50%

‘R0.840

‘R0.840

30% R2.8T

Basic Income Grant

1.25%

‘R2.100

‘R2.064

34.4MxR5kX12Months

Advancement Grant

0.09%

‘R0.1512

‘R0.150

750KX200k

Left Behind Grant

‘0.325%

‘R0.546

‘0.546

R10.92T/20

Totals

‘2.165%

‘R3.6372T

‘R3.600T

 

A TEAL of 2.165% will generate R3.6T which is considerably bigger than the GDP, which will have many economists throwing their hands up in horror as the conventional tax burden, it is said, should not exceed 30% of the GDP. The point is that the GDP is not a true measure of the economic activity of the country, merely a measure of the Gross Domestic Product. The level of economic activity needed to generate the GDP, on the one hand, and sundry other economic activity which does not classically fall within the scope of a GDP, is a great deal more than the GDP itself. How much more we were only able to extrapolate from a small economic history of some 5 years back (in 2011). Clearly we need more information to prove the extent of this relationship, in particular for the current economy, which is very different from that of 2011, when SA’s GDP peaked and then, in US$ terms, tanked, starting its slide into today’s abyss (yes, in US Dollar terms the GDP has been shrinking at about 5% pa over the past 5 years or so since 2011) . But we use what we have until we have better.

The fiscus component as above will totally replace the existing tax product of about the same amount. The additional amount collected by TEAL for non-fiscus purposes (BIG and Advancement Grant) will actually be a lot smaller than the gross, as follows: R3,672T less R840 Billion fiscus,  which nets out at R2.832 Trillion or only 1.686% of the TEA instead of the 2.165%.  By way of comparison, some faiths exhort their followers to give 2.5% of their wealth to needy causes every year. Some food for thought there.

The other thing to note is that while R2.832 Trillion seems a lot of money (and it is a lot of money), it is but a small percentage of the TEA (Total Economic Activity) (1,686% of R168T) which will do a great deal of good for South Africa and it’s economy and it’s citizens, enabling an economy built on general prosperity rather than an economy built on general poverty, which is what we presently have.

That is only part of the good news. The other part of the good news is that the big players in the economy (trade and industry) should also benefit from expanded economic activity. We at the DDF believe that the strategy inherent in adopting these policies is effectively an investment in the demand side of the economy and is a win-win strategy for all of us in South Africa.

The really big challenges are how to counteract inflationary pressures arising from that extra activity and how to build the GDP (as opposed to building imports) both of which pivot around turning South Africans into a nation of producers rather than a nation of consumers.

So we are not claiming that TEAL, the Basic Income Grant, the Advancement Grant and the proposed Sovereign Wealth Fund are some sort of all -encompassing panacea for SA’s economic woes. At best they can only help us along the path to economic recovery.

The rest is up to what we as South Africans do with these devices and the benefits which should flow from them.