E-mail to the treasury – Covid 19 Demand Side Economic Response

Ladies and Gentlemen of the Treasury.

I head up a political party: Direct Democracy Forum Reg Number 936.

We have as cornerstone policies:

1) A Senate, drawn from the streets, 2) Tax Reform (Total Economic Activity Levy, Replaces all other taxes) (TEAL), 3) A Universal Basic Income (Including National Health Insurance Funding) (UBI), 4) An Advancement Grant (for tertiary education and other advancement activities) (AG), 5) A Sovereign Wealth Fund (SWF), 6) Banking and Monetary Reform

We suggest the last five items should be adopted to relieve the effects of the Covid 19 pandemic and any subsequent economic fall-out.

Assuming an adult population of 35 Million adult South Africans, a UBI of R5000 per month would deliver R175 Billion into the demand side of the economy, each month. Apart from the obvious economic stimulus this would bring to the economy it would also have the effect of empowering and uplifting every recipient in the economy, and to ‘challenge’ the supply side to claim their share of that stimulus through trade and industry. A UBI is intended to replace all other grants.

A UBI can be paid for by a 2%TEAL on all the money flowing through the banking system. You would not be printing money so much as re-purposing existing money. If you created or borrowed the money you might wish to recycle it using TEAL. A ½% TEAL could also fund the Fiscus.

You can ‘create’ the required money, if you wish (see below*). This is what the banks would do if you borrowed R175 Billion from them, at interest. They would create the money from nothing, as is their wont, then lend it to you at interest. If treasury themselves created the money from nothing instead of going to the banks, treasury would get the money and save the country and the taxpayers the interest.

The ANC are talking of a Sovereign Wealth Fund (SWF). If you stimulate the demand side of an economy without ensuring that the supply side keeps pace, you have a classic inflation/hyper-inflation situation. The SWF can be used to intervene in the supply side of the economy to help it maintain the required balance between demand and supply. This it does by investing in the supply side economy. This, however, would not be the SWF’s sole function. The SWF can be rapidly funded using TEAL and other mechanisms to become effective in this manner, inside of months, or even days (see below**).

Part of the supply side intervention would be for the SWF to own and run commercial, industrial and community banks alongside privately owned and run banks, thus influencing the financial services sector. We believe that the S A Reserve Bank (SARB) should be wholly owned by the SWF and operated for the benefit of the economy, regulating the money supply and interest rates to that end. Any money creation (see above *) would be under the auspices of such a SARB.

The rational for this is that a UBI is an intervention designed to fill the void left by the already existing 4th Industrial Revolution’s lack of formal sector employment opportunities. The Covid 19 pandemic seems just to have accelerated the onset of this dilemma. There is more to this (see below **).

** Further details are available at our web site, http://ddforum.co.za. If you wish to discuss any of this you may contact me on +27 76 060 1973 and or at

Thank you for your attention.

John Barrington.
Leader, DDF.
24/03/2020

The Third Economy

Jeremy Rifkin’s works, in particular ‘The End of Work’ and ‘The Zero Marginal Cost Society’ have had the world talking because they are a take on a very real problem, the decline of the (non-specialist) labour market which together with burgeoning population predicts huge proportions of the world’s populations facing unemployment and poverty while an ever diminishing proportion of specialists (the elite) are stunningly successful and affluent, all the time while capitalist productivity rises and demand falls. In short they are arguing that Capitalism will become the victim of its own success and end up producing large volumes of goods for which there are few markets and (presumably) capitalism will eventually implode.

Rifkin imagines that the employment slack will be taken up by the rise of a third economy (the first and second being the public sector and the private sector economies). This third being largely a social economy or a ‘social commons’, servicing diverse community needs through non-profit non government organisations powered largely by a low-paid, oft-times voluntary and probably relatively unskilled workforce. Rifkin imagines that the third economy will service the social needs of society which are not being met by a shrinking public sector economy, which is under constant budget constraints, nor being met by a disinterested private sector economy for which there is little profit in public service. Rifkin also envisages much shorter working weeks with more workers earning lower weekly wages, to try and help take up the employment slack.

Writing here in 1995, Lance A Compa, then of Cornell University, notes that in addition to the reduced working hours, Rifkin proposes a social wage funded by a value added tax (VAT) (in the USA) but excluding vat on basic necessities, along with defence spending budget cuts. Aronowitz and DiFazio in their book ‘The Jobless Future’ also propose reduced working hours but with more progressive income taxes instead of a VAT, along with a host of other measures, many of them in support of social welfare type expenditure along with infrastructure spends to help take up labour slack.

According to Compa, both books imply “a willing turn toward a shared genteel poverty”. However, Compa does not seem to share Rifkin’s nor Aronowitz and DiFazio’s sense of gloom regarding employment, and instead argues that history and the current experience suggests “that there is still plenty of work to be done and plenty of people wanting to work”. In short he is suggesting that while the mix of supply and demand for work is changing, it is not evaporating.

The Direct Democracy Forum (see DDF) have a slightly different take on these problems, agreeing in part with Rifkin et al’s perceptions, on the one hand, and in part with Compa’s contrary view, on the other.

We agree that three separate economies are emerging, the already existing public sector and formal private sector economies and a third economy that we would categorise as an informal private sector economy, an alternative to the formal sector economy of the Fortune 500 corporates and their ilk. We imagine this economy as being a merging of the formal and the commons economies of Rifkin’s imagining, but definitely not a second class economy of genteel poverty as Compa interpreted Rifkin et al to imply.

We do not believe a social wage will work as an adequate motivation for employment (as demonstrated by the failed Finnish so-called Basic Income Grant experiment), rather we see the need for a UBI or BIG (Universal Basic Income or Basic Income Grant) which, being universal and unconditional, goes to every adult citizen in an economy. We believe that an adequate UBI/BIG will to a large extent pay for the basic needs of most recipients. Those needs which cannot be met by a UBI/BIG we believe will motivate folk to trade with others in their communities and in this ‘third economy’, for mutual profit. Some may be content to seek low income service positions in NGOs and other service organisations but nothing will stop the more ambitious from exercising their entrepreneurial skills to rise above a mere survival level.

The DDF anticipate there could be significant movement between the formal and informal economies, of skills and labour and finance, as members of all three economies interact and move between the economies, as and when circumstances allow or dictate. So the DDF don’t see a rigid stratification where the ‘have-nots’ cannot or may not enter into the domains of the ‘haves’. Nor do we envisage the opposite.

Rather we see a more fluid society with movement between the different economies occurring more or less on a voluntary basis. Because whichever economy one occupies, the basic needs of everyone could be met from the UBI/BIG, there would be less importance attached to which economy one occupies at any point in time, and less stigma attached to not being a part of a formal economy if one is part of the informal third economy. That is not to say that one should lack ambition, just that it would not be a question of life or death, or survival or poverty, so much as to how one can move up (or down) in society, either within the economy one occupies or between economies, so as to improve one’s circumstances.

The question of how to pay for this UBI/BIG leads us to the topic of tax reform. A UBI/BIG in most economies would exceed the GDP. So, if one were to tax the GDP to pay for a UBI/BIG, that would be the same as having a higher tax than one earns, say a 120% tax on income. Clearly that would not work.

Before we look at an alternative to income tax, think of how iniquitous income tax is. What the tax authorities say, is, if you succeed, if you earn a wage or salary (you are one of the employed and therefore a success when compared to the unemployed), or if you trade at a profit (you are a success compared to those who trade at a loss), we will take from you, a part of that wage, salary or profit. Generally, the goal is to collect 30% or more of one’s income (or the GDP) in taxes. However, if you fail (do not earn an income or declare a real or concocted taxable loss,) you get off scot free, or tax free.

So what is the alternative? Both Rifkin and Aronowitz and DiFazio suggest that we add more and more complex taxes, when we should at least be trying to simplify taxes and make the collection process less complex and less expensive, even if we cannot actually reduce the taxes themselves. The DDF believe that is too complex and too costly and also believe they have a more effective and more economical alternative solution.

The DDF has a core policy to replace income tax and all other taxes, direct or indirect, with a Total Economic Activity Levy or TEAL. TEAL levies all the funds flowing through an economy’s banking system. In South Africa, where we have a good idea of what that amounts to, a ½% levy on all the transactions debited or credited to one’s bank account in all the bank accounts in the land, would collect about 30% of the GDP. This in effect reduces one’s tax payments from 30% or so of one’s income and profits, to 1% of one’s income or 1% of all of one’s trading activities (½% on all debits and ½% on all credits in your bank accounts). This presumes that you spend all that you earn. By comparison, banks in South Africa can charge more than ½% on all transactions for bank fees.

The DDF think TEAL is a far more equitable system than income and profits tax. Some of the advantages of TEAL are:

  • 1) All will pay the same low ½% TEAL.
  • 2) TEAL effectively works like a progressive tax, thus the more active you are in the economy the more TEAL you pay in absolute terms.
  • 3) TEAL is uncompromising and unconditional – all persons active in the economy’s banking system pay TEAL, so there are none who get away scot free (or tax free).
  • 4) TEAL broadens the tax base from the narrow GDP tax base to a much broader tax base, encompassing all economic activity in the economy. In South Africa this broader tax base is, on average, some 30 times the value of the GDP.
  • 5) TEAL can be thought of more as a rent that everyone pays rather than a tax that only some pay.
  • 6) The cost of collecting and administering TEAL is estimated to be some 10% of the costs of administering the conventional tax systems.
  • 7) The savings from implementing TEAL would more than pay for the costs of implementing and running a Senate, drawn from the streets rather than from a political party base, thus broadening and strengthening the reach of democracy at little or no extra cost.
  • 8) TEAL makes a UBI/BIG fiscally possible.

So how does TEAL make a UBI/BIG possible?

In South Africa’s economy, a 2.165% TEAL on all the economic activity, as measured by the flow of funds through the banking system, will pay for;

  • 1) the fiscus
  • 2) a moderately significant UBI/BIG
    • including funding for a National Health Insurance scheme,
  • 3) an Advancement Grant
    • to pay for Tertiary Education or any other advancement initiatives,
  • 4) help seed a Sovereign Wealth Fund.
  • 5) A UBI would effectively be an investment in the demand side of the economy, stimulating both the demand side and the supply side of the economy and both the formal and informal economies.

We believe the above makes TEAL an eminently more desirable alternative to income and profits taxes and makes a UBI/BIG and an informal third economy a viable and preferable alternative to genteel poverty in a social commons.

How to pay for an annual Advancement Grant

An Advancement Grant is a once in a lifetime grant intended for every South African citizen to advance their lives through whatever means the grant can purchase. For example, education, training, travel, investment, opening a business, helping to purchase a home. There are no restrictions on how it can be used. It is intended to be the equivalent of paying for a professional tertiary degree (four years of university). In the post There is no such thing as a free lunch Part ll, we postulated an Advancement Grant to satisfy the Fees must fall demands. We indicated that we would sharpen our pencils to determine costs and the means of payment. This is it.

If one assumes an Adult Population of 35 million and a working life of say 47 years (18 to 65) and for the sake of simplicity assume that each year there would be 1/47th of 35 million school leavers qualifying for an advancement grant, that would be 745 000 (say 750 000) school leavers each year. Assuming an advancement grant of R200 000 each that would be R149 Billion a year.

TEAL can fund this as follows.

If we assume a R2.8 Trillion GDP for 2017 that would equal a Total Economic Activity of 2.8 X 30 or R84 Trillion flowing through the banking system. Each Rand of that flow represents both a deposit and a withdrawal from the banking system so the actual Tealable amount would be R168 Trillion. R149 Billion as a percentage of R168 Trillion = 0.089% or about 0.09% (=151.2 Billion)

So, an annual TEAL of about 0.09% on R168 Trillion will pay for a R149 Billion Advancement Grant granted to 750000 school leavers (each school leaver receiving R200 000) each and every successive year.

What of the 34 250 000 who will not receive the Advancement Grant in year one of the scheme (The Left Behinds)?

If each of these ‘Left Behinds’ received R200 000 that would cost R6.825 Trillion. If that were paid out to them evenly over 20 years at an interest rate of say 6% pa, that would be about R10.920 Trillion or R546 Billion per year. Paid out to 34.25 Million each month over 240 months would be 10.92T/240months/ 34.25 Million// per month, or R1328.47 per month per person left behind. R546 Billion as a percentage of R168 Trillion is 0.325% .

So the annual Advancement Grant of R149 Billion and the annual Left Behind Grant of R546 Billion (in total R695 Billion) could be paid annually by a TEAL of 0.09% + 0.325% or 0.415%.

0.415% of R168 Trillion is R697.2 Billion

In Table Form:

Grant

R168 Trillion TEALable amount

TEAL

Total Grant Amount pa

Advancement

‘0.090 % of R168T

R151.2 Billion

R149.00 Billion

Left Behind

‘0.325 % of R168T

R546.0 Billion

R546.00 Billion

Annual Total

‘0.415 % of R168T

R697.2 Billion

R695.00 Billion

NB: This is an exercise. The GDP and the Tealable amount will vary from year to year as will the number of persons qualifying as may the payouts as also will the population, so these numbers are not to be taken as absolutes, merely an indication of what is possible.

Have a look at DDF policy on the Basic Income Grant (BIG) and DDF policy on the Total Economic Activity Levy (TEAL).

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There is No Such Thing as a Free Lunch. Part II

In my last post Is a Basic Income Grant Stealing from the Rich I referenced an article There is a problem with the way we define inequality.

This article made a number of interesting assertions about attitudes on inequality, the principle one to my mind being that we should stop obsessing with the rich and super rich and start obsessing with eliminating poverty, and also, importantly, the assertion that peoples’ attitudes were less angry about wealth and more angry about unfairness. As was stated the public perception of wealth inequality itself being aversive to most people is incorrect, and that instead, what people are truly concerned about is unfairness” and also that “People typically prefer fair inequality to unfair equality”, and, as we are beginning to see in South Africa, what really gets folk going is unfair inequality, a la the Zuptas state capture and wealth grabs.

So we all need the right to work harder and earn more and be wealthier than our neighbours, that is fair and acceptable. Just reward for just gainful employment is acceptable. But if you cheat in order to be wealthier, that is just not on.

This got me thinking about the Fees Must Fall movement and protests (see here) because it really is unfair that certain sectors of our society perhaps have little or no access to higher education. Let me be very clear, it is not the access of those who have access that is unfair, but the lack of access by those who don’t have access that is unfair. This is a major argument in the article There is a problem, the issue of unfairness.

A major conclusion of the article is that “the solution lies in addressing the fact that poverty and unfairness exist.”

This set me to thinking about the conflicting unfairness inherent in the fees must fall campaign; the unfairness of the poor being unable to access higher education just because they were poor, and the unfairness of the same poor, expecting those who do not benefit from higher education, to have to pay for the higher education of the same poor. Something simply does not add up.

You cannot fix a wrong inflicted on anyone or group by inflicting another wrong on another one or group. That is simply wrong and unfair and will be perceived as wrong and unfair and is probably why most people object to paying for the education of others who are seen to be unwilling to pay for their own education.

To reiterate, at the risk of being boring, “what people are truly concerned about is unfairness” and “People typically prefer fair inequality to unfair equality”.

So the problem is how to fix one wrong without creating another wrong?

The Direct Democracy Forum (DDF) believe that the Universal Basic Income Grant goes a long way to relieving poverty in a fair and equitable way, Thus all in society contribute to the system in an equally proportional manner and all benefit from the system equally. Is this fair and equitable? Some would say no and others, the DDF included, would argue that imperfect as it may be, it is fair and equitable, and is a lot better than what we have.

But, and here is the big BUT, could all higher education students afford to pay for their education (fees and accommodation) exclusively with a BIG? Of course, students can supplement their income by working full and part-time in internships or apprenticeships or articles, and there is nothing wrong about that, in fact many qualifications require it of you in order to qualify you as a professional fit to administer to (for example) your patients if you are a doctor or your clients if you are an accountant or lawyer. But what if a Basic Income Grant simply isn’t enough because fees and or accommodation have escalated out of all proportions.

Education throughout the world is becoming almost prohibitively expensive. Privatisation of funding is making it even more unaffordable and the level of debt that graduates are left with is making them wonder if education is even worth it, and some of the schemes are just there to make finance providers rich at the expense of society in general and the graduate population in particular. And yes, there are calls all over the world for fee free education, so South Africa is not alone. Indeed there are countries where tertiary education is free, but the much lauded fee free system of Germany is branded by some as being unsustainable. Others are saying the opposite, that fees are becoming, like the dinosaur, extinct, So everyone has a point of view and is looking for a solution.

Maybe then we need a different mechanism

The DDF believe that such a mechanism could exist which may be imperfect, but might none the less be better than what we have. But again there is the question of fairness..

But to address the issue of fairness, it would need to be a mechanism that benefits all equally, maybe a universal education grant. But what about those to whom a higher education is unsuited. How would they benefit from such a scheme? The short answer is that they would not benefit, and we would be back to a situation of unfairness.

Perhaps, as has been suggested about wealth and income inequalities taking our attention away from the real issue of poverty (see There is a problem), we are focussing on the wrong thing. Instead of just focussing on education for the poor we should instead be focussing on the bigger issue of how to better the lot of all. So what the DDF are now considering is the possibility of a once in a lifetime “Universal Advancement Grant”. I can hear the groans – “not another grant!” and “this is a slippery slope?” and “What a daft idea!” – I can just imagine the moans and groans and yes, you have a right to be sceptical. Indeed the DDF still rest on their assertion that there is no such thing as a free lunch so the means to pay for this needs to be found.

But consider this in the light of fees must fall and the issue of fairness; What if everyone had this once in a lifetime “Advancement Grant” and could use it to pay for their tertiary education or as a down-payment on a house or as a business investment or to travel abroad with, or indeed, just to fritter it away on trivia. What if?

And what if this could be substantially paid for by the savings made from shrinking the size and cost of government? What if?

Wouldn’t that solve the issue of fees must fall and fairness at the same time? It possibly would for this and future generations of beneficiaries, but those of us who have already missed that boat would not think of it as fair and to to pay such a grant to all the rest of the county’s citizens would probably be impossible, but could we compensate them somehow? Perhaps an enhanced BIG granted over time (say over 20 years) to compensate those who didn’t receive the advancement grant might work and be affordable?

So maybe a universal once In a lifetime “Advancement Grant” is not so daft an idea after all, and is worth considering.

The DDF have some pencil sharpening to do to figure out how to pay for it all. But that is part of the process.

Have a look at DDF policy on the Basic Income Grant (BIG) and DDF policy on the Total Economic Activity Levy (TEAL).

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Is a Basic Income Grant stealing from the rich?

An interesting article from BBC Future (There is a problem with the way we look at inequality) looks at the wealth gap and some publications on the subject and concluded that there were actually three different elements that one should distinguish between in order to understand what needs to be done to rectify an obviously unjust situation. The issue, they say, is not the existence of a gap between rich and poor, but the existence of unfairness”.

So the trick is to understand what of the wealth gap is just and what of it is unjust. We would paraphrase the situation thus, we need to deliver justice without destroying that which is just and desirable, because, if we destroy that which is good in an attempt to destroy that which is bad, what is left for those of us who want the good? Perhaps only the bad. This is reflected in the law of unintended consequences.

English is full of pithy little sayings and a very pertinent one for this topic is; “don’t throw out the baby with the bathwater”. In other words, be careful of the baby (the economy). You don’t wish to destroy the economy.

A point highlighted in the article was that one study argued that the public perception of wealth inequality itself being aversive to most people is incorrect, and that instead, what people are truly concerned about is unfairness” and that “People typically prefer fair inequality to unfair equality”. Nicholas Bloom, an economics professor at Stanford University arguing against a world of absolute equality, observed “why would I work for 50 hours a week if everything I’m given is free?”. Indeed, why work at all if you receive the same as Joe Blogs who works 50 hours a week, when you get the same for not working at all?

The three ideas we need to grasp about equality are 1) People should have equal opportunity in society, regardless of their background, race, sexuality, gender and so on. 2) Fair distribution says that benefits or rewards should be distributed fairly based on merit. 3) Equality of outcome says that all in society should earn the same rewards irrespective of their input into society.

Most of us would agree with points 1 and 2 but many would disagree with point 3 (see Bloom (above)).

Many economist interviewed for the article agree that too much attention is paid to the fact that the 1%, and the super-rich exist. Instead, they argue, we need to concentrate more on helping those less fortunate, who via a lack of fairness, are unable to improve their situation.

Harry G Frankfurt, emeritus professor of philosophy at Princeton University argues in his book On Inequality that “the moral obligation should be on eliminating poverty, not achieving equality, and striving to make sure everyone has the means to lead a good life”.

Experts say the solution to poverty lies in addressing the fact that poverty and unfairness exist because addressing that should be the real moral obligation.

While we at the Direct Democracy Forum (DDF) agree with all of this, our approach is more pragmatic than moral. We suggest it is in fact in the interests of all of society, including the rich and the super rich, that poverty be eradicated, and that it is also in the interest of the market economy that poverty be eliminated. After all, the poor cannot afford to buy cars and washing machines and dishwashers and clothing and medical services and education and housing and recreation and food and travel and electricity and swimming pools and stereo sets and computers and video equipment and so on and so on and so on, while even the modestly affluent, the sort of lower middle class (financially speaking), can, over time, buy all these goods and services. By making the demand side of the economy stronger, we all, even the rich and the super rich, grow richer.

If we use a slightly different analogy, every farmer knows he has to sow the seeds of his prosperity by investing in his land and his livestock. Similarly every person who relies on the economy for his prosperity, both the rich and the poor, needs to sow the seeds of this prosperity by investing not only in the means of production, but also the means of consumption.

So we at the DDF argue that a Basic Income Grant (BIG), funded at first by the economy through the application of a BIG TEAL, will sow the seeds of that prosperity, and should not be viewed as stealing from the rich to give to the poor, but as an investment in the demand side of the economy, and if at the same time, a BIG makes the lives of countless of individuals better and makes ”sure everyone has the means to lead a good life”, to quote Harry G Frankfurt, so much the better.

In addition, it should be remembered that TEAL collects in equal proportion from everyone. While the rich may contribute more than the poor, that is only because the rich are more economically active than the poor. But they all contribute in equal proportions.

So, in answer to the question, is a BIG stealing from the rich, we would answer emphatically and resoundingly, NO! It is an investment in their own and everyone else’s prosperity.

For those who wonder how we could pay for a Basic Income Grant, see how to pay for a basic income grant and take a look at DDF policy on the Basic Income Grant (BIG) and DDF policy on the Total Economic Activity Levy (TEAL).

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How to pay for a Basic Income Grant

How can one pay for a Basic Income Grant (BIG)?

The short answer is that a TEAL (a Total Economic Activity Levy) would pay for a BIG. Later, the role of TEAL as a source for a BIG may be taken over by a Sovereign Wealth Fund, in part or in full, depending on the success of the SWF project (see SWF)

Let us explain how:

First what should a basic income grant be set at?

In the UK people who typically use food banks earn less than £320.00 (at R17/£ = R5440) per month and in the US they are thinking of $10 000 pa or about $800 BIG per month (at R13:50/$ = R10 800) while Finland are talking about €800 BIG per month (at R15.50 = R12 400), so the Direct Democracy Forum’s (DDF’s) suggestion of R5 000 BIG per month is quite modest when compared to other countries’ needs and suggestions. But let’s stick with R5 000 per month as a starting point.

What would the monthly and annual BIG bill be at R5 000 per month?

Our best guestimate is that the adult South African population is about 34,4m. That would mean a monthly BIG bill of R5 000 X 34.4m equals R172 Billion or an annual BIG of 12 times that amount (no thirteenth cheque) or R2.064 Trillion.

That’s frightening. Where on earth do we get R2.1 Trillion Rand a year, an amount rising along with the population as we go on in time? That is almost the value of the current GDP (our estimate at R2.8T for 2017).

The DDF reasons as follows.

If there is a relationship of 30 times the GDP to the amount of money flowing through the banking system (a relationship we observed in an earlier TEAL exercise in 2011) , a GDP of R2.8T would equate to R84T passing through the banking system, per year, We call that the TEA or Total Economic Activity. But each Rand of TEA represents a deposit into one bank account and a withdrawal from another bank account (we call this the doubling factor). So the TEALable amount is the TEA doubled, or R84T doubled to R168T.

Suddenly, 2.1 Trillion Rand seems quite small. In fact a 1.2% levy on the Tealable amount of R168T would deliver R2.1 Trillion. Not cheap but also not that expensive when you consider that the R2.1 Trillion will go back into the economy and effect the money velocity and the GDP (more about that later) and generally increase the size of the pie that we are all eating from.

Is a BIG just a thinly disguised wealth redistribution?  Does it not steal from the rich to give to the poor?  

This is not the topic of this post but for those who are thinking along those lines and do not at first see beyond the wealth redistribution element (yes, there is such an element) then we suggest you consider the effect on the economy of boosting the potential spend of the population by a net R1.5 T a year (remember the social welfare grant offset).  That has to boost the demand side of the economy enormously and provide the suply side of the economy with numerous wealth making opportunities, not just for the existing industrial and commercial powerhouses but also for the small trader and industrialists (the SMEs that everyone says should be the backbone of our economic revival) and individuals at large. In addition the socio-economic benefits for the population as a whole probably make it worthwhile.  But this is discussed more fully here and elsewhere in DDF’s current affairs posts,

Are there dangers? Yes, there are:

Will a BIG effect inflation?

Yes, it probably will, but that would need to be countered by 1) easing into a R5 000 BIG over time (say over 5 years) to ease the inflationary pressures on the economy, and 2)  dropping existing social welfare benefits (for example old age pensions) as the BIG matches or betters them (you won’t receive both an old age pension and a BIG together) and 3) increasing the GDP, in short increasing the supply of goods and services to match the increased availability of the R2.1T of BIG money.

Will a BIG effect the money supply and won’t that in itself be inflationary?

The answer to that is probably not a simple yes or no. Yes a BIG of R2.1 will effect the availability of money but not to the extent of R2.1 T.  Remember the social welfare offsets and that TEAL does not create money.  The economy may become more liquid.  A BIG will probably make existing money more accessible, particularly for the poor, and make money circulate more quickly and more often and that could be inflationary (see above on counter measures).  The No side to that is that TEAL does not in itself create money, print money or borrow money.  So the money supply per se should not be effected by a TEAL funded BIG, and that in itself should restrain inflationary tendencies.

Will a BIG of R2.1 Trillion lift the GDP to R4.9 Trillion?

No, probably not: 1) the BIG will substitute for existing social welfare grants, so there will be an offset factor, and 2) any increased demand trend will probably be met by a trend to import more, not produce more (remember we are in a post industrial phase in South Africa and are more a nation of consumers than producers, and I squarely blame the ANC for that).

So how do we move the supply trend to produce more and import less?

This will need a concerted and coordinated effort of the private and public sectors to boost production, maybe even engaging in targeted programs of import substitution and production benefaction, particularly by engaging as many of the BIG recipients as possible to invest as much of their BIG in production capacity, either of their own or through the JSE by investing in corporations which can expand their capacity to compete for the expanding markets for their goods and services, and of course, investments by the Sovereign Wealth Fund in South Africa’s production capacity.

Would a DDF administration have an overarching socio-economic-industrial strategy?

Yes, there would have to be such a strategy. In short, all the damage that successive ANC governments have done and in particular the damage the most recent (2014-19) ANC government has done, would have to be reversed. This is a tall order but when South Africans can stop hating one-another and when even the poorest of the poor has a stake in the economy and has some security and hope for the future, we believe that a united and determined South Africa can do just that, and in fact must do it, because the alternative is an ever downward spiral toward abject misery for most of our population.

So that is how a Total Economic Activity Levy will pay for a Basic Income Grant.

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Why DDF policies are relevant

 

Every idea has its time.

Some eminent persons have recently lent weight to the need for three of the four pillars of DDF policy.

Johann Rupert, Chairman of Richemont, recently observed that he backs governments introducing universal basic income for all citizens to cope with the economic upheaval sweeping the world and that the new economy necessitates giving people time to ”re-skill” themselves see here. The relevant DDF policy is for a Basic Income Grant.

Former South African Finance Minister Pravin Gordhan speaking at a University of Johannesburg function, (see here) observed that while there were benefits and winners from globalisation, there were also downsides and losers, creating an instability and unpredictability that has forced “sheer misery” on millions across the globe, who march barefooted from one country to another while at the same time becoming victims of xenophobia and other forms of attack. He adds that all future global policy frameworks should include how to solve this inequality. He gave as examples of losers and what happens when they realise they are losing out, as the outcome of elections in the US, France and Brexit.

He further points out that we have to recontextualise what a social safety net means. We have to put in place, as societies, as economies, new kinds of social safety nets which will ensure that people who are not just poor but who are able, willing, educated, trained, but can’t get a job, can still receive an income.

He also said that “if rich people and big companies are evading or aggressively avoiding tax, or live in multiple jurisdictions as a result of which they pay pay tax nowhere at the end of the day, where is the fiscal capacity going to come from into the future?”

Relevant DDF policies are the Basic Income Grant, Total Economic Activity Levy or TEAL, and Sovereign Wealth Fund .

Adding his weight to the need for change is Finance Minister Malusi Gigaba who quotes the definition of radical economic transformation (see here) as changing the structure, ownership and institutions of our economy to include all South Africans in opportunity and wealth creation, particularly marginalised groups such as black people, women and youth but offers no viable means of achieving these goals.

Relevant DDF policies are the Basic Income Grant, Total Economic Activity Levy or TEAL, and Sovereign Wealth Fund.

On a more esoteric level, Andy Becket examines a philosophy called Acceleration, born of the ever increasing pace of change in the world. In his article Accelerationism, how a fringe philosophy predicted the future we live in, he observes that “the world is changing at dizzying speed – but for some thinkers, not fast enough”. He asks the question, “Is accelerationism a dangerous idea or does it speak to our troubled times?”

Observing that much of the world has got faster, “that working patterns, political cycles, everyday technologies, communication habits and devices, the redevelopment of cities, the acquisition and disposal of possessions – all of these have accelerated”. The development of the philosophy has gone through stages from the weird to the pragmatic (see the article Accelerationism ) and recent advocates, Nick Srnicek and Mark Fisher founded a new political philosophy derived from Accelerationism: “left accelerationism”.

Srnicek and Fisher’s book “Inventing the Future” 2015, argues for an economy based as far as possible on automation, with the jobs, working hours and wages lost replaced by a universal basic income. Sounds like something out of Science Fiction movie, but if you can get your head past the radical economic transformation which that implies and which Gigaba ostensibly wants, it becomes not just imminently doable but entirely unavoidable.

Again, relevant DDF policies are the Basic Income Grant Total Economic Activity Levy or TEAL and Sovereign Wealth Fund.

These are not the only voices in the debate around a basic income grant. Pilot applications are happening all over the world, from as close to home as Namibia to as far away as Finland. While these schemes are cautious and mostly aimed at supporting the elderly and unemployed, the DDF believe that we should not have a bunch of bureaucrats issuing judgement on their citizens as to who is and is not deserving, but that the BIG should be a universal right applicable to all of a nation’s citizens, irrespective of their health, wealth and the stage of their lives.

The DDF believe that the Basic Income Grant and the Sovereign Wealth Fund in tandem, at first funded by TEAL, will address many of the economic needs of South Africa. If you think of a BIG as being an investment in the demand side of the economy and TEAL as being an affordable and equitable means of funding both the fiscus and a BIG, then what at first appears fanciful becomes viable.

How is this significant for the DDF? It lends weight to the credibility of DDF policies that so much of the rest of the world is engaged in examining the viability of policies similar to those of the DDF. The DDF are not alone. We are not just an isolated band of extreme economic and social theorists. We are pragmatists seeking a working solution to the problems outlined by Johann Rupert, Pravin Gordhan, Malusi Gigaba, Andy Becket, Nick Srnicek, Mark Fisher and many others throughout the world. DDF policies need to be given serious consideration by anyone who is even just a little concerned for the future of South Africa and indeed the world.

While many are saying that yes we need a basic income grant, while agreeing with them, we have determined the means of funding a universal basic income grant through the application of TEAL. That makes the DDF feel just a little special and gives the DDF a sense that its time is coming.

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Minister Nene and the Tax Base

South Africa’s Finance Minister Nhlanhla Nene is absolutely right, we do need to broaden the tax base, but the Direct Democracy Forum (DDF) are streets ahead of his thinking. Imagine a tax system that was all-embracing and set at 1% of economic activity. Sound too simple? Too good to be true? Nope – go to http://ddforum.co..za and look at their proposal for TEAL. Not only is it doable but it is the solution to SA’s tax and National Debt conundrums. It follows the KISS principle. What can be better than simple?

But the DDF are about more than just TEAL. DDF policies will lead to fair government and fair tax and an economy based on prosperity, not poverty. You simply cannot beat that.

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Gordhan and Nene

Gordhan’s ousting and his replacement by Nene are not entirely unexpected.  Gordhan has often been outspoken, as were his predecessors, who all wielded considerable power by virtue of their public declarations on financial mismanagement in the ANC led government, declarations uttered with predictable results.

It is probable that Nene has been groomed for this move and one wonders if he is going to be compliant member of cabinet who endorses the excesses of government, remains silent on them, or will he continue the slightly maverick course of his predecessors? One hopes for the latter but fears for the former.

As for Gordhan – why not just fire him from cabinet instead of demoting him to the circumcision and sangoma affairs portfolio, as described by one South African tweeter?  Perhaps Gordhan’s position is a backstop, in case the appointment of Nene does not work out as planned?   Also, perhaps, out of cabinet all together Goprdhan could pose some sort of a threat?  Just keeping him close and available could be keeping the stopper on a genie’s lamp?

What isn’t speculation is that the finance ministry has always been a zone of calm, rationality and realism in otherwise questionable seas.  Let us hope that Nene continues that tradition.   

A Direct Democracy Forum administration will certainly include the likes of Gordhan and his predecessors and their predilection for rationality and the sensible use of taxpayers money, and with the application of TEAL in place of the hodge-podge of existing taxes, they will have a much more plentiful and reliable source of funds for them to realise their visions.

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Six Reasons for adopting TEAL

  • Johann Heinrich Gottlob von Justi (1720-1771) wrote in 1766 in his ‘System des Finanzwessens’ that; given that no state can exist without expenses and that no modern state is completely self-funding, contributions (taxes) from the subjects (taxpayers) become necessary, and that six principles of taxation should always be adhered to.

They are:

  1. Subjects (taxpayers) must be in a position to pay the taxes without depriving themselves of necessities nor taking from their capital and that an authority which deprives taxpayers of the protection of civil societies (viz protection of the necessities of life and of their property or capital) ceases to be a legitimate authority and becomes a tyranny. 
  2. Contributions (taxes) must be levied with complete equality and just proportions. This is rarely achieved with the very rich mostly contributing very little and the very poor nothing, so the bulk of the burden falls on the middle class.
  3. The method of collecting contributions (taxes) should be such that the welfare of the state and the subjects and civil freedom suffer no harm.
  4. Contributions (taxes) should be organised according to the nature of the state and the forms of government. That is, the taxes need to support the institutions of the state and must not be skimmed, for example, by collecting agents and agencies.
  5.  Contributions (taxes) must be certain and honest, fixed definitely and clear to all, so contributors know both the purpose and the amount of the contribution (tax), again adding certainty to the process and discouraging dishonesty in the collection process.
  6. Contributions (taxes) should be collected in the easiest and most convenient way and with as little expense as possible, both to the state and the subjects (taxpayers).

(Source: Early Economic Thought ISBN 0-486-44793-6 (pbk) pp 377 – 399)

Those thoughts were expressed almost 250 years ago and are just as relevant today. 

  • It is clear to the Direct Democracy Forum that current tax systems (including but not limited to E-Tolls) mostly do not satisfy those principles, whereas TEAL (Total Economic Activity Levy) mostly does.
  • If only for that reason, the DDF are determined to do all in their power to introduce TEAL as the only tax in South Africa.

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Prison Numbers tell all

This M & G on-line report lists numbers in South Africa that are telling.

  • Cost per prisoner per month                                  R9 876.35
  • Cost per prisoner per year                                  R118 516.20
  • prison population (includes remands)                   156 370
  • cost per month                                          R1,544,364,849.50 
  • cost per year                                           R18,532,378,194.00
  • prisons                                                                          243 
  • average cost per prison per year                   R76,264,930.84

These are costs to South Africa’s taxpayers.

Compare this to the cost of a tertiary education in a state sponsored university.

  • Student cost of 1 year’s fees at university range from 30K to 50K (say 40K average)
    depending on the courses.
  • So a three year degree will cost a student about R120 k.
  • The state will contribute about 30% and private sponsorship the balance.
  • Assuming private sponsorship of zero, the R120k = about 70%, so
  • the state will contribute about R51 000 for a three year course.

So, the cost to the state of 1 year’s imprisonment for 1 prisoner will be about R118,5k or equal to state sponsorship for 2.3 three-year degree courses.

 Put another way, three years’ imprisonment for 1 prisoner (R355k) = state sponsorship for 7 three year degree courses (R350k).

Setting aside the fact that 30% or 1/3rd state sponsorship is simply not enough, the fact that you can equate 3 years of imprisonment to 7 three year degree courses speaks volumes of where the state’s funding priorities lie.

Let us say that the state sponsored education 100%, so a three year degree course might cost the state R171k compared to a three year imprisonment cost of R355.5k, even then three years’ imprisonment would equate to two three-year degree courses. Makes you think.

  • By comparison, the R2 Billion spent on President Zuma’s  Nkandla compound and the infrastructure in the surrounds (see here) would have funded
    • 100% of 11, 691 three year degrees or about
    • 40 000 three year degrees at the present level of sponsorship.  
  • Makes you think some more.

It makes Direct Democracy Forum’s education and training policies supported by a TEAL backed fiscus even more relevant, when you consider the impact it would have on the prison population. While not claiming that only the uneducated are criminals (they certainly are not), the DDF are pretty certain that the better educated a person is and the more employable he or she is (the two generally correlate), the less likely he or she will be to resort to crime to survive.

This will result in

  • less crime,
  • fewer prisoners,
  • less pressure on the criminal justice system as a whole (we haven’t even considered those costs in our calculations)
  • less distressed families and individuals,
  • less pressure on the social services funded by the state and civil society

this is just a win-win situation whichever way you look at it.

These are all DDF policy basics. See how the DDF can help you.

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E-TOLL BOTTOM-LINES

This report from the M & G Business should be of interest, not because it reveals shocking manipulation of a flawed tender system but because of all the extraneous financial information it contains, which the Direct Democracy Forum summarise as follows:

A thought provoking look at some e-toll numbers taken from the article:

E-Toll Cost summary: 

2010 estimated  cost per Km for new high grade road 
(allows for 5% pa average escalation over 4 years)                R5.5M
2010 cost estimate for 185km new roads @ R5.5M/Km         R1.1B
2010 cost estimate for 185km refurbishment, say                   R2.2B
2013 OUTA estimate (including e-toll costs), say                  R13.0B

Current cost guestimate (excl finance charges) say             R20.6B 
(an almost tenfold escalation over 2.2B)
Add finance charges over 20 years                                        R20.0B

Total cost over 20 years                                                         R40.6B

Cost per year                                                                            2.03B

Recovered through e-tolls:                         20y                           /y

Capital Costs (% of E-Tolls) 28%               R20.6B                    R1.03B
Debt Service 29%                                        R20.0B                    R1.0B 
Total Capital Cost and
Debt service recovered
over 20 Years (% of E-Tolls) 57%               R40.6B                    R2.03B

Road maintenance 15%                              R10.7B                    R535M

E-Toll Maintenance 17%                                 12.1B                     R605M 

Sanral profit 11%                                              7.8B                     R390M 

Total Cost over 20 Years                          R71.2B                     3.56B

By Scrapping E-Tolls the taxpayer would save

                                Debt service charges              R20.0B
                                E-Toll Maintenance                     12.1B
                                Sanral profit                                  7.8B
                                in total                                     R39.9B   (56% saving)

                                which approximates R2B per year for 20 Years.

Total costs over 20 year without SANRAL, Etoll and Finance charges should be 31.3B.  If you are to believe OUTA that figure should be no more R23.7B (R13B + R10.7B maintenance costs, but that includes e-toll costs).  Who to believe?  If OUTA are anywhere near correct, the R71.2B cost over 20 years represents a 200% hike over the OUTA R23.7B figure.  That from E-Tolls, Finance charges and Sanrall.  That’s a heck of a lot of taxpayer money that South Africa cannot afford.  

E-tolls simply do not make any contributions that a properly run Fiscus cannot make and do not make any financial sense at all except to SANRAL and the Debt Financiers, and that’s if we can believe the numbers in the article.  What we can see is bad enough but what if those numbers are somehow unreliable, as the Sanral experience suggests to us is possible?

The DDF believe they have a clearly superior form of taxation (TEAL), compared to the current methods, which will more than easily absorb the capital costs of the Gauteng and all other roads upgrades in the country, without breaking the bank, and save huge debt service charges, which can instead go toward lowering the costs of our roads development and maintenance and improving the lives of all South Africans.  

Look at DDF policies and see for yourself what the DDF can do for you.

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ANC’s Messiah complex

OK – the Direct Democracy Forum are paraphrasing Verashni Pillay’s words.  She actually wrote about the Government’s Messiah complex, but since the government is mostly the ANC, we don’t feel too bad about that stretch.

So, why are we engaging in ANC bashing again?  Actually no one is ANC bashing.  Instead Ms Pillay is voicing very legitimate concerns that the ANC led government at both local and national level are not listening to the people, and instead are advancing willy nilly along a path which has very little to do with what the people want.  Ms Pillay cites two current examples to illustrate her point and in doing so writes with the same words and concerns with which the DDF have been writing these past years.

We are not claiming that Ms Pillay endorses DDF positions.  In fact, we very much doubt that Ms Pillay is even aware of the existence of the DDF.  But like Ms Pillay, we are aware of South Africa’s opinion on E-Tolling.  A DDF administration would never have implemented E-Tolling and the DDF have undertaken that any DDF administration will dismantle all road tolls because the national roads system will be funded through the fiscus which in turn will be funded by TEAL.  This is not because the DDF are adopting a populist position but because the national roads system is a national asset from which the entire nation benefits and for which the entire nation should pay, not just a few captive users. 

This video elaborates on why e-toling is just plain bad policy.

The DDF also believe that the Johannesburg City Council’s eviction of street traders was the use of a shotgun tactic to counter a situation of lawlessness on the streets resulting from bad management of the streets by the ANC-led council.  Instead a more selective strategy should have been adopted targeting elements on the streets which required proper management.  In short, the ANC-led Johannesburg City Council did not do their jobs properly and instead unnecessarily messed with the livelihood of thousands of honest traders.

Simply put the DDF have the same opinions of the behaviour of the ANC led government at both local and national levels as Ms Pillay has.  The ANC are not prepare to manage the society which misplaced their trust in them and worse still, the ANC no longer even engage in the pretence of consulting with the people,  for when the people speak, even with a single voice, such as on the subject of E-Tolling, the ANC led government simply don’t listen but engage their Messiah complex to do what they believe is good for someone (we don’t know whom) instead of doing what the people believe is good for them.  And that is a charitable view.

A less charitable view is to follow the money trail of the E-Tolling debacle, to observe who benefits from e-tolling.  And the ANC led government and SANRAL are being remarkably coy about those details.  So the DDF asks itself why should motorists pay what probably amounts to more than double taxation to those invisible beneficiaries?

And the point of this rant is that Ms Pillay and the DDF are on the same page, even if Ms Pillay has never heard of us.  We are even on the same page that government should be consultative and not prescriptive and should suppress any messianic inclinations.  DDF Senate policies and DDF local government policies both use a process of deliberative democracy that should satisfy anyone’s need for a more consultative government.  So the DDF are quite happy that they and Verashni Pillay are on the same page, at least in these matters, and have little doubt that the DDF would be on the same page as Ms Pillay and many other South Africans on many other issues.

What makes the DDF different from any other political party in South Africa is its central theme of formal consultation at local government and national government levels and its ability draw on TEAL to adequately and properly fund all the needs of the country, while at the same time liquidating SA’s national debt and turning South Africa into a debt-free country, at least so far as its government is concerned.  No other political party can come anywhere near that promise.  Then there are all the other DDF policies to consider.

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South Africa’s AIDS Shame.

20 Million tested for aids is certainly an achievement but when you only have a third of your 6 Million aids population receiving ARVs, or medication for aids, that is letting down the other 4 Million aids sufferers.  In 2012 SA had an estimated 370 000 new HIV infections and 240 000 Aids deaths, a net growth of 130 000 aids sufferers.  As some observe, we have little to celebrate on the 25th Annual Aids Day.

Direct Democracy Forum policies will have a significant effect on the fight against aids and the quality of life for all aids sufferers in South Africa.

DDF TEAL policies’ support of DDF Health Policies will ensure that every AIDS sufferer in South Africa receives ARVs, which will allow them to live a largely normal lifestyle and lifespan and DDF job creation policies and DDF education and training policies will uplift the social and economic status of most South Africans, which will significantly reduce the transmission of AIDS between South Africans of all ages.

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The Horrors of Diepsloot

Diepsloot face a new horror with a neglect related death of a seven month old toddler.

It is easy to express rage but not so easy to see a way forward for the many South African communities that are so distressed, such as is Diepsloot, that they simply are dysfunctional and almost anything can happen, as this tragic story relates.

Any Direct Democracy Forum administration will have tangible and doable DDF policies backed by sound fiscal means derived from TEAL, that will enable the upliftment of South Africa’s poor communities, through education, training, skills development, employment opportunities all engaged in community development.  There is so much under-delivery of services and so much scope for employment, that efforts to play catch-up on twenty years of neglect will result in a great deal of wealth creation for the next twenty years at least, most of which will be retained in the communities themselves.

The goal is that dysfunctional communities become functional, with sufficient wealth  and populated by sufficiently skilled and employed individuals that there will be fewer disenfranchised individuals behaving like predators.  More community members will engage responsibly with their communities, local economies and their families, instead of in questionable activities that leave unfortunate children at risk.  It won’t be an easy task but every step in reconstructing communities will be a step in the right direction and will be felt by all as they happen, and each success will encourage more successes.

These are the DDF’s goals and DDF policies are the means.

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If Only

In our previous post we bemoaned the lack of adequate funding for our educators and the education system.  The topic is a huge one which begins with the appropriate application of existing funding and proceeds to appropriate funding for all academia.  We mention this because South Africa actually spends a high proportion of its GDP (about 18%) on education.  But we simply are not getting the results. 

  • Step one is to apply the funds that are needed where and when they are needed (books on time, teachers where there are pupils) and so on.
  •  Step two is to identify areas of need that are not adequately funded and see that these areas are properly funded, without stealing from existing recipients.
  • Application of TEAL by the Direct Democracy Forum will ensure such theft is not needed

Two critical areas of need are adequate funding for tertiary education and for research and development.  Imagine, only 1.5% of our working population are employed in Research and Development.  A gifted person obtains an advanced degree in research and development and can’t find employment.  That should not be.

Yet South Africans are a resolute people.  In spite of the sad state of support for R & D and for Tertiary Education, our youngsters still acquit themselves on international platforms, as good as any and better than most, and in this particular case, as the best in the world.

If only we supported all our achievers in all areas of endeavour with the same resolve as we support our sportsmen and sportswomen.  Imagine then what we would accomplish.

Well, dreams precede accomplishments and a DDF dream is that South Africans are counted as amongst the best in the world wherever they compete.  A DDF administration will empower and enable everyone to be their best at whatever they doDDF policies will turn that “if only” wish into reality.

The buck stops at the ballot box.

Deflation – Gupta Style

Deflation Gupta Style means having your R16.8 Million property valued at R490 000 in the municipal valuation roll.  The municipal valuation roll is the basis for municipal property taxes.  That’s less than 1/32 or about 3% of the valuation of their neighbour’s property.   Let’s see, my home treated in the same manner would be valued at about R14 000 in the municipal valuation rolls and my monthly rates would be about R4.50.  Now that’s smoking!

But seriously, if ever there were arguments for taking the tax process away from corrupt municipal agencies and changing from other manipulable processes, this has to be one of the more compelling arguments, namely that the process is so susceptible to manipulation.  The Gupta example is just an extreme example of what can and does occur.

Have a look at the Direct Democracy Forum tax policies and ask yourself how nice would it be to know exactly what taxes you paid and know, without any shadow of doubt, that your neighbour and his neighbour and his neighbour’s neighbour would all pay exactly the same proportional level of tax that you pay, even if your neighbour’s neighbour was a Gupta.  A DDF administration will deliver TEAL and that absolute certainty.

The buck stops at the ballot box.