Sep 12, 2012
Consider tax regimes that favour industry over finance - UnctadBack
Johannesburg|Africa|Gas|Industrial|Resources|Systems|UNCTAD|Africa|South Africa|Income Groups|Mining|Oil|Progressive Taxation Systems|Social Services|Systems|Alex Izurieta
© Reuse this
The recommendation is contained within the 175-page ‘Trade and Development Report, 2012’, which was released globally on September 12 under the theme of ‘Policies for inclusive and balanced growth’.
Unctad economist Alex Izurieta, who presented the report's findings in Johannesburg, said the recommendation of differential tax rates was premised on the need to stimulate long-term growth and development by improving levels of employment, as well as employment conditions.
Various solutions were considered by the authors, including aligning tax rates to the creation of jobs. “In that way, you are discriminating immediately between the financial and the industrial sectors, because the financial sector doesn’t create as much employment,” Izurieta asserted.
Higher rates should apply especially on speculation and unearned capital gains, which “provide no benefits to the overall economy”.
“Taxation of transactions in equity, bond, currency and derivatives markets, applied internationally or nationally, may help check a further expansion of destabilising speculative activity,” the report stated, adding that taxing financial-sector bonuses at a higher rate than regular wage incomes could also reduce the incentive for excessive risk taking.
Besides considering tax regimes that discriminate in favour of industrial sectors, the report also calls for deployment of progressive taxation systems to ensure that high-income earners contribute more to government revenues.
Unctad argues that, while lower taxation on high-income groups and company profits was expected to lead to greater growth-supporting investment, the reforms actually fuelled inequality without providing better social services, higher investment and stronger employment creation and growth.
For resources-rich developing countries, such as South Africa, Unctad recommends that governments seek to appropriate “a greater share of commodity rents” to ensure that this wealth benefits the entire population and not only “a few domestic and foreign actors”.
“There appears to be considerable scope in many countries for collecting a larger amount of royalties and taxes, especially from companies active in the oil, gas and mining sector.”
Izurieta said commodity prices had supported growth in Africa, but warned that these prices had become more volatile, partly because of the growing presence of financial investors in commodity markets. The report notes that there was almost a 40-fold increase in commodity assets under management between 2001 and 2011.
There should also be a recognition that the terms-of-trade gains were likely to be temporary and, therefore, should not be relied upon to sustain government revenues.
“However, even if temporary, the higher rents and windfall profits in the primary sector can still be used to help accelerate productivity growth and job creation elsewhere in the economy. This requires special taxation of the windfall profits and channelling them into productive investments elsewhere in the economy.”
Apart from the progressive tax recommendations, the Unctad report also suggests greater public spending to reduce inequality, as well as active policy interventions to avoid further “wage compression”, as a tool for expanding employment.
In fact, the report argues that cutting wages in the context of a fragile recovery would be counterproductive as it would dampen demand even further.
By contrast, higher wages and lower inequality could stimulate demand and output growth, which could provide the basis for increased investment.
“If overall productivity grows without a commensurate increase in wages, demand will eventually fall short of the production potential, thereby reducing capacity utilisation, profits and investment.”
Edited by: Creamer Media Reporter© Reuse this Comment Guidelines
Other Construction News
Recent Research Reports
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
Real Economy Insight: Construction 2014 (PDF Report)
This five-page brief covers key developments in the construction industry over the past 12 months. It provides an overview of the sector and includes details of employment in the sector, infrastructure and municipal spending, as well as insight into companies’...
Real Economy Insight: Electricity 2014 (PDF Report)
This five-page brief covers key developments in the electricity industry over the past 12 months, including details of State-owned power utility Eskom’s generation activities, funding and tariffs, independent power producers and prospects for the sector.
Real Economy Insight: Road and Rail 2014 (PDF Report)
This six-page brief covers key developments in the road and rail industries over the past 12 months, including details of South Africa’s road and rail network and prospects for both sectors.
Real Economy Insight: Steel 2014 (PDF Report)
This four-page brief covers key developments in the steel industry over the past 12 months. It provides an overview of the global and South African steel and stainless steel markets, South Africa’s major steel producers and events that have shaped these markets.
This Week's Magazine
Local aerospace company Denel Aerostructures (DAe), part of the State-owned Denel Group, has won a fourth contract to manufacture parts for the Airbus A400M military air transport and air-to-air refuelling aircraft. The new contract, which was won in an international...
Although CEO Mark McChlery and chief marketing officer Bob Skinstad likened themselves to children in a playground when taking on the task of “reengineering and repositioning” the Seartec brand, the “young, dynamic and enthusiastic guys” were like proud...
An increasing number of buyers, in both the new and used car markets, are opting for finance structures that lower their monthly repayments, says asset financing company WesBank. These include the use of large balloon payments (also known as residuals), as well as...
Tertiary education institutions can use search engine giant Google’s Chromebook to provide secure mobile end-point devices for students on which they can share documents, work collaboratively on documents and access education materials and applications being used...
Local ceiling and partition company Abbeycon has beaten global competition at the Saint-Gobain Gypsum International Trophy competition, which was held last month in Berlin, Germany.