People who create products that we need and are willing to pay for must be allowed, as much as possible, to keep the fruits of their labour. These people must not be punished through taxation. We have to acknowledge that society becomes prosperous if we let the entrepreneurs or makers keep the proceeds of their labour. That also incentivises them to improve their products and offerings, and to innovate even more.
And a typical example is the United States of America. Because tax as a proportion of national income is manageable compared with Europe, America has a lot of innovation and creativity that you do not find in other jurisdictions.
This then brings us to taxation and its role in economic growth. We saw in the recently presented budget that there is a move to increase taxes. The nation is poised for a rise in corporate tax, personal income tax, and, obviously, capital gains tax. However, we cannot raise our taxes and still enjoy growth and prosperity. So the truth of the matter is that we cannot have both. It just doesn’t happen that way.
This then compels us to look critically at whether we see taxation as a way out of our economic downturn. And clearly it is not. The way out is to lower our taxes and also reduce public expenditure, especially the bloated public service.
Taxation, on the other hand, should be used to fund essential infrastructure that cannot be provided by the private sector. In other words, it must fund goods, which we all enjoy without necessarily having to pay for them individually.
That being the case, taxation must not be used to promote so-called fairness or equality. That should not be its purpose. The moment taxation is used to finance fairness or equality, it becomes a political weapon against successful, rich, or hard-working people. And politicians then use it to beat up high-income earners and even call them pejorative names.
The thing about taxation is that people should be allowed to keep as much money as possible in their pockets. Instead of giving it to the government in the form of taxation, individuals can be counted on to spend their money, not only wisely but efficiently too than the government.
And the more money the government takes from people, the less they have to save and invest. Without savings to invest, the economy suffers from a loss of productivity. We know, of course, that the government claims it needs taxes to invest. But much of what the government calls investment is really wasteful spending.
This is why the government needs to take as little money as possible from the people. This is why the government needs to ensure that tax rates are lowered and that people have enough money to invest.
High tax rates also lead to capital flight and brain drain. As more high-income earners feel that a greater share of their income is taken away, they look for low-tax destinations. This also has a serious impact on investment and capital formation. A flight of skills is also not in the interests of Botswana or any other country that keeps raising its taxes.
This is why high-income earners engage in aggressive tax planning, involving lawyers, trust counsellors, and accountants, leading to an industry that would be unnecessary were it not for the high tax environment.
Taxation should also not be punitive because businesses create the goods and services we need. That’s the first thing they do for us. So all this talk about businesses having to give back is unhelpful. Taxation should also not be used to kill innovation by seeming to punish the makers.
To use Botswana as a low-tax destination compared to our regional neighbours as a justification for raising taxes is to miss the point. Our competition in the region is not the high-tax locations. We have to compare ourselves to the best. And it is Mauritius.