Introduction
Trade unions are organizations that represent the working people. The membership of these organizations comprise of employees from different sectors of trade, professions and occupations. The union’s main objective is to represent its members in the working environment and in the general society. The working of the trade union is through collective bargaining as well as through a harmonized rule-making process. The South Africa trade union is the largest in Africa and plays a big role in the labor market and industrial relations in determining policies in the country. There are three prominent trade unions in South Africa whose connections work in the country’s different economic sectors. These trade unions federations are; the Federation of Unions of South Africa (FEDUSA), the National Council of Trade Unions (NACTU) and the Congress of South African Trade Unions (COSATU).
Trade unions in South Africa supported the 2014 budget, and at the same time criticized some areas of this budget. However, the Congress of South African Trade Unions (COSATU) provided alternative proposals for the government in response to the fiscal policies, and the way the government could work to achieve economic growth and job creation. The trade union proposed that, the government should introduce to its tax system some form of taxes that would transform South Africa economy and facilitate the provision of better services to the people. The Congress of South African Trade Unions (COSATU) proposed the introduction of a progressive tax system, solidarity tax, tax on imported and exported luxury goods, imposition of land tax, tax on strategic minerals, investment tax credits, tax on firms that do not willingly want to close wage cap and those firms that pay below the statutory minimum wage, and finally tax on financial transactions.
Introduction of a progressive tax system
The Congress of South African Trade Unions (COSATU) proposed that this form of tax claiming that its introduction would ensure that high income earners pay more tax as compared to the low income earners. This method is an effective and efficient way of tax redistribution. Basically, taxpayers are categorized and broken down into groups based on an individual’s taxable income. The people who earn more upto a certain benchmark are grouped into a different income tax category. The taxes collected from the high income earners are used to fund social welfare programs for those people who earn less.
Solidarity tax
Solidarity tax is a government-imposed tax, which is collected with an objective to provide funds, which would be used to fund unifying projects. The Congress of South African Trade Unions (COSATU) pointed out that, this form of tax can be used by the government to cap the escalating earnings of the top 10 % and promote the growth of the bottom 10% low waged earners. This form of tax targets proprietors, corporations and individuals, and is calculated based on tax bill percentage. The South African government can use this tax as a supplement tax to the regular tax thus reducing the deficit in the fiscal budget.
Tax on local and imported luxury goods
Luxury goods are those items, which are not necessary for living. The ability of a person to purchase a luxury good is always dependent on his level of income. People in high-income brackets are the most likely to purchase luxury goods. Tax imposed on luxury goods is referred to as luxury tax. The Congress of South African Trade Unions (COSATU) proposed to the government to introduce this kind of tax on both imported and locally manufactured luxury goods in order to increase its sources of tax and increase the government revenue. The trade union suggested more tax on imported luxury goods than locally manufactured goods. Luxury tax is progressive since it only affects the people with a big net income or wealth.
Introduction of land tax
Land tax is a charge levied annually on landowners. Land tax exempts some of the land owners whose land value is less than the stated value; since the land tax varies from one country to another. The Congress of South African Trade Unions (COSATU) pointed out that, the introduction of land tax can help the government in land redistribution process. Economic development can be fully utilized if every inch of the land available in the country is put into good use. Un-utilized land can be subjected to more land tax than the land in use as this will encourage landowners to put their land into good economic use or lease the land to other developers who can utilize it thus promoting economic growth. Money received from land can then be added into the budget by the government to fund the country’s development projects.
Introduction of investment tax credits to encourage local procurement of machinery and equipment
A tax credit is the sum, which is deducted from the total amount the state requires a taxpayer to pay. A tax credit is a form of an incentive the government offers to the people in order to encourage local investment. The Congress of South African Trade Unions (COSATU) proposed to the government to offer incentives to all investors who make purchases of local produced equipment and machines. This is done to encourage the growth of a local market for local produced equipment and machines. Increased demand for local goods will boost the economy, as investors will invest more on machine and equipment factories. The local established firms will provide job opportunities to the people of South Africa and this will lead to a generally improved country economy.
Financial transaction tax
This is a form of tax levied on some specified types of monetary transactions for a given goal. It is mostly applicable to specific financial sectors of the economy. It does not apply to financial institutions; rather, this tax is levied on transactions, which are designated as taxable. The Congress of South African Trade Unions (COSATU), proposed that the government introduces this form of tax so that it can effectively curb the volatility of financial market. In addition, it was deemed as a way of; collecting tax in a more and fair equitable way, expanding the country’s tax base and finally, it was a suitable way to use because it is less susceptible to tax evasions than the available alternatives. Financial income tax is also captured in capital gains tax, which is the tax imposed on capital gains above a given set minimum threshold. This would help the government in reducing short-term capital flow, promote productive investment and eliminate the bumps on the current capital flow that inhibit frequent capital transfer.
Taxing firms that are rigid to close wage gap
The wage gap is an indicator used statistically as an index of comparing the status of women earnings in relation with men’s earnings. The wage gap can also be used to compare the earnings of people in relation with their race, ethnicity and groups to avoid race or gender based discrimination. The Congress of South African Trade Unions (COSATU), proposed to the government that since the country’s citizens belong to different racial groups, also in relation with the apartheid rule the country experienced in the past, and finally due to the existence gender based discrimination, the introduction of tax to such firms would not only generate revenue for the government, but would also play a huge role in elimination of factors that promote the wage gap. Essentially, discrimination resulting from racial differences and gender differences would be eliminated by taxation. Furthermore, it would promote harmony amongst the South Africans, and therefore create conducive environment for the country’s economic growth.
Taxation of firms that pay below statutory minimum wage
Statutory minimum wage is the minimum amount of money a worker must be paid on an ordinary day’s working hours (usually 8 hours). It is the minimum money paid to a worker as a total wage for those people working on a commission. Statutory wage is calculated according to the legal requirements. The Congress of South African Trade Unions (COSATU) in its proposal to the government stated that, tax levied from such firms could be channeled back to the workers concerned. By doing so, the economic status of such workers would be elevated and would reduce employee exploitation by the employers. In addition, this would encourage such firms to increase the wages of their employees to the required minimum wage.
Effects of the trade union proposal to the government
Introduction of a progressive tax system is essentially focused on increasing national savings, which can be used to replace a country’s capital outflow. This is indeed very beneficial to industrializing economies experiencing un-equal income distribution. Over time, un-equal income distribution is reduced resulting to minimized financial and economic volatility. Reduced economic volatility can promote the prospects of economic growth of the country. Through a progressive taxation system, South Africa can automatically stabilize its fiscal system function because of an increased base of tax collection.
Introduction of solidarity tax will promote economic growth, since the proceeds of this form of tax are essentially designated to specific projects. Some infrastructural projects can be initiated by the government, for example, building and construction of roads or health facilities. This form of tax can also be used to correct the income distribution amongst the highest and lowest income earners.
Tax on local and imported luxury goods will increase the government tax collection sources. The proceeds from this form of taxes can be used to finance the deficits in the government fiscal budget. This in turn, can be used towards the country’s economic growth. Financial transaction tax also falls in this category and also helps increasing the government financials sources. In addition, financial transaction tax acts as a regulatory measure in controlling capital flow.
Land tax promotes economic growth because landowners will be forced to undertake an economic activity in their lands in order to service such taxes. It also promotes land redistribution, as people with large tracks of land will be forced to lease or sell some of it in order to reduce the cost of paying tax. In addition, proceeds from land tax goes into the government fiscal budget.
Tax credits will encourage local investments and job creation to the people of South Africa. Increased level of investments will lead to the country’s economic development as it encourages infrastructure development. Living standards of the employed people will improve and this will reduce the country’s dependence ratio.
Tax on firms, which are rigid when it comes to reducing the wage gap, and the firms that pay their workers below the statutory wage will compel such firms to review and change their organizational policies regarding the later situations. This will bring social integration among the South American people. Peaceful coexistence of people creates a conducive environment for economic growth.
Unfortunately, some of the policies proposed by the Congress of South African Trade Unions (COSATU) have some setbacks. Introduction of a progressive tax system will discourage savings. Furthermore, excessive taxes will cause inflation in the country. The price of basic commodities will increase significantly thus making them not affordable to the low-income earners. Some firms may be forced to lay down some workers in order to minimize the cost added by increased tax. This can cause massive unemployment, which will inadvertently affect the country’s economic growth.
Conclusion
Trade unions play a vital role in South Africa in checking on the government fiscal budget. The Congress of South African Trade Unions (COSATU) made some recommendations to the government, which it could adopt to increase its tax sources, promote economic growth, and create job opportunities for its citizen. The proposals included introduction of taxes that prevent exploitation of employees by firms and the reduction of wage gap in the paying of workers. In addition to this, some tax reduction measures were proposed that that encourage internal investment and creation of an internal market for the machinery and equipment. This was through tax credits, which could be extended to local consumer on purchases of local machinery and equipment. To promote economic activities, the Congress of South African Trade Unions (COSATU) proposed land tax to encourage the utilization of land with the aim of creating jobs as well as the economical use the land. The Congress of South African Trade Unions (COSATU) however did not provide measures to be put in place in order to address the shortcomings that could arise from the new taxation measures proposed.
