Home Community SA wealth tax could raise R160bn, according to study

SA wealth tax could raise R160bn, according to study

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The idea of a wealth tax is going mainstream, and you can be sure the government is taking a serious look at this. The World Inequality Lab, of which Karl Marx’s heir apparent Thomas Piketty is co-director, has an attentive ear among governments keen to extract more tax revenue. This is a dangerous idea. This is a case of never letting a crisis, particularly an economic one, go to waste. Piketty’s book Capital in the Twenty-First Century was a surprising best-seller, its central thesis being that a wealth tax is needed to correct capitalism’s inherent inefficiencies. There are several rebukes to Piketty, such as this one.

What this study from the World Inequality Lab proposes is a tax on 350,000 of SA’s wealthiest people of between 3-7% depending on the wealth. The problem here is that the super-wealthy, those with over R150 million in assets, don’t really invite much sympathy, so swiping 7% of their wealth might even get loud applause. But make no mistake, once government gets a taste of this blood, it will develop a hunger for more. The definition of “wealthy” will be lowered until it knocks on your door. Especially in SA, where a fiscal crisis looms due to the economic collapse caused by the Covid lockdowns. Tax collections are under pressure as never before. Any bright idea for collecting more will be seized upon and implemented by the government.

Any decision along these lines has consequences. The wealthy will financially emigrate to other countries desperate for investment, and they will be welcomed with open arms. This is a self-defeating suggestion, totally lacking in originality. A better way to boost tax revenue is strip away regulations that inhibit growth and make it easier to hire new people.

The only sure way to grow the tax base is to grow the economy. – Editor

From Bloomberg: An annual wealth tax on the net worth of South Africa’s richest people could raise as much as R160 billion ($10.7 billion) and would narrow inequality in a nation where the most affluent 1% of the population own 55% of personal wealth, a study showed.

The study, carried out by groups including the World Inequality Lab of which Thomas Piketty is co-director, assessed personal wealth in South Africa and proposed a range of taxes on net wealth of above R3.82 million, or the top 1% of the population.

South Africa is one of the world’s most unequal nations, a legacy of the apartheid system of racial discrimination that disadvantaged the Black majority and ended in 1994. The concentration of wealth is more extreme than in France, the US, the UK, Russia, China or India, and has not decreased since 1993, according to the study published Wednesday.

Under the moderate tax scenario, about 350 000 individuals would be subject to the tax, with the level ranging from 3% to 7% depending on affluence. The top rate would apply to people with a net worth of above R146.89 million and would only be levied on wealth above that level. Raising R160 billion in tax would be equivalent to 3.5% of gross domestic product, the study said.

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“A progressive wealth tax concentrated on those most capable to pay would be a significant policy tool to finance debt reduction,” it said. It would spare the “most vulnerable households, thus placing South Africa in a better position for an economic rebound.”

South Africa’s economy is estimated by the government to have contracted by the most in nine decades because of the coronavirus pandemic.

The study was authored by Amory Gethin of the World Inequality Lab, which is linked to the Paris School of Economics, together with Aroop Chatterjee of Johannesburg’s University of The Witwatersrand’s Southern Centre for Inequality Studies and Leo Czajka of the Universite Catholique de Louvain in Belgium.

A wealth tax would face challenges, the authors said.

Some rich South Africans would leave and others would find ways to circumvent it, and the amount of personal wealth targeted by such a tax could fall 30%, Czajka said in an interview. Still, the tax revenues would be considerable, he said.

South Africa is a good candidate for a wealth tax because its income disparity means that relatively few people would be affected and the quality of data collection by the tax authority is superior to some high-income nations, Chatterjee said in the same interview.