FIFI PETERS: In in the present day’s Personal Finance function we’re taking a look at the proposals round a wealth tax, as a result of I believe there’s no disagreement that South Africa’s social cloth of excessive poverty and inequality and unemployment will not be sustainable. It must be mounted. But there are totally different views on the best way to go about fixing it.
Back in 2017 the ANC [African National Congress] first proposed a further tax on the super-wealthy to kind a part of a funding scheme for the primary revenue grant that might probably assist degree the enjoying discipline in terms of inequality and poverty and unemployment.
At the weekend this proposal, the 2017 proposal, was basically revived. To communicate extra about the financial implications of this I’m joined by Hugo Pienaar, the chief economist at the BER, the Bureau for Economic Research. Hugo, in your view sir, is that this the method to go to resolve the unemployment disaster, to fund the primary revenue grant – a wealth tax?
HUGO PIENAAR: Good night, Fifi. We don’t assume so. We assume there are severe sensible difficulties right here.
At the finish of the day, it comes all the way down to a really slender tax base.
If you have a look at the numbers from the National Treasury, the super-wealthy – properly, their high class of revenue earners is individuals incomes or which have taxable revenue of R1.5 million and above. Now there are 133 000 of these people in South Africa.
So already that provides you a way that we’re speaking about, out of the inhabitants of 60 million, you’ve got 133 000 of those individuals. So I believe that the backside line is if you wish to increase R45 billion – which is the present value of the social reduction of misery grant every year – it’s important to then tax R45 billion from 133 000 taxpayers.
So we expect you will have a reasonably exorbitant wealth tax on these individuals to boost that income – and that’s prone to have behavioural implications.
In different phrases, individuals might merely vote with their ft and, for instance, to migrate so as to not pay this tax. So we don’t assume a wealth tax is a sustainable funding choice.
FIFI PETERS: But in the ANC’s defence, additionally they say – the determine that they quote – the majority of the wealth of this nation is in the palms of 5% of the inhabitants. They additionally say that’s not sustainable. What do you say about that?
HUGO PIENAAR: That is true, however there are different choices right here. Perhaps the first level to make is that South Africa, after all, already has a really progressive tax system. In different phrases the extra you earn, the extra tax you pay. So this may then make this tax system much more progressive. The level I’m making is that we’re already in that realm of making an attempt to cater for the poor, however there are different choices.
The most direct one, after all, is to get the economy rising to create jobs, versus paying handouts. Now that doesn’t occur in a single day, we perceive that. So there have to be some interim measure.
But there are different tax measures that you may unfold all through the tax system – issues like a Vat [value-added tax] improve. Now I do know instantly you’re going to say, properly, that hurts the poor the most. But once more, the level is you don’t should have an exorbitant improve in the Vat fee to boost the similar quantity of income as a result of once more, you unfold this ache over tens of millions of taxpayers versus 100 000 taxpayers.
FIFI PETERS: That’s the similar defence that the chair of the financial transformation subcommittee, Ma’am Mmamoloko Kubayi mentioned, in the sense that Business Leadership South Africa, or enterprise, is advocating or proposing a rise in Vat. She mentioned precisely that – that this is able to put an additional burden on already burdened households.
I don’t know. How can we transfer ahead right here? Hugo, as you mentioned, sure, the long-term supreme is you’ve got an economy that’s rising, that is ready to create jobs. But for now, if the wealth tax will not be the method to go in accordance with yourselves and massive enterprise, if Vat will not be the method to go in accordance with the ANC and a few of the representatives there, what can we do?
HUGO PIENAAR: Something has to provide. If you make this expenditure everlasting – at present it’s R45 billion per 12 months, however the plan is to ratchet up that R350 quantity to R460 or R500 over time, which can simply add to this expenditure burden.
The Treasury has all the time mentioned in case you have a sustained improve in expenditure you may solely have that in case you have extra income. Just on the critique towards Vat, we should keep in mind that there are a variety of things which are zero-rated on Vat – specifically foodstuffs. Again, the poorest of the poor are already form of insulated towards a rise in Vat. So it might not be these people which are hardest hit by, for instance, a Vat improve.
But I believe the level we’re simply making an attempt to make is you may’t throw all of this on a wealth tax. Vat, we expect, could have – I all the time need to say, not even unintended penalties; it’s pretty apparent there might be penalties that can do harm to the economy if you happen to go that route.
FIFI PETERS: I hear the argument round the poorest of the poor, and I hear what you’re saying there, however usually individuals say we neglect about the center class, and the center class can also be having it fairly tough proper now – the cost-of-living disaster on account of inflation. We all know the excessive degree of indebtedness that that class can also be going through proper now. So how would they abdomen a rise in Vat?
HUGO PIENAAR: Well, you might be proper. But once more, these are the trade-offs that one must make.
The different choice, after all, if you happen to don’t need to go there, there are three choices.
You can increase taxes, which isn’t the preferable choice, however it might be inevitable.
You can reduce different expenditure, so that you spend extra on grants; however then it’s important to reduce one thing elsewhere. That may have opposed implications.
Or you may merely challenge extra debt or borrow the cash to finance these expenditures. And once more the monetary markets might baulk at that; our rates of interest might go up.
These are form of your three choices. The fourth choice could be, as I mentioned, to get a faster-growing economy, to get extra individuals into the tax web –
FIFI PETERS: Hugo, sadly I’m going to have to chop you off there. I believe we’ll [keep] speaking about this. Hugo Pienaar is chief economist at the BER.