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Government wastage — the Achilles’ heel of a wealth tax

Government wastage — the Achilles’ heel of a wealth tax
Stephen Grootes
By Stephen Grootes
11 Nov 2024
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Confirmation from the National Treasury that it is considering what a national ‘wealth tax’ might include may kickstart another series of debates about our racialised inequality. Despite many promises from the ANC over the years, no such tax has been implemented. But, coming as it does amid more debates around a basic income grant, and during a coalition, it is likely that this idea could gain some currency. But in the end, giving a government that wastes money more money to waste is probably counterproductive.

On Monday, Business Live reported that National Treasury officials had confirmed in Parliament they were examining the implications of a national wealth tax. As a starting point, Treasury acting head of tax and financial sector policy Chris Axelson said they are now working with SARS to understand the levels of wealth and thus, “We will be considering a wealth tax as we get that data from SARS.”

The ANC has said many times that it would consider implementing such a tax. In 2015, this writer felt compelled to say that despite many promises and conference decisions, “there is almost nothing new in this debate”. 

This was because there was still no definition of “wealth”. And it was unclear then whether this would apply to wealth in terms of assets, or wealth in terms of income.

One of the major questions around such a tax is the major aim. Would it be a statement of social solidarity by the rich for the poor? Or would it be to help the government help the poor?

For those who believe the wealthier should show social solidarity with their wallets, they are likely to be met with the response that our tax system is already very progressive.

Those who earn over roughly R1.8-million, already pay 45% of their income in tax. They might well argue against such a tax.

The argument that the government needs more money and thus the rich should pay more than they do now could be problematic too.

SARS commissioner Edward Kieswetter has confirmed that more than R800-billion that should be taken in by SARS is not. In other words, there is R800-billion that the government should receive every year, but doesn’t.

There are many reasons for this. 

These would include the fact that much of our economy is now illicit and takes place informally. 

It is well known that SARS had its compliance machinery decimated during the Zuma years, and while it has staged a remarkable recovery, much know-how and many resources were lost.

Read more: The great wealth tax debate: How to fund a constitutional state

Other things have changed since 2015 too.

Perhaps the biggest shift has been that during the State Capture era, people lost more faith in the state. The legitimacy of the government was undermined by then president Jacob Zuma and others.

As a result, more people are likely to spend more time and energy trying to evade tax. In short, they do not believe that giving money to the government is a good investment.

Considering how often corruption stories still make headlines, it's be difficult to blame them.

Something else that has changed is that one of the countries that famously had a “wealth tax”, has now repealed it.

India had a wealth tax from 1957 until it was repealed in 2016. It was replaced by a 2% surcharge on what is described as the “super-rich”. 

It is also taxed on income and not on assets, which may well be a starting point for discussions about such a tax here.

Political implications


Now that our politics has become more competitive, it is difficult to see if political parties would really win more votes through such a tax.

The DA and the FF+ would obviously reject such a tax – their constituencies would demand it.

While the EFF and MK might well promote such a tax, in both cases opponents would claim their leaders are corrupt and have made money from corruption.

And to make matters more complicated, both Julius Malema and Zuma have had problems with SARS in the past.

In 2014, Malema was found to owe SARS more than R16-million. He has never satisfactorily explained the source of this money.

Zuma was reported to have received a salary from security company owner Roy Moodley while he was president, which is against the law.

Any big debate about wealth taxes might well lead to their opponents demanding to know if they are tax compliant now.

Read more: The great wealth tax debate: Heed the 60-million South Africans, rather than the 100,000 wealthiest

The situation for the ANC might well be much more complicated.

On paper, the party is automatically pro-poor, and thus should support such a tax. Obviously, this has been a policy position of the party for many years.

But one of the core groups the ANC needs to win votes from is the black middle class.

While many in this group might support such a tax, some may not. They might well argue that they first had to overcome economic apartheid to get to where they are, they currently pay “black tax” to help relatives, and now would have to pay another tax on top of that.

All of this means that the ANC might have to weigh up whether this move would win or lose the party votes.

Failing the poor


Within this is another big discussion, about whether giving the government more money would really lead to an improvement in the lives of the poor.

As the Auditor-General points out with boring regularity, unbelievable amounts of money are wasted by the government.

As a result, the idea that taxing the rich more to better provide for the poor runs the risk of falling flat on its face.

But that does not mean the idea of a wealth tax as a statement of social solidarity does not have immense power. Certainly, if those who propose a wealth tax were to argue in that way, that it would be a statement and a recognition by the rich of their place in our society, its critics might find it almost impossible to oppose.

Read more: Closing the inequality chasm — the pros and cons of imposing a wealth tax in South Africa

But this entire discussion is revealing about another issue in our politics. Which is that the government, despite all the promises, is not working for the poor.

It is they who suffer the most from a lack of services, who do not get the grants they are entitled to, and who are often ignored by officials.

It would be irrational to assume that giving the government more money would fix these problems.

And it may well be this simple point that makes a wealth tax politically impossible. DM

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