Wealth tax no solution
The Change Starts Now party opted not to contest the forthcoming elections because of the Constitutional Court decision that 15,000 signatures are required by registering parties to participate (“Change Starts Now will not contest 2024 general election”, March 1).
Perhaps the prospects of the party were in any event poor, as argued by commentators. A key feature of its manifesto was that it planned to introduce a wealth tax. One wonders to what extent the party researched its implications.
Despite much debate over wealth inequality, little convincing evidence has so far been produced anywhere that wealth taxes work. They are complex and often have unpredictable outcomes and consequences. SA’s inequality is unquestionably alarming, but simply drawing income or wealth from the wealthy and allocating it to recovery programmes or lower-income groups is fraught with complications and risk.
For example, doing so could compromise investors’ role in our society and drive them to alternative pastures. With our top 500,000 taxpayers already paying half of all personal income taxes, any reduction in their numbers due to emigration would be disastrous for tax revenue.
Arguing its rationale from a patriotism perspective is challenging when considering how many have already emigrated because of SA’s many problems. There’s often a last straw that breaks the camel’s back.
Norway is one of the few countries that has a wealth tax. In 2022 it raised it from 0.85% to 1.1%, prompting numbers of its wealthiest people to move elsewhere. Research by the IMF showed that the (wealth) tax made the labour income distribution less unequal but lowered the Gini coefficient by only one point. This is not statistically relevant, and yet there has been material capital flight from Norway as a consequence.
Economic growth that creates jobs and increases the size of the economy is surely the greatest antidote to inequality? Obviously, it requires an investment environment that creates confidence for investors. However, a wealth tax is not the solution. It must have turned off many supporters who were initially attracted to Change Starts Now.
Trevor Munday
Via email