There are many arguments against a wealth tax. First, its administration is complex and expensive, and will undoubtedly spur capital flight from the country, weakening the rand and fanning inflation – which hits the poor the hardest. There are only 7.4m taxpayers, who have already been squeezed so much that some analysts believe local taxes are becoming destructive to the country’s tax base, which pays for social grants supporting 17m South Africans. Eventually there could be a disincentive to become prosperous through saving and investment, and many more wealthy taxpayers who provide the bulk of tax revenues will leave the country.
Global experience has shown that taxes on the value of property will hit pensioners and middle-class households hardest as they may not have the income to meet those requirements, given that the value of their homes would have climbed sharply over the years. This could lead to widespread sales of property, destabilising the market, or more borrowing, which would lead to higher levels of indebtedness.
One interesting point to make is that according to market research group New World Wealth, at the end of 2016, more than half of SA’s dollar millionaires were from previously disadvantaged backgrounds. Its figures also show that between 2007 and 2015 the number of white millionaires plunged by 42% while the number of previously disadvantaged millionaires soared by 179%. So the argument that most of the wealthiest people in SA benefitted from apartheid doesn’t really hold water.
Ring-fencing the proceeds of a wealth tax are unlikely to convince everyone as so much of the government’s money is wasted through corruption and inefficiency – according to the Auditor General, there was a 50% increase in “irregular expenditure” in the financial year ended March 2016, mainly because of weak supply chain management.
Lastly, a wealth tax will not address the real structural problems responsible for SA’s high rates of unemployment and poverty, and is likely to be seen as a populist ploy to help win votes for the governing ANC in the 2019 election. ■