Let them eat macaroons
While the rich are living it up in Davos, the Davis Tax Committee is trying to get a grip on inequality
he world’s super-rich swanned around a luxury ski resort in the charming Swiss town of Davos. They sipped champagne and nibbled on macaroons while trying to get to grips with the threat of rising inequality.
The World Economic Forum (WEF) has identified this as the single largest global risk in 2017 and the issue finally has world leaders in designer suits sitting up and taking notice, especially as it has started taking its toll on the developed world.
The growing gap between rich and poor was a key reason for the citizens of the United Kingdom to vote to leave the European Union and, undeniably, it was also a major factor in the unprecedented election of Donald Trump as the 45th president of the United States.
Globally, more and more literature, such as Thomas Piketty’s
suggests the tide is turning against the Washington consensus of low marginal tax rates and the broadening of the tax base.
In South Africa, one of the most unequal societies in the world, inequality is at the heart of the biggest issues faced by the nation. It is a problem inherited from apartheid, which greatly skewed levels of income and wealth along racial lines.
Tasked with the unenviable job of figuring out how to bridge the gap, and having lost a few hairs over it, is Judge Dennis Davis, who is the chairperson of the Davis Tax Committee.
It was established in 2012 and given a broad mandate to look at the appropriateness of South Africa’s tax system. Specifically, it was also required to look at what role the tax system can play in promoting inclusive growth and to narrow the gap between rich and poor.
Speaking to the this week, Davis said the tax system can promote equality “depending on what you tax and how you use it”.
Striking a balance is important. “We must consider how much we can actually tax without sending the economy into a tail spin, but also how much do we need in order to deal with the core issues like health and education.”
Taxing the rich is an obvious place to start, he said, suggesting that estate duty, capital gains tax and marginal or income tax rates can, and should, all be hiked.
But such Robin Hood-style tax policy is subject to a great deal of contestation. “I’m struck by the mean-spiritedness [of people],” he said.
“There was a settlement in 1994 in which wealthy people did pretty well out of it. They got through the system,” he said.
He described attitudes to wealth taxes as “appalling”. “I find it shocking there are people telling me we can’t increase estate duty, capital gains tax shouldn’t be higher, that the marginal tax rate shouldn’t increase. Why not? Quite frankly, we should be paying more tax and we should be spending more [on the poor].”
Capital knows no race, he said. “People who accumulate vast money and wealth struggle to understand the plight of the heaps under them.”
The tax committee has recommended to the finance minister that estate duty be raised from 20% to 25% where the taxable value of the estate exceeds R30-million, although South Africa’s estate duty is already fairly high compared with many other developed and developing nations. (See chart)
But taxes on the super-rich, such as the proposed higher estate duty, will not be nearly enough. “That’s the astonishing thing,” said Davis.
“I don’t think it will bring in more than three, five, six billion rand.”
Tax revenues in the 2015-2016