Let them eat macaroons
financial year tallied just over a trillion rand. The treasury estimated an additional R43-million would be needed to meet spending obligations.
The finance minister has proposed a hike in capital gains tax, ranging from an increase of between 2.75 and 5.49 percentage points. This means individuals and special trusts would pay 16.4%, companies 22.4% and other trusts 32.8%.
Davis suggested that the marginal tax rates should also go up by three or four percentage points.
That would still not be enough. “Frankly, we are going to need to increase VAT,” Davis said.
A potential hike in VAT is hotly debated. Critics, including organised labour, argue it is retrogressive because a VAT hike means the proportion of income that poor people spend on this is higher than that spent by the rich.
But Davis argues that a hike in VAT isn’t retrogressive if the resultant revenues are spent properly.
“This country has to start thinking laterally to reduce inequality,” he said. “The idea of you can’t increase VAT for any reason or purpose is ridiculous. If you can ensure it results in better transport and better healthcare and better education, there is a case for it.”
When it comes to corporate income tax, there is scope for higher revenues. At present, the notional rate is 28% and often bemoaned as being one of the highest in the world. But the effective rate — what companies actually pay — is thought to be much lower. Exactly how much lower it is remains unknown and is the subject of an ongoing study by the tax committee.
Davis said a 1% or 2% hike would not scare corporates away. “It’s all about certainty and whether we can ensure delivery on what we have promised. If they think they will make a return, they will do business here.” Ultimately the issue is: “We can squeeze more money out of the system but that’s not good enough. We need things to work on the other end,” he said.
On the expenditure side, the tax and transfer system the government has been using — through the social wage, which includes social grants, housing, education and medical benefits — has brought down South Africa’s Gini coefficient (a measure of inequality) but it remains the most consistently unequal society in the world. Without the social wage, Davis said, it would be even worse.
But there have been missteps in spending too, said Davis, and South Africa requires the political will to ensure that additional tax revenues are well spent.
The tax committee has produced reports on VAT, estate duty, mining, small and medium enterprises, base erosion and profit shifting, and the carbon tax. It has most recently called for submissions on funding the proposed National Health Insurance scheme.
Davis said he hoped the committee would complete its work in the next 12 months or so. “It’s enough now. It’s time to start implementing.”