High tax ‘will wake rich into getting involved’
Hold government accountable, says activist
FINANCE Minister Pravin Gordhan had South Africa’s super rich wincing this week with his announcement that those earning R1.5-million per annum, or more, would be taxed a whole 45%.
They are not alone. There are about 20 countries where the tax rate is above 45%.
According to KPMG, such a tax rate is not out of the ordinary in developed and developing countries. These include Denmark, Chad, Spain and Ivory Coast, which all collect above 40% tax from their highest earners.
But what do taxpayers get in return?
In Denmark and other Scandinavian countries with tax rates above 50%, the government offers free schooling.
There is also free health and dental care for under-18s and all parents get personal benefits of up to R16 000 each year for child allowance.
It’s a far cry from the South African child-support grant, which is only for parents who either don’t work or earn in the lowest tax bracket, which is just below R4 000 a year.
Besides free primary, secondary and tertiary education, students who do not live with their parents receive a stipend of more than R10 000 a month from the state.
“Many countries with high tax rates ensure their public services are of the highest quality. In many minds high tax equals good public services. But it’s not the same here as the rich have created parallel societies where they don’t have to use public services and hence [the services] are not improving,” said activist and chartered accountant Khaya Sithole.
The latest tax increase, he said, could be the wakening the rich needed to hold the government accountable for poor services.
According to the website of data provider Trading Economics, Zimbabwe taxes top earners more than 50%.
The country has long provided free primary and secondary education. In 2014, Zimbabwe’s literacy rate was ranked the highest in Africa. BUDGET BUDDIES: Finance Minister Pravin Gordhan, right, receives congratulations from Deputy President Cyril Ramaphosa, left, and President Jacob Zuma after he delivered his budget speech this week The government was on its way to mandating that tertiary education also be free but because of the economic meltdown dozens of schools were closed and recently unemployed parents were asked to pay some of the costs.
KPMG says Spain takes 45% from its top earners but the country’s healthcare system ranks among the best in the world, according to the World Health Organisation.
Most Spaniards don’t pay for private medical aid because insurance in that country covers care from doctors and at hospitals, as well as 40% of prescription medication.
Sithole said South Africa’s new tax bracket would bring about a new consciousness where the rich would no longer have the option of not using public sector services that included education and healthcare. “Only when the rich feel the pinch and have to go to Baragwanath Hospital and see the condition it’s in will they hold the government accountable for better services, because then everyone will have to use the service,” said Sithole.
Another high income tax country is the Republic of Congo, where top earners must fork out 50% to the state. According to the International Monetary Fund, the Congo has high poverty rates and even though there are some social improvements, such as access to better education, there are many goals it still cannot achieve.
In this regard, it is very much like South Africa.
The rich will no longer have the option of not using public services