Wealth tax is a lousy idea
ROLLING BACK INEQUALITY: IT TRULY ALREADY LIES IN OUR HANDS
Taxing the rich is not the only way to reduce inequality; the government has several measures easily within its grasp that can boost from the bottom up.
The Davis Commission is investigating new wealth taxes, mostly motivated by the tried and trusted inequality refrain. In a recent speech, Minister of Finance Malusi Gigaba also quoted from an Oxfam report which states that only three people have the wealth of the bottom 50% of the population.
The question has to be how SA compares to the rest of the world and what it should do about it.
Well, the Oxfam report is based on the Credit Suisse wealth report and there are some facts in the report that the minister and Oxfam did not make public.
Better than Denmark
SA has a more equal wealth distribution than Denmark (89.7) and Sweden (83.3), the US and the world average. The world Gini is 92.7. SA stands at 83, while even Norway is at 80, for example.
Yes, significant inequality exists in SA. We have the 32nd most unequal wealth distribution in the world, which mirrors what is seen in many other countries. At least 20 more countries fall within three points of our wealth Gini coefficient.
Moreover, South African per capita wealth has declined in US dollar terms over the past five years and is ongoing. South Africa median wealth was in the top half of countries 10 years ago and we have slipped to the 92nd spot.
So perhaps SA should not aim to only redistribute the wealth, but also look at how we can grow wealth.
Taxing wealth does not distribute it well, as the Swedish and Danish examples show. In fact, government should let the notion go that wealth must be more fairly distributed.
How to fix the South African wealth distribution
Wealth is made up of two main assets: housing and financial assets. They can be distributed without raising a single extra cent of tax.
Housing in SA is already widely distributed. About 63% of households own their own home. This places SA in the top 40 countries as regards homeownership rates measured after 2010.
Then, a further 14% of households stay in government housing, ownership which can be transferred to them. This alone would increase homeownership to 77%.
As the director-general of agriculture recently stated, African farmers get access to land but not the title deeds. This prohibits them from full title and real finance. It also says that the government does not trust these farmers but complains about unequal land distribution. This represents about 4 000 farmers, equal to 10% of commercial farmers.
Title deed
Furthermore, households who live in traditional areas represent about 8% of all households. They generally only have a permission to occupy. This system should be changed to full ownership via a title deed. This means that without any additional costs or expenses, SA’s home ownership rate can jump to 85%.
We’d be among the top 10 countries in ownership terms!
Moreover, SA already has probably the highest ownership of second homes in the world, as fully 22% of all African households claim to have a second home.
Perhaps SA could even transfer plots in informal settlements to strengthen those communities too. Again, only administrative costs would have to be incurred. Combining the above could put SA into the top three homeownership rates in the world!
Financial assets are spread better than survey data suggests.
The recent Intellidex report states that black economic empowerment (BEE) within the top 100 JSE-listed companies in 2015 was valued at R350 billion.
If this amount was viewed as pension assets, it would be the 10th largest pension fund in the emerging country universe of about 60 countries. The average value per adult in the labour force alone would be three times the average of the rest of the emerging market per labour force wealth!
After Nigeria and SA, the total BEE asset value is as big as the next three African countries’ pension funds combined.
More than 11.4 million people are beneficiaries of these BEE companies.
Changing hands
If these beneficiaries were changed to shareholders, it would take one stroke with the administrative pen to change the wealth distribution of financial assets in the country.
Change the taxes to make employee ownership easier and encouraged. That would also spread the wealth further and increase ownership and probably productivity. This could help at least 10% of households become owners of financial assets they did not have before.
Another option is to list stateowned companies and give every South African citizen shares.