Emigration a red flag for SA’s economy
• Country has seen a fall in number of taxpayers earning R750,000 a year or more in the past two financial years as professionals eye greener pastures
The emigration of SA’s skilled professionals is a major risk for job creation efforts and the dwindling tax base and cannot be ignored by policymakers. On Tuesday, Izak Smit, CEO of the Professional Provident Society (PPS), a mutual financial services provider that offers products to graduate professionals, red-flagged the exodus of SA’s most skilled workers. Smit said that typically between 20% and 25% of professionals exiting PPS’s insurance business and the professional medical scheme cite emigration as their reason for doing so.
The emigration of SA’s skilled professionals is a major risk for job-creation efforts and the dwindling tax base and cannot be ignored by policymakers as the country battles Covid-19 and one of the highest unemployment rates in the world.
On Tuesday, Izak Smit, CEO of the Professional Provident Society (PPS), a mutual financial services provider that offers insurance and investment products to graduate professionals, red-flagged the exodus of SA’s most skilled workers, who not only provide tax revenues but support jobs across the economy.
Speaking to Business Day after a virtual discussion at the Economic Society of SA’s annual conference, Smit said that typically between 20% and 25% of professionals exiting PPS’s insurance business and the professional medical scheme Profmed, which PPS administers, cite emigration as their reason for doing so.
Last year, across PPS’s life insurance business, which covers about 130,000 professionals, about 600 of the 2,500 members exiting listed emigration as a reason for leaving, according to Smit.
“Emigration is a big risk that we must acknowledge,” he said.
Long-standing worry over SA’s crumbling education, security and health-care systems has been compounded by the violent unrest and looting that beset KwaZulu-Natal and parts of Gauteng in late July.
The flight of professionals — some of the country’s highest income earners — is also bedevilling SA’s already stretched personal income tax base, according to Jannie Rossouw, a professor at Wits Business School.
In the past two financial years the number of taxpayers earning taxable income of R750,000 a year or more declined by about 9,000. “SA is losing its tax base,” he said.
The expectation would be for this group of taxpayers to grow, if for no other reason than due to the effects of inflation, which would have pushed taxpayers earning below R750,000 a year across this threshold, said Rossouw.
Though there are other reasons for the decline, emigration is likely “a major cause”.
This comes against a backdrop of a host of ambitious policy proposals, ranging from the long-running national health insurance scheme to more recent discussions for instituting a basic income grant, all of which must compete for a slice of the government’s already stretched budget.
Though the imposition of some form of wealth tax has been proposed as a means to fund some of these initiatives and help pay for SA’s recovery, Rossouw said “the idea that the wealthy can be taxed infinitely more is not true”.
“They are leaving SA,” he said, adding that “these people are not sitting ducks, they are flying swallows”.
Along with concerns regarding security and uncertainty about the future, SA has overtaxed those with the ability to pay and they are getting little benefit for the revenue they provide, Rossouw said.
The recent commodities boom has granted the government something of a reprieve, thanks to a tax windfall estimated to be about R100bn.
This revenue overrun is set to continue into the 2021/22 fiscal year and enabled the state to allocate about R33.85bn for relief and recovery efforts after July’s violent looting, including the extension of the R350 relief of distress grant.
But Smit warned that commodities booms “do not last” and relying on this would be “very short-term thinking”.
“The answer is not in commodities, the answer is our people,” said Smit, arguing that SA needed to invest in human capital, particularly in its young population. The delivery on education in the past 27 years is something the government “should have got right by now”.
Though there is some evidence of professionals returning to SA, they are “very, very flexible” and it is not only negative factors that drive emigration but positive ones such as better career opportunities, Smit said.
After the unrest and looting in July, inquiries from South Africans interested in emigration spiked, according to Matthew Kellendonk, CEO of New World Immigration, an immigration advisory firm.
After being “inundated” by people wanting to know more about moving to greener pastures, the flood of calls has subsided, he said.
However, the company has seen an increase in people who have moved from making inquiries to starting the emigration process.
Though a large portion of interest came from the worst affected provinces of KwaZuluNatal and Gauteng, queries came from people across all demographics, ages and professions, Kellendonk said.