That’s rich! Well-off must pay even more
Don’t feel too sorry for top earners hit by the increase in top tax rates. The new level is well below what some people argue is fair. In any case, the rich will find ways to minimise their real contribution to the fiscus
Finance minister Pravin Gordhan is giving 103,000 lucky, and fabulously rich, South Africans a greater opportunity to promote the sort of meaningful transformation that will “allow us all to say we all own our economy”.
Those 103,000, who were probably well represented in the well-heeled audience (including MPs) that sits in on the minister’s budget speech each year, earn an annual taxable income of over R1.5m. Their tax rate has been upped to 45% and is expected to contribute an additional R4.4bn to the fiscus in 2017/2018.
This means the total contribution from our super-rich will be R126.9bn, which is slightly more than 10% of government’s total revenue for the year.
Not bad for just 1.4% of the 7.4m South Africans who pay tax. Add in a higher dividends tax hit (up to 20% from 15%) and those among the super rich who smoke, drink and drive a lot might be feeling hard done by.
But don’t feel too sorry for them. The same 103,000 are part of the 10% of the population that owns 95% of the country’s wealth. And if all 103,000 of them did actually pay the full additional amount, the extra contribution to the fiscus would be closer to R7bn than the R4.4bn treasury is working on.
Because Sars knows the super-rich have access to lots of options as well as tax consultants who will be able to whittle down their liabilities, it has been modest in its expectations on this front.
Exactly how modest they should be will probably depend on how well Gordhan is able to persuade them of their critical role in transformation. In addition, he will have to convince them he is making some progress in cutting back on government wastage and corruption.
The super-wealthy won’t want to hand over their hard earned dosh to a bunch of wasters.
Gordhan told a press conference before his budget speech that he had not received input from the CEO Initiative on the introduction of the new tax bracket.
Seeking input from various interest groups is not what the budget process is about. But, said the minister, treasury has its antennae out to listen and decide what is reasonable. In passing, he referred to suggestions that 65%, rather than 45%, might be more appropriate.
What will inevitably be termed a “wealth tax” is a key part of the budget balance Gordhan has to strike between fending off ANC politicians intent on looting the fiscus and seeming too chummy with those who might be tagged (inappropriately, given that a large number of the 103,000 are probably not white) part of the white monopoly capital cabal.
The belief that the 45% tax rate will bring in only about 63% of what it could assumes not only more aggressive tax-avoidance measures but also that some of the 103,000 are mobile and will head off to friendlier tax jurisdictions.
Certainly there will be much whingeing and special pleading by a group that has easy access to the media. And it may be that when the dust settles, many of the 103,000 have headed off. But chances are they will over-egg their complaining.
In the US, where the threat of moving is routinely used to restrain tax, policy research has shown the rich are actually unwilling to move even between states to reduce their tax liabilities, let alone out of the US altogether. And despite all the huffing and puffing, there’s also little international evidence of correlation between economic growth and the level of top
That Gordhan’s top tax rate is modest by international standards is important to those (most of us) who believe a tax system should be fair. Taxing the rich will certainly seem fair to those who believe the state (including the previous state) has conferred privileges on the rich.
A 65% rate might offend the notion of fairness — except in the case of war breaking out.
Anyone who has made their weary way through Thomas Piketty’s book, Capital in the
Twenty-First Century, will have noted the only time in the past 100 years that the leading global governments, on the right and left, managed to tax the rich at previously unimagined levels was between 1914 and the 1970s.
The two world wars were not only remarkably traumatic events, the mass mobilisation that underpinned both led to previously unheard-of demands that the rich should also suffer.
The extension of the vote across the globe ensured these demands were heard by new democratic governments.
In parliament on Wednesday, Gordhan made no mention of war, but he did paint a picture of a country balanced between radical transformation (combined with economic growth) and conflagration.
In times of war: Demands that the rich also suffer