Exodus limits Tito’s options

South Africa’s loss of skilled and high earners could limit room to raise income taxes as the Treasury seeks to plug a budget shortfall that’s above wartime levels.

A fourth-quarter estate agent survey by FNB shows more than fifth of all houses valued at R2.6 million or more that were put on the market by the end of last year was because people planned to move abroad.

This could further erode the tax base in a country where fewer than 14 million individuals in a working-age population of 39 million are registered taxpayers and where those earning more than R1 million a year pay 40.2% of all personal income levies.

For every high-net worth person who emigrates, an average of R1.2 million in income taxes disappears from the system and the spending, Value-Added Tax and economic activity they generate is also lost, said Bernard Sacks, a partner at Mazars.

The small tax base is a symptom of South Africa’s extreme inequality. Today, chief executives and top lawyers make as much as R20 million a year while the official minimum wage is just over R20 an hour.

High-income South Africans are finding homes abroad through residency and citizenship programmes. A family of four must donate $200 000 (about R2.9 million) or invest $320 000, including administration fees, in a government approved real-estate project to qualify to become citizens in Grenada, which is very popular now, said Nadia Read Thaele, founder and managing director of LIO Global, a residency and citizenship consultancy.

The statistics office stopped collecting data on self-declared emigrants in 2004.

Finance Minister Tito Mboweni will present the 20212022 budget on Wednesday and emigration could complicate plans to raise an additional R40 billion in revenue over the next four years.

A wealth tax has been mooted several times in the past two decades to boost the standard of living of the country’s poor.

Last year, an advisory panel appointed by President Cyril Ramaphosa said a three-year “solidarity tax” that would raise income tax for higher earners should be considered.

While a World Inequality Lab study shows a wealth tax on the net worth of SA’s richest could raise as much as R160 billion annually, it may push more high-income earners to leave. The Treasury said in October recent tax increases generated less revenue than expected.