Almost two-thirds of South Africans agree with taxing the rich at higher rates to fund government programmes that benefit the poor – especially those that support the youth.
This is according to the latest Afrobarometer survey data, led by the Institute for Justice and Reconciliation (IJR) and Plus 94 Research, which interviewed 1,600 South African adults – a sample size that yielded a 95% confidence level of representativeness.
While the survey does not draw a solid line on what respondents consider “wealthy”, the survey is in the context of a recent study by the Southern Centre for Inequality Studies at the University of the Witwatersrand.
The study indicated that just 3,500 individuals possess 15% of the country’s wealth, while the top 1% own 55% of the nation’s wealth. It also highlighted that 50% of the population lives from hand to mouth, with virtually no savings cushion.
The IJR noted that while some argue that taxes are already high enough for the most affluent, others see the introduction of a progressive wealth tax as a viable policy measure to curb extreme wealth inequality and to expand the government’s revenue base to ensure fiscal sustainability.
According to the institute, a wealth tax could generate between R70 billion and R160 billion annually, equal to 1.5%-3.5% of gross domestic product (GDP).
Interestingly, the Afrobarometer survey data shows that most South Africans support this sentiment.
On the fairness of different levels of taxation, close to two-thirds (64%) of respondents said it is fair for the rich to be taxed at higher rates than ordinary people to help pay for government programmes to benefit the poor, while only 27% disagreed with this approach.
Around one-third of the respondents (32%) believe wealthy South Africans are paying the right amount of tax – at elevated levels above what ‘ordinary’ citizens pay – while another third (34%) say the rich should be paying more tax.
A significant portion (40%) of the same group believes that ordinary South
Africans are paying too much tax.
Additionally, only 39% of citizens agreed that the government should make small traders and other people working in the informal sector pay taxes on their businesses.
In the context of widespread unemployment and gross inequality, these findings suggest public support for the government to explore new avenues to expand the tax base to finance its development agenda and respond to pressing socio-economic needs.
This support has not gone unnoticed, and in 2022, the Department of Social Development conducted a study that showed turning the current social relief distress (SRD) grant into a permanent basic income grant can be accomplished – if personal income taxes (PIT) on the wealthy are hiked to pay for it.
The study considered four simulations and found that PIT hikes on the wealthy were the best option and described as “highly distributive”.
An SRD grant funded by raising the income tax of top earners would raise household spending, wages, and economic growth and reduce inflation, all while reducing the number of households living below the lower-bound poverty line by 15% within two years, the panel said.
However, of those that supported the higher rates imposed on the wealthy, 70% indicated that the tax revenue generated should be spent on programmes to help the youth, while only 21% opposed this view.
If the government decided to increase its spending on such programmes, job creation (53%) would be citizens’ highest priority for additional investment, followed by education (23%).
A wealth tax is a bad idea
A wealth tax has populist appeal, but it has many problems, including being difficult to execute, damaging the economy, and raising little revenue, economists have warned.
According to Daily Investor, Bureau for Economic Research economist Hugo Pienaar said there are only 133,000 super-wealthy South Africans with a taxable income of over R1.5 million.
“Trying to raise R45 billion for basic income grants alone from 133,000 wealthy taxpayers will require an exorbitantly high tax,” he said – adding that such a tax will encourage many wealthy individuals to leave South Africa and move their businesses to tax-friendly countries.
Eunomix chief economist Claude de Baissac echoed this sentiment, noting that South Africa is facing a growth collapse and is too dependent on tax revenue from wealthy citizens, who are leaving in droves.
Data from New World Wealth and Henley & Partners shows that approximately 4,500 HNWIs have left South Africa over the past decade, and a wealth tax would exacerbate this number.
What’s more concerning is that as of the start of 2023, the National Treasury revealed that 29 million South Africans receive grants, with only 7.4 million taxpayers.
This included 18 million South Africans receiving state welfare grants while 11 million rely on the state’s R350 grant.
“We are the only African country giving almost half its population grants. No other country in Africa takes care of its people as we do in South Africa,” Ramaphosa said.
So, instead of lowering the number of grant recipients, the ruling party wants to give more people larger grants.
This is evident in the recent call to increase the SRD grant from R350 to a minimum of R413, with a plan to increase the grant progressively until it reaches the current food poverty line of R663.
While Ramaphosa boasts about the millions of grant recipients, economists warn that it creates an unsustainable economic scenario.
“The government’s finances are already unsustainable, and adding a large and permanent new spending programme will only make it worse,” said Centre for Development and Enterprise (CDE) executive director Ann Bernstein.
Bernstein warned that there is a high price for higher taxes, which includes slower economic growth and less employment.
“The slowdown in growth will make the rest of the government’s spending even less affordable than it is now, and the consequences will be terrible for the poor,” she said.