Avatar photo

By Lunga Simelane

Journalist


Taxing the rich to pay for income grant no answer to funding development in SA

An economist says wealth tax to enable people to survive is not a long-term solution.


The ANC’s idea of taxing the rich to pay for the Basic Income Grant (BIG) will not solve the fundamental problems in the South African economy or society at large, say experts.

The Sunday Times reported yesterday that a proposal to the party’s commission dealing with economic transformation was made.

“BIG can be regarded as a mechanism to promote equity and thus a wealth tax can be a mechanism through which revenues can be raised to fund a BIG,” it was mooted.

ALSO READ: Basic income grant is a recipe for financial disaster

Econometrix chief economist Azar Jammine said “to tax the rich” to enable people to survive was not a long-term solution and would not address the fundamental symptoms of the problems in South Africa and the high levels of inequality.

“In a very short term, it may be a solution to prevent the government from having to borrow too much money to fund social grants,” he said.

With SA part of the top 50 countries with the highest taxation rates, Jammine said, if such a scheme were introduced, it would depend on who they would tax very highly and if these were to be limited to the “super wealthy”.

“But they [the wealthy] do not take kindly to it [taxes]. One of the reasons they are super wealthy is they have gone around and found ways to avoid to pay as much tax, even legally,” he said.

In South Africa, there were nearly 50% of South Africans who relied on social grants.

Jammine said there was no question the availability of social grants for almost half of the country’s population was an important reason why, in the context of unemployment, there had not been any widespread social unrest.

“It was something enabling them to survive,” he said.

READ MORE: Basic income grant almost certain to mean higher personal tax and VAT

“This was a short-term solution and what was needed to be done was to improve the educational and technical qualifications of people to assist in society,” he said.

Jammine said the reports released for alternative ways to fund the basic income grant would not resolve the main problems.

“I am not sure what kind of tax they are talking about but taxing the wealthy would not bring anyone near as much money as is necessary to fund the basic income grant,” he said.

Political analyst Dr Ntsikelelo Breakfast said this was a policy issue and the ANC was not diagnosing the problem properly.

Breakfast said this was something which had emanated from the late Archbishop Desmond Tutu, who argued part of the reconciliation should be taxing those who might have acquired wealth during the apartheid.

Breakfast said there were a lot of people against the idea of too much tax and the main question was would it translate into development for the majority if the ANC government forged ahead with this conception.

“I feel like that would not translate into the improvement of the likes of the people,” he said.

READ MORE: Basic income grant could boost ailing economy

“The government of the day does not recruit the cream of the crop. We need more money to go into the fiscals but there might be a backlash from the business communities.”

As day three of the ANC policy conference concluded yesterday, Breakfast said the problem was repackaging of ANC policies into decent bureaucracy.

“The country’s bureaucracy, in which people were appointed on grounds of political affiliation, needs to be professionalised,” he said.