Nicola Mawson. Picture: Matthews Baloyi Nicola Mawson. Picture: Matthews Baloyi
I can well imagine Finance Minister Pravin Gordhan’s thought process when he decided to impose a so-called wealth tax. Taking from the rich to give to the poor isn’t a novel concept: that’s where we got Robin Hood from.
It’s about an inclusive, transformative economy in which all have a decent job, a decent house and the sort of education that allows people to either be gainfully employed or gainful employers.
It’s this sort of vision that South Africa has been chasing since the dawn of democracy. And many people feel the dream is a mere mirage.
Heck, unemployment reached its highest level in 13 years just last December before tapering to 26.5 percent.
That’s more than a quarter of South Africa’s working age population who are unemployed, and not able to contribute to economic growth, or tax collection.
In fact, Gordhan noted in his Wednesday speech that lower salary hikes and bonuses last year, coupled with unemployment, were among the reasons tax collection fell R30.4 billion short of what was anticipated in February.
The government is also going to have to borrow R149 billion - or 3.1 percent of gross domestic product (GDP) - to fill the gap between what it spends and what comes in.
And this comes at a time when Gordhan is trying to keep government debt to below 50 percent of GDP, a target that the minister expects to be met in the next three years - it’s currently 50.7 percent, or R2.2 trillion.
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Gordhan really urgently needed to fill a R28 billion hole in the budget as well. A hole that was pointed to last October, before the revised tax collection figures came in.
He can’t - seemingly - cut any more fat from the government wage bill, which was out of control a few years ago, but has now stabilised.
He can’t raise VAT beyond 14 percent even if we are, compared to many other countries, running at a lower rate.
Gordhan is also making a substantial effort to root out corruption. In fact, when noting South Africa will spend R1.5trln over the next three years on services and goods, he pointedly said: “Let me say that a little differently. We will pay about R500bn a year for the delivery of goods and services. Not transfers, or hand-outs, or cash distributions. The purpose is to acquire the infrastructure and operational inputs required for effective service delivery.”
That means more clamp-downs on graft.
Hiking the fuel levy and sin taxes are obvious solutions, and happen every year.
But, I suspect, Gordhan needed to do something a bit different this year. Something that, perhaps, he felt politically obliged to do in light of former Eskom boss Brian Molefe’s secondment to Parliament.
He imposed a so-called wealth tax. A tax the ANC has been calling for for years, a call it reiterated in October 2015.
Now, everyone who earns more than R1.5 million a year will pay 45 percent of that to the state.
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And, he plugged a potential loophole: “Increasing the top marginal rate without concurrently raising the dividend withholding tax rate would increase the arbitrage opportunity for some individuals to pay themselves with dividends rather than salaries.
"The government therefore proposes to increase the dividend withholding tax rate from 15 percent to 20 percent.”
So now 100 000 South Africans will pay more in tax. Previously, the highest tax bracket was for those earning R701 301 and more, and they paid R206 964 in tax, as well as 41 percent on any income earned above that threshold.
National Treasury’s Budget Review document was almost apologetic about higher taxes, noting the burden it places on South Africans who are battling in a difficult economic climate - GDP is projected to grow at 1.3 percent this year, up from a mere 0.5 percent last year.
However, Gordhan notes: “By acting now to stabilise debt, we will ensure that future generations will not pay for today’s expenses, 20 or 30 years from now.”
And that’s why he went that route: we have to do something. And we can’t tax the poor two years before elections; especially not when our job may be on the line. (Although, ever the stoic diplomat, Gordhan has said he’s not indispensable.)
And, yes, the economy is skewed. Badly.
Captains of industry will tell you that it’s a capitalistic economy, that they earn their keep, and deserve to take home money I can only gawk at.
Both these arguments have merit, and I’m not getting into them either.
My concern is whether this move will chase away the very people we need to invest in this country; the people who drive investments.
Especially since the National Treasury pointed to a lack of private sector investment as one of the key impediments to economic growth in the short-term in its documents.
I don’t think this was such a long-term smart move.
It’s like trying to hold back a flood with bandaid.
Nicola Mawson is the online editor of Business Report. Follow her on Twitter @NicolaMawson or Business Report @busrep.