More calls to hike taxes in South Africa to fund grants

 ·17 Dec 2023

The Institute for Economic Justice (IEJ) says the government should increase taxes – especially for the wealthiest of South Africans – to fund a Basic Income Grant (BIG). IEJ believes this would boost GDP growth by 2.2%.

Speaking at a webinar last week, Dr Asghar Adelzadeh, the co-director of the Economic Modelling Academy at GIBS Business School, presented three ways of funding a BIG that had the potential to help take millions of South Africans out of poverty, reported City Press.

The IEJ noted that a BIG would be a grant provided to all eligible South Africans between the ages of 18 and 59 over eight years, adding that receiving the BIG should also not impact a person from receiving any other adult grants.

According to Adelzadeh, the grant can be funded through a 1% wealth tax on the country’s top income earners, based on the individual or household’s net wealth in terms of income and assets. He estimates that a 1% wealth tax would generate revenue of about R70 billion.

Adelzadeh also proposed other ways, such as a social security tax (similar to UIF) and an increase in VAT, or a combination of all three.

“Social security tax is a simple structure that applies a flat social security tax to people’s wages/salaries up to a taxable maximum of 2.5%,” he added.

“The combination of an increase in VAT revenue and this increased introduction of a half-percent and 1% wealth tax will allow the government to finance the growth cost of the BIG scenario,” said Adelzadeh.

A warning

While the IEJ proposals and estimates may be technically feasible in their calculations, they assume many of the wealthy people in South Africa would stay despite the tax increases, which renowned economist Dawie Roodt says is not the case.

Additionally, although a 1% increase seems harmless, the IEJ has also suggested the government increase taxes, borrow more money, and consider implementing a wealth tax instead of cutting government spending to tackle the national fiscal deficit.

Adding to this, many believe the only way the government will generate enough money to fund the controversial National Healthcare Insurance (NHI) scheme would be through increased taxes.

Roodt has often noted that this is a dangerous game to play.

According to Roodt, only 1.12% of taxpayers (roughly 163,702 South Africans) pay 30% of total personal income taxes in the country, while 19% pay a whopping 87% of total personal income taxes.

Additionally, a staggering 0.09% of corporate taxpayers (only 770 companies) pay 62.5% of total corporate income tax, with 4.4% paying 95% of total CIT.

“This means the country has an alarmingly narrow tax base, which is a massive concern for the state’s finances. You cannot increase this.

“If this increases, the tax base will collapse as many of the 1.12%, as well as businesses, will simply leave the country – which they are already doing,” said Roodt.

Read: Why doctors in South Africa would rather shut their doors than suffer the NHI

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