Wealth tax pointless if wasteful expenditure continues

March 16, 2017
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The general consensus regarding Minister Pravin Gordhan’s 2017 budget is that it is well-balanced, professional and the best that could be done under challenging circumstances. Whilst this is true, it remains hard not to be somewhat disappointed with the national economic trajectory.

With a marginal tax rate of 45% for individuals earning above R1.5m per annum, we are reaching the ceiling with respect to how much more can be squeezed from individual tax payers. The long-term solution for SA is not to keep increasing the tax burden on this minority of top earners. With the current levels of inequality in SA, a wealth tax would seem fair and appropriate if government could be trusted to use the extra money wisely, however we have recently seen that additional proceeds are not being used to redress inequality – they are captured to feather the nests of corrupt politicians. The appointment of Brian Molefe as an MP further demonstrates the lack of accountability and consequence for those implicated in corruption.

Minister Gordhan has found additional sources of revenue through taxation of sugary beverages, sin taxes and fuel levies, but this is not enough to cover budgeted expenditure. So, whilst the budget deficit will grow at a slower rate, it is still growing and that is problematic. We need to grow the tax base by creating more jobs and SMEs. The growth SA needs is likely to come from SMEs, but we need to start doing more to support this segment. Government procurement is one area that could have a significant impact and so is corporate procurement through Enterprise and Supplier Development programmes.

However, the most significant omission from the current political narrative and budget is a focus on the NDP. This is an economic strategy hailed by most as the way toward prosperity and inclusive economic growth. It is a robust and well-conceived strategy, but remains no more than that until a serious effort is made to implement it. Instead we now hear populist talk of “radical economic transformation”, with little substance as to what that means and how it will be achieved.

Government will also need to consider how it will decrease its wage bill. Our government has the odious distinction of being world leaders with respect to the percentage of GDP that it spends on itself. Given the size of our economy, we are paying too much for government wages. This statistic is even more concerning when one considers the poor levels of service delivery and competence of our highest ranking public officials.

If we are serious about an economic turnaround, we need to get serious about stopping leakage from our fiscus. Increasing the tax burden on our minority tax base makes no difference when the proceeds from those increased taxes are lost through corruption, and wasteful expenditure. The budget disappointed in that it did not address measures to improve the skills of public servants to drive efficiency, nor did it speak to how government intends to weed out corruption. The additional revenues accrued from a wealth tax pales in comparison to the amount of money being squandered every year.

SA has enormous potential – many of our challenges are not unique within the global context. We are a relatively small contributor to the global economy and are more affected by external forces than anything that transpires in parliament. However, if we are to poke our heads above the herd of emerging economies as an attractive value proposition, we need to get our people to work and the engine of our economy churning – this won’t be achieved by taxing 103 000 top-earning individuals 4% more.

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