SA COULD LEARN FROM ITS NEIGHBOURS

The objective of ‘free higher education’ is to promote social mobility – an upward movement of households or their members from, say, poverty to a higher income bracket. And yet some people do not appreciate its role in addressing inequality.

I was recently involved in a discussion on Africa’s economic ills, from leaders who cling to power and never want to let go to the relevance of economic, social and political institutions.

We zoomed in on South Africa and spent time discussing the antidotes to inequality, which at the current trajectory seem to be the straw that will break the camel’s back, as it were. The panel had been in unison that inequality is a scourge that needed immediate attention. Divergence was on the solutions.

Among the proposals was the introduction of a wealth tax, an instrument advocated by French economist, Thomas Piketty, the author of Capital in the Twenty-First Century. Some strongly argued for a wealth tax. I did not agree. Why?
South Africa has virtually all the various forms of wealth taxes.

These include capital gains tax; property taxes; donations tax; estate duty; dividends tax; securities transfer tax; and transfer duty. My view is that an annual wealth tax, as proposed by Piketty, would be double taxation and, therefore, it would burden taxpayers. It would result in capital flight and reduced tax revenue – exactly what happened in France, Piketty’s native country. In late 2012 France introduced a 75 per cent wealth tax targeting the country’s highest earners i.e. those earning more than 1 million a year.

In 2013 French authorities realised that the rate had resulted in reduced tax revenue of 16 billion, instead of the 30 billion they anticipated. In 2015 French authorities reduced the top marginal income tax rate back to 45 per cent. Needless to say, another reason for the volte-face was because a number of wealthy taxpayers had left the country.

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