Wealth Tax to fund Basic Income Grant (BIG)?

Written on 08/10/2022
MJ Minter Inc

There have recently been calls for a wealth tax to fund BIG. While it is readily acknowledged that South Africa is the most unequal society in the world, The implementation of a wealth tax is not that easily achieved. The Davis Tax Committee in its final reports recommended the following:

Firstly, a comprehensive wealth tax cannot be successfully introduced until a comprehensive picture of wealth is obtained hence the recommendation for SARS to collect better information on wealth.

Secondly, a significant amount of wealth is held in retirement funds. It is hardly progressive to tax workers savings as part of a wealth tax hence the need to obtain better information on wealth and deal with the issue of retirement funds to enable the formulation of a definition of wealth that will form the basis of a workable comprehensive wealth tax.

Thirdly, precisely because the Davis Tax Committee shares the view that steps must be taken to deal with the disastrous patterns of inequality that the report recommended a significant expansion of estate duty to be implemented immediately given that estate duty is already an existing wealth tax.

SARS has started gathering the data required to make an informed decision. As per the third point above, SARS has already implemented an increased Estate Duty rate of 25% on estates over R30 000 000. This does not leave much scope for increased taxes on the existing tax base.

A recent report by Intellidex on the viability of introducing a BIG concluded as follows (for the full report see https://www.intellidex.co.za/reports/what-funding-options-are-possible-for-big/)

Much of the modelling in this paper looks at just trying to raise an additional ZAR50bn or ZAR100bn of revenue. Given the newest propositions for a BIG are more like ZAR300bn the sheer impossibility to fund this within the current tax base becomes all too apparent. This is equally true regardless of what the social wage spending option is.

A key takeaway we think here is that there is precious little room for any additional spending at all – and so what it is and why it is chosen is exceptionally important. This of course is not to say that the proceeds of reform and future higher potential growth causing the tax base to expand cannot be spent on the social wage – including even a BIG if that is the political choice (though still balancing it vs healthcare etc would be a key choice). One must be realistic however on when such tax base expansion will credibly happen.

We will keep you informed of developments in this regard.