Tax the wealthy to address SA’s high inequality, Piketty urges
02 October 2015
Posted by: Author: Ntsakisi Maswanganyi
Author: Ntsakisi Maswanganyi (BDlive)
SA should explore options to address its high levels of inequality, including creating an annual wealth tax or a tax on individual net wealth, says world-renowned French economist, academic and author Thomas Piketty.
"I think creating an annual wealth tax with a very low tax rate will be a way to create more transparency about who owns what in SA," Prof Piketty said at the Nelson Mandela Foundation in Johannesburg on Thursday.
He is in SA to deliver the annual Mandela lecture.
The idea of a wealth tax has sparked furious debate in many countries.
SA could have done better than it has in addressing inequality since the advent of democracy 21 years ago, Prof Piketty said. He called for more transparency on the effectiveness of policies such as those promoting black economic empowerment in addressing inequality.
"We discuss about the impact of black economic empowerment policies, but we have no data. This puts strong limits on what kind of democratic conversation and discussion we can have and I think creating an annual wealth tax will be a way to have more transparency, even if it comes with a very low tax rate," Prof Piketty said.
The country could also do well to improve land reform and redistribution to address the high levels of inequality.
Instead of more radical options, "peaceful" policies such as land reform and distribution created more equal societies from which development and growth occurred in the decade after the Second World War.
"Many successful development experiences in Europe and also in Asia did at some point in their trajectory use land reform and other forms of direct redistribution of property much more than SA did," Prof Piketty said.
SA should also stop using unemployment as an "excuse" as far as inequality was concerned, he said.
"The levels of inequalities we see in SA are not simply due to high unemployment."
Setting a minimum wage, investing in skills development and education, could also help address inequality. "The national minimum; I think that’s an important tool to reduce extreme wage inequality," Prof Piketty said.
SA is debating a minimum wage, although some business organisations are against it, saying it disadvantages small businesses as they may have to retrench workers so as to afford the minimum wage.
But Prof Piketty’s suggestion of a wealth tax is likely to spark intense debate in SA.
Deloitte head of tax Nazrien Kader said the consideration of a wealth tax has already been on the table for two decades since the Katz Commission addressed it.
The commission recommended against it on the grounds that it was inappropriate because the South African tax system already taxed wealth at different stages.
Capital gains tax, estate duty, and donations tax were all different forms of wealth taxes, Ms Kader said.
The Davis Tax Commission is also tasked with investigating wealth taxes.
"What foreign commentators often fail to take sufficient cognisance of is that there is a small pool of taxpayers that are actually paying tax," Ms Kader said.
"The South African tax system already places the burden of tax on high-income earners and it is accepted because there is an appreciation for the inequality in our system. Foreign theorists should firstly understand our unique position and the burden South African taxpayers already bear."
Prof Piketty’s bestseller book Capital in the 21st Century suggests measures to address inequality including, among others, taxing the rich more and distributing to the poor.
He could not say whether he would be meeting any government representatives while in the country, but said he was a "polite" person who responded to invitations extended to him.
This article first appeared on bdlive.co.za.