Balancing the Books – Create Wealth Through Opportunity

Jack Bloom MPL

DA Gauteng Caucus Leader

Redistribution of wealth is a common call in South Africa.

It’s understandable because of our history where one section of the population was privileged under apartheid.

So differences in wealth still largely coincide with race, although this is blurring over time.

Statistics show that South Africa is one of the most unequal countries in the world.

According to a recent World Bank report, the top 10% of the population accounted for 58% of South Africa’s income.

The bottom 10% accounted for just 0.5% of income, and the bottom 50% less than 8 percent.

This leads to calls to take from the rich to give to the poor.

Taxation is the main method to achieve this in modern states.

There are close to six million registered individual taxpayers in South Africa, but the real number is much lower.

Many don’t submit returns because they don’t have income, and low-income earners pay minimal tax.

It is estimated that about 2.1 million taxpayers pay 92% of all income tax and 1.4 million pay 82% of all income tax.

They also pay in one way or another the lion’s share of other taxes that fund the state, including VAT and company tax.

So there is already a large amount of redistribution of income from a small pool of richer people to poorer people.

If tax rates were raised further it wouldn’t necessarily raise more income.

Tax avoidance would increase, and more wealth would be shifted out of the country, including by emigration.

The gripe of many middle-class taxpayers is that they get few services for their money. Hence they pay for private health, education and security.

Increasing company tax would also be counter-productive. It would discourage job-creating investment, and extra tax costs would be passed on to consumers.

There is actually a good argument for lowering tax rates, especially for small businesses.

Companies with fewer than 50 workers account for 68% of employment in South Africa.

Most new job creation will come through small firms, not the large established companies.

Small and medium enterprises created 80% of new jobs in America in the past ten years. In India, the figure is 90 percent.

Boosting small businesses would help overcome the huge divide in South Africa between the employed and the unemployed.

Our focus should be on broad-based growth that will be a rising tide to lift all boats.

This is far better than the schemes in which redistribution occurs in a stagnant or shrinking wealth pool.

Large-scale nationalisation will merely enrich the politically-connected, leaving the poor even worse off as job-creating investors flee.

Black Economic Empowerment schemes as presently designed also lead easily to elite capture that harms the poor.

Hence ANC secretary-general Gwede Mantashe’s outburst against BEE companies to stop using the state as their “cash cow” by providing poor-quality goods at inflated prices.

He gave the example of a school costing R20 million instead of between R5m and R10m in the private sector.

In Limpopo, forensic auditors found a company that charged a provincial government department R500 for a broom.

Let’s avoid these rip-offs and help those who really need help through broad-based opportunities to create extra wealth for all.

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