This article was first published by Business Day on 19 January 2025
Efforts to increase the tax burden on already over-taxed South Africans will not help our floundering economy and will only serve to further stifle economic growth. The R22 billion tax shortfall has caused the National Treasury to seek new plans to raise additional tax revenue. Unfortunately, rather than focusing on creating more wealth through sound economic policy, the government if fixated on further burdening the existing taxbase with more taxes. Including the ideologically motivated Wealth Tax.
The National Treasury is already planning to drastically increase taxes, remove tax incentives and enforce compliance in 2025. While the increase in the number of VAT zero-rated items is welcome, and combatting illicit financial flows should be a given, the general increase in taxes will not help South Africans.
Increasing corporate income tax to 28% will only chase away profitable companies who are needed to create jobs and produce wealth. And continuing to target high-wealth individual who already pay tax with even more taxes on their wealth, inheritances, estates and luxury imports will just chase away these valuable taxpayers.
Additionally, removing tax incentives like medical tax credits, and well-earned tax breaks will not raise revenue. It will only make taxpayers more resentful and chase them away.
Only 3 million South Africans pay 90% of income tax. On top of this, we are burdened with a host of other invasive taxes. Taxes on savings and investment, on what we purchase locally and from overseas. We’re taxed for working, our employers are taxed for allowing us to work. We’re taxed when we commute to work through the fuel levy. We’re taxed when we die, and our heirs are taxed again.
We pay a host of tariffs and duties on goods from overseas, and the companies we purchase goods from are taxed again and again, increasing the cost of their goods. And our savings are taxed unofficially as the Reserve Bank increases the money supply, eroding the value of our money through inflation.
The most heavily taxed among us have to pay over 45% of their income already. And now, the government wants to increase this tax burden with a new Wealth Tax, while reducing tax breaks and actively incentivising avoidance.
And the worst thing of all: despite our heavy tax burden, South Africa has little to show for it. Very little of what is publicly budgeted is spent properly. Money disappears into corruption, incompetence and overpaid public staffers.
It is no wonder that many South Africans don’t want to pay tax. They work hard, having to pay extra for private healthcare (which the government wants to destroy), and private security (as the police do nothing), and then have to foot the bill for a minister’s new fleet of BMWs.
There are four times as many social grant recipients as there are taxpayers. The National Treasury estimates that it will spend R266.21 billion on social grants in the 2024/2025 tax year. A massive expense funded by a dwindling tax base.
Over-taxation holds back economic growth. Not only, as mentioned, does an overly large tax burden with little to show for it breed resentment and capital flight, increased taxation actively extracts wealth from more productive members of society and effectively destroys it.
Corporations who create jobs, produce valuable products, and invest into creating more wealth for the country end up losing money to corporate income tax which could ideally be used to grow their operations. In a country with massive unemployment, we need to enable employers as much as possible. Not just take their money to throw into a corruption pit.
Removing medical tax credits also actively multi-taxes individuals. Already, taxpayers are funding a failing public healthcare system, while also paying for their own private healthcare that pays its own tax. By not even giving a bit of an incentive to these individuals, the government is burdening taxpayers over and over.
The government’s obsession with chasing high wealth individuals is also fraught with ideological malice. High income earners already pay more tax than anyone else. That’s how percentages work. Even if a millionaire was to pay 10% tax, they are still paying more than the vast majority of South Africans. A sliding scale tax rate, often called a progressive tax rate, is unequal and unfair, and belies a complete misunderstanding of basic mathematics. A wilful incompetence that governments embrace in order to extract more wealth from their citizens.
Increasing the tax burden on South Africans, no matter how rich, will not help grow South Africa’s wealth. If anything, it will only shrink our growth prospects. Rather, we need to focus on producing wealth and growing the economy.
Instead of trying to chase a few rich, white whale taxpayers, who can afford to escape the country if the tax burden becomes too great, policymakers must focus on implementing free market friendly policies that will lead to enabling more and more people to become taxpayers.
Imagine if the millions of unemployed became tax compliant. Not only will their lives improve, as they get jobs and income, their spending will further increase the profits of companies who pay their own tax. Millions of additional individual in the workforce, earning and spending, will produce an insurmountable amount of tax revenue – incomparable to the petty, ideologically driven attack on a few wealthy individuals.
On top of this, the government has to cut spending. Fruitless and costly endeavours like the planned NHI must be scrapped. Expensive parastatals must be privatised. The vast majority of government departments and ministries must be scrapped. An approach to cost-cutting similar to Argentina’s Javier Millei will go a long way to balancing the budget. And that is how we improve South Africa. Create wealth, don’t tax it.
