Taxing South Africa’s Wealthy More, Won’t Reverse Inequality

The argument by the Organisation for Economic Cooperation and Development (OECD) that tightening South Africa’s wealth tax regime would rebalance generational inequality has a fundamental flaw: it targets a “flighty” base, says an expert from the African Tax Institute. Economists Isabell Koske and Falilou Fall, from the OECD, make the case that there is scope to reform South Africa’s wealth taxes framework, while also advocating for an upward adjustment of the country’s value-added tax (VAT) rate. The latest OECD Economic Survey of South Africa says that improving the tax system and reducing spending inefficiencies would help to put public finances on a more sustainable path, while taking action to revive productivity growth would help to revive GDP growth and raise living standards. If needed, the tightening of monetary policy should continue to allow inflation – which disproportionately affects the poorest households – to return to the Reserve Bank’s target. It is also vital to intensify efforts to raise the country’s low COVID-19 vaccination rate to reduce the health and economic risks from future outbreaks. In parallel with fostering economic activity, the tax system could be made more progressive and efficient at raising the revenues needed to reduce the budget deficit and finance investments. For example, the allowances and deductions in personal income tax that tend to benefit high earners could be reduced while wealth transfer taxes and estate duties could be adapted to limit the transmission of wealth inequality. Once inflation has abated, there is room to raise the relatively low VAT rate, balancing that with increased transfers to low-income households.

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