Minister of Finance Enoch Godongwana. Picture: X/GovernmentZA There have long been rumours that become even more common around budget time that the minister of finance will institute a wealth tax to increase government revenue, with many detractors of this move explaining how it will drive the people who pay the most tax out of the country. Well, we can all relax, because there will be no wealth tax.
This good news comes from the minister of finance, Enoch Godongwana himself, when he answered a question from uMkhonto weSizwe party MP Brian Molefe in parliament recently. Molefe said the Medium Term Budget Policy Statement (MTBPS) claims to prioritise low-income households while simultaneously increasing reliance on regressive taxes such as the fuel levy, overdependence on personal income tax, and refusal to introduce wealth taxes that could reduce inequality. He wanted to know what rationale Godongwana then had to provide for a tax policy framework that disproportionately burdens the poor and working class while shielding the wealthiest 1% who control more than half of the economy of the Republic.
Godongwana pointed out in his reply that South Africa has a progressive income tax system, in which tax rates rise as taxable income increases. “Taxpayers earning above R750 000 pay over 60% of all personal income tax, while making up only 12% of the tax base.” These are thepeople who can also afford to leave the country when they believe they are paying too much tax. In addition, he said, South Africa also taxes wealth extensively through estate duty, transfer duty, donations tax and securities transfer tax.
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“The percentage contribution of these taxes to gross domestic product (GDP) is larger than the Organisation for Economic Co-operation and Development (OECD) average. “International experience has shown that a comprehensive income tax system such as South Africa’s, which also taxes capital gains, is far more effective at raising revenue than taxes specifically targeting wealth.” Godongwana said it is important to consider the impact of the overall spending and tax proposals contained in the budget, which are progressive and not necessarily a single instrument in isolation. “The more effective tools to help achieve distributional objectives are personal income taxes, which are highly progressive and spending programmes, while other tax instruments focus on achieving efficiency and revenue goals.
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