Investigating a new wealth tax in South Africa: Lessons from international experience

Abstract

In recent years, there has been an increasing focus on new sources of taxation, including wealth tax. In South Africa, two phenomena have driven the focus on wealth tax. Firstly, the need for additional tax revenue to fund an ongoing and growing budget deficit, exacerbated by a prolonged period of low economic growth, rising government debt and a very small base of individual taxpayers. Secondly, the fact that South Africa has one of the most unequal societies in the world. The dual demands of increased tax revenue and economic inequality have converged around wealth tax as a possible panacea to both problems. Although South Africa has a long history of wealth transfer tax in the form of estate duty and donations tax, there has never been a tax on the net wealth holdings of individuals during their lifetime. Internationally, numerous countries have used wealth tax in various forms, including inheritance tax, gift tax, recurrent wealth tax and non-recurrent wealth tax. This study examines some of the international experiences with these three categories of wealth tax, seeking lessons and experiences that can inform the debate around the viability of a new wealth tax in South Africa.

Wealth Inequality in South Africa—The Role of Government Policy

“…Through turning public enterprises profitable, revenue can be employed to invest in public-private ventures to increase labour market absorption. These results are similar to the findings of Lentz and Tranaes (2005), Dickens et al (2017), Arendse and Stack (2018), Padayachee (2019), andBond andMalikane (2019).…”

Intergenerational wealth inequality and transfer in shared socioeconomic pathways A case study of South Africa

“…According to latest available data from the World Bank, the Gini index in South Africa was at 63 in 2014, the largest among 83 countries with an estimated Gini index 1 . While historically, most studies have focused on describing and analysing income inequality (Leibbrandt et al, 2012), wealth inequality and its pervasiveness in the South African society has come under scrutiny only very recently and as part of a broader debate over government fiscal policies in response to historic inequalities and recent COVID-19 related economic hardship (Arendse and Stack, 2018;Chatterjee et al, 2021). Using historical records of tax micro data, household surveys, and macroeconomic balance sheet statistics, it has been shown that the top 10 per cent own 86 per cent of aggregate wealth in South Africa and such high levels of inequality in wealth distribution has stayed unchanged since the transition from apartheid to democracy (Chatterjee et al, 2020).…”

“…Using historical records of tax micro data, household surveys, and macroeconomic balance sheet statistics, it has been shown that the top 10 per cent own 86 per cent of aggregate wealth in South Africa and such high levels of inequality in wealth distribution has stayed unchanged since the transition from apartheid to democracy (Chatterjee et al, 2020). Some studies have suggested that imposing a wealth tax could address underlying economic inequality and tax deficits to some degree (Arendse and Stack, 2018). However, the feasibility and effectiveness of such policy proposals highly depend on the future socioeconomic and political development in South Africa which will directly impact the wealth creation, accumulation and…”