Debates about the tax burden and who funds SA’s expenditure programmes have been deeply problematic
A week after finance minister Tito Mboweni tabled the 2021 Budget Review a strand of debate emerged that was neither about fiscal sustainability nor reigniting SA’s economic growth. I picked this up from 702 Breakfast host Bongani Bingwa, quoting research from consulting group Econometrix.
The research emphasised two aspects of the tax system: that only 6% of South Africans pay as much as 92% of all personal income tax and 85% of all VAT, and that 7-million people out of a population of 60-million fund SA’s expenditure programmes.
However, the framing of the data and the debate that followed the research publication is deeply problematic and academically flawed. It suffers from recency bias or is plain dishonest in recognising the real problem these tax statistics show. That is, wealth and income inequality, the origins of which were legislated by the government through the 1913 Land Act and the 1953 Bantu Education Act, among other things. The democratic government has not been able to reverse this.
Let me explain my thoughts, taking my facts from the Treasury. There are 14.1-million individuals registered for tax purposes, 51% (7.2-million) of whom earn less than R80,000 a year or R6,700 a month, which makes them exempt from paying tax. The University of Cape Town Liberty Institute calls this group the “survivors and ultra-poor”. A further 25% (3.5-million) earn between R80,000 and R250,000 a year, the so-called skilled strugglers, who account for 8% of the tax payable. Combined, that is already 76% of taxpayers who are struggling, merely surviving or ultra-poor.
The next group, which accounts for 16% (2.3-million) of those registered for tax, earn between R250,000 and R500,000 a year and pay roughly a quarter of total income tax. These are the lower middle-income class, who have monthly earnings of between R20,000 and R42,000.
Graphic: KAREN MOOLMAN
The remaining 8% pay 67% of personal income tax. They each earn more than R500,000 a year. If we split this group further the point about income inequality really hits home. Half of the individuals in this group earn between R500,000 and R750,000 and contribute 17% of income tax, while the other half earn more than R750,000 per year and contribute 51% of total payable tax.
Taken out of context, these statistics reveal an unfair tax system where 8% of registered taxpayers earn 42% of income and pay 67% of income tax. First, this shows that the quoted statistics are misrepresented, which is dishonest academically. Second, the unfairness is not towards those who pay the lion’s share of income tax; it is to those who either do not earn or earn too little to contribute. This is no fault of their own. It is due to historical legacies that have kept them in the shadow of unjust laws, which the government of the day has not done enough to reverse.
The last obvious and silly misrepresentation of statistics is the point that 7-million people fund SA’s expenditure programmes. About 16-million of the 60-million population are children, disabled or elderly, who receive social grants and should therefore not be included in the tally.
In the context of a budget that aims for fiscal sustainability by constraining government spending largely through the wage bill, providing income tax relief to consumers and incentivising the private sector to invest with the planned reduction in corporate income tax to 27% beginning in fiscal year 2022/2023, the debate should be properly located. How does SA become a dynamic economy that generates economic growth, jobs and income and enables those in the margins of the economy to accumulate assets so they too can contribute a meaningful share to the tax system?
After all, fiscal policy is a function of redistributing income in an economy from those who earn to those who do not earn. Those who earn should make every effort, with the desire and effort of those who do not earn, together with the government, to unshackle the chains of income and wealth inequality. Until that happens SA will remain in deep trouble.