If we disaggregate these figures we find that there are about 4.3-million people with taxable incomes in excess R70,000 a year. These individuals account for 99.9% of the total personal income tax. However, if we disaggregate the data further, we find that there are 1.3-million people with taxable incomes in excess of R350,000 a year. These individuals account for 61% of the total personal income tax take. It should be clear that a vanishingly small number of individuals bear almost the entire weight of the SA state on their weary shoulders.
The evidence tells us that the best way to achieve economic and political objectives is not always obvious. Raising taxes on the small group of individuals at the top of the income scale may seem like a “fair” proposal, but there are many unintended consequences. Chiefly, high-income individuals are mobile and may choose to live in a more favourable tax environment. If they decide to remain in SA, a higher tax rate will reduce their incentive to start a new business and invest in this country’s human capital, and may even cause them to financially emigrate.
Higher rates of economic growth are a more certain means to increase the national tax base. History has demonstrated that economies that allow their entrepreneurial and hard-working citizens more freedom to use their skills to the best of their ability and earn a worthwhile reward tend to grow faster and prosper. The best way to “stimulate” growth is to allow people to work, save and invest.
Unfortunately, labour policies in this country discourage the hiring of low and unskilled workers. High marginal tax rates and other pernicious taxes discourage savings and investment. When we combine all taxes, many people are paying upwards of 50% of their annual earnings. Typically, these are the individuals who would fund new investment in the economy, which, in turn, would create essential and desperately needed new jobs.
Taxing productive individuals and companies to redistribute wealth reduces the incentives to produce goods and services and retards growth. History has demonstrated that it is economic growth that is the key to reducing poverty and expanding opportunities for the unemployed, and not the simple redistribution of wealth.
• Urbach is an economist and director at the Free Market Foundation, where he heads the health policy unit.
This article was first published in City Press on 13 February 2019