Wealth tax among Mboweni’s options to fund SA’s budget

Budget-gap forecasts jumped even before the coronavirus struck.
Finance Minister Tito Mboweni. Image: GCIS

Finance Minister Tito Mboweni will have to find money to help the nation’s economy recover from its longest recession in three decades and bail out state companies in a budget that’s projected to record the biggest shortfall since 1914.

Mboweni will present the government’s revised spending framework for the next three years on Wednesday, four months after a supplementary budget that was unveiled to reallocate funds to help pay for a R500 billion stimulus package announced by President Cyril Ramaphosa.

A lockdown that was imposed to curb the spread of the coronavirus sent tax collections plummeting and even forced the ruling African National Congress to end its long-held resistance to borrowing from the International Monetary Fund. With a budget gap that’s forecast to reach 16% of gross domestic product this year, according to the median estimate of 23 economists in a Bloomberg survey, the minister may now be forced to lay the groundwork for tax increases next year.

The Treasury discussed the possibility of a wealth tax earlier this year and 30% of respondents in a Bloomberg survey see Mboweni signalling his intention to institute such a levy in February, even as South Africa’s ratio of tax revenue to gross domestic product is 26% compared to a global average of 15%. An advisory panel appointed by Ramaphosa said hikes to the fuel levy and estate taxes should be considered, as should a three-year “solidarity tax” that would boost income tax for higher earners.

“The Ministry of Finance finds itself in a very precarious position,” said Nazrien Kader, head of tax at Old Mutual. “It can’t do one thing: it has got to increase taxes, contain costs and stimulate economic growth to close that budget deficit.”

The cabinet has backed Mboweni’s plan to target a primary budget surplus by 2023-24 and this week’s budget announcement is expected to outline plans to cut government spending by 230 billion rand over the next two years. However, austerity could hinder the recovery of an economy that’s expected to contract by 8.5% this year, according to a separate Bloomberg survey. It could also face opposition, including from labor groups aligned to the ANC.

Plans to reduce the public-sector wage bill, which has climbed by 40% over the last 12 years, have stalled and the Treasury has warned a bid by unions to compel the state to honor a salary deal would lump the country with 37.8 billion rand of additional debt. The minister also faces pressure to find money to bail out South African Airways, arms manufacturer Denel SOC Ltd. and the Land and Agricultural Development Bank of South Africa.

The “government and the finance ministry are going to have an avalanche of requests in the coming months,” said Mike Schussler, chief economist at Johannesburg-based Economists.co.za.

What Bloomberg’s economist says…

“Finance Minister Tito Mboweni has tied himself to the mast with an ambitious plan to drastically cut expenditure and move toward debt stabilisation by 2023-24. We think the scale and pace of his envisioned consolidation is unlikely to materialise or put debt back on a sustainable path. Instead, it risks plunging the country into an even deeper crisis. A more credible strategy in our view, is big stimulus now, accelerated reform, and a credible commitment to cut expenditure when the recovery has gathered pace.”

© 2020 Bloomberg

COMMENTS   32

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

What about a reverse wealth tax?
Tax payers getting tax back for wealth destroyed by government mall-administration?
South Africans have been struggling to build wealth to keep alive in the years of retirement.
It is a lose lose situation for Tax payers.
We pay for everything, and if you by a miracle have something left then wealth tax takes it away.

They love to talk about a social contract. A contract implies give and take. If you are going to charge me Scandinavian levels of tax, what do I get in return?

Certainly not good policing, healthcare or education.

I then have the right to demand a drastic reduction in the bloated public alleged service’s grotesque wage bill, and active measures to address the elephant in the corner – unbridled population growth. No child grant without contraceptive injections, for example.

Failing which, as far as I am concerned, there is no contract and what the regime calls tax evasion is my way of, just like the regime, not honouring the contract.

Government is quicker to implement a wealth tax than to recover money stolen from government.
It is easier to punish law abiding and honest people than criminals?

There would need to be wide consultation on a wealth tax.

Are retirement funds part of one’s “wealth“? Johnny might be member of a state pension fund with R5m value attributed to him inside the fund, Mary might be private sector and intends selling her R5m JSE shares one day to retire.

Does a beneficiary of a trust that pays certain future expenditure list that benefit as wealth? Or will trusts be treated as individuals and taxed in their own right? If so, are companies also subject to a wealth tax?

Do past wealth taxes count toward credits on future estate duty?

There are a host of perverse outcomes of a wealth tax. A very VAT rate on very high value items would be more equitable. Eg no VAT on cars up to R300k, then sliding scale where VAT on R5m Ferrari is 25%.

Tax is starting to become like spaghetti in South Africa.

We are already super taxed and we spend so much time doing tax and keeping up up to date with changes.

It feels like our lives have all become just about tax tax tax!

Retirement funds would be an interesting dimension. The actuarial valuation of a GEPF’s defined benefit would put state employees right in the line of a wealth tax!

It is already taxed. You pay on the lump sum you receive as well as the monthly pension you receive afterwards.

In truth one would need to raise a liability against one’s retirement funds. So if I’m 50 then I can get an actuary to produce a table that says my retirement liability is say R4.5m and therefore my actual “wealth” is not the R5m I saved up, but the net R500k

Does SARS have the expertise to accurately determine somebody’s net wealth? How long will this take for 3m taxpayers?

I believe the usual process it that it takes just long enough to hide it if anyone is requested to provide such information.

Wealth taxes (apart from CGT donations tax and estate duty) are just not workable – Wealth tax on what??? Buildings, land, shares (private and listed), assets in trusts, pension/provident/RA funds, offshore assets and Crypto? Reckon we will see an increase in estate duty/donations tax + capital gains tax (all wealth taxes) – Sad really as as the taxpayers did not ruin the economy 🙁 – Maybe tax state employees more??? 😉

“There are a host of perverse outcomes of a wealth tax”

Good point. It’s like onion layers; once initiated, so easy to conjure up new ones

Its usually the final stages of a mouldy regime

South Africa is bankrupt after years of looting by the ANC. Now the government’s solution is to increase taxes and created new taxes to bring in more revenue no matter how unsustainable it will be over the longterm. But raising taxes won’t ever fix the problems we face. Government needs to implement difficult structural reforms reducing expenditure, including reducing the bloated public sector and SOEs. More business and energy friendly policies must be implemented now. If the necessary action isn’t taken quickly, South Africa’s future will be very gim. We will soon turn into the next Zimbabwe and Venezuela with mass unemployment (+90%) and starvation.

All you need to do is recover corruption monies. That’s all.

A better solution would be to recover the stolen funds from the state and throw these people into jail. Place all politician in the ANC and their lackeys in the metro’s and muni’s in a straight 50% of gross earnings tax rate and kill perks tax for all of them.
I as a pensioner have no means to increase my pension yet the tax man has every avenue possible to him to increase my tax and there is zero value in return for my payments – the state is filled with nothing more than a gang of thieves

How much would clawing back from idle public servants on full pay generate? Public sector wage bill for fiscal year ended March 2020 = R629bn. Granted, not all were idle and most were not idle out of choice but there is a fair and equitable solution.

Just stop paying them for the next 6 months, in solidarity with the private sector.

Honourable Minister Mboweni how are you doing this fine morning?

Honourable I thought we were going to close the mouth of the hippo so me and the boys had bought some veterinary surgery grade thread to seal that mouth with stiches. A more humane approach was to sew up the rear end of that hippo so that it keeps eating and bursts its own tummy since it cannot pass out its number two excrement.

After a few drinks of hooch me and the boys could not come to an agreement of whether sewing up the mouth or the other end was best. We are aggressively patriotic and propose inventive ways of defending our father/mother land.

Is my name on the wealthy targets list? Whose name in next to mine as in before and after? How can I get off the wealthy Saffers list? For okes like me everything is for sale.

The wealth tax is nie lekker nie. Me and the other billionaires will hire tax experts and hide our money from you and tell you to go make your own. Honourable, wealth is an emotional thing and we will find clever ways of avoiding it as you know.

The strongest response will be from my neighbour Jandre who will relocate to Perthfontein for his wealth preservation strategy. He is baie gatvol, baie kwaad and sommer baie.

Please check my name at the bottom of this reply. If you tax me and the boys for being wealthy we will stop being entrepreneurial and there won’t be jobs for the unskilled and semi-skilled. Then you are gonna have a big problem. We will be all poor together; some of course faster than others. Its called a race to the bottom.

My buddy Jan thinks you are digging a pit to fill another pit and Nelmarie says you are kicking the can down the road.

I cannot get my mind off the hippo. Should we consider slaughtering that hippo and not the options of closing either the front or the back of that hippo?

Let me leave you to it; this is your job after all.

I think I am getting sober and need some more hooch.

Wealthcraft

An enjoyable read!

Perhaps start with a fire pool tax !

So the gangster state are at it again! Trying to find other sources of revenue so that the looting continues.

The Guptas are still partying up a storm in Dubai after stealing billions from the state. The Zuma’s are still walking around scot free. They can shove their wealth taxes where the sun don’t shine. No ways I am giving them any additional money beyond paying normal taxes.

I already pay wealth tax – it’s called PAYE.
The more I earn, the higher my percentage tax.
That tax is mostly wasted in bottomless black holes like SAA, SABC, corruption and plain theft by cadres etc.
Mr Minister, have you ever heard the fable about the golden goose?

You forgot about ESKOM the biggest black hole of all.

Go after the looters.

Great Idea! I am all for a wealth tax, because, let’s face it, the old money has left for Perth, Ontario, Lisbon and Valletta. The members of the Tripartite Alliance are the new healthy elite in South Africa. Cosatu members are the privileged elite who use the labour laws to extort privileges from businesses and taxpayers. The employees at SOEs, municipalities and government departments are the new “minority capital”. Let the new wealthy elite and the politically connected cadres fund their own salaries through a wealth tax. SARS can help the members of the Tripartite Alliance to chase their own tails.

A “wealth” Tax is all but impossible to implement in practice , with due respect.
The ANC,s aim I suspect will go after high earners who are much easier to find .
Increase VAT by 2% : Everyone will kick and scream for a while but thats the way to go : The “rich” is this country are already ovetaxed and in addittion prbably dish out R100 p.day at every traffic light one stops at :

There is nothing left to tax. We are taxed to death already and receive nothing in return. I live in JHB and the schools have gone to crap, squatters live in any empty vacant land. I am getting sick and tired of these criminals and their socialist policies which have destroyed this country. I wish I could open my eyes and this so-called rainbow nightmare would end. This is going to end very badly for all of us and the media is playing its part in lying to us and selling us the crap. There should be public outrage and we should be marching on parliament demanding that they all get out. I hate this government with a passion.

We are already paying a wealth tax, in the form of Estate duty, Capital gains tax, Tax on Interest earned above R23800 received in a given tax year, Dividends tax and then Tax on our Properties we own as well.

What’s the problem now????

These idiots did not need any tax from cigarettes or alcohol or anything else they just closed?? And SAA must fly!!

These idiots are thick man thick!!! It is almost unbelievable.

..taxes never hurt the pockets of regimes like the ANC

So they don’t care. For the ANC, governing RSA is like playing monopoly. It’s a game where they are cheating everyone else out of pocket

Higher taxes are inevitable however the form that they will take is really the question. They will probably further tax the real estate as its something that can’t be hidden and it is easy to seize in the event of non-payment – third world countries follow that approach so it shouldn’t come as a surprise when its implemented.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
NEWSLETTERS WEB APP SHOP PORTFOLIO TOOL TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: