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Should inheritance law persist?

Thoughts on approaches to containing the effects of intergenerational inheritance on the perpetuation of inequality: Constitutional law expert Pierre de Vos.

DUDUZILE RAMELA: The transfer of wealth between generations increases inequality and makes it more persistent across generations. That’s according to constitutional law expert, Pierre de Vos. In South Africa he knows that the problem has a racial dimension, and suggests it’s time to start the process of re-imagining how we deal with the transfer of intergenerational wealth. He joins us this evening for more on the article that he penned. A very good evening to you, Pierre. Thank you so much for joining us.

PIERRE DE VOS: Good evening and thanks for having me.

DUDUZILE RAMELA: I’m curious as to how this came about.

PIERRE DE VOS: Well, I was thinking, given the current protest that is sweeping the world, [related] to, of course to the Black Lives Matter movement. People always ask: “If you have privilege, as a white person especially, what can one do about it?” And one of the things that I picked up when I read Thomas Pikkety, the famous economist, was about how wealth generates more wealth, and how inheritance is a way of perpetuating – not only perpetuating but increasing – inequality. One way of doing that is to limit the ability of people to inherit from their parents. That’s how I developed an argument around that, to start debate about what should be done about this.

DUDUZILE RAMELA: And you also note that some steps that should be taken would be to abolish the system of intergenerational inheritance – or at least to heavily tax intergenerational inheritance and donations. The devil is in the detail – and how.

PIERRE DE VOS: Yes, of course. I am not a tax expert. I have done some research about countries where there is very heavy taxation on inheritance. It’s been going the other way around, in the sense that the taxation has been going down. But countries like Japan, for example, they had an upgrade in tax of 65%, obviously the idea being that if you are a child or whoever of somebody with some wealth, you shouldn’t just get something for nothing, because that is not how meritocracy is going to work.

DUDUZILE RAMELA: You also note here that inheritance provides for the intergenerational transmission of inequality.

PIERRE DE VOS: Yes. There’s a lot of material on this. Pikkety’s book is one of them. But also if you go on Google’s scholar, and you look at those economy articles, there are thousands of them. And the argument is that there are a lot of benefits that come to people whose parents have some wealth. Some of them are …… benefits; so your parents can help you to get an education, they buy you your first car, they help you to furnish your house. All of those benefits are theirs.

But then there are often the benefits that come from inheritance that you transfer to your own children, if you have children. What’s happened is rich people or people with some capital become more rich; for poor people there is a ceiling. Some academics, some scholars call it a kind of “class ceiling”.  In South Africa there is also the racial dimension, but there’s a class ceiling which makes it very difficult for people to break out. So if you are poor, even if you go to university, you are not going to catch up on average with somebody whose parents have already some wealth.

DUDUZILE RAMELA: How do you answer somebody that says, well, I hear what you’re saying – that the issues of inequality need to be addressed in South Africa, “but that has got nothing to do with what I have worked so hard for?”

PIERRE DE VOS: I would say that, of course, it’s good to work hard and to earn money. And you should enjoy your money. Of course, within the tax framework, you’re already paying a lot of tax because the principle that you have to share your wealth is established. We all agree with it because we all pay the tax. But I would say that you are going to die, and then you no longer can enjoy that wealth.

And so the question is: Is it morally acceptable for somebody who has not worked hard for the money, such as children, to get that money for free? If you believe in meritocracy, you should share it. It’s not really acceptable, because rewarding people for not doing anything gives a situation where they don’t actually have material need is not really morally defensible.

DUDUZILE RAMELA: And this would require some serious gatekeeping, right? We are a country after all that suffers from vast, vast, vast corruption.

PIERRE DE VOS: Yes. Those are very difficult questions. The practicalities in a country like South Africa are very difficult because, of course, if you’re going to have a huge tax, the tax will go somewhere else and go to the government, and government has not been responsible in spending the money.

So obviously this is one proposal. This on its own, I think, in the specific South African context is not going to help if it’s not coupled with many other reforms. What I would like to see is a debate that is broader than South Africa about how we can moderate the excesses of the capitalist system which, as Pikkety and others show, is increasingly based on inequality, and inequality in a context like South Africa is not really sustainable for anybody – whether you are rich or poor.

DUDUZILE RAMELA: I’d like us to look at the two broad approaches in terms of containing the effects of inheritance on the perpetuation of inequality, the first being the right to inherit.

PIERRE DE VOS: The scholarly articles usually suggest two ways of doing it. One is quite a radical thing –  to say, well, people shouldn’t have a right to inherit, except maybe the intimate effects of your parents or whomever, or furniture, those kind of things. And then of course inheritance to make sure that there’s no unfairness for spouses and partners, and for orphaned children. That’s probably going to be difficult to do in South Africa. Not that I think one of my proposals is going to be more difficult to do because it might not be justifiable in terms of the property division.

But the second one is more of an inheritance tax where, just like normal tax, you are taxed on a progressive scale. The tax starts with R100 000 or R1 million. We already have a 20% tax, I think on inheritance for up to R30 million, and then 25% above that. But my proposal would be that it should be increased and that there will be a ceiling – that is something to think about – where there is 100% tax. So that no person could become a billionaire because the parent was a billionaire. That’s the fluid tax system. I’m attracted to that second model, especially because it’s a kind of tax that you won’t pay because you will be dead.

DUDUZILE RAMELA: The second one that we spoke about was the inheritance tax, which you touched on slightly. Pierre, just knowing the way that South Africa is set up, there are some sectors of the population that wonder if we really should be talking about inheritance, or we should be talking about redress and restitution in a country like South Africa, where the inequality is deeply seated.

PIERRE DE VOS: Firstly, I see this proposal as a kind of redress because, given the way in which wealth is racially skewed in South Africa, it will be a kind of redress, especially if you construct the progressive system in such a way that people who really are wealthy pay a lot of hard inheritance tax. But as I said earlier, that is not the only way. I think that is one way to [introduce it] over time, to try and reduce the inequality.

But that is not the only thing. There are other proposals on the table – a wealth tax, for example. And then there are other kinds of redress in employment and all these other factors which, clearly, must play a role – [such as] redress in education. All of those things must also play a role, because it’s a systemic problem. It is one thing that one might fix, but the whole system really needs to be overhauled for there to be even a modicum of fairness the system.

DUDUZILE RAMELA: I’m curious as to the reaction. I know it was published recently, but what sort of a reaction have you had?

PIERRE DE VOS: I can say without a doubt that it’s probably a piece I’ve written – and I’ve written thousands of pieces –  that has had had the most responses, and also vehement responses from people really upset. Some arguments are not really logical, but the arguments sometimes, I would say, are either emotional arguments, which I have sympathy for, about that intimate relationship you have with your children, wanting to provide for them, and being upset to think that your children are not going to benefit. And then there are arguments that are based on [the idea] that people who work for their money should be able to decide how to spend it. And then there are many people who just insult. [Chuckling.] That is social media.

DUDUZILE RAMELA: Right. Thank you very much for your time, Pierre. Certain things make us uncomfortable, but we need to get comfortable with being uncomfortable.

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I am a law student and have a constitutional law book of Pierre. Lost all my respect for this guy now. Such a bloody hippocrate. Talks about not allowing an heir to get something for nothing from a parent, so the solution is government should take it from him and give to someone else…. absolute garbage!! Despicable law expert.

He has apparently abandoned his academic objective logical and independent thinking for ANC entitlement propaganda. Viva

Pandering to whatever is populist in the moment, leaning all the more towards socialism. Talks about people having their emotions dictate their thinking, and turns right around and bases a whole report on the emotional notion that inheritance is is morally unfair. So the solution, take it away and give it to government to decide who is deserving of it. Brilliant plan, absolutely brilliant. Give the corrupted government that cannot even run a business the power to run every single deceased estate in the country.

And money goes to where it is treated best. ie Not South Africa.

A few years back, we had a discussion with a colleague that there is a possibility that in years to come, one will come across a mob of people just looting and burning what is on view because of abject poverty and anger.
I know the end-stick of poverty and have lived within the community whose priority of the day is to put a slice of bread on the table. In such communities, unlike in established areas, family planning methods are only accessible through the local clinics, the only source of inspiration being the local tavern owner or tuckshop owner as blueprints of family planning,education and wealth creation are not visible and remain a mirage.
The gap between the have and the have nots is in reality becoming very wide. We may not live to experience the scenario experienced as prior mentioned but the risk increases with passage of time, a time during which high walls and security measures will not help.
Perhaps such generational wealth can be used to aggressively target education, fertilise the minds at infancy and alter the course of the beautiful ship our country is. Just a thought and a bit of empathy.

In every poor community I’ve come across, bar none… No money for bread but always money for cigs and alcohol….

Anyone one can be born poor…. But if u stay poor – that’s a personal choice.

The chair the prof occupies at the UWC, is funded from a deceased estate, bequeathed to the university by one Claude Leon. I trust De Vos will immediately pay all monies, salaries and stipends he’s ever received to SARS? Anything less would just render him an enormous hypocrite.

He is a hypocrite to the letter. Fanciful thinking with no depth of understanding. Complete socialistic mindset of everything can be fixed and should be fixed by an all powerful government that can just take and hand out whatever whenever, to whatsoever.

I wonder if he has read about the history of Estate duty in Sweden, one of the most socialists countries in the world?

If I am privileged because my parents:
Believed in smaller families and only had as many children as they could afford;
Believed in the value of education whereas others burned down schools and shouted “liberation before education”;
Paid their taxes, municipal bills, water and electricity to maintain that infrastructure; and
Saved for the future and didn’t spend all their money on expensive funerals and bling.
If for those reasons I am privileged, then I am proud of it.

And that’s the point.

if everybody that had children took responsibility for their children. we would not be sitting in this situation where we constantly have to take from one to give to another.

Really hope that there is not someone paying for this utter rubbish that is called research. Who even goes so far to think of this as a topic to research and sadly someone funds this??? Easy when taxpayer pays

So many ways in SA that money can be spent on that can create employment to relieve poverty – and then money gets spent on this dribble

Morning Shot did a wonderful piece on Pierre de Vos exposing this man. 5x the average South African salary is too much. He should donate 80% of his salary to the state to make things fair. Equality of outcomes is the goal after all.

Why wait until a creator of wealth died ? Why not take all the assets when he or she turns 60 and give it all to the noble ANC comrades of the inner circle ? Economic commie version of “Soylent Green “. It is grotesque that a person like DeVos is allowed to pollute the minds of young people.

Moneyweb shouldn’t publish this nonsense.

It’s the worst idea ever.

Take capital from those who have grown and nurtured it and give it to government to loot and squander.

But it will improve inequality; everyone will have nothing.

Mission accomplished

No, it is worth publishing as it shows just how venal our pc “academics” are. De Vos misses the tweet giving a snippet of one Milton Friedman (a real academic) demolishing the 100% tax idea in a few minutes.

Pierre should ask the Motsepe and Ramaphosa kids what they think of the idea 🙂

De Vos wants to curb the excesses of capitalism – not realizing that we need more capitalism, not less.

Three million people pay nearly all the taxes in the country, carrying the other 54 million people. He wants to curb the tax payers even more.

Not a very clever idea.

The NP government had a comprehensive estate duty regime – and it brought in very little in tax income, with high administration costs for the government and high costs for those with assets.

The ANC government can generate exponentially bigger sums by running the 700 SOE’s, 9 provinces and 200 dysfunctional municipalities properly.

De Vos based his idea on “inequality”.

How can you expect equality of income when there is such a wide inequality of mindset?

2 Key issues:

The rich, basically middle class tax payers, vote for good government – the poor vote for large scale corruption and mismanagement.

The rich do not have more children than they can afford – millions of the poor have children they cannot afford.

A major cause of the inequality that De Vos refers to is the explosion in population growth.

The UN declared family planning a human right in 1969. Academics here saw the population growth trends and warned the government of the day.

In the early 1970’s the government tried to implement family planning – which was opposed by black leaders, that said government wanted to control the numbers. They were but for the good of everyone.

If this program was a success all the people would have lived better today, with considerably less people being carried by the same tax base.

The transfer of wealth between generations increases inequality!
But already South Africans are heavily taxed. Some people are already getting free houses, free schooling, free medical assistance, monthly stipends via SASSA,free electricity and water. This is all possible through tax paying South Africans.
What kind of culture are we trying to breed, culture of entitlement without any consequence!

Perfect case of educated ,but not intelligent !

de Vos’ argument comes across as one who did not inherit, and thus became embittered.

If there are racial overtones to de Vos’ argument, then would AA still apply – in that billionaire Ramaphosa and his billionaire brothers-in-law Motsephe and Radebe WOULD be able to pass down their money to their children while Whites would not be permitted to do so?

So I don’t go and blow all my paycheck on wabenzi every month… But instead decide to be responsible and sacrifice my ego and invest that money instead so something is left for my children…. And now that is wrong…… Are u outa yr mind!??

How can a supposed academic have such poor understanding of human nature.
…shame man!

Does he not understand that, to be conservative, 50% of hard working people who have children, work hard FOR THEIR CHILDREN!!!

If I could not pass on an inheritance to my children, I would be at least 50% less motivated than I am. If I was even 10% less motivated than I am there would be zero chance that I would be employing 20 people in a company I created from scratch. And our country and society would be WAY poorer.

People like this are either devoid of a true understanding of human nature and stuck in early 20th century Philosophy of Economics, or worse, they are out to create a little name for themselves or support some hidden agenda with some corrupt official (like having their “research” funded).

Luckily, on a macroscopic and historical scale, human nature and associated universal truths will always beat junk philosophy.

Let’s first legislate a moratorium on births. The redress will be exponential!

The Prof has touched on sensitivities and other subjectivities I won’t spell out. Best thing, he supports his view with learned opinion.

Any form of squealing will not hold when this proposal gains traction. Only objective and informed opinion shall prevail.

I’m not saying I do or don’t support it, but it’s worthy of a referendum or vigorous debate

De Vos makes the assumption that all inheritable wealth can be monitised and divided. However it is not as simple as this. Take for instance a person who has built up a business. Should a large percentage of the perceived value of the business need to be given away for tax at the owners death, the business may not survive. Once this becomes the norm, lenders will be resistance to loan SMMEs money, as the continuity of the business is subject to the life of the owner.

And thats what happens when an someone decides to give his opinion on a subject he does not comprehend without giving it proper thought

This entire argument is based on the unfairness of giving your children wealth that they did not work for.

But it seems that it is fair to give it to other people’s children who did not work for it as long as it is not your children.

As tax payers we spend our entire working life giving a big portion of our hard earned money to take care of other people’s children in the way of free housing, social grants, NSFAS, etc.
While the people who chose to have these children take no responsibility for their actions. They just sit and demand more and more from the ANC government, who continue to take from the working class and give to them because they need these voters to stay in power.

Further to that, South Africa already has an estate duty tax of 20% on estates valued under R30 million and 25% on estates valued over R30 million.

Therefore, us hard working South Africans already take care of other people’s children while we are living and even after we die. So why can’t we take care of our own children as well.

What utter rubbish.

On one hand Pierre says it is immoral to give your children money they did not work for. And on the other hand he says it is okay to give your money to a bunch of lazy strangers who have not worked for it.

Wow what brillance. No wonder South Africa is where it is. We refuse to sort out the people causing the problems by having children who they cannot look after so we punish those who take responsibility for the children they decide to have.

What democracy. Well done. Continue to encourage laziness, culture of entitlement and irresponsibility and we will end up like the rest of Africa.

End of comments.

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