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.