National Treasury will consider the possibility of a wealth tax once it has analysed the data that the South African Revenue Service (SARS) is collecting on high-net-worth individuals.
This was said on Friday by Chris Axelson, Treasury’s acting head of tax and financial sector policy. Axelson was among the Treasury officials who responded to submissions on the Medium-Term Budget Policy Statement (MTBPS) made to Parliament’s two finance committees.
SARS established the High Wealth Individual Unit in 2021, in line with a recommendation by the Davis Tax Committee, to consolidate data on wealthy taxpayers through third‐party information. “This will assist in broadening the tax base, improving tax compliance, and assessing the feasibility of a wealth tax,” the 2021 Budget Review said.
From the 2023 tax-filing season, individuals holding assets valued at R50 million or more were required to declare all their wealth, “so that we could get a better picture of the wealth within the country”, Axelson told MPs.
“SARS is collating that data […] We are going to work with SARS to try and understand the levels of wealth that have been declared to SARS in the country and what a potential wealth tax would be.”
Treasury will be considering a wealth tax as it receives the data from SARS, “and we can do further analysis”.
Axelson said questions have been raised about conflating income from wealth with wealth. “This is an interesting point, and we’ve had a lot of advice on this from international organisations.”
He said some of the advice Treasury received is that “if you can tax the returns to wealth in a very expansive way, you don’t need to tax wealth itself because in effect you are, so whether you tax wealth or you have a tax on the return to wealth, they could in effect be similar if the rates of return were a particular level”.
South Africa has a “very comprehensive” personal income tax system that taxes all these returns to wealth – dividends, capital gains, interest, and rentals – “and that is what we have focused on”, Axelson said.
Concern over affordability of SRD grant
Asked whether Treasury will extend the Social Relief of Distress (SRD) grant, Dr Rendani Randela, Treasury’s budget and policy analyst, said this decision does not lie with Treasury but with the Cabinet. Treasury’s role is simply “to attach the cost to that policy decision”.
Earlier during the briefing, Edgar Sishi, who heads the Budget Office, told MPs that Treasury has “serious concerns” about the affordability of the SRD grant if reforms are not made.
The grant costs about R40 billion a year, but this could rise to R171bn by 2032/33 if the grant became permanent, there was an increase in uptake, and its value approached the food poverty line (which is now R796 a month).
“The fiscus cannot afford these large increases without permanent large tax increases,” Sishi said.
Addressing the SRD grant in the MTBPS, Treasury says: “A sustainable fiscal approach requires that any permanent addition to spending must be funded through permanent revenue sources or reprioritisation from within the existing fiscal envelope.”
Some civil society organisations are lobbying for the SRD grant to be converted into a permanent basic income grant (BIG).
According to Treasury’s presentation, a BIG could go to 35 million people aged between 18 and 60 years, which could cost almost R400bn a year. “Only two countries in the world had a true BIG and both have scaled back on it due to affordability.”
Sishi said it was incorrect to assert that South Africa lags other countries in respect of social security and the social wage. According to assessments by Treasury and the World Bank, South Africa has one of the larger social protection systems, in terms of spending as a percentage of GDP, among developing countries. In some years, it had the largest social protection system of any developing country.
He said mechanisms should be found to link the SRD grant with public employment initiatives because the current system is fragmented and facilitates duplication. For example, Treasury’s analysis found that about 35 000 beneficiaries of the Community Work Programme were also receiving the old-age grant.
The MTBPS says: “A wide range of financial support is provided to unemployed persons. However, these interventions are split across agencies and do not function as a cohesive, integrated system. Moreover, there is little to no linkage between the social security system and the policy goal of increasing employment. The government is considering ways to reform the grant system and consolidate public employment initiatives.”
