IRR to the National Treasury: Recognise taxpayers as the engine of the economy

28 November 2024

Promoting economic growth, a sustainable fiscus, and the economic empowerment of individuals is the key theme of submissions by the Institute of Race Relations (IRR) and IRR Legal to the National Treasury this week.

The submissions were made in response to invitations for public comment on the National Health Insurance (NHI), proposals to introduce a Basic Income Grant (BIG), and proposals to introduce a wealth tax.

On NHI, the IRR has recommended that the National Treasury commission a study assessing the taxpayer flight likely to result from the introduction of the NHI Fund, and to quantify the impact on the national fiscus. In additional, the IRR has recommended that spending on public healthcare be controlled and placed on a value-for-money basis. Finally, it calls for the NHI Act to be referred back to Parliament for thorough reconsideration.

Anlu Keeve, IRR Researcher, warns of the potential dangers of relying on higher taxes to fund large-scale initiatives like the NHI Fund. She explains: “Major changes in marginal tax rates could easily prompt behaviour changes, like restructuring income streams to minimise taxable earnings, or emigrating to lower-tax jurisdictions. The latter is especially plausible given that these taxpayers often have high-demand skills and the financial means to relocate. Should this become a trend, it would shrink the tax base and reduce the pool of skilled labour. This will negatively affect the country’s potential to generate revenue and grow the economy.”

On grants, the IRR has recommended keeping existing social grants, without introducing new ones or expanding the existing ones. Furthermore, the IRR recommends that the government consider the implications of unconstrained growth in the number and volume of grants, and proposes a framework to transition South Africans out of reliance on the charity of others towards self-reliance based on earned income.

On the issue of grants, Keeve warns of the potential dangers of expanding social assistance. She explains: “Increasing grant payments beyond inflation, or significantly increasing the pool of beneficiaries, will not address the root causes of poverty, and comes with serious risks. It will add to increasing dependency on state support and a tax base contracting under the pressure of the growing burden placed on it. Fewer taxpayers means lower economic activity, with fewer people managing to find jobs, and more people being compelled to depend on grants.”

On the wealth tax proposal, IRR Legal strongly opposes the introduction of such a measure in the context of extraordinarily high unemployment, low fixed capital formation, and profound administrative weaknesses in public governance. This is entirely the wrong context in which to introduce a wealth tax. Furthermore, most societies that are far wealthier than South Africa and which introduced net wealth taxes in the past have since repealed them because of their major adverse effects and inability to generate significant revenue.

Gabriel Crouse, Executive Director of IRR Legal, notes: “While the debate in countries like Switzerland and France about whether to remove or return a wealth tax are academically interesting, South Africa is another country that is poorer in absolute terms, poorer per person, poorer in terms of wealth relative to income, poorer in terms of risk, poorer in terms of administration, and poorer in terms of ability to remain attractive as an investment destination.”

Crouse adds: “Most importantly, South Africa is poorest in terms of employment. As such, here any new wealth tax must be rejected.”

The IRR and IRR Legal remain steadfast in advocating for policies that promote economic growth, fiscal sustainability, and the economic empowerment of individuals. They urge the National Treasury to recognise taxpayers as the engine of the economy and their continued presence, investment, and economic activity as essential for economic growth. To retain them, the government must tax prudently, obtain value for money in its spending, and prioritise policies that enable economic growth.

Read the full submissions here:

Substantive Tax Policy Proposal: Reject New Wealth Tax
IRR Submission to the Treasury: On Grants
IRR Submission to the Treasury: On National Health Insurance (NHI)

Issued by Anlu Keeve, IRR Researcher, 28 November 2024