Hidden taxes gouging your wallet

2014-03-10 00:00

MIDDLE-CLASS taxpayers are being gouged by a list of hidden taxes, which has resulted in them paying more than half of their gross salaries for services the state is supposed to provide.

New research produced for The Witness shows that a typical KZN family earning R400 000 per year is — for the first time — actually paying more for medical aid, private security, and school fees than their total direct taxes, which officially cover all of these things.

And experts say that suburbanites are not only paying twice for education, the roads and healthcare — and often three times for security — but that other “invisible taxes” could mean they are paying more than citizens of Sweden, the world’s most heavily taxed country. This is if pension payments, rates increases for wasteful spending at municipalities and taxes “disguised” as levies are included.

Professor Bernadene de Clercq, of Unisa’s Bureau of Market Research, said new research suggested that upper-middle-class South Africans were paying “between 50 and 60%” of their gross income for services traditionally provided by government.

Meanwhile — using the latest Stats SA household expenditure figures — economic researcher Paul Joubert found that KZN taxpayers were effectively paying 53% of their total income on services their taxes are supposed to pay for.

Joubert stressed that the poor and working-class remained “decidedly worse-off”, but that double-payments for services by the middle-class already represented “an excessive burden” — with the massive new cost of the National Health Insurance scheme looming on the horizon.

He said a breadwinner with three minor children, earning R400 000, is now paying 21,4% of their package on the hidden tax “big three” of medical aid, school fees and private security — which is greater than their effective tax of 20%.

They pay an additional 12,5% on indirect taxes, including VAT.

With 20% of all taxes going to education, this person is paying roughly R25 000 a year to fund state education in KZN, and another R36 000 in school fees for his two older children, according to Joubert’s model.

However, CEO of the Federation of Governing Bodies, Paul Colditz said only R183 of this R25 000 went directly to each of this taxpayer’s own children annually. Colditz said the KZN Education Department would spend over R5 per day on each child at non-fee paying schools in 2014, but only 90 cents per day on each pupil at suburban schools — with parents expected to make up the rest. He said average school fees had doubled since 2008.

Economist Mike Schussler said, “The state has become too expensive, and the people paying for it are gatvol. The middle-class is paying for services it does not benefit from.”

He said that residents of his own street in Northcliff, Johannesburg, were spending R13 000 this week to erect fences around vacant public property, to erect six security cameras, and to cut long grass on street corners.

Schussler suggested that the more than seven percent employees paid in pension costs could be considered “another hidden tax”, since social security is paid for through direct taxes in Europe — and South African suburbanites are also disqualified from the state pensions they fund.

Joubert said South Africa’s middle-class was not only unusually burdened in paying taxes for services it couldn’t use, but had now broken the western world’s model of progressive taxation — because they are actually paying a higher rate than the super-rich.

Joubert said hidden taxes between the two groups were virtually the same — so that an executive in Umhlanga earning R2 million paid only three percent in invisible taxes, compared to 21% for families in Westville or Wembley in Pietermaritzburg.

Meanwhile, a new, award-winning thesis by Pretoria tax professor Theuns Steyn reveals that 41 costs — built into water, electricity and other bills — which the government calls “levies” are, in fact, taxes that make a profit for the state. His survey found that motor vehicle licences, aircraft passenger safety charges, e-tolls, and water supply surcharges were among the “levies” and “fees” which were, in fact, revenue-raising taxes.

Steyn also analysed the household budgets of 13 middle-class families from all race groups, and found that 47% of their total income went to expenses they considered “taxes”.

“We found that there was no way to measure the tax burden on an individual in South Africa, and so people truly have no idea how much they’re paying to the state,” he said.

Professor Sharon Smulders, of the department of taxation at the University of Pretoria, said wasteful spending at most municipalities in KZN was now so massive, and so routine, that increased rates to pay for the shortfall should now be considered a significant hidden tax in suburban budgets. She could not estimate how much this represented in the average budget.

“In general, the middle-class in South Africa want to be compliant, and they accept the additional burden to help fund state programmes — but corruption and wasteful spending is where they draw the line,” said Smulders.

A constant battle to make ends meet

BRYAN Coleman (37) — manager of a family-owned car rental business in the Highway area — said rising hidden taxes had meant “it’s becoming impossible to make ends meet”.

A resident of Botha’s Hill, Coleman pays a massive R9 000 per month on medical aid, partly due to specialist treatments for the chronic lung condition suffered by his five-year-old son, Zach.

“There is no choice for us; had we used state hospitals, Zach would not be alive today,” said Coleman.

In addition to armed response fees of R197 per month, Coleman said the family paid hundreds more monthly on other private security measures. He said no state school could accommodate his son’s needs, and that he would have to budget for private schooling from 2016.

“I’ve just come back from the Eminem concert in Joburg — and I paid over R500 just in tolls, to use roads I thought my taxes and fuel levies had more than paid for,” he said.

Irene Reid, chair of the Durban North Ratepayers’ Association, said residents had been “absolutely klapped” by rising health, security and municipal costs — and that only apathy had prevented a revolt.

Reid (57) said her household budget for her and her husband now featured R2 000 bills “for almost everything” — including rates, medical aid, and water and electricity tariffs. Private security was one of the cheaper items — but still came in at a hefty R520 per month.

The librarian said she had implemented a series of strategies to curb rocketing water bills, including showers instead of baths, no more watering the garden, and using a filtered downpipe from rainwater gutters to fill the pool.

But Reid said she was now forced to sacrifice DStv and other entertainment expenses to make ends meet.

“We pay taxes and fuel levies and tolls, and still the grass grows between cracks on our road in Durban North,” she said.

“And its obvious the rates increases are to cover the losses made by the municipality. The middle-class is now carrying a ridiculous burden. People are complaining but not yet taking action; at some point, we are going to have to say, ‘Enough’.”

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