South Africa's Languishing State of Inequality: Is a Wealth Tax Needed?

2015-11-10 18:37

2015 has proven, if anything, that South Africa has alot more work ahead than both it's people and its government care to admit. From reports by Oxfam SA has highlighted the glaring truths of food insecurity in the country, to student protests vehemently against university fee increments, the message of unsustainble living costs has been brought home loud and clear. Workers, communities and most recently students in higher education have voiced their grievances to the point of crisis; all this while public spending - of which social grants and education constitutes a considerable portion - seems to be at an all-time high. State spending and disbursement at a glance for most has failed while wealth accumulation by the top 20% in the country now places us atop the most unequal societies on the planet. This is according to the World Bank, with perhaps even greater divisions to follow amid repeated concerns expressed by the International Monetary Fund.

Such a state of affairs (I believe) have prompted some of the super rich to be proactive in addressing inequality, or at least speak about it. One example was our very own Johann Rupert, who addressed his fellow billionaire friends in New York earlier this year in July about the dangers inequality harbours for the global collective. Patrice Motsepe, perhaps taking heed, stated two months ago that he would be donating half his dividends to charity, albeit through his own organization. Bill Gates made sure to call and congratulate him on his latest philanthrocapitalist venture. Perhaps Rupert's words were more for others than for himself. That said, however, the issue fo wealth distortion has been an issue in the country for some time, and coinciding with increasing levels of unrest, cannot be left untouched.

South Africa's inequality according to wealth allocation by the top 20%. Source: http://data.worldbank.org/indicator/SI.DST.05TH.20/countries?display=map

Companies in the mining sector like Lonmin and Anglo-Platinum have sordid histories of worker maltreatment, capital diversion and land dispossession forming the locus of their business strategy since initial operations. This has occurred while executive pay rises have been soaring. Kaylan Massie & Debbie Collier postulate these exorbitant raises and self-bestowed benefits emanating from a corporate atmosphere devoid of responsibility, and a system corporate governance lacking in its ability  to reign in execs found to be loopholing revenue services. Additionally, the absence of owners or families in the management of their hard built empires, results in eventual misguided corporate behaviour. The only justification offered for layoffs, detrimental ecological impacts, and so on being to increase shareholder dividends. The logic of companies paying exorbitant executive salaries is explained by fears of seeing executive staff vacate for more coveted shores. Countries like Australia, the UK and the US don't seem to offer better bang for the corporate buck, as research by some has shown though.

Relative Wealth – How South African Executives Rank Globally in terms of Purchasing Power. Source: Massie & Collier: 2014, pp. xxxi, & PE Corporate Services: http://www.pecs.co.za/the-wage-gap-south-africa-s-emotive-issue.html

The Davis Tax Commission stated this week that looking into a wealth tax will be on their agenda, but Davis warned [and quite sternly] of a possible tax revolt, should this tax be implemented amid increasing state corruption. If it were, I'm afraid it wouldn't be possible but imminent, considering the level of confidence currently placed in the state. Public spending, despite reaching all-time high levels hasn't translated into the economic transformation now trumpeted by so many. This can only hint at administrative capacity and corrupt government behaviour, aspects with which South Africans from all walks of life are now too familiar. Additional aspects tasked to the commission are issues of Base Erosion and profit sharing.

These corporate practices of tax diversion and trade mispricing (as mentioned in one of my previous submissions) have been a point of focus for both the OECD (Organization for Economic Co-operation and Development) as well as the Africa Progress Panel for a considerable period. With government misspending being placed outside the scope of the Davis Tax Commission however (something he mentions right off the bat during his address) means little to no serious recognition of his findings from all strata of society. Jacob Zuma's recent purchase of a 4 billion Rand Jet, along with his childish defence of criticisms now surrounding the party do no favours for either himself or the ANC-led government (not that he seems to care at this point).

Parliament's recent adoption of the "Black Industrialists Policy" is a direct countermeasure to such inequity, but as mentioned before, governmental transparency and capacity has to transpire if any hope in this policy should transpire. South Africa, with as many hungry mouths and unemployed youths, still holds pockets of wealth which can, at times display decadence bordering on negligence. As a recent purchase in Cape Town's real estate sector clearly demonstrates, properties along the pristine coastline of the city are still highly coveted, selling for astronomical sums.

[embed]https://www.youtube.com/watch?v=xAANO__8dno&feature=youtu.be[/embed]

Corporate and wealth tax, given the gross inequality of our country, is perhaps a route we will have to consider, but this cannot be taken in light of the current state of government, squandering the treasury through its patronage politics. All of this comes at the expense of the bigger picture, the composition of which seems increasingly beset by governance, permeating into other structures of society (violence and crime, protest etc) and the economy (corporate malpractice, lack of corporate social responsibility etc). Money hopefully captured from diverted revenues meant for tax, could perhaps be funnelled into the [supposed] 0% increase guaranteed by govt. last month. It should be iterated that money doesn't solve everything, as the quality of delivery (or non-delivery, as many can easily attest) of goods and services can still depreciate given the social conditions under which funding is disbursed. Such laments are increasingly appearing in the papers, with commentary by some of the super rich, like the most recent of David Shapiro, openly declaring the lack of confidence in the government.

This is evidenced by a medical insurance blog for travellers' survey of state healthcare systems earlier this week. If a wealth tax is to be pursued, then visible reform of the ANC or their supplanting from the halls of Union Buildings are the only thing which I see transpiring. With so many superelites like Shapiro, Rupert and Glasenberg claiming to be apolitical, and parties refusing to disclose where their funds come from, such a tax could be beneficial. Perhaps their increased stakeholdership could reveal where the real dynamics between politics and wealth lie. As mentioned by another submission on this platform, trade-offs rather than whole fix solutions will have to be made. The question is whether government can reform in time to restore confidence among the super rich in order they help rebuild our country before things truly fall apart?

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