Wealth Redistribution – The Numbers Just Don't Work!

2016-05-02 07:23

We often hear our populist leaders preaching that the redistribution of wealth, from the "haves" to the "have-nots", will bring "economic freedom" to the Nation's poor.

Whenever I hear this over-simplistic view on things, I always think of my late father, an extremely wise man, who passed away some 38 years ago (in 1978).

I say "wise", because he had an uncanny ability to interpret, and visualise, what current jargon would probably call, the World's megatrends.

Of South Africa he obviously had quite a lot to say, but his views on its future economic position have been proven to be scaringly accurate!

My father stated the following prediction, at least 30 times, in my presence:

"I have the greatest confidence that our country (SA) will sort out its political differences, but I fear that we have a "rocky road" ahead of us, economically-speaking, because we each have to uplift seven or eight others, and we haven't got the money to do it!"

Remember, this comment was made in the 1970's!!

Obviously a day doesn't go by that I don't think of these prophetic words!

To prove this prediction, that "we haven't got the money to do it", I recently decided to do an exercise to get some idea as to what a simple redistribution of wealth, from the country's "haves" to its "have-nots", would achieve.

I based this exercise on National Treasury's latest tax statistics (for 2015 - reflecting the 2014 tax year's figures).

According to these tax statistics, some 480 435 of the country's individual taxpayers had an annual taxable income in excess of R500 000 and, as a group, contributed 57,4% of individual taxes as assessed.

However, these published statistics (for the 2014 tax year) are incomplete in that, at the time of compilation, only 74,9% of the Nation's individual taxpayers had been assessed for tax (2014).

Assuming, therefore, that the remaining 25,1% of the "yet-to-be-assessed taxpayers" have the same mix of taxable incomes, it would mean that the 480 435 taxpayers (having annual taxable incomes in excess of R500 000) would increase to 641 435 taxpayers when 100% of the taxpayers had been assessed – still, obviously, contributing 57,4% of individual taxes assessed.

In my exercise I have therefore assumed that these 641 435 taxpayers comprise the "wealth-hub" of SA – a very relevant assumption in the exercise!

Taking this further and assuming that these 641 435 taxpayers are targeted for a special tax, say a once-off "wealth tax", designed to raise, ON AVERAGE, R500 000 from each of them, this would raise the massive amount of R320,7 billion!

If we then assume that each of the 641 435 taxpayers (with annual taxable income in excess of R500 000) has three dependants, then we can say that 2,57 million people (641 435 x 4) comprise the Nation's “rich”, and their dependants.

Taking the SA population as being some 55 million and deducting the 641 435 (the Nation's “rich” and their dependants), it would leave 54,35 million who earn nothing and/or who earn/are supported by people who earn annual taxable income of less than R500 000, and their dependants.

One must also look at those who earn reasonable taxable income – say, those who earn between R250 000 and R500 000 – that's some 1,53 million (according to the tax statistics, grossed up from the figure representing the 74,9% taxpayers who'd been assessed for tax).

Again, assuming that these 1,53 million each have three dependants, this would mean that a further 6,13 million of our people can at least provide for themselves.

In summary, we therefore have:

- 641 435 taxpayers each earning annual taxable incomes in excess of R500 000 and contributing, as a group, R320,7 billion in a one-off wealth tax

- 8,7 million people (2,57 million "rich" and their dependants plus 6,13 million "middle class" and their dependants)

- And therefore 46,3 million people (55 million population minus 8,7 million "haves"), being the Nation's "relatively poor"/“poor”/"have-nots"

If we now take the R320,7 billion once-off "wealth tax" (raised from the 641 435 taxpayers, each with annual taxable incomes in excess of R500 000) and distribute this equally amongst the Nation's "have-nots", they each receive a ONCE-OFF allocation of R6 927 – and that’s all!

R6 927 per person is hardly life-changing!

For example, if a family of four pooled their allocations, they would have R27 708 in total – hardly enough for them to buy a very old, second-hand car, let alone fuel, licence, insure, and maintain it!

The figures are astounding – I've checked and re-checked these, and I cannot find any errors!

The conclusion, that is clearly drawn from this exercise, is that the upliftment of the Nation's poor (some 46 million!) CANNOT be achieved through wealth distribution – it must come through economic growth ie through vast capital investment (something that we appear to being doing our damnedest to discourage) and the education, training, and up-skilling of our people (which we also appear to be failing in!).

I have no doubt that cynics will "poke holes" in what I have said above – my assumptions are only that!

It's an extremely complex exercise and the data, which an ordinary citizen, like me, has is obviously limited.

I do, however, believe that the exercise gives a very clear indication of what is required to get our country going economically-speaking (and thereby uplift the masses) – and that's NOT achieved by "robbing the rich to give to the poor" – although our income tax system does a reasonably good job of that!

It's achieved by growing the economy and that means encouraging investment and the education, training, and up-skilling, of our population!

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