Finance Minister Pravin Gordhan delivered his budget speech yesterday, announcing an increase in the top tax rate for individuals from 41% to 45%.
The government is also increasing the dividend withholding tax rate to 20%, up from the previous 15%.
While these higher tax rates are a safe political move, as it is fashionable to target the rich, it is bad news for the economy.
Economist Dawie Roodt described the latest budget as horrible, highlighting that Gordhan stubbornly continues to increase the size of the state.
“This is socialism running amok where a ravenous state will continue to parasitise the productive sector,” said Roodt.
“Clearly government does not understand that they need wealth creators. Instead, it continues to increase the burden of a bloated state on a dwindling number of wealth creators.”
The consequences will be lower growth, lower savings, lower investments, and fewer jobs, said Roodt.
“As long as we have a government that assumes that we work for them, investors will look for greener pastures. And a tax revolt may be next.”
BizNews founder Alec Hogg highlighted that highly-taxed rich individuals can easily leave the country.
“Much like talented artists or sportsmen who abandon their homelands for places where they are better appreciated, at some point the burden becomes too heavy,” said Hogg.
He said that instead of stimulating entrepreneurship, the government’s higher taxes stifle the productive sector.
Wayne McCurrie, senior portfolio manager at Ashburton Investments, said everyone knows we should rather raise VAT.
Speaking on BusinessDay TV, McCurrie said increasing VAT is highly efficient and is spread over a massive cost base.
However, the ANC government is so concerned about the political fallout of higher VAT rates, it would rather take the risk of hurting the economy.
“If you increase dividend withholding tax and you increase the top tax rate for individuals to 45%, there is no rioting in the streets,” he said.
“However, if you increase VAT by two or three percent, there is rioting in the streets.”
He said if the tax rate increases further, many high-earning individuals may leave the country – taking their money and skills with them.