South Africa’s persistent economic woes are well documented.
This is according to Efficient Group chief economist Dawie Roodt.
“The fiscus in South Africa is the most redistributional in the world,” said Roodt. “And we’re well ahead of any other country.”
Roodt said that this is the case because South Africa has such a skewed income distribution – a few people earning a lot, and a lot of people earning a little.
The South African tax system is also structured in such a way that you pay a higher percentage of tax if you earn more money.
What might be more galling to “wealthy” South Africans, however, is the extra hidden taxation that they pay.
The hidden tax on wealth
According to Roodt, someone who earns R10 million per year likely pays around R6 million in taxes. These taxes include income tax, corporate taxes, VAT, and other smaller taxes such as sin taxes, road tolls, and fuel levies.
However, wealthy South Africans also incur additional costs – including private education, private healthcare, private insurance, and private security services – due to the poor quality of the relevant government services.
This is true for South Africans lower down the income ladder, too, as those who can afford private healthcare, schooling, and security almost always select it over the alternatives provided by the government.
And even if these people don’t use inferior public services that the government offers, they are still forced to pay for them through taxes.
This hidden tax – needing to pay for these services not just through tax money, but again through their remaining income – means that many South Africans are paying for services twice over.
The flaw in redistribution policies
The implementation of aggressive taxation policies by the South African government has a clear goal: to redress inequality in South Africa by taking from the haves, and giving to the have-nots.
However, according to Roodt, this tactic isn’t working.
Despite all of the redistribution, inequality is not coming down in South Africa, said Roodt. Unemployment also continues to rise in South Africa, along with government debt.
He suggested that this is because redistribution doesn’t actually help poor people to improve their financial positions.
This means that while South Africans are being charged more taxes for the purpose of helping the poor, the poor aren’t being helped sufficiently.
An environment for creating wealth
The problem with South Africa’s economic environment, said Roodt, is that the government is trying to do too much. Instead, they should do less if they want the country to improve.
“I cannot think of one single thing that the ANC government has done well,” Roodt said. “Education is a total mess, crime is a disaster, services have collapsed completely – the list goes on and on.”
Roodt suggested that if the government doesn’t have the capability to run its departments well, they should rather leave it to the private sector.
However, for the foreseeable future, it seems that income-earning South Africans will continue to sponsor the government’s provision of inferior services, all the while paying their additional “hidden taxes”.