Would a wealth tax paid to the government be money down the drain?

On Wednesday, Ferial Haffajee reported in these pages on the findings of a survey by Patriotic Millionaires and Oxfam SA that 64% of people in South Africa with $1-million to invest were “willing to pay a 2% wealth tax to better fund social protection, education or the energy transition”.

All three of these initiatives have the potential to make long-term changes in South Africa and are major investments in the country’s future and its people.

However, not everyone believes that giving more money to the government is the most efficient way to fund efforts to improve people’s lives.

The Mouton Foundation’s intended buyout of the Curro private schooling group to turn it into an NGO is a good example. This will see all of the group’s profits being reinvested into more schools, with the longer-term aim of making private education in South Africa more affordable to more learners.

(While the Mouton Stiftung describes this as the “biggest donation” in South African history, cynics will argue that it is an attempt to help the group’s schools avoid paying the rates and taxes they currently pay.)

One way to see this transaction is that this group has given up on the government’s ability to provide quality education, and thus, it is helping parents to provide it for their children.

Many hundreds of thousands of South Africans, almost all of them not dollar millionaires, provide help or donations to other South Africans and bypass the government in the process.

They do so through donations to NGOs, through helping people they know, by providing monthly payments to car guards, and through their relationships with people on the side of the road asking for money. In all sorts of ways, in our country, people help those less fortunate.

And they do it efficiently. They put money or food directly into the hands of the people who need it.

Government inefficiency

One argument against a wealth tax is that the government is wildly inefficient.

Another argument is that some of that money would go to the VIP protection budget.

As has been detailed many times, the Auditor-General has found that the City of Joburg cannot manage its R83-billion budget (R12-billion of which was misspent), and the Madlanga Commission recently heard testimony that the deputy head of the Ekurhuleni Metro Police Department, Julius Mkhwanazi, engaged in corruption, while drawing a government salary.

There are other arguments against asking the wealthy to contribute more money to the government.

The SA Revenue Service commissioner, Edward Kieswetter, has said several times that roughly one-third of SA’s economy is not taxed — an indication of the size of the illicit economy. Anyone being asked to pay more tax could reasonably ask that SARS first look there.

Read more: Stronger tax collections give Treasury some fiscal breathing room

To sum up, one argument is that, rather than paying more money to the government, a wealthy person could make regular donations to NGOs, ensure all of the extended families of the people in their immediate circles and communities have food and education, and invest in businesses that will lead to the use of more renewable energy.

The state’s crucial role

The counter-argument is that those with wealth should increase their contribution to the government, as the government plays a role in binding the people of South Africa. And while it has arguably been failing at this for many years, it is still vital that we support the government in this effort.

Without a properly functioning government, it doesn’t matter how many people you help or which NGOs you support; there is no society.

And of course, virtually no one has the reach of the government.

If you live in Constantia, you probably won’t be able to assist people in the Northern Cape. But the government can take your money and use it to improve services for people in Springbok, Rosendal and Hotazel.

Read more: Wealth taxes are critical for financing public services and reducing inequality

Unfortunately, NGOs too can be corrupt and waste money.

NGOs, including #NotInMyName and United Civil Society in Action, held a protest march against the reporting of GroundUp’s Raymond Joseph on the corruption in the National Lotteries Commission.

The Special Investigating Unit has found that all of his reporting was correct, which means these groups were marching in support of corruption.

Also, many NGOs have either an explicit or implicit political function.

AfriForum is technically an NGO, yet it is clearly a political actor.

The Treatment Action Campaign during the Mbeki years was both helping thousands of people and campaigning on a massive political issue.

The government has to take the interests of all South Africans into account, and it could be argued that all South Africans have an obligation to contribute to the one organisation able to do that.

Read more: The case for a wealth tax: Addressing inequality in South Africa’s financial future

While it is true that the landed gentry of Constantia pay tax to provide services for people in Vuwani, it is also true that those people in Vuwani are paying tax (if not income tax, then through VAT) that goes to services in Constantia.

This creates a continual financial relationship that helps to bind South Africans.

But even if a wealth tax were to be paid just for social protection, education or the energy transition, there would be a risk that those programmes would be designed or influenced by those paying for them.

They would not be designed to benefit everyone, which would not be in the best interests of the entire country.

Pay taxes, help others

There are many reasons to believe it is rational to bypass the government, and the more the government fails, the more valid this argument appears.

But the government needs all the help it can get, which is why this argument has no simple answer, and why so many wealthy people are likely to both continue paying their taxes and helping South Africans when and where they can more directly.

For the moment, that is the rational solution. DM