GOOD Statement by Brett Herron ,
GOOD Secretary-General
24 February 2025
Ahead of today’s Cabinet meeting, the GOOD Party calls on the National Treasury to resist the temptation to throw out progressive provisions in the budget-that-wasn’t with the 2% VAT increase bathwater.
If South Africa is finally to turn the corner on the unsustainable cocktail of inequality and slow-to-no economic growth, commitments in the aborted budget to raise living standards and improve long-term economic prospects by prioritising infrastructure investment, while continuing to implement economic reforms and increasing spending to address key service delivery priorities, must be retained.
The only way to retain these commitments without borrowing more, raising income tax levels or increasing VAT, is by announcing tax system reforms on 12 March – on the principle that those who can afford to pay must be asked to do so – beginning with a reduction to the cap on permissible retirement deductions.
Adjust cap on retirement contributions
National Treasury/SARS estimated in the 2021 Tax Statistics that, for 2020, PIT (Personal Income Tax) deductions totalled R 240 billion; of which R 154 billion benefitted taxpayers with taxable income of R 500 000 or more. A large share of this benefit is in the form of tax deductibility of retirement contributions.
The deductions are too generous to richer South Africans; changes are possible which continue to incentivise retirement contributions but reduce costs to the fiscus and free up resources.
The current threshold is set at the lower of R 350 000 or 27.5% of taxable income. This is too high and in practice amounts to virtually all retirement contributions being tax deductible.
Reducing the cap would ensure that retirement incentives exist for all tax payer through to the middle and upper middle class, but would eliminate tax deduction benefits for the very rich.
Through adjusting the cap on personal income tax deductions for retirement contributions the Minister will begin to find the R58 billion he needs in the immediate term (2025/26 budget).
This adjustment will create the wriggle room needed, this year, to work towards implementing a wealth tax in 2026/2027 to enable the country to start tackling shameful inequality, fund more meaningful social and economic programmes, and begin to reduce the national debt.
Lay groundwork for a wealth tax in 2026/27
A Wealth Tax was first proposed by the Truth and Reconciliation Commission in 1998. In 2018, the Davis Tax Commission report on a Wealth Tax reported: “Given the disturbing levels of wealth inequality in South Africa, a taxation system that would ignore such disparities of wealth will lack the important requirement of legitimacy in the tax system”.
A 2021 study published by the National Institute for the Humanities and Social Science at Wits University, “A Wealth Tax for South Africa”, found that the richest 10% of the South African adult population (350 000 individuals) own 55% of aggregate personal wealth – and have an average wealth which is 340 times that of the bottom 90%.
Their study proposed that a wealth tax be levied on personal wealth in excess of the average wealth of the top 10%, which at the time of their study was R3.6 million. Those whose nett wealth was less than R3.6 million would pay 0% in wealth tax. Those whose personal nett wealth exceeds R3.6 million would pay a moderate wealth tax on the wealth in excess of the R3.6 million threshold.
This would be sufficient to cover some 85% of debt-service costs and about 60% of all expenditures on social protection – including social security spending, all social grants, and provincial social development”.
A net increase of R173.3 billion in non-interest expenditure over the next three years for infrastructure investments, social protection, and provisional allocations for critical frontline services was included in the budget-that-wasn’t.
This is R173 billion that the country cannot do without: R46.7 billion for infrastructure investments; R19.1 billion to keep 11 000 teachers in classrooms; R10 billion to expand access to early childhood development services; R28.9 billion on health, to keep about 9 300 healthcare workers in our hospitals, and an additional R23.3 billion on social grant increases.
No short-cut
The proposed 2% VAT increase was a short-cut to funding noble goals. The Minister of Finance now knows that short-cuts are not an option.
Besides the painstaking, but necessary, process of assessing allocation efficiency and defunding departments, programmes and projects that have had little impact, and thus freeing up government waste, there are tax reforms that make sense and can be implemented without delay.
Those who can afford to pay must be asked to do so. The benefits of narrowing inequality, and developing socio-economic stability, will accrue to all South Africans.
Media Enquiries:
Brett Herron, GOOD Secretary-General
Cell: 082 518 3264
Email: bretth@forgood.org.za
Samantha Jackson, GOOD Media Manager
Cell: 083 550 9875
Email: samantha@forgood.org.za