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A wealth tax for South Africa

- Wits University

New paper shares details on how to implement a wealth tax in South Africa.

Researchers from the Southern Centre for Inequality Studies (SCIS) at Wits University, the Université Catholique de Louvain and the World Inequality Lab, Paris School of Economics have co-authored a paper, which provide the details behind an op-ed that proposes a wealth tax to assist with fiscal sustainability, as well as reduce extreme wealth inequality.

This working paper considers the feasibility of implementing a progressive wealth tax to collect additional government revenue and reduce inequality in South Africa in the wake of the COVID-19 crisis. Drawing on their companion paper on wealth inequality in South Africa, the authors, Aroop Chatterjee (SCIS), Léo Czajka (Université Catholique de Louvain) and Amory Gethin (World Inequality Lab, Paris School of Economics), estimate that under conservative assumptions, a progressive wealth tax on the richest 1% could raise between 1.5% and 3.5% of GDP. They discuss how sensitive their estimates are to assumptions on mismeasurement of wealth and tax evasion, and they examine technical issues related to the enforcement of the tax. They also explain how this new tax could interact with other capital related taxes already in place in South Africa, and discuss the potential impact on growth.

Based on this paper, there is also a wealth tax simulator available. This tool allows the user to change tax rates, thresholds, and parameters (such as evasion rates and depreciation of wealth) to see how much revenue it generates, how much tax an individual would have to pay, and how it compares to other government expenditures and revenues.

About the SCIS

Wits University has embarked on a multi-partner research and policy project focusing on understanding and addressing inequality in the global South, and building a collaborative southern institution to strengthen and sustain this work. The SCIS’s starting premise is that while technical solutions to addressing inequality are very important, they will not be politically feasible unless the social and political forces driving high levels of inequality are clearly understood and addressed. Inequality is a global problem, and studying and addressing it in South Africa will also enable the SCIS to enter into a dialogue about inequality in other settings across the global South.

The project is conceptualised around four main areas of substantive work:

  1. To identify key areas where inequality shapes the life chances of individuals.
  2. To understand, through a focus on the structure of the economy and society, and political, economic and cultural processes, the production, reproduction and intersection of power relations and inequality.
  3. To imagine and lock in an alternative configuration of power relations that generates affirmative state action, provides greater equality of access to relevant resources and fundamentally alters the structure of power relations in society.
  4. To develop a research and policy agenda for the inclusive growth of productive forces.