Could the rich be our country’s greatest risk?

Our government needs some lessons in risk management. It is placing all its eggs in one, extremely risky, basket…

Pravin Gordhan has one of the toughest jobs in the world, but, studying his Budget Speech last month (February), I could not help but think that he’s taking a huge risk. It’s almost as though he’s playing roulette, but he’s only betting on one number – and he’s betting everything.

Allow me to explain. When you play roulette, you need to hedge your bets, so you play more than one number, or you bet on red, for instance – which means that you’re betting on about half the table. Unfortunately, Gordhan isn’t doing that. He’s betting on a single number: that of the affluent and mega-rich South Africans.

We have a sorry state of affairs in our country, whereby only 13 percent of South Africans pay tax. Some people will blame this on apartheid. Others will say South Africans are dishonest. Others will say it’s logical; after all, wealth in South Africa remains highly concentrated – 95 percent of wealth is in the hands of 10 percent of the population.

What does the government intend doing to change this situation? Well, nothing. In order to get more people to pay tax, we need to create employment. This, in turn, means economic growth is required – and that’s just not looking likely right now.

Be honest: if you were an entrepreneur and you were looking at setting up a new company, would you do it here in South Africa? I’m not sure I would. Our rand bounces around like a ping pong ball, our labour legislation is just plain ridiculous and our economy is in a bit of a pickle.

As Gordhan himself noted in his Budget Speech: “Our growth has been too slow – just one percent a year in real per capita terms over the past 25 years, well below that of countries such as Brazil, Turkey, Indonesia, India or China.”

Sadly, the Budget Speech did nothing to change this situation. Instead, Gordhan decided to target the mega-rich (it is estimated that there are about 103 000 of those individuals in our country; they are expected to pay 26,3 percent of total individual income tax in 2017/18).

This is not the solution, as Ryan Ravens, CEO of Accelerate Cape Town, a business leader organisation, recently told fin24.com. “If we are to poke our heads above the herd of emerging economies, we need to get our people to work and the engine of our economy churning, and this won’t be achieved by taxing 103 000 top-earning individuals four percent more.”

Plus, there is a huge risk associated with taxing small numbers. What happens if the super-rich get gatvol and leave South Africa? Where will that leave our country? What happens if the tax base is so heavily eroded? I think we’re in a terribly risky situation. And I’m not betting on a favourable outcome.