Dawie Roodt
South Africa has certain serious economic shortcomings, such as a lack of sufficient savings, investments, job creation and economic growth in general. It is widely accepted that governments should provide a social safety net and redistribute income.
However, the extent of this redistribution in South Africa is so large that it may affect economic growth. Government expenditure has to be reduced, while the current tax base has to be broadened to alleviate the tax burden on the potential savers and investors in the country.
With certain assumptions, the extent of redistribution in South Africa can be calculated roughly. The results, as calculated in the table above, do not give the full picture as an equally dramatic effect of redistribution by provinces and local authorities also exists.
Working on the assumption that South Africa has a population of 40-million, the per capita tax in the 1998/1999 fiscal year is approximately R4 789 and the per capita government expenditure is approximately R5 420.
For the purposes of this exercise three families will be analysed, each with a working and a non-working parent and two minors. The first family is poor with an income below taxable levels; that is, R19 526 per annum or below. The second family is an “average” unit with a taxable income of R60 000 per annum. The third family is middle high-income with a taxable income of R300 000 per annum.
A few assumptions are made. Apart from income tax, all other taxes are “divided” equally between all individuals in the country. In fact, the higher-income family will also pay more of the “other taxes”. For example, they have a higher disposable income and so pay more value-added tax.
However, “other taxes” are calculated per capita after individual taxes have been subtracted from total government revenue. It is also assumed that the government is efficient and that goods and services are actually produced and provided economically.
It is obvious from the table above that the higher-income family carries a substantial tax burden. Furthermore, being a high-income family they do not qualify for government subsidies on health services, pensions, housing subsidies and some other government provided services. Chances are that the wealthiest family may be sending their children to a private school, but even if they do not, their school fees will also be much higher at a government school.
In the example, the poor family receives R21 678 worth of goods and services from the government while they contribute some R10 900 to the fiscus. For every R1 they contribute they receive 1,99 cents in goods and services.
For the average family, the rand-in/rand-out ratio is 0,98 and for the rich family this ratio is 0,09. The rich family pays R129 060 to the state and receives R11 458 in goods and services from the government.
Put differently, for every R300 000-income family that leaves the country, the government loses the funding for nearly 12 poor families.
Dawie Roodt is chief economist at Equisec