One wealthy family supports 20 poor families in South Africa

Efficient Group chief economist Dawie Roodt said it is crucial for South Africa to look after wealthy individuals, as they support the country and its poor citizens.

Roodt shared his views during a discussion about South Africa’s tax system on the Salaamedia podcast.

South Africa has a very narrow tax base, with 978,140 people, or 1.5% of the population, paying 60.9% of all personal income tax.

Even more concerning is that 1,051 companies paid 72.3% of all company income tax in South Africa in the last financial year.

This means that a very small group of companies and individuals pay most of the tax in South Africa, which is needed for education, healthcare, and social grants.

Considering that South Africa has more than 28 million people who receive monthly social grant payments, it is a tremendous burden on taxpayers.

One of the biggest gripes for South African taxpayers is that, despite the country’s high tax burden, they do not receive much value for the taxes they pay.

Roads are full of potholes, the public healthcare system is deteriorating, and the education system produces some of the worst results globally.

Wealthy families in South Africa typically don’t use public healthcare or education, which means they also don’t benefit from these public services.

Roodt created an equation to establish the value which income tax payers receive in return for the money they give to the government.

It showed that a household with an income of R1 million per year gets less than 5% of the value they pay in taxes.

Put differently, for every R1 this family pays in taxes, it will receive less than 5 cents in value from the government.

“If the family’s income goes up to R2 million or R3 million per year, they get far less value from the state for the tax they pay,” Roodt said.

South Africa must hold on to its rich people

Roodt said his calculations showed that one family with an income of R1 million pays for approximately 20 poor families to get services from the state.

The taxes from this one family pay for the education, healthcare, grants, housing, and other state services of the poor families.

Families with a household income of R2 million or R3 million per year support even more poor families, as their tax burden will be much higher.

This highlights the importance of retaining South Africa’s tax-paying population, many of whom are considering leaving the country.

“A small group of wealthy individuals carry a very heavy tax burden in South Africa. We are completely overtaxing rich people,” Roodt said.

He highlighted that if the state continues to overtax this group, they will react in a way which is detrimental to the country.

One way is to aggressively use methods to avoid paying tax, which results in lower revenue for the government.

Another is that they leave South Africa. “Many rich people emigrate, which means South Africa loses productive individuals,” he said.

“Wealthy individuals will move to other countries where they either pay less tax or get more value from the state for the tax they pay,” he said.

Roodt said the state must realise that wealthy individuals are very important to South Africa and that they should be looked after.

“They are the people carrying the state’s finances, they are the economic growth engine, and they are behind most of the savings,” he said.

His message to the government is simple. “Look after our rich people. We need them.”