Redistribution of wealth

Last week the University of Stellenbosch’s Social Justice Programme held its Third Annual Social Justice Summit and International Conference. The event was chaired by the incomparable Thuli Madonsela, former Public Protector and now the Chair of the Social Justice programme of the SU Law Faculty. The Conference’s theme was “economic equality, the July public violence, SA’s Covid-19 response and building for sustainable growth, social justice and peace.”

It was appropriate for the Conference to focus on these topics – given the parlous state in which more than half the population live – including unsustainable levels of unemployment, poverty and inequality – all of which have been exacerbated by COVID-19. These factors played a role in igniting the anarchy that swept through KwaZulu-Natal and parts of southern Gauteng in July this year.

All of this is the antithesis of the vision in the Constitution of a society dedicated to social justice, the improvement of the quality of life of its citizens and the achievement of equality.

The keynote speaker was Judge Dunstan Mlambo, the Judge President of Gauteng High Court – and currently the front runner to replace the recently retired judge Mogoeng Mogoeng as South Africa’s Chief Justice. The views that he expressed on the role of the courts in promoting social justice should thus be given the most serious consideration.   According to the Daily Maverick, (11 October 2021) he made the following points:

According to the Daily Maverick article other speakers joined in the call for the redistribution of wealth. Prof Tshepo Madlingozi, the Director of the Centre for Applied Legal Studies, observed that social justice needed to be rethought “as it could not exist without economic redistribution”.   Although the courts had handed down positive judgements in a number of cases – including Grootboom and the TAC – none had contributed to economic redistribution, nor had they “helped to disband economic apartheid.”

What Prof Madlingozi had in mind was not simply the redistribution of wealth but the racial redistribution of wealth:

“We need to be honest about the failure to talk about the lack of commitment to redistribution, restitution and reparation… The idea that you can achieve social justice without white people losing something, is ridiculous.”

Pointing to the “dire and stark” inequality between black and white South Africans, Prof Sharlene Swartz, of the Human Science Research Council, cited research that indicated that while half black South Africans believe whites must pay restitution tax, only one in 10 white South Africans feel the same.”   She said that alongside youth programmes, technology solutions and land reform “a wealth tax and basic income grant are urgent and important.”

Predictably, all this resonates with the ANC’s core ideological goal of Radical Economic Transformation involving a substantial redistribution of wealth on the basis of race.

Most liberal democracies accept the need to redistribute wealth from the rich to the poor. They do so by means of progressive income tax – which, on the whole is effective, non-racial and fair. It means that those fortunate South Africans who earn more than R800 000 spend approximately two days every week working for their fellow South Africans. They receive very little in return – since nearly all of them pay for their own education, security and health services.

Governments can – of course – increase redistributive income taxes – but have invariably found that if they do so they seriously discourage economic growth and stimulate the emigration of highly productive people. Some 800 000 South Africans of all races have already left South Africa since 1994 taking with them indispensable skills and causing a loss to our economy of hundreds of billions of rand and countless jobs.

A 1992 study by the IMF on economic policies for a New South Africa, investigated the possibility of increasing redistributive taxes. It found that, even at that time, white South Africans paid 32% of their incomes in tax but received back from the state only 8,7% in education, health and social benefits.   This gave them what the IMF called a relative tax burden 23,3%.   This was more than twice as high as the relative tax burden of the next highest country (Canada) and three times the tax burden of countries like France and Germany.

There is every reason to believe that – with the rapid equalisation of state expenditure on social services for all South Africans after 1994 – the relative tax burden of white South Africans has increased substantially during the past 27 years.

Although progressive income taxes are universally acceptable, a race based tax would be very problematical – and statutory might require a new process of racial classification. Apart from its irreconcilability with the (admittedly much diluted) foundational value of non-racialism, it would further exacerbate already strained race relations and would have a catastrophic impact on prospects for economic growth. Far from promoting social justice, it would plunge a majority of South Africans deeper into a vortex of poverty and misery.

As for Prof Madlingozi’s view that social justice cannot be achieved “without white people losing something”, he would do well to consider that white South Africans have been making a disproportionate contribution to the fiscus since 1994.

According to Econometrix 5,8% of South Africa’s population pays 92% of personal income tax and 85% of VAT. On the conservative assumption that white South Africans represent 60% of this group, they will pay about R470 billion during the current tax. This does not include their contribution to company taxes, customs duties and municipal rates.   Even if their relative tax burden in 1992 (23%) has not increased (as it almost certainly has), this means that white South Africans will transfer R340 billion to the fiscus this year over and above their cost to the state.   To put things in perspective this represents about 65% of the value of all the agricultural land in the country. Every year. Since 1994 total transfers must exceed several trillion rand.

Those involved in the national debate on social justice would do well to ask whether it would really be a good idea to chase away a cow that produces so much rich milk.

All reasonable South Africans – including our courts – should unite to address the stark, dire and increasing plight of more than half our population. However, the basic challenge is the production – and not the redistribution – of wealth.   What South Africa desperately needs is policies that will create the circumstances for sustained high levels of economic growth – including the attraction of investment, vastly improved education and social services, much more flexible labour policies; competent and incorrupt government; and the abandonment of intrusive race-based policies.  

All those who are interested in advancing social justice should follow the example of other successful societies – rather than, with the very best of intentions, hurtling down the road that leads to Zimbabwe and Venezuela.

By Dave Steward, Chairman of the FW de Klerk Foundation 

15 October 2021