IEJ is wrong about corporate tax
We don’t need tax hikes. We need to stop spending money on irresponsible projects and allowing billions to just disappear into thin air.
The Institute of Economic Justice (IEJ) has proposed raising corporate income tax to 28% (from 27%), introducing a wealth tax (which sees assets being taxed, even if they are not producing an income), a 25% luxury goods tax, a financial transactions tax, and eliminating pension tax benefits and medical tax credits. This is being pushed as a superior alternative to raising VAT.
The IEJ’s proposals are, succinctly, incredibly foolish. South Africans are already one of the most overtaxed people on the planet, with a minority of taxpayers footing the bill for the majority. The IEJ’s proposals would see this overtaxed minority taxed even more. How is that ‘economic justice’?
Relying on corporate income tax is also incredibly shortsighted. Corporate tax is heavily reliant on business cycles. And in a country with anti-business policies and with industries heavily reliant on commodity booms, corporate income can plummet suddenly.
We need economic growth to increase the number of jobs, to increase the pool of taxpayers, to grow revenue, and to grow capital. Increased taxation does not help this. All it does is leave companies with less money that they can re-invest into growing their businesses and employing more people.
If anything, we should be lowering corporate tax and incentivising creating jobs, so that there will be more individuals qualifying to pay income tax. This does not only create a more stable tax base but means that more individuals are able to look after themselves and their families. This lowers the burden on the state.
A wealth tax should also not even be up for discussion. A tax on unrealised gains and assets, no matter the wealth of the owner, discourages investment, and is tantamount to theft of property. Tax is on income and profits; not on vague, abstract ideas of wealth. The IEJ acknowledges that implementing a wealth tax would also be incredibly difficult - rather, it would be unworkable.
This foolish notion needs to be abandoned. It’s a surefire way of chasing away investors and rich taxpayers.
The destruction of medical tax credits is also immoral. Taxpayers foot the bill for a public healthcare system that is corrupt and incompetently run. It is only fair that people who can afford to not burden the public health system be granted a small tax break. They are still contributing massively to funding public healthcare.
Why are we even discussing how to loot more money from South Africans? The problem with the fiscus is not a lack of tax. It’s how the money is being spent. R8 billion was identified as being wastefully spent in 2023/2024 alone. Corruption is estimated to cost the fiscus between R25 – R100 billion a year. Inefficient government procurement, enabled by BEE policies, costs the treasury so much money that if they were to eliminate BEE, VAT could be lowered to 11.5%.
The Social Relief of Distress grant was meant to last for a year or two. Now, it’s slated to keep growing forever. Ballooning from costing R36 billion presently, to R171 billion by 2032/2033.
We don’t need tax hikes. We need to stop spending money on irresponsible projects and allowing billions to just disappear into thin air.
On top of this, we need to enable pro-economic growth policies that attract investors, encourage employment, and make it easy to start companies and do business. Thousands of new, profitable businesses will grow the fiscus much faster and better than raising corporate income tax and further hurting our economic growth.
The IEJ should not be taken seriously as a policy think-tank. It’s commitment to so-called “progressive” economics belies a rejection of sound economic policies. They put their own personal view of justice, and an obsession with “equitable distribution of resources” over reality.
Additionally, their overt connection with trade unions like Cosatu, and with government officials, shows a conflict of interest. The interest of trade unions is to restrict employment to artificially keep their member’s wages high.
With unemployment being as high as it is, we cannot be allowing the interests of bloated trade unions stop South Africans from finding gainful employment.
The IEJ doesn’t care about normal South Africans. It doesn’t care about actually solving the fiscal crisis, enabling economic growth, or ensuring that South Africans get richer and happier. It only cares about an ideology that is anathema to prosperity. Their policy proposals need to be rejected wholeheartedly if we are to achieve any semblance of a positive economic outlook for more than the government elite.
Nicholas Woode-Smith is a political analyst and author. He is a senior associate of the Free Market Foundation and writes in his personal capacity.