A “wealth tax” in South Africa could significantly address two of South Africa’s triple challenges of joblessness, poverty and inequality – provided it is managed by competent individuals and institutions, according to Guy Harris, thought leader and entrepreneurship mentor.

Only quality education can address inequality in our society in a sustainable way, while a focused, well formulated use of “tax” proceeds could address a few percentage points of SA’s 36% unemployment rate and start reducing poverty for many fellow South Africans living on the edge.

Harris, a chartered accountant and director by profession, has extensive experience in helping businesses scale from the start-up, incubator phase to the accelerator and scalerator phases where more people can be employed.

Incubators help fragile start-ups get to, say for example ten employees or a R10m-turnover in a safer environment. Accelerators increase employment to 50 employees or R50m turnover, for example, on an accelerated growth path and then most of those companies plateau or need to pivot their management team to be able to scale to 500 employees or R500m turnover. When a company is in its scalerator phase true job creation occurs.

Survivalist entrepreneur support companies alleviate poverty, but are not job creators per se.

“There has been persistent speculation that a wealth tax could be implemented in South Africa,” said Harris, “but if such a wealth tax goes into the general state coffers there is the danger that it could be wasted.”

Harris suggested that individuals or companies leverage the funds emanating from a wealth tax. “These individuals or companies have proven that they can create their own wealth or manage the wealth that they have inherited,” he said.

‘You gained during apartheid’

“Basically that means saying to the rich person or company: You’ve made R100m during apartheid – whether you supported it or not – you were able to exploit opportunities. Now we’re asking you to take say 2% or 5% or 10% of that wealth above certain thresholds and put it into a fund that you’ll manage yourself, and can benefit from.

“As long as the fund meets certain objectives relating to entry-level job creation, you’d not only be allowed to keep the money in your control, but also hold onto the capital gains and only pay capital gains tax. If not, pay the wealth tax and see it go into the general coffers.”

Harris is of the view that managing a so-called wealth tax in this fashion gives government the opportunity to leverage the success of individuals or companies that have already proven their success.

“One of the conditions of these ‘wealth tax managers’ is that they need to scale the businesses they invest in from smaller companies to high job-creating enterprises where employees can be upskilled. These businesses would usually have a workforce of between 50 and 500 employees.”

A move to deregulation

Government, however, also needs to do its part to be small-business friendlier in the form of deregulation. He proposes three tiers of regulation for a company:

– Companies with 0 – 50 employees should have very little regulation, preferably only with regard to human rights and general safety in the workplace;

– Companies with 50 – 500 employees should be in a position where the balance of power lies with the employer, although employees have access to appeals via bargaining councils who should be mandated to grow industries not watch them downscale;

– Companies employing more than 500 people should be subjected to a refocused bargaining council that harnesses business and labour to grow competitiveness and employment and also determines wages with employers having ability to seek exemption.

“Deregulation will lead to the creation of significantly more job opportunities,” Harris said.

What is a wealth tax?

The idea of a wealth tax gained momentum with the publication of French economist Thomas Piketty’s book, Capital in the Twenty-First Century.

In a little more than two months Finance Minister Pravin Gordhan will table his medium-term budget policy statement, which constitutes a revision of South Africa’s revenue estimates over the medium term expenditure framework.

There has been persistent speculation that Gordhan could introduce a new tax bracket for individuals who earn in excess of R1m in taxable income annually – also called a wealth tax.

“Let’s hope he is allowed to be innovative and harness the skills of capital,” said Harris, “so that sustainable jobs can be created for South Africa’s ‘missing middle’.”