Matthew Lester: Thomas Piketty’s Inequality 101 (Wealth taxes) – no easy solution

Thomas Piketty, the well-known French economist was recently in South Africa. He did eventually make it here following a passport failure – not enough pages in the book, so one can’t blame Malusi Gigaba for that. And in Piketty fashion, he gave the crowds a lesson in inequality – as Matthew Lester says, he’s the ‘current champion’ of the inequality debate. Some say he’s most likely going to win a Nobel Prize one day. In this piece Lester says South African Universities should commence with Inequality 101 studies as it’s not going to go away anytime soon – there’s no easy solution. – Stuart Lowman


by Matthew Lester

Perhaps all university studies in RSA should commence with Inequality 101. If we could just get a better understanding of what inequality actually entails. That would be worth a great deal in debating the solutions.

Thank you to the University of Johannesburg and the Nelson Mandela Foundation for bringing celebrity economist Thomas Piketty to South Africa. He is after all the current champion of the inequality debate. And all South Africans need to pay attention.

Some economists love Piketty’s work and predict that some day he may win a Nobel prize. Others disagree and say his work is not worth much more than a rewrite of Karl Marx’s Das Kapital.

The important issue is that Piketty is enjoying rock star status throughout the world.  Politicians are walking around armed with Piketty’s huge book ‘Capital on the 21st century’. Who knows if they have ever read the 1000 or so pages.

Read also: Labour leader Corbyn enlists star economists Piketty, Stiglitz as advisors

Worldwide, inequality is on the increase. Even CNN’s Richard Quest can get that right when he says ‘there are more billionaires than ever before. Are you getting your slice of the pie?’

Piketty reckons inequality levels of the 21st century could even reach and exceed the levels of the 19th century.

South Africa is no exception. One would think that inequality has reduced since 1994.  But according to Piketty’s graphics inequality has actually increased dramatically in the past 20 years.

Piketty calculates that the top 1% of RSA enjoy more than 20 percent of income. And the top 10% gather more than 60%. This is not news. The SARS statistics  have shown this for the last 5 years. Perhaps our politicians just never study the annual SARS statistical reports and only listen when the likes of Piketty hit the stage.

But there is so much more to the measurement of inequality than just income shares. In direct contrast last year’s World Bank studies reflect that RSA’s Gini coefficient has reduced to 0,59. (That is if you take into account government expenditure on health care, education, grants etc.) So, straight away there is room for robust debate.

Read also: Matthew Lester: Vote out political bullies – somethings gotta change

You don’t have to be at university to feel the ever-growing vibe of discontent in RSA. It’s every ware. A virtual powder keg. The Marikana tragedy even features up front in Piketty’s book. And the primary cause must be inequality.

What can be done?

Piketty is a fan of wealth taxes. Perhaps this is an obvious solution.

Wealth taxes in RSA consist of Estate duty, donations tax and transfer duty. They don’t even make up 1% of total tax collections. Then add to the debate the fact that RSA has no reliable record of where the wealth is held or concealed.

Over the past 15 years SARS has done well in tightening up on income tax (personal and corporate) and consumption taxes (VAT, Sin Tax, Fuel Tax, Electricity Tax and customs duty). If wealth taxes are to become the priority this is going to be a long and expensive row for SARS to hoe. And the yield is highly debatable.

Lets face reality; wealth taxes are never going to be the silver bullet in the NDP. At best they could make up a few percent of the total tax base.

All taxes are unpopular. But Wealth taxes must be the most unpopular taxes of all. It is just amazing the effort taxpayers put into curbing estate duty, yet they accept huge increases in personal tax and consumption taxes. Why?

Read also: Shawn Hagedorn: Staring at the problem won’t fix income inequality

Sir David Attenborough puts it that if we cannot have immortality the next best thing is passing on your genes. I once subscribed to this line of thought then perhaps passing on genes with no money to support them is not exactly ice cool. So the struggle to avoid wealth taxes is perhaps in someway linked to the struggle for life itself.

So if we are to do something about inequality through higher tax rates the logical answer is to increase income tax and leave wealth taxes behind. But then again there never has been much logic in tax.

Whichever way we look at it the inequality debate is not going to disappear. Perhaps, along with issues of the environment, revised thinking in corporate governance and the new kinder form of politics, we are heading towards an era of substantial change.

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