Finance Minister Pravin Gordhan was walking an “election tightrope’ when he presented the Budget yesterday, the 26th of February 2014 and has done well to keep his balance, says Lew Geffen, chairman of Sotheby’s International Realty in SA.
“Particularly welcome, from the macro-economic point of view, was his decision not to raise the tax rate for the country’s highest earners from 40% to the 42% or even 45% that some commentators had predicted.”
Geffen says this type of wealth tax, similar to that recently imposed in the UK and some European countries, is of course an easy answer for governments that urgently need to raise revenues to please poor voters who are clamouring for service delivery.
“However, the Minister has realised that it is also a trap, because it generally offers only a very short-term advantage, followed by a long and often permanent drop in revenues. High earners are quick these days to react to any punitive tax measures by simply moving their wealth elsewhere and, once bitten, are reluctant to move it back again, especially if, as in SA, they perceive their contribution are being wasted through widespread corruption.”
As it is, he says, the 2013 Budget Review shows that while those earning more than R500 000 a year make up just 8,4% of SA’s 14m registered taxpayers, they account for almost 55% of the tax revenue that is being collected, so government can’t really afford to alienate them.
“The renewed focus on reducing government spending and creating private sector jobs that will broaden the tax base is a much more equitable, sustainable and investor-friendly solution to the revenue problem.”
These measures will also benefit real estate, says Geffen, as will any expenditure on education and small business promotion, which are the real keys to long-term growth and stability in this market.”
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