Opinion

Poorest households paying significant taxes to the state

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The 2018/19 financial year saw in various tax increases. The changes included a higher income taxes and an increase in the rate of Value Added Tax (VAT). The maximum rate of income tax rose to 45% (from 41%)  and VAT rose from 14% to 15%. Various additional taxes also rose in the form of ‘sin taxes’, fuel and road levies etc.

Taxation impacts on socio-economic groups differently and the financial year started with widespread concerns about how the VAT increase would impact on poor households. While the increased VAT rate will impact on the material well-being of all households low income groups are thought to benefit from the exemption of some basic goods from VAT.

Consumers taking advantage of the VAT exemptions are able to limit the impact of the VAT increase on their finances. Despite this even low income groups incur additional taxes when they purchase fuel and energy or items on which “sin taxes” have been imposed (cigarettes, alcohol etc.).

An analysis of consumption patterns shown by StatsSA’s Living Conditions Survey show that even the poorest households are paying significant taxes to the state. Almost one-fifth of the value of purchases made by the poorest 10% of households (i.e. those households with an income of less than about R15 000 a year) are taxes.

In other words if these taxes were not incurred the consumption of the poorest households could increase by 20 percent. Most of the taxes incurred by purchasing goods and service is in the form of VAT and the balance can be attributed to levies, duties etc.

All households, irrespective of economic standing pay approximately the same amount of consumption taxes. 18 percent of the value of the goods and services purchases of the poorest 10% of households can be attributed to consumption taxes. By contrast 17% of the value of goods and services purchased by the wealthiest 10% of households can similarly be be attributed to consumption taxes.

The wealthiest 10% of households are those with an income of more than about R300 000 a year. Households with an income of R3 500 a month (the equivalent of the envisaged minimum wage) will pay 17% of that income to taxes.

The available data suggests that consumption taxes are slightly regressive  i.e. the rich pay a little less (as a proportion of the consumption) than the poor do.

However only people earning more than R78 000 a year incur income taxes. This ensures that income taxes are largely limited to the richest 30% of households (those households earning more than R150 000 a year).  Income taxes are placed on earnings and supplement the taxes incurred when purchasing goods and services. People earning the  minimum wage fall below the income tax threshold.

Income taxes are progressive: the more an individual earns the more  tax they pay as a percentage of that income. Currently the maximum income tax rate is 45%. This tax rate (the marginal tax rate) impacts only on individuals earning more than R1.5 million a year.

Households that incur the maximum tax rate would be thus be paying almost 45% of their income in the form of income taxes and another 18% in the form of consumption taxes. This means that almost two-thirds of their income  would be ‘lost’ to taxation.

However very few individual approach the 45% marginal tax rate. On the whole the richest 10% of households pay a marginal income tax rate of just over 31%. This means that 28% of the income earned by them is appropriated by the state in the form of income and consumption taxes.

The graphic below shows the relative income, consumption taxes and income taxes paid by each income decile of the population. Each decile represents 10% of household ordered according to rising income.

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Helsinki summit is good for global peace, stability

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In less than two weeks, United States President Donald Trump and his Russian counterpart Vladimir Putin will meet face to face at a much anticipated summit in Finland’s capital, Helsinki.

From his utterances during the primaries when he was running to become America’s 45th president, Trump had made it rather crystal clear that he prefers sound relations between Washington and Moscow.

It was going to be one of his foreign policy key priorities once in the Oval office, but claims – albeit untested thus far – that Russia meddled in the US elections that catapulted him to the zenith of America’s political power had undermined the plans.

Eighteen months down the line, however, Trump is following up on an enticing possibility of world peace spearheaded by close working ties between two powerful foes.

The Helsinki Summit, therefore, has on its shoulders a huge burden of expectation that finally, once and for all, both President Trump and Putin could jointly play a leading role in making the world a much safer, peaceful place for indeed they both can and the world expects.

Choruses of disapproval from especially the Democrats in Washington are to be expected since Hillary Clinton lost the 2016 presidential election to Trump. At some point, one can only wish, the Democrats will find it in themselves to turn the page and look to the future than spending so much of their precious time dissecting the past in search of any possible Trump sinker.

Let’s face it, methinks John Bolton, the US national security advisor, captured it quite well when he recently defended Trump’s pursuit of world peace through closer ties with Russia. “I’d like to hear somebody say it’s a bad idea,” Bolton said during his recent visit to Moscow where he was working on the Helsinki Summit preparations.

He further alluded to the appetising desire to take a leaf out of Russia’s book in their preparations for the 2026 FIFA World Cup which the US will co-host with its close neighbours Mexico and Canada.

Although the FIFA World Cup currently underway in Russia is only entering its final stages, pundits and commentators are hailing the event as a truly remarkable spectacle of an era. Bolton is absolutely spot-on: learn from the best.

Bolton himself is a former hawkish politician who has said disparaging things about Russia in the past.

He refused to be drawn on his previous stand-point, saying he was now looking to the future and that his mandate is to work toward achieving truly closer ties with Moscow.

When one looks at the global hot-spots where the US and Russia are playing protagonist roles but on the opposing sides, one can only wonder at the continually lost opportunities to save lives, cities and indeed our planet.

Among the many examples of unnecessary destruction is the on-going bombing in Syria, once a peaceful, prosperous Biblical country now lying in ruins and leaving millions of its citizens either displaced or dead.

If both the US and Russian tanks were fighting in the same side, the scourge of terror groups such as Al-Qaeda would have long been dealt a permanent blow.

One of the oft-made mistakes especially by the powerful in the international order is to assume a misguided sense of insulation from harm. Yet in this globalising world, where like never before the contraction of time and space means that we are interwoven in a global village, and therefore inter-dependent, peace is a much better prospect for us and our children and indeed for many generations to come, regardless of where they are born.

The Helsinki Summit is yet another interval in history which provides an opportunity for some epoch moment to emerge out of a sweltering heat of global despair.

It is time to give peace yet another chance.

 

Opinion by Abbey Makoe, SABC Specialist Editor

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Zimbabwe’s first-time voters will decide election results

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Emmerson Mnangagwa

Zimbabwe’s youth and more specifically the first time voters aged between 18 and 25 are viewed by many analysts as the major deciding factors of who will claim victory on July the 30th.

That’s when the Southern African nation heads to the polls.

The country’s electoral commission says more than a million out of the five and half million registered voters fall in this bracket.

The main opposition MDC, led by 40-year-old Nelson Chamisa appears to be appealing more and more to this group and has been drawing huge crowds.

Incumbent leader and Zanu PF candidate Emmerson Mnangagwa was quick to target this key constituency as well.

The battle lines for the July 30th polls have been drawn. And it’s now down to serious business for the incumbent.

The President took his campaign to his home province and made it clear that unlike his predecessor he is not taking the country’s youth for granted.

“You are the future. Now, if you are the future, you must be empowered now. For you, to be good leaders of tomorrow you have to be empowered.”

Mnangagwa said his administration aims to be a middle-income country by 2030, prioritising business and economics as well.

It aims to create economic opportunities to empower the youths in all sectors reducing the unemployment rate.

Mnangagwa says, “Within the last five to six months, we have attracted in this country around 16 billion dollars in terms of projects alone and this must go towards the creation of employment, the bringing into the country of technology.”

He further called on the nation to remain patient as his administration rebuilds the country and charts the way forward for the country.

Mnangangwa has promised that his government will ensure free and fair elections.

Related video click below:

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Democratic Alliance in the Doldrums

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The Democratic Alliance (DA) finds itself in an unenviable phase of stagnation. As it approaches its Federal Congress of 7-8 April 2018 it is bogged down in identity battles. Furthermore, its 2019 plans of being the lead party in a new government may be up in smoke.

The DA’s current problems are of manifold origins: President Cyril Ramaphosa’s African National Congress (ANC) take-over is depriving opposition parties of the political oxygen they need to expand into ANC space, the DA’s coalition government ‘spear’ had been blunted, and big ANC changes are monopolising public attention.

South Africa’s opposition parties – and the DA in particular – have been left in the lurch, deprived of tangible grounds on which to attack the ANC now that Jacob Zuma has departed from important positions of political power.

The opposition contributed substantially to this major change in party politics and governance, yet it was the ANC that benefitted overwhelmingly. In the place of the Zuma-ANC there arrived a Ramaphosa-ANC (even if still fragile), for all practical purposes a new political party. We know by now that the DA is still working on the strategy to counter the new phenomenon.

In the second place, for the last five years and specifically since the run-up to the 2014 national-provincial elections, the DA has known it needs to penetrate the ANC support base in order to grow. It was with this in mind that the DA had solicited the services of former ANC pollster Stanley Greenberg. The DA of Elections 2014 and 2016 was the ‘new ANC’ of the time. It tried to be more ANC than the ANC. It was Ayisafani when it came to the ANC: the ANC was not the same anymore… and the DA offered itself as the new, real ANC.

This had a limited electoral impact – the DA was simply not the credible bearer of the message. The DA continued hovering electorally at the level of 22-25 per cent support. Specifically, the DA still failed to crack the code that ties the ANC to its supporters, ‘through thick and thin’ and specifically also in the rosier times of Ramaphosa rule.

Major obstacles were that the DA was seen as too white, elitist and liberal, and that even the leadership of a sincere black leader like Mmusi Maimane (plus some policy changes) did not crack the support ceiling. The DA became the arena for struggles between the thrusts of liberalism and its associated open opportunity society, on the one hand, and more, structured space for Black Nationalism, quotas and guaranteed racial representation, on the other hand. This ‘contest’ is ongoing; it is one of the major points of contention at the weekend’s congress. Both constitutional amendments and leadership elections will pivot around this issue of party identity.

The DA until recently lived in the hope that its 2016 document of Road to 2019, and its Vision 2019 would be its beacons into Election 2019. It envisaged that the DA would do sufficiently well in the 2019 national elections to lead opposition party coalitions in a 2019 government. This dream went up in flames.

Post-Nasrec opinion polling, such as the poll conducted by Citizen Surveys, suggests that the ANC has been recovering well from the Zuma-to-Ramaphosa transition and that Ramaphosa’s ‘New Dawn ANC’ (at least by current indications) will have no problem achieving an outright electoral majority. The DA’s own research reportedly shows that it had stagnated around the 25 per cent level of national support. Specifically, the DA’s objective of 30 per cent in a national election seems to be a mirage.

Leadership image problems around former DA leader and Western Cape premier Helen Zille, a spectrum of racist and semi-racist utterances by DA associates contributed (Diane Kohler-Barnard, former MP, and Penny Sparrow, a DA member, come to mind). The DA’s problems in handling Patricia de Lille’s case in Cape Town is wrong-footing the DA similarly.

An integral part of the DA’s stagnation-meets-dead-end is the volatility of the municipal coalitions in major metro municipalities. Opposition party alliances / cooperative arrangements were to have been the model for the DA to pursue in its quest to capture national power from the ANC. These arrangements are now in doubt because policy differences (especially on land expropriation) and a new affinity between the ANC and the Economic Freedom Fighters (EFF) have drawn the ANC and EFF closer. The EFF is unlikely if the ANC dips below 50 per cent in 2019 to align with the DA and help it to govern nationally.

In addition, the DA has drawn the short end of the stick in terms of creating excitement and interest for its congress decisions. Conferences are often big spectacles with opportunities to generate hype and expectations. This weekend’s DA event will be sandwiched between the scheduled court appearance of Jacob Zuma on Friday and the memorial services and state funeral for struggle icon Winnie Madikizela-Mandela next week.

Even if prospects generally had been better, and even if the DA deserves much of the credit for hauling Zuma back to court, the coming weekend will not be the best of times for opposition parties to capture the public imagination.

READ: DA adamant they will rid the party of corruption

DA adamant they will rid the party of corruption

Leadership image problems around former DA leader and Western Cape premier Helen Zille, a spectrum of racist and semi-racist utterances by DA associates contributed (Diane Kohler-Barnard, former MP, and Penny Sparrow, a DA member, come to mind). The DA’s problems in handling Patricia de Lille’s case in Cape Town is wrong-footing the DA similarly.

An integral part of the DA’s stagnation-meets-dead-end is the volatility of the municipal coalitions in major metro municipalities. Opposition party alliances / cooperative arrangements were to have been the model for the DA to pursue in its quest to capture national power from the ANC. These arrangements are now in doubt because policy differences (especially on land expropriation) and a new affinity between the ANC and the Economic Freedom Fighters (EFF) have drawn the ANC and EFF closer. The EFF is unlikely if the ANC dips below 50 per cent in 2019 to align with the DA and help it to govern nationally.

In addition, the DA has drawn the short end of the stick in terms of creating excitement and interest for its congress decisions. Conferences are often big spectacles with opportunities to generate hype and expectations. This weekend’s DA event will be sandwiched between the scheduled court appearance of Jacob Zuma on Friday and the memorial services and state funeral for struggle icon Winnie Madikizela-Mandela next week.

Even if prospects generally had been better, and even if the DA deserves much of the credit for hauling Zuma back to court, the coming weekend will not be the best of times for opposition parties to capture the public imagination.

 

-Susan Booysen is Professor at the Wits School of Governance

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