‘Lower taxation means more jobs,’ says economist

With only about 35% of people over the age of 15 working, South Africa should be encouraging a free market economy and less taxation, according to leading economists.

While conceding that SA was one of the world’s most unequal societies, economist Mike Schussler and University of Johannesburg associate economics professor Peter Baur yesterday said taxing the middle class and the rich as a redistributive policy was no solution in bridging the unequal divide.

Their comments were made in the wake of a debate sparked by the latest paper, Can Redistribution Keep Up with Inequality?

Evidence from South Africa, 1993- 2019, by Aroop Chatterjee, Leo Czajka and Amory Gethin.

In their study, the experts have noted, among others, a dramatic divergence in the growth of top and bottom income groups between 1993 and 2019 – where the pre-tax income of the top 1% rose by 50% – while that of the poorest 50% fell by a third.

Schussler maintained more jobs and less tax could be the answer in dealing with the inequality.

“According to Oxfam, we have the most redistributive tax in the world, with only 0.1% or 1% of South Africans earning as much as people overseas,” he said.

“While I agree that SA is the most unequal society, we should understand that even the richest 10% already pay a lot of tax – barely fitting into the lower middle classes in places like the US or Europe.

The top 13% is very much taxed at rates double or triple, compared to other countries.”

He said SA’s biggest problem is unemployment – standing at 34%.

“We should be looking at how we can create employment, especially in rural areas. The only way to sustainably reduce inequality in the long run is to create jobs.”

Baur said the real solution lies in encouraging the most appropriate type of investment, which may create jobs, stimulating growth and enabling the potential inherent in a free market economy.

“Redistributive policies can take on many forms. One such policy could be in the form of a progressive tax, like income tax, where higher income earners pay more tax than the lower income earners,” he said.

“In some cases, the wealthy can still benefit more than the poor from these kinds of taxes.”

– brians@citizen.co.za