A wealth tax won't be able to raise enough revenue to potentially fund a basic income grant (BIG) in the same way an increase in VAT or personal income tax (PIT) could, says Treasury's acting director-general Ismail Momoniat.
Momoniat was speaking at the Tax Indaba hosted virtually by the South African Institute of Taxation on Wednesday.
He weighed in on various tax matters – whether it be raising revenue or dealing with issues like climate change and health.
Momoniat also noted that taxes would have to be adjusted to make way for the changing energy landscape, a challenge many countries face. He noted new UK Prime Minister Liz Truss' goals to cap energy bills (amid rising gas prices) while also lowering taxes.
"She sounds to me like a great magician if she achieves that. She will probably need a Nobel prize. But I have my doubts," he quipped.
Momoniat described the tax as a "blunt tool" which people do not want to see changing much every year. In the last budget, none of the taxes were raised, barring carbon and sin taxes. He added that such punitive taxes would likely keep going up.
As for taxing the wealthy, Momoniat noted that globally and domestically, there is a strong view that people should pay their "fair share" of taxes. However, the issue with a wealth tax is that it can't be imposed every year – as a person would have to realise a certain amount of value after a few years to be taxed.
Importantly, Momoniat said that a wealth tax wouldn't raise nearly enough as an increase in VAT or PIT.
For a major spending programme like a BIG – tax will have to be imposed to fund it. A grant of R90 billion could be funded by a 3% increase in VAT or PIT.
"The other taxes simply do not raise enough," he said.
A wealth tax imposed every 10 years, for example, wouldn't raise enough either.
"You have to go back to VAT and PIT," said Momoniat. Raising corporate income tax is not on the government's cards either – because it would go against the trend of what is happening globally and will negatively impact investment and jobs."
On the other hand, VAT increases will hit poor households, and an increase in PIT will also pressure households with low-paying jobs, he said.
Momoniat, however, emphasised that a big expenditure item like the BIG would definitely require a tax hike.
"Don't fool yourself by thinking you can have a step change in expenditure and not raise one of the two big taxes, and that does have an impact on growth. You need to understand the trade-offs."