South Africa should overhaul its tax regime to fund economic-growth enhancing reforms and reduce inequality now that it’s reached the limits of budget adjustments that were aimed at reducing fiscal deficits and reining in debt, the OECD recommended.
Africa’s most-industrialized economy is battling surging debt, which the government expects to peak at 75.1% of gross domestic product in the 2023 fiscal year, and its interest bill has been the fastest-growing expenditure line item in the budget since 2011.
South Africa’s top 10% of earners contribute almost half of all revenue, and the richest 10% of its residents hold 85.6% of net wealth, according to the OECD, which sees scope for the tax system to contribute more to reducing inequality.More than a quarter-century after the apartheid system of governance that disadvantaged the black majority ended, South Africa ranks as the world’s most unequal nation.
“Reforming the personal income tax has to strike a balance between strongly reducing inequalities and preserving work incentives for middle to high-income earners,” the OECD said. “If in the future, the social relief grant covering all the unemployed working age people is permanent, it will allow for a further tailoring of the support to poor people when increasing the VAT rate.”
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