As much of the world attempts to recover following the economic fallout of COVID-19, implementing a wealth tax has been the point of discussion is several countries. As you may already know some economies have already shook hands with this new norm while some are still in the consideration phase.
What is wealth tax?
According to the Wealth Tax Commission, a wealth tax is “a broad-based tax on the ownership of net wealth.” Broad-based refers to a tax on most types of asset, which include cash, bank deposits, real estate, and more. There are a handful of countries in the Organisation for Economic Co-operation and Development (OECD) that have a wealth tax implemented, however, the policies can differ significantly depending on the nation. For example, the Wealth Tax Commission distinguish between a one-off wealth tax and an annual wealth tax. Currently, Norway, Spain and Switzerland are some countries that collect revenue from taxing their wealthy population.
Nonetheless, implementing a wealth tax is much easier said than done. Experts have said the tax is difficult to enforce, could suppress innovation and entrepreneurship and could even be unconstitutional. Contrarily, the tax could be transformative in tackling wealth inequality and bolstering economic recovery. Argentina is one country that has recently introduced a one-off levy on its wealthy to support the economy during the pandemic.
Other economies considering implementing a wealth tax:
The US is also one of the nations flouting the idea of a wealth tax. While the topic has been discussed in American politics for several decades, it was reinvigorated by Senator Elizabeth Warren during her presidential campaign. Warren called for a two percent tax to be levied against the US’ super-wealthy demographic as a means of dealing with wealth inequality. While the Biden administration has not yet announced a wealth tax, it is clear that the current President is on the same line of thinking as Warren.
With the number of Americans renouncing their citizenship at unprecedented levels, the introduction of a wealth tax might present another push factor for high net-worth individuals to renounce US citizenship and seek greener pastures for both economic or social reasons.
If wealth inequality is a pre-requisite for introducing a wealth tax, some would argue South Africa should already have one implemented. The disparity between the nation’s most impoverished population and the super-rich is staggering, and the COVID-19 pandemic has only worsened the situation. A study has shown that a wealth tax could raise 160 billion rands ($10.7 billion), allowing the government to finance debt reduction.
“Taxes need to rise to make up the deficit, and that was before a pandemic came along. With the pandemic, it has simply compounded into an even bigger fiscal challenge, and the likelihood of increased taxes and a one-off ‘wealth tax’ seem almost inevitable,” said Mark McAllister, a certified international wealth manager.
Australia’s Green Party has proposed a six percent wealth tax on its billionaire population which would only impact 100 Australians and raise $40 billion over the next ten years.
The party proposes that revenue generated get channelled into important national development initiatives, including dental care, free public schools, and bolstering the job