When people emigrate their money, it hollows out the tax base. When they move themselves and their families abroad, it hollows out the skills base.
Hard numbers are hard to find, but indications are that both types of emigration are on the rise. SA’s economic and social crises may be scaring people away, or other countries may simply offer better opportunities than are available in SA’s zero-growth economy. Whatever the reason, the emigration trends bode ill for SA’s longer-term growth and fiscal prospects, as well as for the quality of services in public and private sectors.
Recently the Africa Wealth Report published by Henley & Partners and New World Wealth revealed that the number of high-net-worth South Africans with more than $1m in "investable wealth" had fallen by 690 to 37,800, with 400 of them having emigrated in the past year. Henley & Partners also reports that inquiries by South Africans about residence and citizenship by investment programmes shot up by 67% in the first quarter of this year, with Portugal and Namibia topping the list, along with St Kitts and Nevis, the UK and Mauritius.
The SA Revenue Service reported in February that SA lost over 6,000 individuals to emigration in the previous tax year. And though it reported in April that the number had fallen to about 900 in the latest year, set this against the fact that only 6,127 new contributing individual taxpayers joined the register in 2022 and the trend is disturbing.
Many of those wealthy individuals seeking citizenship in Portugal or Mauritius might simply be implementing hedging strategies in case SA’s trajectory worsens. Some of those emigrating for tax purposes might be moving their money but still retaining strong ties and residences in SA.
But when wealthy South Africans are heading for the exits we should worry. SA’s tax system "rests on a pinhead", as Standard Bank group economist Goolam Ballim has put it. Personal tax collections account for over a third of the total tax take. Fewer than 6-million individuals earn enough to contribute. It is a reflection of how unequal our society is. But the fact is those at the top end of the income scale contribute a disproportionate amount to the public purse. And there are too few of them. The latest official figures show only about 7,676 people have taxable incomes of over R5m a year. Only 209,000 earn more than R1m.
Those numbers are clearly underestimates. The affluent have ways and means of reducing their taxable income, even if they comply with the rules. The point is, though, that if even a few hundred wealthy households are leaving our shores, the government has a problem. However, the problem for public finances pales compared with the problem the economy has with productivity and skills if individuals are emigrating. And those most likely to do so are inevitably the graduates with globally marketable skills that the economy can least afford to lose.
UN numbers for 2020 reportedly showed over 128,000 people emigrated from SA between 2015 and 2020, up from 43,000 in the previous five years. Strikingly, too, the trend is nonracial. Far from being the old SA phenomenon of white people packing for Perth, young black professionals are reportedly leaving to take up opportunities elsewhere just as their white peers are.
At least it’s reassuring that SA still produces such great talent. But the repercussions are dire. The impact may not be immediately obvious, but in the medium to longer term the economy is losing skills as well as high-income earners — or youngsters with the potential to earn high incomes. That affects productivity across the economy, as well as eroding the tax base.
As it is, the skills shortage is one of the biggest constraints on SA’s economic growth. Emigration might not be so much of a problem if we were gaining skilled immigrants. But the recent work visa review led by former home affairs director-general Mavuso Msimang found that on average the number of skilled work visas approved for foreigners between 2015 and 2021 was hardly more than 3,600. This is way below the number required to replenish the skills base or close the skills gap.
The work visa system urgently needs to be reformed to allow foreign skills to replace lost local skills. More fundamentally, the political leadership needs to do what needs to be done to make SA a more dynamic economy and a better place to live.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.