World-renowned French economist Thomas Piketty believes the introduction of a yearly progressive wealth tax, even at a low rate, could improve transparency about income and wealth dynamics in South Africa and arm policymakers with the information required to formulate strategies for addressing the country’s “disturbingly high” levels of inequality.

Speaking at the University of the Witwatersrand, Piketty said, despite “imperfect” data, the evidence nevertheless pointed to South Africa’s inequality having worsened since the demise of apartheid, even after the information was corrected for higher tax collections and commodity prices over the period.

Based on income-tax information, the share of income going to the top 10% of South African earners was in the order of 60% to 65%, which compared poorly with the 30% to 35% of Europe and the 45% to 50% found in the US. It was also worse than the 55% to 60% recorded by Piketty for Brazil.

No information was available for South Africa’s wealth inequality, which included capital income from rents, profits, dividends and interest. However, Piketty, who is from the Paris School of Economics and rose to prominence after the 2013 publication of ‘Capital in the Twenty-First Century’, was convinced that it, too, was at high levels.

“We don’t have direct data on wealth in South Africa, so we know very little about wealth inequality in South Africa, which is a big problem in itself. That’s due to the fact that there’s very little, or no, access to estate-tax data in recent decades.”

But even access to such information would be insufficient to understand the prevailing wealth dynamics; a deficiency that Piketty felt could be partly remedied by “introducing a progressive tax on wealth, even if it comes with a very low tax rate”.

A progressive wealth tax was almost the equivalent of “permanent land reform, except that you are asking those who have accumulated a lot of wealth, to return a small fraction of their wealth to the community”. Piketty suggested that the solution could provide a “peaceful and orderly” way of limiting extreme concentrations of wealth.

“The ideal solution, in this case, would be to have a progressive wealth tax where we will have data on how the different wealth groups are doing and then you can adapt the tax rate to what you see,” Piketty explained, adding that it was important to adapt the tax rate and the policy as information improved.

Such a tax could also be a “useful tool” in supporting redistribution, with government’s black economic-empowerment policies (based on voluntary market transactions, at market prices) not being “enough to limit the inequality arising from the past”.

The tax should be pursued as part of a combination of strategies that also included improvements to educational quality and access, social and labour legislation, financial transparency, economic democracy and a minimum wage.

“An interesting lesson for South Africa is that minimum wages, if they are set at the right level, have played a very important and positive role in the development not only of rich countries, but also in emerging countries, such as Brazil, where it has had positive effects in terms of the reduction of poverty and the development of the economy.”

However, more equal access to education was also held up as critical, with the studies showing that students from poor families had far lower college attendance rates than those from rich families.

“I’m not saying inequality will necessarily rise forever. But it would be a mistake to believe that market forces . . . will deliver the right level of inequality,” Piketty averred.