ANTHONY BUTLER: DA has to beware of progressive taxes on real estate wealth

Once ratcheted up and disconnected from local services, the tariffs will never come down

First published in BusinessLive

06 June 2025

The flexible intellectual gymnasts of SA’s political elite have adopted a variety of contorted positions on the desirability of “wealth taxes” in recent years.  

The EFF has unequivocally favoured soaking the rich, calling for a direct tax on high-net worth individuals (other than illicit cigarette manufacturers), expropriation of other people’s property without compensation, and levies on luxury goods (other than Breitling and Louis Vuitton).  

The DA, in contrast, has argued that wealth taxes undermine investor confidence and encourage tax base erosion. The ANC leadership has meanwhile steered its habitual “fudge and inaction” middle course, endorsing wealth taxes in principle while arguing for cautious implementation.

Given that many stores of wealth — for example offshore assets, trusts, art collections and herds of breeding Ankole cattle — are hard to detect and value, the SA Revenue Service will need to establish a comprehensive wealth register as a tentative step towards a formal wealth tax. 

While the EFF and the ANC support wealth taxes, and the DA opposes them, wealthy Cape Town residents believe DA mayor Geordin Hill-Lewis is launching a “stealth wealth tax” in the city. 

Revenue is needed to service Cape Town’s growing population (soon to top 5-million), replace shrinking central “equitable share” funding, and invest in long term water, sanitation, transport and electricity infrastructure.

Hill-Lewis’s latest financing proposal, open for comment until June 13, escalates rates on higher value properties and indexes services for water, sanitation and other services to property values. 

Property rates have historically functioned as user charges that pay for local services tied to property ownership. Like capital gains tax and estate duties, such wealth-linked taxes have not been viewed as formal wealth taxes, in this case because they are not applied to total wealth, which includes cash, bonds, equity, artworks and luxury goods. In Cape Town though, the boundary between municipal revenue source and wealth tax has arguably become blurred. 

Metropolitan authorities were designed as “unicities” so that higher-income households and businesses could cross-subsidise low-income households, and established areas could fund the incorporation and flourishing of new neighbourhoods and residents. A progressive rates system ensures the rich contribute more to city revenue, helping fund basic services for poorer communities and redress apartheid-era spatial injustices. 

This approach is the right one, and it is the way great cities are built. However, if cross-subsidies grow too fast, property rates start to resemble wealth taxes. The relationship between services and taxes is severed, and the vital accountability mechanism that this maintains is eroded.

Homeowners whose asset values rise while their incomes do not — pensioners, for example — are forced to sell their homes to benefit the city fiscus, when the national fiscus would benefit eventually through estate duties. 

Cape Town is in a better place than other metros, in part because of its mildly meritorious behaviour but in large measure because other cities have crashed and burnt under the ANC. The current DA incumbents must be careful not to raise property taxes simply because they can. This could set a dangerous precedent: progressive taxes based on real estate wealth will never come down once they have been ratcheted up and disconnected from actual local services. 

Finance minister Enoch Godongwana justified his abortive VAT increases a few months ago on the basis that he needed the money to fund front-line services. The DA pushed back against this lazy recourse to tax rises and insisted that he focus instead on efficiency savings.

Many richer Capetonians believe the same should be true of the mayor of Cape Town. 

• Butler teaches public policy at the University of Cape Town.