2 graphs that show South Africa’s government spending problem

Economist Mike Schussler has shared two graphs which show how government spending, particularly on wages and salaries, are pushing South Africa into a deeper economic crisis.

According to Schussler’s data, government spending on wages, expressed as a percentage of the country’s total wage bill, has jumped significantly over the last decade (sitting around 30%), as the country’s budget deficit has also widened.

In effect, the higher government wage bill is forcing the country to have to borrow more money – with Schussler questioning whether the country is actually getting anything for the amount it is spending.

Notably, the economist pointed out the while government wages account for 30% of the country’s overall wages, the state only employs around 12% of all workers.

“The government employs about 1.8 million people directly – but 10.2 million people remain unemployed. Does the high wage bill make sense in this context?” he said.

Adding state-owned companies into the mix, the number of people employed by the state jumps to 13%, but the wage bill then climbs to 33% of GDP.

“This means that the average government-related employed person is very well off – while the whole country has to bail out state companies, pay more in interest and taxes, etc,” Schussler said.

The second graph shared by Schussler looks at total government spending as a percentage of GDP compared to similar emerging markets and emerging markets in general in 2008, 2012 and 2019.

Here, Schussler showed, the South African government spends more than these other markets by some margin – even though the country’s GDP growth is less than a third of these same markets.

This has got progressively worse over the last decade, where in 2008, South Africa’s spending was more in line with other emerging markets.

This corroborates earlier data put out by the economist at the start of 2019, where he highlighted how government spending (especially the wage bill) was spiraling out of control.

When looking at how these wages have increased over time, Schussler said that government salaries have increased more than inflation, the JSE all share, and the average commercial salary over the past 10 years.

Commercial sector wages increase at twice the rate of inflation, while the government wage bill over the last ten years increased by three times more than the CPI.

Meanwhile, government wages as a percentage of GDP sits at around 14% – far higher than the global average of 10% and OECD average of 10.4%, with the government wage bill being 42% higher than the total collected from personal income tax.

According to Schussler, government’s wage spending extends beyond the 14% of direct costs, with outsourcing costing around 8% of GDP for government.

To counter the effects of the high wage bill, it would have to be kept below 10% of GDP for more than a decade, he said at the time.

Read: Government to introduce ‘harsh measures’ to enforce transformation in South Africa

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2 graphs that show South Africa’s government spending problem