South Africa not running out of money – because we have taxpayers, says Godongwana

Finance Minister Enoch Godongwana says the government is not running out of money and can never run out of money because it can always tax its citizens.

In an interview with SABC News, Godongwana was asked whether South Africa has run out of money.

This concern stemmed from the drastic steps proposed by the National Treasury at the end of last year to rein in spending as the government has run out of money and faces a debt trap.

These measures included a hiring freeze for new public service positions, a halt to procurement contracts for all infrastructure projects, and a limit on public servant salary increases.

In response to these concerns, Godongwana said the government is working to manage public finances prudently and sustainably.

He said this includes appropriately responding to the materialisation of risks, including unforeseen economic and financial conditions, and added – to be clear – the government has not run out of money.

Godongwana reiterated this sentiment with SABC News but added that it would simply increase taxes if the country ran out of money.

“No government runs out of money when they can tax people any day,” he said. “If we were running out of money, we would have increased taxes.”

“We didn’t do so because we are confident that we’re not running out of money.”

He said the National Treasury has assumed that, over the next years, the economy will grow by 1.6% on average.

“Unless there are too many excessive expenditure increases, which will require a tax increase, you will see in our assumptions over the next three years that we’re not planning major tax increases.”

However, in the 2024 Budget Speech tabled in February this year, the budget deficit for 2023/24 is estimated to worsen from 4% to 4.9% of GDP compared to just a year ago.

The higher budget deficit means that debt-service costs in 2023/24 have been revised higher by an additional R15.7 billion to R356 billion.

Debt-service costs will absorb more than 20% of revenue, said Godongwana.

Fragile tax base

National Treasury’s most recent data reveals South Africa’s high tax revenue concentration, with personal income tax (PIT) expected to generate around R739 billion in this financial year.

PIT generates around 40% of South Africa’s entire tax revenue, much more than the revenue generated from value-added tax (VAT) and corporate income tax (CIT).

However, it’s concerning that only a small number of South Africans contribute to this large portion of total personal income tax.

According to the National Treasury’s individuals and taxable income for the 2024/25 financial year, only 12% of the population, which amounts to 7.4 million people, are personal income taxpayers.

Additionally, only 862,000 individuals in South Africa contribute 58.7% of all personal income tax.

This means less than 1 million people, just 1.4% of the population, are responsible for funding education, healthcare, security, and social grants.

The situation is even worse when it comes to corporate income tax, which is projected to contribute R303 billion, or 16.2%, to tax revenue this year.

“This means the country has an alarmingly narrow tax base, which is a massive concern for the state’s finances. You cannot increase this.

“If this increases, the tax base will collapse as many of the 12%, as well as businesses, will simply leave the country – which they are already doing,” said renowned economist Dawie Roodt.

Read: Billions of rands continue flooding out of South Africa