South Africans among the most heavily taxed people in the world

Finance minister Pravin Gordhan is under pressure to find an extra R28 billion in tax revenue – which is likely to come out of the pockets of South Africans who are already among the most heavily taxed people in the world.

In a column written for Finweek, economist Mike Schussler provided data showing that South Africans are some of the most taxed individuals in the world – sitting well within the the top 20, and climbing every year.

According to Schussler, there is a great deal of ‘spin’ involved every year when the budget speech is delivered, focusing on the more positive ‘tax relief’ delivered by government, with little fanfare around the real metrics – how much tax we are paying relative to GDP.

In fact, Schussler said, South Africa’s tax expressed as a percentage of GDP collected is far higher than the global, high income country and the upper-middle income country averages.

“SA has one of the highest overall tax-to-GDP ratios in the world today. World Bank data shows SA is also part of the world’s highest regional tax area,” the economist noted.

“We have been in the top 20 highest tax-to-GDP countries for about a decade now and were always in the top quarter. Now the tax burden is being raised by new taxes such as carbon and sugar taxes.”

Worse still, very little comes of it, Schussler said.

“South Africans get little value for the high tax burden if one compares education and health outcomes across countries. Very large class sizes and too few doctors given the size of the population are just two examples, while our public service wage bill is the fourth highest in the world,” he said.

The situation leads to spiral of decline: “Companies and people who add value do not want to give up so much for so little in return, so the investment dries up as taxes increase, and employment growth suffers, and more people want services.”

More tax = more money to waste

Finance minister Pravin Gordhan is faced with the challenge of covering a R28 billion tax shortfall, with few options on where to turn to get it. The most likely avenues for revenue have been identified in a jump in the fuel levy, heavier sin tax, or other taxes on the wealthy.

DA shadow minister of finance David Maynier and DA MP Alf Lees have suggested that National Treasury should focus on reeling in corruption and wasteful spending before taxing an already heavily taxed nation.

Irregular expenditure in South Africa ballooned to R46.3 billion in the 2015/16 financial year, not including the fruitless and wasteful expenditure added another R1.37 billion to the total.

Despite Gordhan’s previous declarations on government spending, ministers and other public officials have continued to spend millions of rands on luxury vehicles, hotels stays and ‘business trips’, while investigations are uncovering years and years of tender abuse, get-rich schemes, and widespread corruption have been sucking the country dry.

Academics and analysts have suggested that president Jacob Zuma and government in general be supportive of Gordhan’s bid to reel in government spending. To the contrary, however, speculation is rife that Gordhan is the cross-hairs to be booted out of Treasury and replaced with former Eskom head, Brian Molefe.

Pro-Zuma factions within the ruling party have openly criticised and called for Gordhan to be removed from the finance portfolio for impeding “transformation goals”.

The National Treasury under Gordhan has blocked a number of high-cost government programmes, including the R500 billion nuclear build, as well as multi-billion rand government bailouts for state-owned companies.

Read: Where Gordhan will find R28 billion in additional tax revenue in 2017