Big money problems for South Africa

 ·20 Jun 2024

Since the Treasury’s proposed crackdown on spending at the end of 2023, concerns where raised that South Africa had run out of money – and economist Dawie Roodt says this is still a very real concern.

In October 2023, the National Treasury proposed significant measures to reduce spending because the government had depleted its funds and was at risk of falling into a debt trap.

These measures included freezing the hiring of new public service positions, halting procurement contracts for all infrastructure projects, and capping salary increases for public servants.

Since then, Finance Minister Enoch Godongwana has downplayed the issue, responding to critics that the government is working to manage public finances prudently and sustainably.

However, Efficient Wealth chief economist Dawie Roodt said the risk of South Africa falling into a debt rap remains a concern, noting that the country in 2024 is in a worse fiscal position than it was a year ago.

Roodt explained that the trend of concern can be observed by looking at South Africa’s fiscal debt, which continues to increase daily.

Currently, South Africa’s debt-to-GDP ratio is around 72%, and it has risen sharply over the past decade.

This increase can be attributed in part to inflation, raises in civil servant wages, and an upsurge in spending on social grants.

These escalations make up approximately a third of state expenditure, having risen by an average of two percentage points above the inflation rate annually over the past decade.

Another worry is the country’s debt repayments, which consume a larger portion of South Africa’s budget each year.

We’re in a worse position because the debt situation has worsened and continues to worsen every day,” Roodt said.

Godongwana reiterated this sentiment in the 2024 Budget Speech tabled in February this year. He noted the budget deficit for 2023/24 is estimated to worsen from 4.0% 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.

Taxpayers will not foot the bill

Speaking to SABC News, Godongwana was asked whether South Africa has run out of money, and he said it’s wrong to say the country has.

He went on to say that South Africa 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.”

However, both Roodt and PwC tax partner Professor Osman Mollagee said that Godongwana’s inelegant solution would be a very bad idea.

Based on data compiled from the National Treasury, South Africa’s tax base has grown by less than 16% over the past decade, while revenue from personal income tax has more than doubled.

Although the number of personal income taxpayers increased, the total number of registered taxpayers decreased by almost 7% between 2014 and 2024.

It’s worth noting that the government’s personal income tax revenue has increased by 109% over the same period, outpacing inflation by 48.4%.

The South African government is challenged to generate more revenue from a stagnant tax base.

Roodt agreed with Mollagee and added that increasing taxes is not feasible, as rich people and companies will leave the country if it happens—which they are already doing.

Below are graphs showing the meagre growth of personal income taxpayers over the past 10 years, compared to the immense growth of government tax revenue.


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