February is budget month for South African households after the festive December and tight January. Many must reset their financial plans, as they face unpaid bills from the festive season and large expenses such as school fees and uniforms. They must make ends meet within the limitations of available means and resources.
This issue is at the heart of economics. What people want and need is unlimited, while their means and resources are not. Even wealthy households face restricted resources in the form of limited time. It was Oscar Wilde who said: “No man is rich enough to buy back his past.”
Limited means and resources leave households with difficult choices. After paying direct taxes, households must decide what to spend disposable income on. The first choice is between saving and consumption, which is a challenge, as saving is nothing but sacrificed consumption. Even inherited wealth results from consumption sacrifices made by earlier generations.
Consumption is always more attractive and pleasurable than diligent saving. Many households end up in financial trouble because they lack discipline in this age of instant gratification.
February is also budget month for the South African government. The annual budget in February sets the tone for the government’s next fiscal year, which starts on April 1. It is followed by the medium-term budget in October, in which the government announces its expenditure plans for the next three fiscal years.
Of course, the difference between households and the government is that whereas households face limited income, the government can increase its income by raising taxes. In practice, this means nothing but squeezing South Africans for more money.
Taxpayers are therefore reasonable in their expectation that the government should apply discipline in its expenditure as much as households do. At a minimum, they expect value for money in exchange for the taxes they pay.
State capture, corruption and a lack of responsible government spending have caused a serious trust deficit in taxpayers. Politicians have only themselves to blame for this. No wonder somebody once said that many political appointees assume within a short time that they were appointed on merit.
The main revenue sources of the government are personal income tax, company tax and VAT. This revenue is used to cover government expenditure and interest on government debt. Unfortunately, this spending also funds corruption.
It is easy to talk about the eradication of corruption but difficult to do in practice. Promises President Cyril Ramaphosa have made in this regard become increasingly hollow, and the corrupt simply get smarter and richer.
Corruption is not a budget line that can simply be cut from government expenditure. Corruption is endemic, and action must follow promises. Talk is cheap, but money buys the whisky.
The culture of corruption will not change until Ramaphosa acts decisively against the corrupt in the ANC and the cabinet. However, decisive action against corruption is a big ask from a man whose cash was once hidden in a couch.
Corruption in the ANC goes as far back as the arms deal scandal. Some connected politicians gained personally from the procurement of armaments, and suddenly the tenor at the top set a low standard for the rank and file.
One of the consequences of corruption is a lack of economic growth. With insufficient service delivery and infrastructure investment, economic growth was choked, to the detriment of all South Africans. Unemployment got out of control.
South Africa’s main challenge is the restoration of economic growth. As the ANC government had no plans to address this, all eyes have turned to the GNU.
Taxpayers can also no longer afford the dreams of politicians that soon turn into nightmares
Capitalists believe that rapid economic growth is beneficial to all, as the tax base grows. This leads to revenue growth that the government can use to fund its various programmes, such as social grants. It also leads to investment that creates jobs in the economy.
In contrast, socialists believe that taxes should be raised to fund government programmes, and that such programmes will increase demand and consumption, which will stimulate economic growth and eradicate unemployment.
Socialists are suspicious of wealth and the wealthy. They hold the view that “the wealthy” can carry an ever-larger tax burden.
Which brings us back to household budgets. Increased personal income tax and higher VAT place strain on them, as these cause their disposable income to decline. This implies either less household consumption or less household saving.
Socialists who advocate higher personal income taxes on “the wealthy” are vague when confronted with the question of whether it is in consumption or in saving that households will suffer as a result.
South Africans expect better from the government. For many years the country suffered under a corrupt ANC government with no clear plan to restore economic growth.
The GNU must show that it can do better. The February budget is too soon to expect a visible impact in the form of improvements; these can only be looked for in the October medium-term budget statement. South Africans want to see visible cuts in unnecessary expenditure, of which the examples are too many to name. They also want action against corruption.
Taxpayers can also no longer afford the dreams of politicians that soon turn into nightmares. One example is the promise ANC politicians made in the run-up to elections of new and increased social grants.
Promises have consequences, as a recent judgment in the Pretoria high court shows. The court ruled that the social relief of distress (SRD) grant should be expanded to include more beneficiaries. It should also be increased for inflation in due course. It is not clear whether the government will launch an appeal against this judgment, which has serious implications for all other grants.
The SRD grant budget for the 2024/2025 fiscal year is about R33.7bn, with a declining trend in fiscal years to follow. It therefore stands to reason that the full-year expenditure budget based on this judgment might increase expenditure by at least double the current budget. The government can fund this additional revenue only by raising taxes.
It is time for a fiscal reset by the South African government. Bad habits have continued for too long.
* Rossouw is an honorary professor at Wits Business School and a former head of the school, as well as a former deputy general manager and currency specialist at the Reserve Bank
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