Each year, after the finance minister delivers his budget, analysts, business and political parties give us their views on what it means. Included in their presentations are numbers and graphs that the National Treasury has most helpfully provided.
It’s the same each year: a PR exercise that leads many commentators down the garden path, while analysts in the fixed-income market, and those who do their own investigations, are drowned out by the noise.
This year will be no different.
I know, because I also once had to complete presentations in record time and source Treasury data. This is the real trick by government: tell people what they think they want, but never give the big picture away.
A decade ago, I started to wonder what was really going on. The graphs we were given said SA was doing great — but South Africans were effectively paying higher taxes through bracket creep (where inflation pushes incomes into a higher tax bracket). New taxes came along (for carbon and health, for example), and not many noticed the decline in VAT exemptions.
I spent years collecting data and the results are astounding. SA has the 10th-largest overall tax burden of all countries with a population more than 1-million, according to the UN University-World Institute for Economic Development database.
Moreover, the largest tax category — personal income tax (PIT) — is regarded as the most "progressive" in the world by none other than Oxfam. In PIT terms, SA has the 10th-highest share of tax relative to GDP. But SA’s personal income taxpayers are also the smallest share of the population of any country I can find. Our taxes start way above the median income, and we have one of the smallest employment-to-population ratios.
About one in eight South Africans are registered for pay-as-you-earn, while more than one in three receive a grant. Put another way: one in 10 South Africans are in the private sector and pay PIT, while one in every 2½ receive their income from the state.
This is not economically feasible.
At the company level, SA is among the top seven countries when it comes to the tax burden — though we have fewer employers as a share of the adult population than most.
Trade unions on the Left and NGOs will often bemoan SA getting an "austerity budget". But this is not the case: for nearly a decade, SA has run one of the highest budget deficits among emerging-market economies.
In the past few years, SA has had by far the highest government spending of all countries with data available on a general government level, if you remove social benefits such as grants and housing subsidies. SA’s government spending is at least 10% larger than Denmark (at second place).
General government expenditure excluding social security is probably the best indicator of the cost of government, as it includes all three levels of government, as well as state agencies and universities.
SA’s compensation of civil servants as a percentage of GDP is second in the emerging-market universe, after Namibia. And it’s certainly in the top 10 when all countries are considered.
But despite this, the outcomes are a disaster — just think of our poor levels of educational attainment, high levels of crime, and collapsing public transport, road and water infrastructure.
The answer in SA is never really to fix the problem; it’s simply to spend more
The answer in SA is never really to fix the problem; it’s simply to spend more. It’s the standard SA answer to all ills — that, and taxing those evil businesses just a little more, of course.
SA is the only large emerging-market country with a net outflow of fixed investment, as boardrooms across SA agree with the government while running to take their cash out the country. Many top people have also left — including some of those analysts whose budget presentations suggested SA was a huge success.
See, the budget graphs you see show some of the problems, but they are a bit superficial. They’ll show concerns about debt, for example, and low growth. But they rarely show the size of the state compared with other countries, or SA’s comparative tax burden.
While corruption and incompetence are serious problems, the most serious is the one we’re not told about, and which we thus don’t address: the government is not interested in containing spending — doing so would be political suicide. In SA, political promises still win you friends, votes and jobs for those close to you. The rest can use pit latrines for all the powerful care.
- Schüssler is founder of Economists.co.za
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