Forget the budget – this is how government really spends your tax money

It’s quite an occasion when the minister of finance presents government’s budget to parliament and the public in February each year. Almost all parliamentary members attend, and the media devotes most of its space to the budget speech.

Everybody has something to say, from tax experts and accountants to economists and dieticians. It carries on for days.

Just more than a year after the event, Statistics SA publishes a report on the financial statistics of government, which shows how the different state departments really spent the money and, more importantly, where the money came from. In sharp contrast to the announcement of the budget, this report generates little excitement.

Yet these figures are much more interesting than the estimates of the original budget. For one, they disclose government spending by the type of activity in addition to spending by each department.

Where most of the money goes

Stats SA’s analysis shows how salaries and wages paid to government employees, social grants and interest on government debt swallow up most of what is left of the budget following the transfers to provincial governments and municipalities.

Of the nearly R1 447 billion that government spent during the 2017/2018 financial year, more than R849 billion was transferred to provinces and municipalities, equal to 58.7% of total government expenditure.

Municipalities are supposed to use this money to provide services to communities, but further analysis is bound to show that most municipal spending also goes towards salaries.

Interest on government debt amounted to R162.7 billion (11.2% of total expenditure) and compensation of employees came to R157 billion (10.8%).

Spending on social grants came in at R155 billion, representing 10.7% of government expenditure in 2017/2018.

In addition, spending on interest, grants to municipalities, social grants and salaries increases year after year, which is disturbing in itself. The result of these increases is that there is little money left over to acquire goods and services to actually deliver physical services to communities. For instance, interest payments increased by 11% compared to the previous year due to ballooning government debt.

Government spending 

R million	2017	2018	Change
Interest	146 453	162 721	11%
Grants to provinces and municipalities	777 213	849 473	9%
Social grants	143 272	155 264	8%
Salaries	148 027	157 118	6%
Purchase of goods and services	68 322	67 902	-1%
Subsidies	11 371	11 157	-2%
Other payments	34 551	43 038	25%
Total	1 329 209	1 446 673	9%

Source: Compiled from Stats SA figures

Stats SA notes that the R9 billion increase in compensation of employees, from R148 billion to R157 billion, was mainly due to salary increases at the departments of police, correctional services and defence.

Expenditure by the Department of Defence and Military Veterans deserves special mention. This department spent more than R24.5 billion on salaries and R9.6 billion on the purchase of goods and services to rack up total expenditure of R46.8 billion for the year to February 2018. National Treasury’s monthly reports show that the defence department requests more than R4 billion from Treasury every month.

At R49 billion during the tax year, the SA National Defence Force spent about the same amount of money as the Department of Health.

The figures show that spending on education is indeed one of government’s priorities as promised in the budget, increasing by 5.2% to R76 billion. This was one of the largest amounts on the list and just less than the R88 billion made available to the police (an increase of 6%).

Unfortunately, Stats SA’s analysis of government’s expenditure on fixed assets also shows that most of the national budget is simply spent on monthly bills. Total spend on fixed assets declined by R671 million from R15.66 billion to R14.99 billion in the year to February 2018.

Most of the categories showed lower spending on fixed assets, with the notable exception of an increase of R621 million to nearly R2.4 billion on transport equipment.

One can only hope that it was spent on trucks, construction equipment and ambulances rather than luxury vehicles for ministers and directors or senior staff of state departments.

The real meat in the Stats SA report is where it analyses the sources of the money that government gets to spend. Everybody knows – or should know – that the bulk comes from taxes levied on citizens.

Read: How much is the tax burden, really?

In the year to the end of February 2018, the tax collected increased by R65 billion to R1 216 billion, while revenue from the sale of services produced by government decreased by nearly R7 billion to only R20 billion.

Misrepresentation of a very important fact

Stats SA deserves to be criticised for the terminology used in the presentation of its analysis of tax revenue. The report states that the bulk of tax revenue comes from taxes paid by individuals, followed by value-added tax (Vat), corporate tax and excise duties.

The analysts at Stats SA should realise that all taxes are paid by individuals, and should not refer to ‘personal income tax’ as the only tax paid by individuals. Vat is obviously paid by individuals. Even taxes collected from companies and other enterprises are ultimately paid by individuals, be they rich majority shareholders or members of a small pension fund that holds a few hundred shares in a couple of listed companies.

Following a query on this point, Stats SA says that its wording is shorthand for “taxes on income, profits and capital gains payable by individuals” as defined by the International Monetary Fund’s government financial statistics manual. However, the author of the report concurred that it is a good idea to look at the terminology in future editions of the report, maybe by way of a footnote.

Change in tax revenue by tax type

R million	2017	2018	Change
Personal	425 924	462 610	9%
Vat	289 167	297 998	3%
Company	238 602	249 093	4%
Excise	112 270	123 131	10%
Other	78 118	83 632	7%
Total	1 144 081	1 216 464	6%

Source: Compiled from Stats SA figures

People easily forget that even the poor and the unemployed pay tax in the form of Vat, as well as excise duties on fuel, wine and cigarettes (at a tax rate of up to 70% per packet of cigarettes). The Vat rate of 15% represents a substantial tax burden for anyone earning a small salary, say the minimum wage of R3 200 per month.

Income versus expenditure

The change in tax income compared to the change in government spending between the 2017 and 2018 financial years is also worrisome.

While total government spending increased by 9%, government revenue from taxes increased by a lower 6%, indicating either an erosion of the tax base, lower economic activity or inefficiency on the part of the South African Revenue Service (Sars) during this particular period.

Stats SA makes the point that it collected the annual reports of all 47 national government departments to compile its report. It also mentions that national departments keep their accounts on a modified cash basis, meaning that all transactions are recorded at the time that warrant vouchers are issued for payment regardless of when obligations for payments originated.

The result of this methodology is that figures in this particular statistical report are not precisely comparable to the original budget as tabled in parliament a year ago.

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