R6 of every R10 of your tax goes to healthcare, education and grants

The 2024 budget allocated six of every 10 Rands to the social wage – spending on health, education, social protection, community development and employment programmes. This happens in a time when the country has only 7.1 million tax payers according to National Treasury’s projections.

Government spends R6 out of every R10 you pay in tax on healthcare, education and social grants, according to Duncan Pieterse, director-general at the National Treasury, in his foreword to the Full Budget Review.

Treasury says almost 51% of consolidated spending will continue to be spent on the social wage. Apart from the country’s interest payments on its debt, social wage takes up 60% of the national budget.

The social wage got another R58 billion from National Treasury, reversing the spending reductions announced in the Medium Term Budget Policy Statement in November last year, while Treasury added R251.3 billion to functions such as health, education, peace and security and social development.

This was primarily to cover the carry-through costs of the 2023/2024 public servant wage increase, extension of the social relief of distress (SRD) grant and other social grants.

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More for social services, less for all the others

Although Treasury increased spending on social services, it urged departments to rationalise their programmes and evaluate their priorities to reduce spending, saying over the medium term, Treasury will continue to support the implementation of recommendations from the 2021 spending reviews, particularly proposals to close certain programmes or institutions as part of a broader government rationalisation process.

Therefore, government cut spending on economic and community development, as well as general public services to afford the significant increases for healthcare, education and social grants, the largest parts of the social wage. Government spends more on these than on policing and economic development.

Godongwana said in his Budget 2024 Speech last week that government will spend R266.21 billion on social grants in the next financial year, which is 3.6% of gross domestic product (GDP), a significant increase from the current financial year spending of R250.97 billion.

In the current financial year 27.78 million people received grants and this is expected to increase to 28.31 million in the next financial year starting in March. More than 9.2 million people will receive the SRD grant this year, while other grants are expected to increase from 18.8 million in 2023/2024 to 19.7 million in 2026/2027.

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This is how Godongwana caught us with personal income tax

Although at first consumers were relieved that income tax and VAT was not increased, the budget had no good news for consumers although the pressure was on Godongwana to give South Africans some good news especially in an election year, Farzana Bayat, portfolio manager at Foord Asset Management, says.

“But this did not come for big business or individuals. With tax tables not being adjusted for inflation, an effective tax increase for individuals was announced, bringing in as much as R20 billion in additional revenue.

“Godongwana also confirmed that multinational corporations with an annual revenue exceeding €750 million (R15.2 billion) would be charged an effective tax rate of at least 15%, regardless of where the profits are generated. The proposed reform is expected to yield an additional R8 billion in corporate tax revenue in 2026/2027.”

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Absence of inflationary adjustments in personal income tax

Dr Chris Blair, CEO of 21st Century, says on one hand, the restraint of significant tax increments offers a semblance of relief amid prevailing economic fluctuations, while on the other hand the strategic use of reserve funds to augment public sector wages in critical services heralds a reinforced allegiance to social expenditure.

“Delving deeper into the individual impacts, the decision to maintain the current VAT rate alongside unchanged wealth tax and levies directly influences the cost of goods and services, thereby stabilising consumer expenses.

“However, the absence of adjustments in personal income tax tables to counter inflationary pressures ominously looms as a potential detriment to disposable incomes, heralding the phenomenon of “bracket creep” and the consequent erosion of real disposable income.”