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We all complain about how government wastes our tax money, but do you actually know how government spends every R100 you pay on tax?
According to an infographic compiled by PSG Wealth after the minister of finance’s Budget 2024 Speech, government uses R16.13 of every R100 you pay to the taxman for debt service costs, R13.70 for basic education, R12.59 for social protection and R11.48 on health. R11.20 goes to community development, R6.17 on economic regulation and infrastructure, R6.08 tertiary education and training and R5.28 on police services.
Social security gobbles up R3.76, while R2.30 goes to law, courts and prisons, R2.26 to defence and state security, R2.07 to public administration and fiscal affairs and R1.65 to industrialisation and exports.
Agriculture and rural development gets R1.17, job creation and labour affairs only 94 cents, innovation, science and technology 85 cents, executive and legislative organs 72 cents, arts, culture, sport and recreation 51 cents and home affairs 47 cents.
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According to finance minister Enoch Godongwana’s Budget Speech, government expects to collect R2,036.6 trillion in tax revenue during the current financial year, but expects to spend R2,369 trillion, showing that spending will surpass revenue again and result in a budget deficit of R332.4 billion, with R382.2 billion that will be spent on servings government debt.
Revenue makes up 27.3% of gross domestic product (GDP), expenditure makes up 31.8% of GDP, the budget balance -4.5 and debt service costs 5.1%.
The good news? This year’s expected budget deficit will be lower than the R347 billion deficit of the previous financial year. And how will government fund this deficit? Borrow more. Government has run budget deficits for the past 16 years and must pay to service this debt.
This means that the country will pay more than R1 billion per day in debt servicing costs in the current financial year. The R16.13 per R100 of taxpayers’ money it uses to service its debts includes paying interest on debt but it does not include refinancing its maturing debt.
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Farzana Bayat, portfolio manager at Foord Asset Management said after the Budget Speech that South Africa’s debt service costs are on an unsustainable path, representing the country’s fastest growing expenditure item and also significantly higher than those of our peers.
“South Africa is currently spending around 20% of our revenue on interest payments. Government will be drawing from the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) to provide critical short-term funding relief.”
She says although a total of R150 billion will be used and it is a positive step as it will be used to redeem debt and not to fund additional spending, the country’s debt servicing costs remain higher than most.
“While this approach offers some relief, it fails to solve the issue at hand which is overspending and rising debt. It is important to note that these reserves are not infinite. Put simply, if growth remains weak and if spending continues on its current trajectory, deficits and debt levels will only continue to escalate.”
Carla Rossouw, head of tax at Allan Gray, said the upward trajectory of government spending remains a concern, particularly regarding the public sector wage bill, which remains government’s biggest expenditure, the country’s exorbitant debt-servicing cost, the fastest-growing item of state expenditure and additional spending pressures associated with state owned enterprises, specifically Eskom and Transnet.
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