10 years of being taxed to death, but South Africans have little to show for it

What does SA have to show for 10 years of its populace being bludgeoned by taxes and levies? Not much if you look at the poor state of our schools, health care and infrastructure, despite allocations to various government departments meant to improve the lives of citizens.

According to National Treasury’s 2021 Budget Review, government spending, excluding interest on debt, has grown sharply in real terms over the past ten years, primarily due to increases in public service compensation.

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10 years of taxes

Official statistics indicate that total tax revenue collections for 2020/21 declined by 7.8% to R1 249.7 billion from the R1 355.8 billion collected in the previous year, although it increased from R1 144 billion in 2016/17 to R1 249.7 billion in 2020/21.

This was significantly lower than the compound annual growth rate of 9.0% in the previous five-period from 2011/12 to 2016/17.

According to the ten-year tax statistics for revenue collection that was done in 2017, tax revenue for 2009/10 was R598 705 billion, R674 183 billion in 2010/11, R742 650 billion in 2011/12, R813 826 billion in 2012/13, R900 295 billion in 2013/14, R986 295 billion in 2014/15, R1 069 983 billion in 2015/16 and R1 144 081 billion in 2016/17.

Also, according to the budget review, real annual non-interest spending rose by R213 billion between 2011/12 and 2020/21, with compensation accounting for almost half of this increase.

However, excluding compensation, real non-interest spending continues to grow by 0.4% over the same period.

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Government must reduce spending

Fiscal measures to reduce growth in the compensation bill and reducing the share of spending on public service wages were instituted over the medium term to improve the composition of spending by reallocating resources towards growth-enhancing infrastructure investment.

South Africans will therefore be watching the minister of finance Enoch Godongwana closely today, to see what he does with the public service wages.

The sustainability of public finances will depend heavily on government’s ability to reduce growth in the public service wage bill, as compensation accounted for about 34% of consolidated spending in 2019/20.

Compensation was one of the fastest-growing spending items between 2006/07 and 2019/20, increasing faster than gross domestic product (GDP) growth. By 2019/20 rising compensation spending had become unaffordable and was the main expenditure risk to the sustainability of the public finances.

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Are we paying too much in taxes?

At general government level, which includes municipalities, South Africa’s wage bill as a share of output was approximately 5 percentage points higher than the average of the Organisation for Economic Co-operation and Development (OECD), on par with Iceland and Denmark.

South African has a population of about 60 million people and had 22.2 million registered tax payers in 2019, but only 5.2 million active personal income taxpayers. This is a heavy tax burden as the tax-to-GDP ratio is 24.6%.

Such a high percentage of this ratio indicates that government collects more tax relative to the size of the economy.

The higher the percentage, the greater the tax burden. This puts South Africa on the list of top 10 countries with the highest tax-to-GDP ratios according to the IMF.

Prof. Jannie Rossouw, visiting professor at the Wits business School, says the problem lies in what the different departments do with the money allocated to them in the budget. South African citizens must hold these departments to account for how they spend the money.