This article was first published on Businesslive.co.za on 14 March 2022
Government an increasing burden on the taxpayer
On Thursday, 12 May, South Africans stop working for the state and start working for themselves.
That day is Tax Freedom Day; this year it falls 10 days later than last year, and 4 days later than the year before. This is probably the largest year on year jump we have seen since 1994.
To put this into greater perspective, back in 1994, it took 101 days to pay for government before South Africans could start earning for themselves. It now takes 132 days – a whole month more – and the state has helped itself to more than half of the economic growth since 1994. The long-term trend is toward increasingly later Tax Freedom Days – especially considering the elevated level of borrowing, this trend is likely to continue.
To calculate this estimate of Tax Freedom Day we first estimating General Government Revenue by multiplying the planned central government budget as a percentage of GDP by 1.3, and then multiplying the result by the number of days in a year and adding a day.
The treasury estimates real growth in the coming year to be 2,1%. Typically, these predictions are overestimates. Indeed, the guess for 2021 was revised downwards from 5,1-4,8%. Admitting they were wrong is laudable, since high level functionaries do not always do so because it would take up almost all their time. Still, that does not change the expectation that growth and GDP are likely to be lower and hence the tax burden higher, than predicted.
Now in the Budget Speech the Finance Minister did make a lot of encouraging noises about reducing the massive debt, and the huge burden imposed by state owned enterprises. If that comes to fruition it would make Tax Freedom Day earlier and be a great boon to the country, considering that paying interest on debt and bailing out SOEs amount to 9,9% of GDP, and 27,7% of general government revenue. On the other hand, we have often heard similar noises before only for it to be followed by even more debt and bailouts.
A full 68% of municipalities are in financial distress and the budget allocates R28,9 billion extra to bail them out. That is 16,4% – or a sixth – of those ten extra tax days. Some of this distress is the result of non-payment for services, but much of it is due to enormous expenses (excessive salaries, etc) incurred by those municipalities. The Minister hinted that much of the money that they receive is not being spent on providing services.
South Africa has an exceptionally large tax burden for the size of our economy. It has the 12th highest income tax burden, the 9th highest company income tax burden, the 77th highest indirect tax burden (before the increase), and the 14th highest non-resource tax burden. SA also has an exceedingly small tax base that is forced to carry an excessive share of the cost, and therefore are being strongly encouraged to leave; despite that, we have little to show for it. For example, the state of education is terrible – we do worse than places like Eswatini and Zimbabwe on international tests; we spend too little on infrastructure; the military is ill-trained and ineffective, and parts of the police are as crime prone as the general populace and very corrupt.
Tax Freedom Day is just too damn late; but who knows, maybe this particular government just might deliver.