South Africa’s government spends over R1 trillion on two things

The government spends nearly half of its expenditure budget, which amounts to over R1 trillion, on two things – wages and interest payments.

This makes South Africa’s fiscal structure highly rigid, as these two line items are essentially “locked in”, with very little wiggle room to allocate spending to other areas.

This is feedback from rating agency Fitch, which recently affirmed South Africa’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB-‘ with a Stable Outlook.

Fitch explained that South Africa remains in “junk status” because of its low economic growth, high level of poverty and inequality, high and rising government debt/GDP ratio, and rigid fiscal structure.

South Africa’s fiscal structure is considered “rigid” because a large percentage of its spending is locked into fixed costs like salaries and debt servicing.

Wages and interest payments represent around 48% of total expenditure in the 2025 financial year.

Considering the National Treasury projected total expenditure of R2.58 trillion for the 2025/26 financial year, this means the government will spend over R1 trillion on just these two things.

This rigid fiscal structure is a major concern, as it leaves the government with very little room to adjust its budget and redirect funds if priorities change.

It hampers fiscal flexibility and, therefore, budget deficit reduction. Reducing South Africa’s budget deficit is critical for the country’s financial future, as maintaining budget surpluses will allow the government to reduce its debt burden and, therefore, debt service costs.

Reducing its debt burden will give the government more flexibility to spend on other priority items and redirect funds to more productive areas, such as infrastructure.

Currently, the government spends around R1.2 billion a day servicing its debt, with interest costs taking a larger slice of spending than education, healthcare and police services.

The graph below shows the government’s projected main budget primary balance compared to its debt-service costs, with the latter expected to stabilise over the next few years.

Government’s millionaires

The government’s high spending on wages has also been a highly contentious line item over the past few years.

South Africa’s public service has long been described as bloated and overpaid, with the National Treasury taking measures to slow the growth of the public sector wage bill in recent years.

This wage bill includes the compensation of government employees at the national, provincial, and local levels. It also includes the wages of employees at public entities and state-owned enterprises.

In 1995, total public servant compensation in South Africa was R55 billion. In the 2023/24 financial year, this figure ballooned to R724 billion.

A Centre for Risk Analysis report showed that South Africa has the third-highest government wage bill as a share of GDP among 20 major economies.

The public sector wage bill is 3.5% higher than the Organisation for Economic Cooperation and Development (OECD) average.

Over the past decade, the wage bill’s growth has far outpaced inflation, and an increasing share has gone to the highest earners.

In 2024, Minister of Public Service and Administration Noxolo Kiviet revealed the number of government employees in the highest salary brackets.

She said in response to a Parliamentary question that 28,343 employees made an average of R1.08 million annually, followed by 6,754 earning R1.23 million and 1,994 earning R1.24 million.

At the very top, 631 employees boasted an average annual salary of R2.16 million, with another 117 averaging R1.74 million. The total cost to the government for the 37,839 employees earning over R1 million was over R45.35 billion annually.

This reflects a trend in where the highest earners are receiving a greater share of the wage bill due to increases in the cost-of-living adjustment.

However, the National Treasury is trying to rein in spending on wages, with an early retirement programme expected to have a significant impact.

Godongwana’s 2025 Budget provided R11 billion in funding to encourage older public servants to retire early, with hopes of achieving a younger and relatively cheaper state workforce.

As part of this programme, up to 30,000 state employees are expected to opt for early retirement, which could result in savings of R7.1 billion per year.