South African taxpayers pay more for less

South Africans are set to receive fewer government services for their taxes for the next few years, as the Treasury’s fiscal consolidation efforts are expected to continue through 2028.

Described as a “painful process”, fiscal consolidation involves raising tax revenue while limiting government spending.

While considered crucial to stabilising and improving South Africa’s fiscal health, it essentially means local taxpayers will pay more and get less in return. 

It will likely also constrain the country’s economic growth and strain service delivery in the years to come.

Rating agency S&P Global said in a recent report that it expects fiscal consolidation in South Africa to continue through 2028, meaning three more years of pain for local taxpayers.

The government’s current push for fiscal consolidation started in 2021, when the National Treasury expressed the serious intention to stabilise South Africa’s debt burden to avoid fiscal collapse.

State debt has boomed over the past decade, with debt service costs now the biggest line item in the national budget, costing around R1.2 billion a day.

This has also come at a cost to South African taxpayers, as interest payments have crowded out spending on line items such as education and infrastructure.

To address this, the Treasury implemented fiscal consolidation, which has borne fruit. The government is set to achieve its third consecutive primary budget surplus in 2025/26 and, crucially, stabilise its debt burden at 77.9% of GDP in this financial year.

“For the first time since the 2000s, government is consistently running a primary surplus, where revenue exceeds non-interest expenditure,” the National Treasury stated in the 2025/26 national Budget. 

“In time, this growing surplus will reduce rising debt-service costs. These costs will consume 22 cents of every rand collected in revenue in 2025/26 – money that could be better spent to build fiscal shock absorbers and fund health, education and security.”

The graph below, taken from the 2025/26 national Budget, shows the growth in debt service costs, expected to stabilise in the current fiscal year, alongside South Africa’s tax-to-GDP ratio.

Taxpayer pain

Fiscal consolidation is, therefore, a “short-term pain for long-term gain” strategy, with taxpayers set to bear the brunt of this pain.

Efficient Group chief economist Dawie Roodt previously estimated that South African taxpayers only get 5 cents of value from the government for every R1 they pay to the South African Revenue Service (SARS).

This is concerning, as South Africa already has a small, narrow tax base responsible for the majority of the state’s tax revenue.

Around 978,140 people, or 1.5% of the population, pay an estimated 60.9% of all personal income tax in South Africa.

Even more concerning is that only 235,542 South Africans, or 0.4% of the population, pay 33% of all personal income tax.

Notably, Roodt’s estimate of 5 cents of value per R1 paid in tax does not account for corruption, incompetence, or mismanagement, suggesting this figure is likely even lower.

At the same time, this small tax base is getting squeezed for more revenue year after year, and not necessarily just through tax hikes.

Aside from tax rate increases, the government employs a variety of measures to increase its revenue, including bracket creep and stricter enforcement by SARS.

In the 2025/26 Budget, the Treasury did not adjust personal income tax brackets for inflation for the last two financial years, and is expected to do the same for 2026/27.

This means that if taxpayers’ salaries rise due to inflation, they may be pushed into a higher tax bracket, increasing their tax burden without an official increase in taxes.

In the 2025/26 Budget, the government also allocated an additional R4 billion to SARS to strengthen the taxman’s capacity.

This is expected to increase SARS’ tax take by between R20 billion and R50 billion in 2025/26 to 2027/28, as the taxman clamps down even harder on South African taxpayers.