Finance

Taxes mean government will never run out of money – Godongwana

Enoch Godongwana

Finance Minister Enoc Godongwana said the government is not running out of money and can never run out of money because it can always tax its citizens.

In an interview with SABC News, Godongwana was asked whether South Africa has run out of money.

This comes after reports last year that the National Treasury had to propose drastic steps to rein in government spending as it faced a massive deficit and growing debt.

The Sunday Times reported in 2023 that the National Treasury prepared radical measures after a cabinet meeting in August at which ministers were warned of dwindling tax revenue.

The measures included a freeze on new public service jobs, stopping procurement contracts for all infrastructure projects, and keeping public servant salary increases in check.

“The spending cuts have been widely welcomed and indicated that the government had ‘run out of money’ and faced a ‘debt trap’ as growth had stalled,” The Sunday Times said.

In the 2024 Budget, Godongwana revealed that the 2023/24 budget had moved to a deficit of R347 billion.

This was largely due to government overspending and lower-than-expected tax revenue, particularly for corporate income tax.

He also announced that South Africa’s net loan debt has grown to R5.06 trillion – 71.7% of the country’s GDP.

The government’s debt burden has continued to grow over the past few years, and is now well above the emerging markets average of 50%. 

This growing debt has also seen the government’s debt servicing costs skyrocket, and it is now one of the largest spending items in the budget. 

Godongwana revealed in the Budget that debt-service costs will absorb more than 20% of revenue.

“To put this into perspective, spending on debt-service costs is greater than the respective budgets of social protection, health, or peace and security,” he said.

However, in the interview with SABC, Godgonwana said South Africa has not run out of money.

“No government runs out of money when they can tax people any day,” he said. “If we were running out of money, we would have increased taxes.”

“The reason we didn’t do so is because we are confident that we’re not running out of money.”

He said the National Treasury has made an assumption that, over the next years, the economy will grow by 1.6% on average.

“Unless there are too many excessive expenditure increases, which will require a tax increase, you will see in our assumptions over the next three years that we’re not planning major tax increases.”

South Africa’s tax base

The estimates of individuals and taxable income for the 2024/25 financial year. Source: National Treasury

National Treasury’s latest data revealed how highly concentrated South Africa’s tax revenue is.

It showed that personal income tax (PIT) will generate an estimated R739 billion in the current financial year.

This means that PIT generates around 40% of South Africa’s total tax revenue – well ahead of value-added tax (VAT) and corporate income tax (CIT).

What is concerning is that a very small number of South Africans pay a very large portion of total personal income tax.

National Treasury’s individuals and taxable income for the 2024/25 financial year showed South Africa has 7.4 million personal income taxpayers – only 12% of the population.

The data further showed that only 862,000 people pay 58.7% of all personal income tax.

That means South Africa relies on only 1.4% of its population – less than 1 million people – to provide most of the money for education, healthcare, security, and social grants.

The situation looks even worse when it comes to corporate income tax, which is set to contribute R303 billion, or 16.2%, to tax revenue this year.

Renowned economist Dawie Roodt said in 2023 that 770 companies pay around 66% of all corporate income tax in South Africa.

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