South African taxpayers to pay R1.3 billion a day for ‘nothing’

The South African government will pay R1.1 billion a day to service its debt in the current financial year, spending a total of R424.9 billion. 

This will increase to R478.6 billion, or R1.3 billion a day, by the 2027/28 financial year, as the government struggles to arrest its financial decline. 

Finance Minister Enoch Godongwana revealed this in his Budget Speech on Wednesday, 12 March, which showed South Africa’s finances are dire. 

Godongwana said the government is projected to post a surplus of 0.5% of GDP for the past financial year, with this growing to 0.9% in the coming year. 

However, this does not include the government’s significant debt-servicing costs, which translate into a full-budget deficit of 5% of GDP or R374.7 billion. 

A primary budget surplus means that, in the long term, government debt should stabilise and begin to come down as money is freed up to pay down the principal owed. 

The National Treasury estimates that government debt will stabilise at 76.2% of GDP in 2025/26, higher than previously forecast. 

“As debt stabilises, a growing primary surplus will enable the government to reduce debt-service costs as a proportion of revenue,” Godongwana said. 

“Some of these savings will be used to build up fiscal buffers that we need as protection against future economic shocks.” 

While this is all positive, it will take years before South Africa begins to see the benefit of a primary budget surplus, particularly one so small. 

Debt-servicing costs will amount to R424.9 billion in the current financial year, or over R1 billion per day. Ultimately, every 22 cents of R1 in tax collected goes towards paying interest on government debt.

This is more than the government is expected to spend on economic development, community development, or even peace and security. 

Worryingly, debt-servicing costs will remain the fastest-growing expenditure item in the budget, growing by an average annual rate of 7.1% for the next three years. 

This will take debt-servicing costs to R478.6 billion in 2027/28, translating into R1.3 billion a day. It will also mean the government will be spending more on interest payments than social grants and healthcare. 

Numerous economists have warned that this increased spending on debt-servicing costs will have dire consequences for South Africa as it will crowd out expenditure on crucial sectors such as education, healthcare, and infrastructure.