How the government spends every R100 of your tax

South Africa’s government is in deep financial trouble, with R16.39 of every R100 it spends going towards debt-servicing costs. 

This is more than the government spends, as a share of its Budget, on basic education at R13.49 of every R100 and social protection at R12.46. 

The government’s current situation is largely due to historic mismanagement. It has failed to run a full budget surplus since the 2008 financial year. 

While a budget deficit is not a bad thing in itself, running consistent deficits has resulted in the government racking up a huge debt burden of over R5 trillion or 76% of GDP. 

The National Treasury plans to tackle this problem through fiscal consolidation with it trying to keep spending growth below inflation. 

Over time, this should result in the government running consistent primary budget surpluses, with its tax revenue meeting its spending obligations. 

The government has hit this threshold in the past two financial years and is projected to continue running the primary budget surpluses for at least the next three years. 

However, it must be noted that a primary budget surplus excludes the government’s significant spending on debt-servicing costs. 

These costs amount to R424.9 billion in the current financial year, more than the government will spend on economic development. 

They are also the fastest-growing expenditure item in the budget, with debt-servicing costs expected to rise at an annual rate of 7.1% for the next three years. 

Currently, the government runs a primary budget surplus of around 0.5% of GDP, which excludes debt-servicing costs. Its full budget deficit is 4.6% of GDP or R370.4 billion.

The government’s expenditure on debt-servicing costs is beginning to crowd out spending in other areas, impacting service delivery and economic growth. 

Fiscal consolidation is expected to bear fruit, with the government’s consolidated budget deficit expected to narrow to 3.5% in the 2027/28 financial year. 

How the government spends your tax money

Despite these spending pressures and fiscal consolidation, the Budget passed in Parliament projects expenditure of R2.59 trillion in the 2024/25 financial year. 

On the other hand, the government is only expected to bring in R2.2 trillion in tax revenue, resulting in a deficit of R370.4 billion. 

This is wider than the R332.4 billion deficit the government posted last year, threatening its fiscal consolidation process by adding to the state’s debt burden. 

To try and avoid issuing more debt to cover its spending, the government has left personal income tax brackets and medical aid tax credits unchanged. 

It also controversially proposed increasing VAT by 0.5% this year and 0.5% further in 2026. 

Sin taxes on alcohol and tobacco were also increased by above headline inflation to generate additional revenue for the government. 

The largest expenditure item in the government’s current budget is debt-servicing costs, with R16.39 of every R100 spent on interest payments. 

In the current financial year, the government will spend over R1 billion daily to service its debt. 

As a result, the state will be spending more on servicing its debt than on basic education, healthcare, police, and social protection. 

Basic education is the second-largest expenditure item in the government’s budget, with R13.49 of every R100 spent on it. 

The state’s huge social grants bill only comes in at third place, with R12.46 of every R100 spent doing towards grant payments. 

In contrast to this, only R6.78 of every R100 spent goes towards economic regulation and infrastructure, with even less (R5.15) going towards policing. 

Despite the country’s substantial unemployed population, less than R1 of every R100 spent goes towards job creation and labour affairs. 

The graph below, courtesy of PSG, outlines how the government spends R100.