Government secretly taking money from South Africans

South Africans pay a hidden tax in the form of inflation caused primarily by the printing of money to cover the government’s significant fiscal deficits. 

Printing money erodes the value of a currency, effectively reducing what individuals can buy with their income, even if their nominal earnings remain the same. 

This can happen without explicit tax increases and is typically used to cover a government’s budget deficit. 

When a government runs a budget deficit, it has to issue bonds to cover the shortfall and ensure it can fund its spending programmes. 

A budget deficit is not a bad thing in itself. However, when a government runs consistent deficits, it builds up a significant debt pile that requires an ever-increasing amount to service. 

This is unless the government can run a budget surplus to begin paying down its debt, something South Africa has not done since the 2007/08 financial year. 

For the past sixteen financial years, the South African government has run a full budget deficit, racking up an enormous debt burden that is costing billions to service. 

In the 2008/09 financial year, the government’s gross loan debt amounted to R627 billion. By the end of the 2024 financial year, it amounted to over R5 trillion and is more than 75% of GDP. 

Servicing this debt load is expected to cost the government R424.9 billion in the current financial year, translating to R1.1 billion per day. This is the primary driver of the government’s full budget deficit.

A primary budget strips out the impact of debt-servicing costs. This has become South Africa’s fiscal anchor and is expected to gradually stabilise the state’s debt load and enable it to pay down the principal owed. 

However, when the debt-servicing costs are added, the government’s 0.5% of GDP surplus turns into a 5% of GDP deficit. In absolute terms, this is equivalent to R374.7 billion. 

“What we call a deficit is simply a form of taxation. It is hidden taxation in two main forms, through printing money and inflation or through borrowing,” renowned economist Milton Friedman said. 

“There is one thing you should keep your eye on – how much the government is spending. That is the true tax. Every budget is balanced, and you pay for it through explicit taxes or indirectly in the form of inflation or borrowing.” 

In South Africa, this is made worse by the fact that the interest rate the government pays on its debt is higher than the country’s nominal economic growth rate. 

This means that the country’s economy will eventually be unable to support the debt load, resulting in it hitting a fiscal cliff. 

South Africa’s repeated budget deficits since the 2007/08 financial year can be seen in the graph below as a share of GDP. 

Inflation is the hidden tax

Governments typically turn to printing money to repay their debt as it not only helps them fund their deficit but also ‘inflates away’ their debt. 

As inflation ticks upwards, the currency’s value deteriorates, as does the value of savings and debt, making the state’s burden relatively lighter. 

However, the chief economist at the Efficient Group, Dawie Roodt, explained that this comes at a cost, as higher inflation results in an elevated cost of living and a weaker currency. 

This puts immense financial strain on the average South African, eroding their purchasing power and making it increasingly difficult for them to maintain their lifestyle. 

The root of inflation is typically an increase in the money supply, which is created by a government printing more money by issuing bonds and putting it into circulation. 

With more money in the system, prices increase, measured as inflation. It is also a measure of how much value money has lost.

“Inflation reduces our buying power, erodes our savings, and creates social tensions between groups,” Roodt said. 

He explained that the rand’s value had declined by 99% since 1970. “That means if you had R100 in 1970, it would be worth the same as R1 today,” he said.

The best example of inflation being a hidden tax is through bracket creep, which the National Treasury has used to increase personal income tax revenue without explicitly raising tax rates over the past two financial years. 

In his third Budget Speech, Finance Minister Enoch Godongwana said the National Treasury would not adjust South Africa’s personal income tax brackets for inflation. 

By not adjusting these brackets for inflation, the government gives rise to ‘bracket creep’, which happens when inflation-driven salary increases push earners into higher tax brackets.

This means South African workers may find themselves taking home less money at the end of every month, despite personal income tax rates remaining unchanged.

The National Treasury’s Budget overview revealed that no inflationary adjustment to tax brackets and rebates will add R15.5 billion to the government’s tax revenue in 2025/26.

This is, in effect, a stealth tax paid by South Africans as they will give over more of their earnings to the state despite tax rates remaining flat as inflation pushes costs and salaries higher. 

The graph below shows South Africa’s total money supply, which is effectively a measure of money printing and is a key driver of inflation.