A family making R2 million a year only gets 5 cents of services for every R1 paid in tax

Efficient Group chief economist Dawie Roodt estimates that for every R1 in tax paid by a family earning R2 million a year, they receive only 5 cents in government services. 

As a result, much of the tax they pay is redistributed to other parts of the economy and other families in the form of social grants, healthcare, education, and, increasingly, debt repayments. 

For Roodt, this reflects the highly redistributive nature of South Africa’s tax regime, which takes money from productive individuals and businesses and gives it to unproductive parts of the economy. 

Roodt has made it clear that he supports social grants and thinks South Africa needs them, but is strongly opposed to taxpayers’ money being used to bail out mismanaged public companies, which have significantly indebted the central government. 

Such severe redistribution comes as a natural consequence of having a highly concentrated tax base and a government that focuses on distributing wealth rather than creating it. 

Using SARS’s 2025 tax statistics, Daily Investor calculated that 2.4% of South Africans pay 77% of all personal income tax in the country. 

In other words, 1.5 million individuals pay R562 billion worth of personal income tax in South Africa. 

These individuals are highly productive and generate significant value for the South African economy, in addition to funding a substantial chunk of the state’s budget. 

“Remember, you as a taxpayer put money into the system and you get something out of the system in the form of government services,” Roodt explained at the latest BizNews Conference. 

“There is huge pressure on South Africa’s fiscal accounts. Nobody wants to pay taxes, but everybody wants to get something.” 

Roodt said that once the government accepts the ‘takers’ without supporting the ‘makers’, there is a fundamental imbalance in the fiscal accounts. 

This results in there being more ‘takers’ than ‘makers’, from which the government can fund its service delivery and ambitious spending programmes. 

“There is a natural phenomenon, where states tend to get bigger and bigger and bigger because that is what we demand as people,” Roodt said. 

“If no one wants to pay, then the state borrows money to support its spending and debt rises until the system collapses through a financial crisis, a war, or a radical overhaul takes place.” 

The harsh reality in South Africa

This creates a harsh reality in South Africa, where the state funds much of its operations and social programmes through taxes collected from a tiny proportion of businesses and individuals. 

It is also the case in South Africa that the state has borrowed substantial sums to make up the shortfall in flat tax revenue amid stagnant economic growth. 

This has resulted in the state’s debt burden shooting up to over 78% of GDP and debt-servicing costs consuming 22 cents of every rand collected in taxes. 

“You pay some money into the system, and you get some services in return. Generally, the higher your income, the more tax you pay, and the fewer services you get,” Roodt said. 

“The opposite is also true. The less you earn, the lower tax you pay, and the more government services you receive.” 

Roodt explained that this is because richer individuals do not rely on the state for basic services. They use private healthcare, private education, private security, and, increasingly, private electricity and water supplies. 

In contrast, poorer South Africans rely heavily on the government for their income through social grants, for healthcare through public hospitals, and for education through public schools. 

“Here is a rough calculation I have done. For a family that earns about R2 million per year, for every R1 they pay in tax, they get back around 5 cents in the form of state goods and services,” Roodt said. 

“This means that the family carries 20 families for education, housing, policing, and all these sorts of things. There is dramatic redistribution in South Africa.” 

This dynamic is not unique to South Africa and is not necessarily negative. The issue stems from state policies that do not increase the number of net contributors or ‘makers’, but rather grow the number of ‘takers’. 

This is evident in South Africa’s economic data, with the number of unemployed individuals rising significantly over the past decade, as has the number of social grant recipients. 

South Africa’s unemployment rate now stands at just under 32%, and the number of individuals receiving social grants has surged to over 28 million. 

At the same time, South Africa’s GDP per capita, a measure of productivity, has declined from $7,044 in 2018 to $6,667 in 2025.