POLITICS

The fiscal cliff is rapidly approaching - IRR

Frans Cronje says post-2010 budget deficits are on a par with what the apartheid govt faced after 1976 Soweto uprising

Sing a song of sixpence

Despite taking a larger and larger chunk of the proceeds of the hard work of ordinary South Africans, the Government is running out of money. Only higher levels of growth can save it, although current policy thinking indicates that such a realisation is yet to dawn.

This edition of Fast Facts reviews South Africa's tax base. It finds that government revenue as a proportion of gross domestic product (GDP) rose steadily in the latter apartheid years from 19.6% in 1976/77 to 23.3% in 1990/91. The figure then flattened out through the 1990s and into the early 2000s, sitting at 23% in 2004 for example. However, the past decade has seen a rapid increase and by 2015/16 it is anticipated that government revenue will account for 29.7% of GDP.

The implication is that the Government believes it can more effectively invest the profits of the hard work of ordinary people and bigger companies alike than the private sector can.

It is not only the employed and the economically active that carry the tax burden. In 2013/14 42.1% of government revenue came from ‘indirect taxes' including value added tax, fuel levies, and customs duties.

Yet what the Government is collecting is not nearly enough. Its budget deficits of the early 2010s are on a par with what the apartheid government faced after the 1976 uprising. While treasury forecasts suggest that the deficit will dip back to below 4% of GDP by 2015/16, we remain unconvinced and suspect that the GDP growth estimates to make that possible have been over- stated.

What we would expect is that a government running out of money would move quickly and effectively to create a policy environment conducive to much higher levels of job creation and investment. That would see South Africa achieve the GDP growth rates necessary to swell government coffers. Alas, too many officials and politicians remain invested in an ideology that it is possible to extract wealth at infinitum from our low growth economy.

The fiscal cliff is rapidly approaching.

Frans Cronje is CEO of the Institute for Race Relations.

Table: Government finance as a proportion of GDP, 1976/77 to 2015/16:

 

Yeara

Personal income tax

Company tax

National revenuec

National expenditure

Deficit/ surplus

1976/77

5.1%

4.6%

19.6%

25.5%

-5.9%

1977/78

5.0%

4.3%

19.8%

25.2%

-5.3%

1978/79

4.4%

3.3%

19.8%

24.1%

-4.3%

1979/80

3.3%

2.9%

19.6%

22.6%

-3.0%

1980/81

3.1%

3.3%

20.6%

20.7%

-0.1%

1981/82

4.1%

3.8%

19.6%

21.7%

-2.1%

1982/83

4.9%

3.9%

20.5%

22.7%

-2.2%

1983/84

5.2%

3.0%

19.9%

23.0%

-3.1%

1984/85

6.2%

3.0%

20.9%

24.1%

-3.2%

1985/86

6.1%

3.2%

23.0%

25.3%

-2.3%

1986/87

6.0%

2.9%

21.8%

26.0%

-4.2%

1987/88

6.0%

2.8%

21.5%

26.3%

-4.9%

1988/89

5.9%

3.3%

22.8%

26.2%

-3.4%

1989/90

6.9%

3.8%

24.3%

25.6%

-1.3%

1990/91

7.3%

3.6%

23.3%

25.1%

-1.8%

1991/92

8.1%

3.4%

21.9%

25.5%

-3.6%

1992/93

7.9%

2.8%

21.0%

28.1%

-7.1%

1993/94

7.8%

2.1%

21.3%

26.7%

-5.4%

1994/95

9.0%

2.4%

21.9%

26.4%

-4.5%

1995/96

9.1%

2.5%

21.9%

26.9%

-5.0%

1996/97

9.4%

2.7%

22.4%

27.2%

-4.8%

1997/98

9.8%

2.8%

22.8%

26.4%

-3.6%

1998/99

10.3%

2.7%

23.6%

26.3%

-2.7%

1999/2000

10.3%

2.5%

23.1%

25.2%

-2.1%

2000/01

9.1%

3.1%

22.1%

24.0%

-1.9%

2001/02

8.6%

4.0%

23.0%

24.4%

-1.4%

2002/03

7.9%

4.7%

22.3%

23.3%

-1.0%

2003/04

7.6%

4.7%

22.0%

24.2%

-2.2%

2004/05

7.7%

4.9%

23.0%

24.4%

-1.4%

2005/06

7.8%

5.3%

24.4%

24.8%

-0.3%

2006/07

7.7%

6.5%

25.3%

24.6%

0.7%

2007/08

8.1%

6.8%

25.9%

25.0%

0.9%

2008/09

8.5%

7.3%

25.4%

26.2%

-0.7%

2009/10

8.4%

5.6%

22.9%

28.0%

-5.1%

2010/11

8.3%

4.9%

23.7%

27.8%

-4.0%

2011/12

8.4%

5.1%

24.1%

28.9%

-4.8%

2012/13

8.7%

5.0%

23.7%

29.0%

-5.3%

2013/14

9.0%

5.2%

24.4%

28.9%

-4.5%

2014/15b

9.2%

5.2%

29.5%

33.6%

-4.1%

2015/16b

9.4%

5.2%

29.7%

33.3%

-3.6%

Source: South African Reserve Bank (SARB), time series data, accessed 8 January 2015; National Treasury, Medium Term Budget Policy State- ment (MTBPS) 2014; South African Revenue Service (SARS), Tax Statistics  2008-2014

a  Fiscal years. The 12 months on which government budgets are based, beginning 1 April and ending 31 March of the subsequent calendar year. 1976/77-2013/14 SARB data, 2014/15-2015/16 National Treasury (MTBS 2014) data.

b MTBPS estimates.

c Including indirect taxes.

This article first appeared in the IRR publication Fast Facts.

Click here to sign up to receive our free daily headline email newsletter