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We take a look at South Africa's Tax Buoyancy Rate over time and the implication s the current tax buoyancy rate has for South Africa's Fiscal Policy.
Tax buoyancy can be defined as follows according to Wikipedia. "Tax buoyancy is an indicator to measure efficiency and responsiveness of revenue mobilization in response to growth in the Gross domestic product or National income. A tax is said to be buoyant if the tax revenues increase more than proportionately in response to a rise in national income or output." |
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Tax buoyancy rate of South Africa over time.
So based on the definition above the buoyancy measures how the growth in tax revenue responds to growth in a country's economy or GDP. If the buoyancy rate is greater than 1, then tax revenue growth is growing faster than the economy, if its is less than 1, then it indicates that tax revenue growth is growing slower than the economy.
Concerning for South Africa and its government is the fact that its budget (Its fiscal policy) is under ever increasing pressure to fund free education, including tertiary education (a legacy left by the former President Zuma), increase spending on social welfare (basically paying social grants to more people and increasing the size of the grants), improve South Africa's healthcare system, fund and bail out various state owned enterprises (SOE) that has been run into the ground by ANC cadres and corruption and nepotism has stripped these SOE's bare. One thinks of the likes of ESKOM, Transnet, Denel, South African Airways to name but a few.
Then there is the extremely bloated public service with its massive wage bill. More than 2 million people draw a salary from the state. Far to many people work for government. At some point in the not to distant future the South African government will have to get rid of some of its staff to get its wage bill under control and to more sustainable levels as the current government wage bill is not sustainable over the long run.
So while all these pressures are exerted on government's wage bill, the economy is not growing very fast, which means tax revenues collected are not growing fast enough to fund government's every increasing spending programs. So what this means for South Africa's fiscal policy is the fact that should they want to meet and increase their spending, they will have to borrow money to fund such expenditure. The more thats borrowed, the less money is available in future to fund other projects as money is used to service debts made. And South Africa's government doesnt want to fall into a debt trap they cant get out of.
In the 2017/2018 fiscal year South Africa's tax buoyancy rate was well below 1, showing that tax revenues collected grew at a rate far slower than the economy, and that is very concerning as South Africa's economy hardly grew during this period. The last time SA's tax buoyancy rate was below one was in 2009/2010 during the financial crises which send most economies across the world into a recession.
Part of the problem for the tax agency is the leadership problems under Tom Moyane, which was laid bare by the Nuggent commission of inquiry into the running of SARS. SARS which collected taxes extremely efficiently via their e-filing system made headline news when it was reported towards the end of last year that this system was close to collapse, after the agency spent many years building and improving on it.
While SARS is on the mend and Tom Moyane has been removed as the commissioner of SARS, the economy is growing extremely slowly, company profits are stagnating, consumers are tightening the belt, global trade is slowing down. All factors which will depress tax revenue collection and economic growth.
While we know SA's economy is weak and its struggling to get going, the fact that tax revenue collected is growing slower than the economy just means there is more and more pressure on governments spending programs/ fiscal policy. And the bias of SA's fiscal policy in recent years has been towards a contractionary stance (i.e. government looking to curb their spending), we suspect the slowing in tax revenue collected will speed up the pace of governments contractionary fiscal policy, as government would be hesitant to continue making new debt to fund their daily operations and spending programs.
Then there is the extremely bloated public service with its massive wage bill. More than 2 million people draw a salary from the state. Far to many people work for government. At some point in the not to distant future the South African government will have to get rid of some of its staff to get its wage bill under control and to more sustainable levels as the current government wage bill is not sustainable over the long run.
So while all these pressures are exerted on government's wage bill, the economy is not growing very fast, which means tax revenues collected are not growing fast enough to fund government's every increasing spending programs. So what this means for South Africa's fiscal policy is the fact that should they want to meet and increase their spending, they will have to borrow money to fund such expenditure. The more thats borrowed, the less money is available in future to fund other projects as money is used to service debts made. And South Africa's government doesnt want to fall into a debt trap they cant get out of.
In the 2017/2018 fiscal year South Africa's tax buoyancy rate was well below 1, showing that tax revenues collected grew at a rate far slower than the economy, and that is very concerning as South Africa's economy hardly grew during this period. The last time SA's tax buoyancy rate was below one was in 2009/2010 during the financial crises which send most economies across the world into a recession.
Part of the problem for the tax agency is the leadership problems under Tom Moyane, which was laid bare by the Nuggent commission of inquiry into the running of SARS. SARS which collected taxes extremely efficiently via their e-filing system made headline news when it was reported towards the end of last year that this system was close to collapse, after the agency spent many years building and improving on it.
While SARS is on the mend and Tom Moyane has been removed as the commissioner of SARS, the economy is growing extremely slowly, company profits are stagnating, consumers are tightening the belt, global trade is slowing down. All factors which will depress tax revenue collection and economic growth.
While we know SA's economy is weak and its struggling to get going, the fact that tax revenue collected is growing slower than the economy just means there is more and more pressure on governments spending programs/ fiscal policy. And the bias of SA's fiscal policy in recent years has been towards a contractionary stance (i.e. government looking to curb their spending), we suspect the slowing in tax revenue collected will speed up the pace of governments contractionary fiscal policy, as government would be hesitant to continue making new debt to fund their daily operations and spending programs.