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South Africa's Fiscal Policy page

Category: Fiscal policy, taxes and government spending
Last updated: 24 April 2020

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This page's sole purpose is to provide readers with interactive charts and graphics regarding South Africa's Fiscal Policy (Government tax revenue and spending programs). The page will be updated on a adhoc basis as more data becomes available from National Treasury.

Fiscal policy is a hot topic right now, as ratings agencies deciding on South Africa's credit ratings takes a very long hard look at South Africa's fiscal policy.

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24 April 2020: President Ramaphosa announces R500 bill Covid-19 relief package

Today (21 April 2020) President Ramaphosa announced a comprehensive social and economic relief package for South Africans to fight off the effects of Covid-19 is having on citizens, businesses and South Africa's economy. The president stated that the R500 billion relief package is about 10% of South Africa's GDP. In 2019 the total worth of South Africa's economy, in current prices amounted to R5.077 trillion according to data from Statistics South Africa. So the relief package is as the president said, about 10% of the size of South Africa's economy in current prices.

Now where government will get the money is the question. Will the South African Reserve Bank (SARB) the SA government's debt and in that way print money to fund this relief package?  Will the government borrow money from the IMF (which will come with strings attached), or will it tax its citizens to death? Where all this money will come from has not be announced by the government but we suspect its a mix off all the options we mentioned above

28 November 2019: Government spending increased by 7.3% in 2017/2018 

The article below discusses the latest government financial statistics as released by Statistics South Africa. And what it shows is that government spending increased by 7.3% in 2017/2018 compared to 2016/2017. And this while taxes collected are dropping. So the  only way the government of South Africa can spend more is by borrowing more. So it looks like South Africa's fiscal policy is to spend spend spend and if we run out of money lets borrow money to spend spend spend. Below the article from Statistics South Africa

The South African government spent 7,3% more in 2017/18 than it did in 2016/17. The rise was largely driven by general public services, education and health. This pushed total government spending up to R1,71 trillion1 in 2017/18, R116 billion more than the R1,59 trillion spent in 2016/17. This is according to the latest Financial statistics of consolidated general government report that summarises a range of financial data for all 712 government institutions. The 7,3% rise is higher than the increase recorded in 2016/17 (5,0%), but lower than the 10,1% recorded in 2015/16

General public services was the biggest driver behind the 7,3% rise in 2017/18, contributing R40 billion to the R116 billion increase.3 This was spurred on by rising interest payments on government debt, as well as increased spending in financial and fiscal affairs. Education was the second biggest driver, increasing expenditure by R22 billion. The National Student Financial Aid Scheme (NSFAS) was a major contributor here, increasing payments to students in need of financial support. The Gauteng and KwaZulu-Natal provincial governments were also major contributors, increasing spending on education services. Health was the third biggest driver. A jump in spending by the Gauteng and KwaZulu-Natal provincial governments on health services was a major contributor to the R16 billion rise in overall health expenditure. 
​
Where does your tax money go?
If we break down the R1,71 trillion that was spent in 2017/18, government’s priorities become quite clear

The biggest expenditure items were general public services, education, social protection and health. A closer look reveals a couple of interesting facts. As mentioned earlier, debt payments on interest increased in 2017/18, pushing the total to R163 billion. This is more than what government spends on other functions such as housing (R71 billion) or hospitals (R114 billion). Another notable fact is that government spends more on the police than it does on primary education.


Government’s contribution to the economy
State spending drives economic activity either through the development of large-scale infrastructural projects or through the provision of resources to the poor in the form of social grants. Investments in education and health have long-term economic benefits. Government is a major economic player, responsible for 18% of total activity in the South African economy. This makes government the second biggest industry after finance and business services.
​
The economic affairs bubble in the infographic above represents the most tangible way in which government spending affects the economy. Money is spent on infrastructure and on various industries with the aim of stimulating economic growth. Government allocated just under R180 billion (or 10% of total expenditure) to economic affairs in 2017/18. This was R9 billion more than what was spent in 2016/17. Transport spending took up R93 billion, more than half of the R180 billion. Over two-thirds of transport spending was focussed on the development and maintenance of road infrastructure.

5 November 2019: Public enterprises spending less on infrastructure

The article below covers the latest public-sector investments in infrastructure and what seems to be a clear effort by government to reign in its spending, infrastructure spending by public-enterprises including state owned enterprises declined for the 2nd year in a row. Below the article as obtained from Statistics South Africa

Public-sector investment in the nation’s infrastructure slowed for a second consecutive year, falling by 8,2% in 2018. This followed a 4,0% decline in 2017. These decreases have seen public-sector capital expenditure slip to a level last seen in 2014. Capital expenditure is money that institutions spend to buy, maintain or upgrade fixed assets such as buildings, vehicles, land and equipment. It is the brick and mortar type of investment that forms the backbone on which the economy functions. Capital investment improves logistics, education, connectivity, facilitates trade and attracts investment. It also allows communities to access a range of services such as water, electricity and sanitation.
​
South Africa’s 757 public-sector institutions spent R250 billion on fixed assets in 2018. This is lower than the amounts registered in 2017 (R272 billion) and 2016 (R283 billion), according to the recently published Capital expenditure by the public sector report. This is comparable to the capital expenditure of R252 billion in 2014 (click on the image to enlarge).

Public-sector institutions include national and provincial government departments, municipalities, extra-budgetary accounts and funds, public corporations, and higher education institutions. A sharp slowdown in investment related to construction activities underpinned the decline in 2018. Spending on new construction works fell by 11,3%, from R182 billion in 2017 to R161 billion in 2018. Eskom was the major contributor, cutting its own construction spending by R10 billion, followed by Telkom (by R3 billion).

The Gauteng Department of Education, the KwaZulu-Natal Department of Education and the National Department of Water Affairs also reduced construction spending, each by approximately R2 billion. The entire public sector cut back spending on plant, machinery and equipment by 2,5%. However, spending on land and existing buildings increased by 16,0% in 2018. Expenditure on transport equipment was up by 14,0%. The positive showing by these two smaller asset types was not enough to halt the slowdown in overall capital expenditure.

The drop-off in capital expenditure mirrors the recent woes experienced in the construction industry. The industry has been struggling since early 2017 and has been in recession, according to the gross domestic product (GDP) results for the second quarter of 2019.1 Eskom remains the single largest contributor to total public sector capital expenditure, even after reducing spending in 2018. South Africa’s largest power producer was responsible for just over a quarter (R63 billion) of the R250 billion public sector capital-spend. This amount was mainly focused on the power generation projects at Kusile, new electricity distribution programmes, and vehicle build programmes.

Transnet was the other heavyweight, incurring capital expenditure of just under R25 billion (10,0%). This was on new wagons for freight rail and various other types of equipment. The South African National Roads Agency (SANRAL) was the third biggest spender on fixed assets in 2018, contributing 4,0% to the public-sector capital expenditure pie. SANRAL focused its spending on improving road infrastructure, which includes work done on the R573 Moloto Road.

Telkom spent R7,4 billion, mostly on the expansion of its existing mobile network and the next-generation network project. Johannesburg, the most populous municipality in the country, focused the bulk of its capital expenditure on the construction of a park-and-ride facility in Greenside, the purchasing of air lifting equipment, and the development of a new community centre in Matholesville. The Passenger Rail Agency of South Africa incurred capital expenditure of R6,2 billion. The greater portion of this (R5,1 billion) was incurred on acquiring new trains and replacing old and building new network lines.

31 July 2019: Taxes collected less than the 2019 budget estimate

Numbers releases by the National Treasury shows the taxes collected for April, May and June of 2019. And if one extrapolates the current taxes collected for the rest of the tax year, it looks like South Africa's government will be collecting farless in taxes than expected during the 2019 Budget estimate. 

The taxes collected is such a worry that the National Treasury announced to the financial markets that they will be increasing their bond auctions. Basically they said that they will be borrowing more starting very soon. Below the announcement released to the financial markets today (31 July 2019 at 09:47am

National Treasury
REPUBLIC OF SOUTH AFRICA
Private Bag X115, Pretoria, 0001. Tel: (+27 12) 315 5753.

SENS ANNOUNCEMENT

INCREASE IN WEEKLY BOND AUCTION LEVELS
Additional financial support to Eskom and the preliminary indication of tax revenue shortfall relative to 2019 Budget has resulted in a revised funding strategy and an increase in government borrowing requirement for 2019/20. The National Treasury hereby announces an increase in the fixed-rate and inflation-linked bonds weekly auction levels as follows; - The fixed-rate bond auction amount will increase by R1 230 million, from R3 300 million to R4 530 million. - The inflation-linked bond auction amount will increase by R280 million, from R760 million to R1 040 million. There shall be no further switch auctions for the rest of the 2019/20, as the National Treasury is currently reviewing its bond switch auction programme. In line with recent issuance patterns, the National Treasury remains committed to shortening the average maturity per auction for fixed-rate bonds. The increase will be effective for the fixed-rate and inflation-linked bond auctions as of 06 August and 16 August 2019 respectively.

END SENS

Buckle up South Africans. Increased government borrowings to bail out ESKOM and other SOE's, low to no growth, will probably lead to further credit downgrades for South Africa, which will increase the cost of borrowing for the South African government, credit downgrades, weaker exchange rate (which could lead to higher levels of inflation, and in the long run higher overall interest rates.

7 July 2019: Government taxes collected for May 2019

We take a look at the latest revenue and expenditure numbers released by the National Treasury and track the growth of various tax types from May 2018 to May 2019. Is government collecting more or less taxes than a year ago? What is government's main revenue sources looking like right now?

Taxes collected during May 2019 in South Africa.

• Personal Income Tax: R 41 .154  billion up 9.9% from May 2018
• Corporate Income Tax:  R1 .250 billion   up  24.2% from May 2018
• Withholding tax on dividends : R4.519  billion up 11.6% from May 2018
•  Value-added tax (VAT):  R26.452 billion up just 0.4% on a year ago. A worrying sign for government is the lack of growth in VAT collected, which is indicative of struggling consumers are holding back on their expenditure. Even more worrying is the fact that VAT is the government's second biggest source of tax income (bringing in around 24% of total taxes for government) as shown in the image below as obtained from Stats SA from their Financial Statistics of National Government 2017/2018

As the pie chart above shows personal income tax (PIT) makes up over a third of South Africa's tax revenues. The problem is that only 4.5 million people pay personal income tax in South Africa, this while government uses the taxes collected to pay social grants to 17 million South Africans. So for every  1 personal income tax payers in South Africa there are 3.8 people receiving social grants. This is unsustainable and the middle class cannot keep carrying the poor and unemployed in South Africa. They will crack at some point and will either leave the country in their droves to avoid the excess taxes being placed on them or they will start forming part of the "tax revolt" in which they refuse to continue to pay taxes to the South African government. Part of South Africa's fiscal policy should focus on widening the tax net to ensure a greater number of people pay tax so as to relieve the pressure on the middle class in South Africa.

30 June 2019: Government contingent liabilities and financial guarantees

In the latest quarterly bulletin published by the South African Reserve Bank (SARB) they cover government's financial guarantees it is exposed to as well as contingent liabilities which could provide potential  additional fiscal expenditure for government. Contingent liabilities represent the exposure of national government to guarantees and other obligations that could change into fiscal obligations and result in expenditure upon the occurrence of a specific event. The exposure to guarantees includes amounts drawn against financial guarantees and accrued interest. 

The image below shows governments contingent liabilities as per the latest quarterly bulletin.

Government's contingent liabilities is forecast to top R1 trillion by 2022 fiscal year. The worry is the continued increase in the contingent liabilities. It doesn't look like it is set to be curbed or slowed down at all in the next couple of years. According to the Reserve Bank "The value of contingent liabilities of R880 billion as at 31 March 20196 is likely to increase to R1.0 trillion by the end of fiscal 2021/22. However, the contribution of exposure to guarantees is expected to decline from 60% to 52% over the period, while that of other obligations is expected to increase."

The image below shows government's financial guarantees. The Reserve Bank had the following to say about government's financial guarantees. "The value of contingent liabilities of R880 billion as at 31 March 20196 is likely to increase to R1.0 trillion by the end of fiscal 2021/22. However, the contribution of exposure to guarantees is expected to decline from 60% to 52% over the period, while that of other obligations is expected to increase.

In fiscal 2018/19, SOCs accounted for most of the exposure to guarantees at 70%, followed by IPPs at 28%. Going forward, guarantees to SOCs are expected to level off and that of IPPs are expected to decrease in fiscal 2021/22"

Government financial guarantees

The worry for us and it should be for the rest of South Africans is the fact that the government is exposed to so much financial risk and financial guarantees, and this largely due to poorly run State owned companies (SOC). And the fact that government doesn't want to sell or privatize some of these SOC's or even allow them to fail. All this means is that government keeps throwing tax money at poorly run, corrupt and financially broke enterprises in the hope of keeping these SOC doors open. But at what cost. At some point the South African government has to cut its losses and either sell these SOC's or let them fail to reduce the financial burden on the state coffers. Currently these SOC's are poorly run and continues to be poorly run as they know if they screw up government will just keep bailing them out with continued financial guarantees and cash injections

22 June 2019: Spending by National government departments of South Africa in April 2019

We take a look at the latest national government department spending numbers published by the National Treasury for April 2019 (the first month of the 2019/2020 financial year for the South Africa government). So which South African government department spends the most amount of money? The summary below shows the amount of money spent per national government department. Sorted from highest to lowest.

• Social Development: R 14 014 459 000
• Higher Education and Training: R 13 303 905 000
• Police: R 6 629 140 000
• Transport: R 6 484 313 000
• Health: R 5 065 781 000
• Basic Education: R 4 118 483 000
• Defence and Military Veterans: R 3 185 043 000
• National Treasury : R 1 697 992 000
• Public Works: R 1 636 926 000
• Correctional Services: R 1 440 640 000
• Water and Sanitation: R 1 343 727 000
• Justice and Constitutional Development: R 1 127 160 000
• Human Settlements: R 1 061 095 000
• Tourism: R 1 006 213 000
• Science and Technology: R 810 028 000
• Home Affairs: R 744 298 000
• Agriculture, Forestry and Fisheries: R 647 186 000
• Trade and Industry: R 561 137 000
• Arts and Culture: R 542 034 000
• Environmental Affairs: R 475 128 000
• Energy: R 433 087 000
• International Relations and Cooperation: R 390 929 000
• Rural Development and Land Reform: R 322 550 000
• Cooperative Governance and Traditional Affairs: R 288 007 000
• Parliament: R 228 912 000
• Economic Development: R 153 014 000
• Statistics South Africa: R 148 240 000
• Mineral Resources: R  147 833 000
• Labour: R 140 791 000
• Communications: R 134 518 000
• Telecommunications and Postal Services: R 90 410 000
• Public Service and Administration: R 62 275 000
• Office of the Chief Justice and Judicial Administration: R 60 835 000
• Small Business Development: R 52 507 000
• The Presidency: R 27 434 000
• Planning, Monitoring and Evaluation: R 26 057 000
• Sport and Recreation South Africa: R 25 926 000
• Independent Police Investigative Directorate: R 25 175 000
• Public Enterprises: R 15 026 000
• Women: R 14 164 000

So Department of social development (the department tasked with paying social grants to millions of South Africans) spent the most of any government department, in second place was the Department of Higher education and in third place Police. The total spending of all South Africa's National government departments during April 2019 was R68.682 billion.  Total government spending during April 2019 amounted to R112.93 billion while only R69 billion was collected in taxes during the month of April 2019. So a massive budget deficit in April 2019 for the South African government. 

22 June 2019: Tax revenues collected in April 2019 compared to April 2018

Two days ago we raised the question that if government spending increases (expansionary fiscal policy) yet taxes charged in the country increases, is it still expansionary fiscal policy if increased taxes reduces households and companies ability to spend as it taxes money out of their pockets into government's pocket. So while discussing taxes and increasing taxes on various taxes lets take a look at the value of taxes collected in April 2019 and compare it to the same month of last year.

                                                           2019                                 2018                             % change
 Personal income tax:       R43 776 460 000,    R37 778 847 000          +15.9% 
​ Corporate income tax:    R1 151 770   000,     R1 032 314  000           +11.6%
 Value added tax:                 R19 087 796 000,    R21 358 371 000          -10.6 %
 Beer:                                          R645 432 000,            R582 324 000                +10.8 %
 Wine:                                         R344 650 000,            R290 891 000                +18.5% 
 Cigarettes:                             R1 968 022 000,         R2 678 687  000            -26.5% 
 Air departure tax:              R101 134 000              R95 720  000                  +5.7%
 Plastic bag levy:                  R360 000                         R624 000                          -42.3%
 Electricity levy:                   R681 890 000               R714 972  000                -4.6%
 CO₂ tax on cars:                 R131 657 000               R139 194 000                 -5.4%   


So strong increases in personal income taxes collected in April 2019 compared to April 2018. Worrying is that value added tax collected declined by over 10%. But this was due to a sharp increase in VAT refunds being paid out. Taxes on cigarettes declined sharply. Lets hope this is due to people smoking less in South Africa. Plastic bag levy declined sharply. Hopefully this is a sign people are starting to worry more about the environment and take reusable bags to the shop to put their groceries in. CO2 takes collected on cars declined by almost 6%. One of two possible reasons. Cars are becoming more fuel efficient and thus less CO2 emissions charged. The other reason for the decline is the slowing down of new vehicle sales in South Africa. All in all a pretty mixed bag in April 2019 for South Africa's taxes collected.

20 June 2019: Contractionary fiscal policy by the South African government?

The big question currently being asked is if South Africa's fiscal policy is contractionary? Well to answer that we need to know what contractionary fiscal policy is? The easiest way to describe contractionary fiscal policy is to say government is spending less than what they did the year before, or to say government spending is growing at a slower rate than it used to in the past.  What is the point of contractionary fiscal policy. Such policy is usually implemented if governments feel the economy is overheating (growing to fast) and demand needs to be reduced, government will then spend less in order to reduce demand and thus cool the economy down (or contract it), thus contractionary fiscal policy. But that is only looking at one aspect of fiscal policy. Fiscal policy is about taxes and government spending.

What if government spending is growing (expansionary fiscal policy), but they are also raising taxes (which takes money away from consumers which has a contractionary effect on the economy. If the impact of raising taxes is greater than increased government spending then what looks like expansionary fiscal policy might actually be contractionary fiscal policy. And this is where we believe the South African government and its fiscal policy is finding itself in right now.

Government spending is growing (all be it relatively slowly), but the increased taxes over the last couple of years has more than offset the growth in government spending, thus we believe the current fiscal policy stance of South Africa is contractionary.

6 May 2019: SA government spending per National Department for 2018/2019

The following update takes a look at the total spending per National government department for the financial year ending March 2019. So just how much did each department spend and what does each department make up in terms of total National government department spending? Which department gets the most money to spend? Is it Police? Or Department of Health? Or the Department of Social Development (the department responsible for distributing social grants?)

• Social Development:R 159 396 550 000 (20.73%)
• Police:R 86 605 048 000 (11.26%)
• Cooperative Governance and Traditional Affairs:R 76 362 043 000 (9.93%)
• Transport:R 54 670 701 000 (7.11%)
• Higher Education and Training:R 52 295 860 000 (6.80%)
• Defence and Military Veterans:R 48 977 232 000 (6.37%)
• Health:R 42 424 691 000 (5.52%)
• National Treasury :R 39 792 071 000  (5.18%)
• Human Settlements:R 33 370 485 000 (4.34%)
• Basic Education:R 22 931 956 000 (2.98%)
• Correctional Services:R 22 788 578 000 (2.96%)
• Justice and Constitutional Development:R 16 607 219 000 (2.16%)
• Water and Sanitation:R 15 106 238 000 (1.96%)
• Rural Development and Land Reform:R 9 730 181 000 (1.27%)
• Trade and Industry:R 9 248 248 000 (1.20%)
• Home Affairs:R 8 401 679 000  (1.09%)
• Energy:R 7 944 647 000   (1.03%)
• Science and Technology:R 7 489 545 000  (0.97%)
• Public Works:R 6 927 287 000 (0.90%)
• Agriculture, Forestry and Fisheries:R 6 728 132 000 (0.88%)
• Environmental Affairs:R 6 590 137 000  (0.86%)
• International Relations and Cooperation:R 5 996 856 000  (0.78%)
• Telecommunications and Postal Services:R 4 892 055 000  (0.64%)
• Arts and Culture:R 4 141 480 000 (0.54%)
• Labour:R 2 844 019 000  (0.37%)
• Statistics South Africa:R 2 195 519 000  (0.29%)
• Tourism:R 2 133 976 000  (0.28%)
• Mineral Resources:R 1 776 685 000  (0.23%)
• Parliament:R 1 711 947 000  (0.22%)
• Small Business Development:R 1 459 484 000 (0.19%)
• Communications:R 1 418 954 000  (0.18%)
• Sport and Recreation South Africa:R 1 060 371 000  (0.14%)
• Office of the Chief Justice and Judicial Administration:R 997 515 000 (0.13%)
• Economic Development:R 912 050 000  (0.12%)
• Planning, Monitoring and Evaluation:R 866 838 000  (0.11%)
• Public Service and Administration:R 856 887 000  (0.11%)
• The Presidency:R 481 525 000  (0.06%)
• Independent Police Investigative Directorate:R 255 335 000  (0.03%)
• Public Enterprises:R 250 413 000  (0.03%)
• Women:R 204 707 000  (0.03%)

So the Department with by far the biggest budget and spending is Social Development,  followed by Police and then Cooperative governance and traditional affairs (department responsible for funding municipalities). Surprisingly is the size of the budget for Higher Education and Training as well as Basic Education. One would have expected with the focus on education in South Africa that these departments would be receiving a bigger part of the spending pie. Another surprise is the department of Health coming in in 7th place. With the shocking state of public hospitals and clinics one would have expected their budgets to be larger too to address the issues they currently face.

6 May 2019: Who owns SA's government bonds?

Fiscal policy essentially refers to government finances. This includes income earned from taxes, bonds issued when government needs to borrow money and of course government spending plans. So the question is who holds the bonds the SA government issues when it wants/ needs to borrow money to finance it's expenditure plans? The latest data issued by the National Treasury shows the total value of fixed rate government bonds held by various sectors:

• Foreign sector: R 746 323 784 719
• Monetary authorities: R 261 718 162 887
• Official pension funds:  R 235 327 857 054
• Other financial institutions: R 202 444 290 796
• Long-term insurers: R 94 359 872 683
• Private self-administered funds: R 36 741 737 416
• Short-term insurers: R 8 402 776 417
• Other sector : R 7 265 110 686
• CSDP reporting error: R 59 119 232

Total fixed rate bonds as at March 2019 amounted to R1 592 642 711 890 (thats right, fixed rate bonds issued by the SA government amounts to R1.592 trillion). And of SA fixed rate bonds issued, 46% of these is held by the foreign sector (basically any entity, person or government outside of South Africa).

2 April: SARS announces R15 billion tax short fall for 2018/2019 tax year

The latest reports as seen on Sharenet and obtained from Reuters regarding the announcement made by SARS yesterday regarding the tax revenue short fall announced by SARS can be seen below.​

PRETORIA (Reuters) - South African collected an estimated 1.287 trillion rand ($91 billion) in tax in the 2018/19 fiscal year, about 15 billion rand short of the government's target, the revenue service SARS said on Monday.

South Africa has seen revenue collections fall consistently since 2015 due to weak economic growth and administrative weakness. The latter issue led President Cyril Ramaphosa to fire Tom Moyane as revenue service boss in November.

"SARS is concerned that the levels of compliance have declined in the last few years and we are seeing the results of that in these figures," acting tax commissioner Mark Kingon said. Fiscal year 2018/19 ended in March.

South Africa aims to collect about 10 percent more in tax -- 1.4 trillion rand -- in 2019/20, the revenue service said.

Corporate income tax was down 3.2 percent compared to the estimates made in February's budget, while personal tax collections were down 1.2 percent compared to target.

"The slow improvement in production and employment following poor investment growth in 2018 as well the moderation in global trade and investment, presented a weaker outlook for the economy," Kingon said.

In the February budget Finance Minister Tito Mboweni avoided raising income taxes after the treasury hiked value-added tax in 2018 for the first time in 25 years, choosing instead to push up fuel levies and taxes on alcohol and tobacco products.

The moves are expected to raise tax revenue by 15 billion rand in 2019/20 financial year.

14 March 2019: Government finances: surplus, deficit and debt

We take a look at a article published by Statistics South Africa which relates strongly to South Africa's fiscal policy.

Article Starts
Believe it or not, there was a time – not so long ago – when the South African government actually spent less than it earned. Stats SA takes a look at government spending over 13 years, focusing on how much we pay to service our debt. Harking back to better times in February’s National Budget Speech, Finance Minister Tito Mboweni quipped that his predecessor, Trevor Manuel, had given out succulent plums to highlight the prosperous times the country had then found itself in. If state expenditure is taken as a measure of better times, there was a three-year period (2005/6 to 2008/9) when government spent less than it earned, enjoying a surplus over that period. This is according to time series data from Stats SA’s Financial statistics of consolidated general government report.

This didn’t last for long, however. The succulent plums quickly shrivelled under the strain of various factors, including the 2008–2009 global financial crisis. The economy floundered in 2008/09, sliding into recession for three consecutive quarters. Government revenue fell in 2009/10, mainly underpinned by a fall in tax collected from businesses. Revenue bounced back the following year, but not enough to lift government out of the red. Since 2007/08, government has consistently spent more than it earns. The deficit in 2016/17, for example, amounted to R156 billion. It should be noted that a budget deficit is not uncommon across the world and should not automatically be seen in a negative light. Countries generally borrow money to cover financial deficits so that they can provide services to their citizens.

South Africa’s gross loan debt stood at R2,2 trillion in 2016/17, according to the National Treasury. This translates to about R40 000 per person living in the country. Servicing this level of debt can be expensive. Interest payments accounted for 9,2% (or R146 billion) of general government expenditure (R1,58 trillion) in 2016/17. In other words, for every R100 of total spending, R9,20 was used to pay interest on debt. This is more than what was spent on the hospital (R105 billion), tertiary education (R77 billion) and housing (R69 billion) functions during that period. National Treasury expects this figure to rise, reaching 13% of total expenditure in 2021/22. How do we square up against other countries? South Africa devoted a larger proportion of its budget to paying interest than other countries such as Russia and China, according to data from the International Monetary Fund (IMF). 

Of the 109 countries for which data are available, Lebanon, Sri Lanka, Jamaica and Brazil devoted the highest proportion of their respective budgets to interest payments in 2016. Zambia was ranked in 5th place, an indication of the country’s rapidly expanding debt burden.11 South Africa was ranked in 30th position. South Africa has a higher interest payment burden than some of its neighbours. Namibia, Botswana and Lesotho all contribute proportionally smaller chunks of their budgets to service debt. Unfortunately, government financial data are not available for Zimbabwe, eSwatini and Madagascar, as confirmed by Open Data Watch. Reasonable spending and reducing South Africa’s debt were two important prescripts underlying the National Budget Speech in February. In the words of the Minister of Finance, if “we plant anew” seeds that will set us on the track to renewal, we will be able to return the “plum” times that we once enjoyed. 

Download the Financial statistics of consolidated general government report and time series data here.

27 February 2019: Excise collected on various alcohol types

The image below shows the contribution of the various alcohol types to government's expected excise duties and taxes to be collected form the various alcohol types consumed in South Africa (for the 2018/2019 tax year)

As the image above shows the bulk of South Africa's excise collected on alcohol is expected to come from Beer, with beer making up almost 57% of expected excise to be collected on alcohol. The summary below shows the relative contribution of the various alcohol types to expected excise to be collected for the 2018/2019 tax year.

• Beer: 56.7%
• Spirits:27.4%
• Wine and other fermented beverages: 15.9%
• Sorghum beer: 0.01%

So if you dont want your drinks to be taxed to death, time to start making and drinking sorghum beer.

24 February 2019: Government's planned expenditure for 2019/2020

Today's update takes a look at the South African government's planned expenditure for 2019/2020 grouped by various economic categories. No real surprise in what makes up the South African government's biggest expenditure. It is compensation of employees. All the evidence shows that government has a bloated public service. Even if the minister in the Department of Public Service and administration (DPSA) disagrees.

Second biggest expenditure component in government's budget spending plans is households (social grants). Basically this is the grants paid to 17.5 million people in South Africa, while South African only has 4.9 million people paying personal income tax. This is an extremely skew ratio  with 3.6 people receiving social grants in South Africa for every 1 person paying personal income tax. Government needs to widen the personal income tax net, Ie getting more citizens to pay personal income tax. If the tax net is not spread wider, those paying the bulk of the personal income tax will surely start taking their money and go stay elsewhere as people will not continue to except that they are basically funding social grants with their tax money while government corruption remains rife, poor service delivery continues and state infrastructure is falling apart. The summary below shows the government expenditure per category as well as the percentage of total expenditure in brackets:

• Compensation of employees: R 627 126 243 822       ( 35.16%)
• Households  (Social Grants): R 308 572 724 591       (17.30%)
• Goods and services: R 251 043 384 425             (14.07%)
• Interest and rent on land: R 209 398 747 370       (11.74%)
• Provinces and municipalities: R 138 650 672 241       (7.77%)
• Buildings and other fixed structures: R 73 805 045 374        (4.14%)
• Higher education institutions: R 46 642 009 080    ( 2.61%)
• Non-profit institutions: R 37 436 509 158          (2.10%)
• Public corporations and private enterprises: R 35 923 975 053    ( 2.01%)
• Departmental agencies and accounts: R 28 058 644 748          (1.57%)
• Machinery and equipment: R 22 148 007 613          (1.24%)
• Foreign governments and international organisations: R 2 409 446 000        ( 0.14%)
• Software and other intangible assets: R 1 520 491 346          (0.09%)
• Land and sub-soil assets: R 597 915 000              (0.03%)
• Other assets: R 385 517 680             (0.02%)

If government does find a political acceptable way to reduce the wag bill without upsetting unions, government will struggle to bring down or reduce their budget deficit as mentioned in the 20 February 2019 update, and they will have to continue to borrow to the tune of R1.1 billion every single working  day of the year. Tough times for South Africa's government and its finances

20 February 2019:  Government's estimated revenue and spending up to 2022

We take a look at the latest forecasts and estimates of government revenue and expenditure up to the year 2022. And there is little to no hope for South Africa's government finances in the short term, with expenditure estimates far outstripping expected revenue collection from 2019 to 2022. The image below obtained from the National Treasury shows the predicted revenue and spending of government for the next couple of years.

So lets take a look at the expected revenue and spending of government for the next three years:

2019/2020

• Revenue: R1.583 trillion
• Expenditure: R1.826 trillion
• Deficit:  R243 billion

What this means is that of the 220 odd working days a year, South Africa's government will be borrowing  around R1.1 billion a day. And all that money plus interest needs to be paid back. South Africa's government''s debt servicing costs will soar and in future more money will be paid servicing debt instead of delivering services. If this is not the wake up call needed for South Africans and the South African government to curb its spending (especially on bailing out SOE's such as ESKOM, SAA, Denel etc) then nothing will shake this government out of the rut they are stuck in

2020/2021

• Revenue: R1.696 trillion
• Expenditure: R1.949 trillion
• Deficit:  R253 billion

2021/2022

• Revenue: R1.837 trillion
• Expenditure: R2.089 trillion
• Deficit: R252 billion

​At R252 billion SA's government will borrow roughly R1.14 billion a day! Let that sink in. Imagine how many houses government could build for the poor with just the interest that will be paid on all these borrowings. 

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7 February 2019: "Sin taxes"" collected on booze so far for the 2018/2019 fiscal year

 In this update we take a quick look at the amount of "Sin taxes" collected by South Africa's government on Beer, Wine and Spirits during the 2018/2019 fiscal year.  The line chart below shows the monthly taxes collected on various alcohol types since April 2018 up to December 2018.

From the above it is clear that Beer is the main contributor to sin taxes paid by alcohol type. According to National Treasury''s budget the three types of alcohol was expected to bring in the following amounts for the full 2018/2019 fiscal year (so up to March 2019).

•  Beer :R14 576 412 892
•  Wine and other fermented beverages: R4 086 375 313
•  Spirits:  R7 038 143 318

Up to December 2018 the following amount of taxes have been collected (percentage of total predicted budget shown in brackets):

•  Beer:  R9 516 357 527 (65.3%)
•  Wine and other fermented beverages:  R2 838 808 704 (69.5%)
•  Spirits: R5 241 228 877  (74.5%)

So with 3 months left of the fiscal year, it looks like taxes collected on Spirits are on track (with 75% collected over 75% of the months of the fiscal year). However taxes collected on wine and other fermented beverages  (69.5%) and Beer (65.3%) is lagging behind the 75% one would have expected it to be at by considering 9 of the 12 months of the fiscal year have passed already. Question is will taxes collected end up being close to the budgeted amount? If not this shortfall will have to be made up somewhere else, or South Africa will have to borrow more if government is not willing to cut its budget to ensure it is inline with what it collects in taxes.

South Africa's fiscal policy over time

The graphic below South Africa's fiscal policy in a nutshell over time. It shows the Rand value of revenue collected by the South African government as well as the money spent by government. The orange line shows the surplus/deficit of the government's budget.  As the graphic shows, South Africa's budget has been in deficit for a number of years and any budget deficit implies the government has to borrow money to cover it's expenses as its revenue collected cannot cover expenditure items. Essentially equating this to a household budget, government is borrowing more and more as governments income is not enough to cover its expenses. Essentially government is living beyond it's means. 

So where is governments money it is spending going and where exactly is it coming from? The image below shows the breakdown of taxes from various tax income sources. As seen from the graphic personal income tax accounts for almost 37% of all taxes collected, VAT accounts to almost a quarter of taxes collected (26.3%) and company income taxes makes up around 18% of South Africa's taxes collected.

Finance Minister Malusi Gigaba, with tax revenue sources overlaid.

The graphic below breaks down government expenditure according to economic classification (as per the 2016/2017) budget estimates. Concerning is the fact that debt-service costs makes up over 10% of government's expenditure, and this is set to rise to around 11% by 2019/2020. With further ratings downgrades on South Africa's debt imminent this should increase even further as interest on future debt needs to be more to compensate investors for the increased risk they are taking for investing in sub investment grade debt such as South Africa's government debt.

The stacked bar chart below shows the contribution of various categories to total government spending.

From the stacked bar chart above it is clear the single biggest contributor to overall government spending is compensation of employees. With employee costs taking up more than a third of total government spending. The second largest category for government spending is households. This will include all social grants/welfare payouts to households in South Africa.

Worrying is the fact that debt servicing costs make up more than 10% of total government spending. Government is set to spend R146.2billion on debt servicing costs during the 2016/2017 financial year. That is a eye watering amount of money to be spending on servicing debt. And as we reported in this blog post, the amount of money going towards servicing debt is set to continue increasing as investors demand higher yields for increased risk in investing in South African government debt.

While the above looked at the contribution of various categories to total government expenditure, the bar chart below shows the expected increase/growth in spending per category per year up to financial year 2019/2010). The two categories that is expected to show the strongest growth over the next few years are Higher Education institutions (as pressure mounts on government to provide free higher education to students). This process was largely driven by the #feesmustfall campaign.

Another category that is predicted to show strong growth in spending is debt servicing costs (this is expected to grow by 10% per year over the next 3 years). If this growth materializes, by 2019/2020, debt servicing costs will make up over 11% of government's total spending (or R197billion) spent on servicing the government's debt. Now imagine the type of services and goods government can could deliver to the people of South Africa if it was debt free and did not need to pay this debt servicing costs.

We are sure labour unions have taken note of government's expected growth in the compensation of employees over the next few years. Government is expecting this to grow by 7.2% per year over the next couple of years. Well above the current and expected inflation  rate as predicted by the South African Reserve Bank (SARB).

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Additional Content:

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Related Topics

• ​​​SA's trade data page
• ​SA's GDP animation
• SA's economic structure​

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