Only a matter of time before SA’s taxpayers are bled dry

FINANCE Minister Pravin Gordhan has presented his annual budget detailing government expenditure of R1.46 trillion. That compares to the R1.17 trillion raised from taxes and the deficit of R288 billion, which will require further borrowing.

Welcome to my Taxpayer Index analysis which I first introduced in 2009 and which offers a sanity check on how our government is doing.

Any money the government chooses to spend must come from the taxes paid by taxpayers and, given a known set of expenses, we can figure out how many taxpayers are required to fund it. The problem is that far too many taxpayers now depend for their salaries on other taxpayers because they work for the state.

In “Demographic, employment, and wage trends in South Africa”, Haroon Bhorat and his colleagues from the Development Policy Research Unit at the University of Cape Town, analyse those government workers.

In 2009, there were about 1.2 private-sec- tor workers for every state employee. In 2011 it grew to 1.7 and has remained fairly consistent since then. Since 2009, the private sector has created 1.5 million taxpaying jobs while the state has created 450 000, for a net total of 400 000 taxpaying jobs added every year.

The question now is: how much of government’s budget is dedicated to employee costs to deliver the services it promises?

As of 2014, the latest available data released by Treasury, there were approximately 6.6 million individual taxpayers, although growth in the tax base has stagnated terribly over the last few years to about 1 percent (in line with population growth, unsurprisingly).

Each taxpayer earned, on average, about R250 000 a year and paid about 20 percent of that in income tax. This taxable-share of income is largely unchanged over the past decade.

Government workers effectively repay 20 percent of their salaries through their taxes, but that still implies every government worker requires another four private-sector workers to contribute towards their salaries instead of the current 1.7.

I calculate that government workers are about 40 percent of the total government budget, or R580 billion, or a requirement for 10.6 million taxpayers. And there’s the problem. You see, we are four million taxpayers short – 10 years’ worth of growth – and too much of the budget tax revenue growth is built on outlandish assumptions.

For example, there’s the requirement for a 35 percent growth in income tax payments from the existing taxpayers (since the government acknowledges there are unlikely to be any new taxpayers coming into a static economy).

With South Africa’s investment-grade status on the line, it won’t be long before the only affordable cash available to our state will be via the tax-base. Making up any tax revenue deficit via borrowing is just going to cost too much. Which means you can either expect dramatic tax increases, or the state will begin to fail.

Consider that in order to fund that income tax deficit, either taxes must go up 7 percent, or your salary would have to increase by 32 percent. No points for guessing which one is more likely.

Ronald Wesso, research and policy lead at Oxfam South Africa, writes in Business Day in his analysis of Bhorat’s research paper that it is, “not only an attack on public sector workers, but an attack on the entire working class”.

Obviously Wesso’s analysis is naïve. It is exceptionally irresponsible for any employer to hire workers without anticipating how their wages will be paid.

The question raised by Bhorat and my own research is for how long can public sector wage growth outpace that of the fundamental economy upon which those wages depend? The answer is critical to the future stability of South Africa as a functional and independent state.

The rioting on campuses and on our streets tells you exactly how close to that failure line we are getting.

GavinChaitisadataengineerand developmenteconomistatWhythawk.