Pips begin to squeak

Government has real service delivery success in things like healthcare provision to the poorest, along with giving housing, increasing basic education, and such like. But it will all be for naught if it can’t be paid for, and South Africans are reaching the limits of what they can bear.We have only 7 million taxpayers. Of these, only 2,8 million carry 97% of all personal income tax. It is a very precarious base off which to pay for the largest social security system (through providing state grants to 16 million) outside Europe and Canada.

This tiny base is being squeezed far more than is officially admitted. In the national accounts, 34% of all income comes from personal income tax, and 27% from VAT. The 2012 Economic Freedom of the World Report, which looks at tax rates in 37 countries, notes that our top income tax rates fell 10 percentage points between 1985 and 2010. Don’t imagine this generous. Where ours were the second lowest rates back in ’85, their subsequent reduction hasn’t kept pace with other countries. Today, 19 countries (of the 37 surveyed) give top taxpayers a better deal than SA.

Nor is there much room for the Exchequer to even be generous, given stated commitments to increasing the welfare net, and despite government having run a tight ship. Thus servicing our foreign debt is no longer the largest single expenditure item in the national budget, education and welfare grants now top that.

Those hoping that a crackdown on graft and state corruption could bring savings will be disappointed. Thus, while a report by research company TMS30x30 finds that 90% of people imagine a drop in taxes to be possible if corruption were beaten, the Auditor General only found R21bn of unauthorised state expenditure last year (not all corruption). That is less than 3% of government spend.

Transparency International’s annual corruption perceptions index has South Africa improving her position even if falling relative to some others. We are perceived as less corrupt than our Brics colleagues of Brazil, Russia, India and China.

Even so, anecdotal evidence (such as opposition to Gauteng road tolls), along with a fall in expected Sars revenue receipts and a collapse in household savings (now at -0,1% from 1980’s 11%) means that South Africans can hardly keep themselves afloat month-to-month.

A proposed new savings incentive to be launched by government is already being dismissed by financial market analysts as  unlikely to make any positive difference. The country’s thin paying base (sometimes erroneously termed “wealthy”) is broke and many even better-off households are hand-to-mouth.

One reason, argues economist Mike Schussler, is that government has over-reached itself in its obligations. Finance Minister Pravin Gordhan claims that the state takes 24% out of the private economy in tax. But by adding ancillary taxes (such as those of local government), along with costs for needed private healthcare, security, schooling and the like (which Gordhan ignores), Schussler reckons on at least 44% of all monies going to the state in one or other form.

Although unsustainable and undermining of our small tax base, prevailing dirigisme in the ruling party means that this won’t change soon. Rather, things such as national health insurance are mooted. It can only end in tears.

– Paul Pereira (first published in The Citizen, 9 April 2013)