Freedom Front Plus
Freedom Front Plus

Government in downward spiral of debt, growing social dependence and wage bill

With the exception of a few rays of hope, which will have taxpayers breathing more easily for a while, it is clear that the government is caught in a downward spiral of debt, growing social dependence and an exorbitant wage bill.

The good news first:

It comes as a relief that the fuel levy and Road Accident Fund levy will not be increased. It is welcome news in the context of rising crude oil prices, which makes further fuel price hikes inevitable in the near future.

A better solution would, however, be to do away with the Road Accident Fund completely.

Personal tax relief, in the form of an adjustment of 4,5% to tax brackets, was announced while corporate tax was lowered by 1%.

The relief offered in terms of corporate tax is, hopefully, an indication that President Cyril Ramaphosa's positive statements about the importance of privately owned businesses for growing the economy and creating jobs will be implemented.

The reduction of one percentage point sends out a positive message, which will serve as a stimulus for the business environment and raise investor confidence. It also serves as a solid foundation on which to keep building.

The bad news is that social expenses along with government debt and the public‐service wage bill are getting completed out of hand.

At present, the country's total expenditure amounts to 2,15 trillion with an estimated revenue of R1,85 trillion. That creates a deficit of R323 billion.

Government debt currently stands at R4,3 trillion and is expected to increase to R5,4 trillion in the medium term. Additionally, debt-service costs average R330 billion annually over the medium term.

An alarming figure is that a staggering 46% of the population is currently dependent on social grants and R702 billion was allocated to social services and welfare.

South Africa has undoubtedly become a welfare state with an expanded unemployment rate of 46,4%.

The cost of providing for people who make no tax contributions and are dependent on the government has now surpassed the government's wage bill as the single biggest expense – all paid for by taxpayers.

In the middle of last year, the government's wage bill amounted to R680 billion and it is lamentable that the Minister gave no indication of what the road ahead looks like in terms of salaries.

State-owned enterprises' total outstanding debt currently amounts to R853 billion. There is much uncertainty about what support will be provided to these enterprises in the future and as before, the fate of these enterprises lies in the hands of the Presidential State-Owned Enterprises Council.

There seems to be no valid reason for why the government is retaining the dysfunctional and bankrupt Road Accident Fund. The Fund's losses currently amount to R404 billion; the money could have been put to much better use elsewhere, possibly even to lower fuel prices.

The ideal solution would be to make third-party insurance compulsory for all vehicle owners and to abolish the Road Accident Fund.



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