This article was first published by BizNews on 8 March 2023
Tax Freedom Day 2023
Estimated Tax Freedom Day (TFD) – the day after the country has earned enough money to pay for government – will be on May 14 this year. That is 2 days later than last year’s prediction.
The prediction is based on the intended level of tax collection for central government mentioned in the Budget Speech. Typically, the actual figure – which is the general government revenue as a percentage of GDP from the Reserve Bank Quarterly - turns out to be 30% more than the intended figure for central government.
While the increase from last year seems quite modest it is higher than the long-term upward trend, of 1,12 extra days per year, over the last 23 years. At the long-term rate of increase each new generation can ‘look forward’ to an extra month working off the tax bill every year.
By international standards South Africa’s tax burden is extremely high; it is among the very worst for economies at our income level. There is plenty of evidence that a high tax burden both hampers economic growth, and increases unemployment. The tax base is also very small, so the large tax burden falls very heavily on the few and there is the very real risk that they will leave.
There are many reasons as to why our tax burden is high One major reason is enormous number of state-owned enterprises in South Africa and the relative disfunction and lack of productivity typical of people working within state bureaucracies everywhere. A far bigger factor though is the rampant corruption and criminality endemic to our state enterprises. Many of them need to be bailed out at considerable public expense on a regular basis.
Eskom, for example, has already been bailed out to the tune of R256,9 billion since 2008. In the latest budget the government committed to pay off 2/3rds of Eskom’s debt, or R281,37 billion. Together this is the equivalent to 32% of this year’s entire budget! Eskom is not an isolated case. Every other state-owned enterprise is also a hive of rackets that ends up being bailed out on a regular basis. Remember SAA? The only solution is to remove the crooks at a stroke by closing these enterprises down entirely and replacing them with free enterprise or some other institution entirely independent of government interference, such as the central bank or the Constitutional Court.
The largest item in the budget is social spending and this is another major reason for high taxes. Social spending is needed, desirable and well-meant, but the scale of it is beyond the means of an economy with South Africa’s level of development. By diverting investment and hindering growth it condemns the poor to this dependency indefinitely, or put differently social spending to some extent feeds people next year’s seed corn.
It is also true that governments everywhere are self-interested - ours more than most - and strive to grow for their own benefit. They may end up being parasitic rather than problem solvers and this tendency should be resisted.