At the beginning of the month, SA Revenue Service (Sars) commissioner Edward Kieswetter announced that the agency had collected R1.855-trillion in taxes in the 2024/25 fiscal year. Sadly, this revenue has become nearly meaningless to the goal of growing the economy, since 91% of the tax Sars collects goes to just three line items — salaries, social grants and interest on debt.
In this financial year we will spend R823bn on salaries, R442bn on the social grant system and R423bn on debt service costs. It is clear that the composition of expenditure will have to change so that we spend more on facilitating growth in the economy by investing in infrastructure refurbishment, expansion, smart regulation and modern education and skills training to build a dynamic, competitive workforce.
The Budget Review states that “SA’s fiscal framework and debt dynamics deteriorated significantly in the aftermath of the 2008-2009 global financial crisis as economic growth fell below historical averages. At the same time, increases in public service wages and transfers to households, and rising debt-service costs, created a growing divergence between government spending and available resources, which are raised mainly through tax revenues.”
In short, the government has grown bigger since 2009 without comparable growth in the economy. Instead, we have compensated for the failure to grow the economy by placing more people on the dole to help them survive what would otherwise be crushing poverty and hunger. Therefore, our most important task is to grow the economy so that we can reduce debt service costs and transform millions of grant recipients into income tax payers.
This is hard, and needs all of the parties involved in government to spend their political capital to achieve this goal. Most are not willing, which is why they choose to spend 100% of their discourse with the public on VAT, which amounts to R13bn, or just 0.05% of a R2.6-trillion budget.
That said, this does not mean the Treasury is not trying to tackle the problem. The government is implementing an R11bn early retirement scheme for public servants aged 55 and older. But savings will only start showing from the 2028/29 fiscal year. This is a key bond market signal of our seriousness to tackle our spiralling public sector wage bill.
To be clear, it is not that our public service employees are overpaid. We just have a bloated structure that is unrelated to overall strategic objectives. So, we need to do more than just trim numbers and align its structure to objectives. For example, the need to reduce the number of cabinet posts is as much about cutting costs as it is about integrating duplicated functions at national and provincial levels.
In SA’s political culture of leaving the uncomfortable task of communicating and implementing tough decisions to the finance minister, this initiative would have few friends. But the president needs to force a change in culture by owning the process and forcing each of his ministers to do the same.
The cabinet must institute a comprehensive review as soon as possible and approve such a plan before the tabling of the 2026/27 budget, with implementation taking place in the new financial year.
I agree that we must review our spending choices. After the standing committee on public accounts’ (Scopa) visit to some Eastern Cape municipalities, I issued a statement in which I set out some of the ways in which public funds get wasted or stolen in municipalities.
This must be stopped, but doing so will take time. Ultimately, we must know how it is happening, and how much is being wasted in each department and municipality — a complex process that can’t be rushed.
But we can begin saving now by targeting the areas where we know tens of billions are being wasted and stolen — such as infrastructure projects at municipal, provincial and national levels. I believe we can achieve between R50bn and R100bn in savings over the next three to five years if we begin now and are rigorous and uncompromising. I have invited the finance minister to appear before Scopa on this early in the next term (May).
There are those who believe it is possible to further increase company and other income taxes. But there isn’t much to be gained from this, and the risks could be high. People often forget that our economy is growing at just more than 1% a year. Tax increases on companies in an economy that is not growing hamper further investment and may lead to retrenchments in a high unemployment environment.
What has been profoundly disappointing in the debate about the budget impasse is that expenditure has been completely ignored, even though budgets are fundamentally about the funding of political priorities. It is a pity that we are not talking about Transnet not getting a capital injection despite needing one.
There is also no discussion about how the metro turnaround grant will be used, since metros are the anchors of much of our economic activity. We are also not talking about the looming water crisis, the destruction of infrastructure by climate change, or municipal dysfunction, and the adverse economic impacts thereof.
In this vein, we can assume that a discussion about a complete transformation and rethink of the public school system to produce graduates fit for the modern age is light years away, with most political actors imagining a 1970s and 1980s version of industrialisation. While the potential impact of higher VAT on South Africans is real, it is equally concerning that a R2.6-trillion budget can be held up by a dispute over 0.05% of it.
In our proposals to the finance minister and the standing committee on appropriations, we will propose cuts to some allocations to offset the 0.05% problem. Someone will be deeply unhappy, of course, but we cannot have our cake and eat it. We are not the rich country of limitless financial options some appear to believe we are. It is time to reconnect with our own reality so we can move forward with purpose and clarity.
• Zibi, a former Business Day editor, is an MP and leader of Rise Mzansi, a political party that is part of the government of national unity. He chairs Scopa.
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