If SA just spends and spends, then the young and successful people will increasingly leave and rather work elsewhere. They do not deserve the burden they will carry for enriching the few at the expense of the many.
No more budgets to spend and taxes to collect
South Africa has kicked the spending and deficit can far down the road, but the road has come to an end. The Covid-19 crisis has brought that end closer.
The new spending ends up in the hands of the few working in government and not in the hands of the average citizen or in extra healthcare or grants.
Government debt interest payments relative to the size of the economy are good indicators of stress in an economy.
With deficits of over 14% this year and nearly 10% next year it is silly to think government debt will remain below the level of the country’s GDP.
A startling 52% of this year’s non-interest expenditure is financed by debt. That is not even close to sustainable. Over 40% is normally a clear sign of a debt or hyperinflation crisis.
Civil service
Civil servants who get the large chunk of GDP are in the top 5% or 10% of earners in these countries.
Employees of some bigger state-owned entities (SOEs) often earn even more that their civil-service colleagues. Eskom has more than 200 individuals who earn more than R1m pa each. Each!
High taxes also often result in a small part of the population being paid well – the civil service.
Namibia and SA lead the world in the burden of government wages.
Private sector growth
Formal sector employees only representing about 30% of all adults, which breeds inequality. High unemployment means higher inequality. High tax rates result in firms investing elsewhere resulting in even fewer jobs as the population grows.
Too few people working means fewer people with an income.
If there is little growth there will be no improvement in poverty and unemployment levels.
Doing business in SA
Companies need a level of returns that rewards the risk and pays more than the cost of capital. High tax burdens reduce the returns and often reduce the market size too. This leads to fewer new infrastructure and new employment opportunities.
High company tax burdens along with red tape will prevent potential employers establishing in SA. Unemployment and poverty will increase.
Inefficiencies and corruption
SA and southern Africa have generally failed to fix government inefficiencies or badly run SOEs and government functions such as public transport. Instead, corruption has engulfed every facet of life in government and the destruction just continues.
Read this article by Mike Schüssler