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If you are middle class and tax-paying, get set to pay more and receive a lot less from the government next year - as if you weren't already buckling. The Medium-Term Budget Policy Statement released by Finance Minister Tito Mboweni is laced with the following sentence: “Additional tax measures are under consideration.”
“Significant tax increases over the past several years leave only moderate scope to boost tax revenue at this time. Given the size of the required adjustment, however, additional tax measures are under consideration,” says the medium-term budget.
The minister could provide no detail but the mini budget documents offered some insight: the government wants to raise an additional R10bn in taxes in the 2020 budget, even though its projected revenue under-collection for this year is R53bn. Where will the new money come from? You and I. This is because the government has to stimulate business confidence, and one way to do so is to keep corporate tax rates steady; in addition, the VAT take is already under pressure.
The quietest constituency in South Africa is the middle class, who pays the most taxes and has neither the voice of a powerful PR machine like the business sector, nor the street convening power of labour. It's thus no leap of logic to see how the new tax rate increases will fall. “Maybe we don’t have much room (to increase taxes as the average tax to GDP level is at 26.4% and above), but I will negotiate hard about that,” said Mboweni.
He has to plot how to prevent the horror scenario of debt to GDP numbers climbing above 70% by 2023, as projected by the Treasury if spending is not brutally pruned. “Render unto Caesar what is Caesar’s, or Caesar will break your bones,” said Mboweni in jest but also in accuracy, if you analyse the taxing intentions set out in the medium-term budget.
Already, the budget documents show how personal income taxes are set to make up a higher and higher proportion of total revenue over the medium term. Anybody who earns under about R6 000/month does not pay personal income tax, so this budget line is middle-class funded as elites usually have significant tax reduction plans in place.
Stealth taxes up too, medical aid tax credits to be scrapped
Government is set for a big drive to get users to pay for road use. This is through electronic tolling not only in Gauteng, but possibly in the rest of the country too. Taxis and other forms of public transport are excluded from e-tolls in a pact struck by former president Jacob Zuma, so the burden falls on people who drive cars. Roads agency Sanral, which runs national roads and the e-tolling gantries, is in trouble. The Medium-Term Budget Policy Statement document says:
“Since 2014/15, the South African National Roads Agency Limited (Sanral) has incurred annual average losses of R1bn. The agency is not generating sufficient cash from its toll portfolio to settle operational costs and debt redemptions falling due over the next three years. Government has extended a total guarantee facility of R38.9bn to the agency, of which R30.3bn had been used by March 31 2019. Over the medium term, Sanral is expected to repay R10.7bn of maturing debt obligations and R10.8bn worth of interest payments. To enable Sanral to pay these obligations, government will implement direct user charges as outlined in the White Paper on National Transport Policy.“
While there is little detail on how the National Health Insurance will be funded, government has said the medical aid tax credit will be scrapped to pay for the ambitious plan. That’s going to be a further loss to middle-class taxpayers, who make up the largest proportion of self-funded medical aid members.
Government wages, bailouts and Eskom costs further reduce services
Generally, the middle class pays for most of its own private services (education, health, security), and that trajectory could now accelerate. How? Because the state has been unable to substantially reduce the cost of the civil service, it is reducing services instead. The limited services the middle class still get from the state are often local ones.
The documents say that “Transfers to local government will be reduced by R20.5bn, including R3.2bn from the local government equitable share and R17.3bn in direct conditional grants. These reductions are likely to affect service delivery, particularly through delays in building infrastructure.” That means roads, traffic lights and other services are going to get worse, not better, to pay the costs of state wages, the Eskom bailout of R49bn in 2019/2020, R56bn in 2020/21 and R33bn in 2021/22. If you use public transport, the expansion of networks is going to be squeezed too. The Treasury is cutting back.
“For example, the public transport network grant has been funding the development of integrated public transport networks in 13 cities for over a decade, yet only six cities have launched operations. At least three non-operational cities will be suspended from this grant and the remaining cities will be required to reduce their costs and demonstrate their effectiveness to remain funded.”
So what is your money being spent on?
Mostly, it’s going on debt servicing and Eskom makes up a significant chunk of public debt - this means you, in effect, pay for electricity twice. Once for the power and a second time for the debt that now funds the generation of that power. Then, the civil service wage bill is the second biggest cost driver, which means you are paying for the salaries of civil servants who likely earn a lot more than you do.
The 29 000 public servant millionaires grabbed headlines as the mini budget was tabled on October 30. “After adjusting for inflation, this is more than double the number of civil servants earning more than R1m in 2006/07,” the medium-term budget revealed.
In general, public servants are likely to have won increases much higher than they would have received in the private sector – government workers received an average increase of 6.8% in 2018/19. “After adjusting for inflation, the average government wage has risen by 66% in the last 10 years.
“Average remuneration in the public sector is higher than average remuneration in the rest of the economy. Data from Statistics South Africa show that average remuneration (in the rest of the economy) was just under R273 000.00 compared with an estimated average remuneration of R352 000.00 for employees of national and provincial government,” according to the mini budget.
Once you factor in perks, the average is closer to R393 000, the Treasury has calculated. “We need to have a discussion with public sector workers about how to moderate the wage bill – I am not saying it's equivalent to cutting civil servants. It’s the level of the wage bill that’s an issue,” said Mboweni.
It's also likely that as a tax-paying member of the middle class, you also sit with high utility bills – again subsidising the state. Uncollected revenues grew by 17% to R147.8bn, with a substantial part owed to Eskom - which you in fact now largely subsidise through bailouts.
* Views expressed are Haffajee's own.
