GARTH ZIETSMAN: How SA’s high tax burden squeezes taxpayers

It has been estimated that tax freedom day (TFD) — the day after the country has earned enough money to pay for government — will be on May 12 this year. That is 10 days later than 2021’s prediction.

Tax freedom day prediction is based on the intended level of tax collection for central government mentioned in the budget speech delivered by the finance minister earlier in February. 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.

The actual figure tracks the predicted figure quite closely, so the expectations of the finance ministry are reasonably accurate, and therefore so too are the tax freedom day predictions. Second, there were sharp reductions around the 2008 global financial crisis and the Covid-19 pandemic, but otherwise the trend is quite strongly upward.

The reason for these decreases in tax freedom day is that profits were squeezed more than the overall GDP during these crises and therefore taxes, which are substantially levied on profits, will also shrink relative to GDP. There was an equally steep upward trend from 1972 to 1992, so the long-term increase in the tax burden is just as much a National Party as an ANC phenomenon.

A sharp uptick is expected in 2022; to be fair, that is coming off an artificially low base. Also, the finance minister does seem serious about avoiding a debt trap, so the good news is that tax freedom day probably will not creep back up to the super high level of 2015-2020 in the next few years.

Nonetheless, by international standards SA’s tax burden is still extremely high — it is among the worst for economies at our income level. There is plenty of evidence that a high tax burden hampers economic growth. SA has seen a steady decrease in GDP per capita over the past 10 or so years. That just happens to coincide with the worst period of our tax burden. If the tax burden were more reasonable, the next generation might hope to be better off materially — as much as one third better than currently expected. The tax base is also extremely small, so the large tax burden falls heavily on the few. There is a very real risk that they will leave the country.

Our tax burden is so high for many reasons. One major reason is the enormous number of state-owned enterprises and their degree of dysfunction or plain lack of productivity. Many of them need to be bailed out at considerable public expense regularly. Most, if not all, should be sold to the private sector or dismantled. Another major reason is an attempt to provide a welfare state that is beyond our means. Of course, it is also true that governments everywhere just like to grow for their own benefit; this is a tendency that should be resisted.

• Zietsman is statistician with the Free Market Foundation.