Government Debt

Debt is SA's destiny - report

Cape Town - Rising government expenditure which outstrips tax revenue can only mean higher taxes and more financial pain for households, according to a report.

It all started with a habit of overspending under former finance minister Trevor Manuel, which meant it would never be easy for the government to commit to real reductions in expenditure, say Piet le Roux and Gerhard van Onselen of the Solidarity Research Institute in a report released on Tuesday.

And indeed, nothing of the sort happened. "The Pravin Gordhan years saw a dramatic decline in revenue growth, but for all the regular talk of limits on luxury spending by ministers and tightening of the catering belts, government spending maintained course for the stars."

Amid much debate on the merits of austerity, Finance Minister Nhlanhla Nene delivered his first budget speech in February 2015. "Judging by his budget, Minister Nene agreed that austerity was a good thing... austerity for Joe Taxpayer, that is," says the Solidarity Research Institute.

Nene promptly announced the first explicit income tax increases in years to finance the burgeoning government budget - and growing interest payments.

Bribes of welfare grants and bloated salaries

With South Africa's very narrow tax base and fragile economy, there is a reason for Nene's action: the government has "long been committed to appeasing a restless population with welfare grants and over-paid civil service jobs".

The report continues: "In addition, state policies are manifestly anti-business and by government's own account the state sector is plagued by corruption. These sharp features of local politics show no sign of subsiding... In short, the spending won't stop, but the income will. Debt is our destiny."

Since the financial crisis of the late 2000s, government's budget deficit has experienced major expansion. And fiscal deficit means government borrowing needs are growing.

The combined net borrowing requirement in nominal terms of R16.1bn over the five-year period 2004/05 to 2008/09 jumped to R694.3bn for the five-year period 2009/10 to 2013/14.

There is no sign of any marked rise in revenue or of a significant drop in spending, which means one thing: government debt is set to rise.

More debt, higher servicing costs

More debt translates into higher servicing costs - and even in a low interest rate environment, servicing rising debt can become pricey. "The South African government's borrowing costs grew steeply in nominal terms since 2009 and is estimated to reach R153bn in 2017/18, which is 12.1% of projected interest," says the Solidarity Research Institute.

Interest is now payable on increased total debt. Should interest rates go up, it creates the risk of even higher servicing costs for future debt. "In such a case debt servicing costs are likely to expand even faster above annual increases in revenue," says the report.

State debt and interest is normally financed by tax revenues and mild currency inflation. But since 2009, tax revenue has been unable to keep up with state spend. It stands to reason that lower revenues will deliver a negative effect on a government's capacity to service its debts.

The Solidarity Research Institute issues a stark warning: "When revenues relative to the cost of debt servicing reach critically low proportions, a national debt crisis is on hand."

The news gets worse, as much of government debt will likely need refinancing under lower credit ratings and unfavourable future conditions. "A weak economy, lambasted private sector, narrow tax base and a virtual impossibility of lower state expenditure preclude any real reduction in state debts," says the report.

So what does this mean for the average taxpayer? "For us, mounting debt then is a reality that means higher taxes, inflation or crisis," says the Solidarity Research Institute.

http://www.fin24.com/Debt/News/Debt-is-SAs-destiny-report-20150522
 
My old boss' boss immigrated to the USA last year, he was saying this month that we should be sending as much as we can offshore. The oake is smart, he took his 10s of millions and left, I think we would be smart to listen to him. I just wonder if sending my 10,000usd offshore would make any difference..... :'(
 
LOL

Was wondering when someone would post this & who would be the person posting it.

Anyway...only 2 things of interest in that maze of "facts"...firstly that the change coincides with the initial xenophobia attacks & Eskom blackouts and secondly that the graph is ZAR denominated.

All of which is a very fancy way of saying the Rand k@k'd after the international community discovered SA can't keep the lights on & foreigners get violently attacked (both 2008 - the turning point).

^ There. Three sentences & much more accurate analysis of the situation than that wall of text.

I should also note that the article in question makes very liberal use of solidarity quotes and Nene's quotes in a mixed fashion...to the point where I'd consider it unethical journalism. e.g. Here is Nene's name combined with a Solidarity quote:

there is a reason for Nene's action: the government has "long been committed to appeasing a restless population with welfare grants and over-paid civil service jobs".
Click to expand...

Note how that paragraph contains 1 name (Nene) and quotation marks...
 
Would it not be better if everybody in SA pays tax, the existing tax scheme stays in place, but everyone below the existing taxable income pay 1 or 2% default tax on all income. The only exemption will be if you are retired.
 
diephoenix08 said:
Would it not be better if everybody in SA pays tax, the existing tax scheme stays in place, but everyone below the existing taxable income pay 1 or 2% default tax on all income. The only exemption will be if you are retired.
Click to expand...

I am sure if they taxed all income brackets there would be alot more revenue but goverment knows that by taxing the lower income brackets (majority of the population) they would lose votes.

Instead they will squeeze the milk cow even tighter until it runs dry.
 
Would be interesting to see comparisons in other African countries regarding government debt vs. tax payers vs. total population and how it compares to South Africa
 
I have heard a few times that the country under the apartheid government was basically bankrupt. How does the national debt back then correlate to our much more massive debt now then? Is there more money flowing in to try and service the debt or how does it work?
 
Just looking at the US external debt is scary

$ 17,997,889,181,468.20

A guy I knew studied economics, and he said his lecturer said everybody knows that the current economy system is not working, and will collapse in time, and that everybody knows there are better systems that can be adopted, but the guys making money now does not want to let go.

And the fiat currency model is working for them, need more money, just make more money....
 
Ockie said:
I have heard a few times that the country under the apartheid government was basically bankrupt. How does the national debt back then correlate to our much more massive debt now then? Is there more money flowing in to try and service the debt or how does it work?
Click to expand...

Strange that the 'bankrupt' currency still featured in the economic world, for example the ZAR was listed on most Bureau De Change exchange listings, even when limited to 10 currencies, now it is more of a non-currency.
 
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