South Africa has run out of taxpayers and capital, which is why the government is now eyeing savings to get more money.
This is the view of Dawie Roodt, the founder, director, and chief economist of the Efficient Group.
It is well-known that approximately 3 million South Africans account for 97% of the country’s personal income tax.
What is of concern is that this tax base is shrinking. Over the past five years, the number of taxpayers in South Africa declined significantly.
“What has happened in South Africa is that we have run out of taxpayers, which means we have basically run out of capital,” said Roodt.
This leaves the country in a financial predicament, which is why the government is now eyeing the savings of South Africans.
The route to get their hands on pension funds, Roodt explained, is for the government to implement a policy on prescribed assets.
A prescribed assets policy will give politicians control of pension funds and where this money is invested.
This concept is not new. The ANC’s 2019 election manifesto proposed the introduction of “prescribed assets on financial institutions’ funds to unlock resources for investments in social and economic development”.
This will likely prompt many people to leave the country or take their money offshore, which is why Roodt expects stricter forex controls.
The Treasury has already confirmed plans to change rules around financial emigration and the ability to withdraw one’s retirement funds.
One of these plans is to have a three-year lock-in period for withdrawing retirement funds, which restricts a rapid flight of capital.
The only thing left after the government has depleted resources from pension funds is inflation, Roodt said.
When the money from taxpayers and savers either is not enough any longer, the only option which remains is to inflate yourself out of debt.
“We can already see from the yield curve that the market is telling us we can expect inflation going forward,” said Roodt.
What South Africans should do
With this scenario now playing itself out in South Africa, many people are asking what they should do.
Roodt advised people to stay abreast of the latest financial and economic news to help them to make informed decisions.
They should also assess their individual risks and ensure they can manage these risks.
For people who are staying in South Africa, Roodt said there are four things they should focus on:
- Become successful
- Be profitable
- Put yourself first as an individual
- Pay as little tax as possible without breaking any laws
“This is simple, high level advice I give to people,” he said.