Of all the tax collected in South Africa, the government allocates 20% towards interest payments on its R5.2 trillion debt. As debt-servicing costs rise, there is less money available for crucial sectors like education and healthcare.
For every R1 SARS collects, 20 cents goes towards the country’s debt
Many experts are concerned about the country’s deteriorating finances over the past 10 years. Significant increases in government spending have also not resulted in meaningful economic growth. Therefore, people have many questions: Why is the government accumulating so much debt and when will this downward spiral end? With taxpayers’ money now covering interest on government-incurred debt, how will the necessary changes in the country be funded?
The Treasury noted in its February budget that debt-servicing costs now consume a larger portion of the budget than basic education, social protection, or health.
It is important to note that the 20% of the tax collected going towards the government’s debt is not used to pay off the debt. The government is using it for interest payments on that debt only.
How long has the government been in a debt crisis?
The national government has been running a budget deficit for the past 16 years. The last surplus was in the 2007/2008 financial year when Trevor Manual was Minister of Finance.
Trevor Manual became Minister of Finance in April 1996. He steered the South African economy for 13 years as one of the world’s longest serving finance ministers. He reduced South Africa’s financial debt and introduced an intergovernmental system to efficiently manage expenditure across the three spheres of government.
Essentially, the government has been spending more money than it collects through taxes and has been funding this expenditure by increasing debt, according to Daily Investor.
A deficit is not necessarily negative. However, but consistent deficits can lead to a country entering a debt spiral where the government incurs new debt to manage old or existing debt.
Is Zuma to blame?
According to Izak Odendaal, an investment strategist at Old Mutual, the damage caused during Jacob Zuma’s presidency is much worse than many people realise.
After coming to power in 2008, Zuma appointed Pravin Gordhan to oversee the country’s finances. Shortly after, government spending rose significantly, and the economy stagnated.
Odendaal stated that fixing the current financial problem will take time. He added that it is one of the most challenging problems for the new government to address.
“South Africa cannot afford not to stabilise a debt-to-GDP ratio that has almost doubled in the past decade and tackle a debt burden that has reached R5.2 trillion.”
Izak Odendaal, investment strategist
