All publications
Where has all the money gone?

Where has all the money gone?

January 12, 2023

The South African Minister of Finance, Enoch Godongwana, will have to pull a number of rabbits from his hat in his budget speech in February 2023. Where will the money come from to finance insurmountable demand?


The South African economy has reached a stage where it has to grow significantly to produce sufficient revenues to cover its domestic needs and to finance its lending costs. South Africa simply cannot afford to continue financing domestic expenditure with foreign lending as it’s level of lending is getting alarmingly close to 100% of GDP.

The energy crisis that South Africa finds itself in is likely to discourage any possible foreign long-term investment in infrastructure in South Africa in the foreseeable future. South Africa will therefore have to find, at least for the foreseeable future, ways to finance its needs via tax revenue generated from the South African tax base.

But where will the tax come from …

Corporate South Africa

The corporate tax rate in South Africa is closely aligned with the global tax rate for corporate entities. There is accordingly very limited scope to increase revenue from the corporate sector by increasing corporate tax rates.

The recent increase in tax revenues from mining and other commodity based corporates in South Africa is unlikely to be sustainable as it is driven by unusually high global commodity prices. A correction in international commodity prices is inevitable which would expose the soft underbelly of the present increased revenue streams as short-term bubble benefits.

There is of course the possibility that corporate South Africa will produce better results after the COVID-19 fall-out. The impact of this still needs to be seen and is in no way guaranteed, as COVID-19 has also resulted in an unprecedented number of liquidations of companies.

National Treasury indicated that they are looking at potentially reducing or scrapping certain special allowances and benefits that corporates are entitled to under certain circumstances. Whether this will have any significant impact on taxable revenues declared by corporate South Africa remains to be. This is more likely to be a very small drop in a massive ocean of needs.

So what else is there …

Value-Added Tax

The rate of VAT in South Africa is well below the global average. Will we accordingly see an increase in the rate of value added tax?

Probably not as this will not be good politically for the governing party in South Africa.

The fuel levy

There is always the reliable fuel levy to generate revenue for government.

But how things have changed!

As with VAT, the fuel levy has now become a contentious issue as a result of the unprecedented increase in the local price of fuel. A further increase in the fuel levy is likely to be perceived by the majority of South Africans as a government that does not acknowledge or understand the needs of the average person in South Africa and will most definitely be exploited by opposition parties in upcoming elections.

In short, the fuel levy appears to be a no-go zone.

Sin taxes

The proverbial sin taxes, tax on liquor and cigarettes, are likely to be increased; but by how much?

Government must not lose sight of the sentiment that consumers are getting increasingly uncomfortable with the high levels of tax and, with elections coming up, who is to say what the impact of increases might be?

Even if sin taxes are increased, it is unlikely to provide significant relief with regards to the overall funding needs of government.

Personal tax

And then there are personal income taxes.

It is common knowledge that the exodus of professional people from South Africa is causing a significant erosion in the tax payable by individuals at the higher levels.

At the lower brackets, taxpayers pay very little or no tax on income; so no scope for any additional tax in this class of taxpayers.

The only area to generate significant additional tax revenue is in the top income tax brackets which is likely to chase away more high net worth taxpayers from South Africa; talk about a catch twenty-two!

So what scope is available?

Very little …

Government may look at increasing the amount of the capital gains tax inclusion and removing the medical aid credits. But that is about where it ends.

Unless …

Wealth tax

The introduction of a wealth tax in South Africa appears to be the only viable short-term solution to generate significant revenues for the fiscus.

Politically it is likely to be popular for a large portion of the South African population as it will effectively be a redistribution tax.

This populist decision may however in the long run have disastrous consequences for the South African economy.


Never before in South Africa’s history has so much depended on brave decisions to return our economy to the glory years of Mr Trevor Manual when government had no debt and had budget excesses.

Whether the current political dispensation has the political will to make those brave decisions only time will tell. In the interim, nobody wants to be in the shoes of Mr Godongwana.

Share this article