Taxpayers faced with growing wage bill

Independent Newspapers

Pravin Gordhan, Minister of Finance. Photo: Matthew Jordaan.

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Next week Finance Minister Pravin Gordhan will reveal whether the government’s gravy train remains on track – with hard-pressed taxpayers footing the bill. According to Kevin Lings, the chief economist at Stanlib, the government’s wage bill has grown at an average annual rate of 13.5 percent over the past five years – well above inflation.

Gordhan’s Budget next Wednesday, which sets out the government’s spending plans for 2013/14, will show whether the trend persists.

Lings said the annual increases reflected “both an above-inflation rise in annual salary adjustments, as well as an increase in government employment”.

“The growth in government salary payments was uniformly strong at local, provincial and central government level, although provinces appear to have slightly out-performed.”

Economists.co.za chief economist Mike Schussler said, between the fourth quarter of 2011 and the third quarter of last year, the government’s total wage bill amounted to R407.5 billion.

This included local government and government institutions like universities, but excluded state-owned enterprises.

He said the figure was more than a third of the R1.2 trillion in total state expenditure in the current fiscal year.

In contrast only 4.3 percent of the 2012/13 Budget was allocated to capital assets in the current year, according to the Budget Review.

Gordhan has already promised to take action. In his medium-term budget policy statement in October, he said that in real terms – with inflation stripped out – the compensation of employees would rise an average 1.3 percent a year over the next three years.

This was a continuation of a theme he raised in last year’s Budget when he noted that the government had been borrowing to pay day-to-day running costs – including compensation of employees – since 2009. He pointed out the interest bill over the previous three years had grown more rapidly than spending on both housing and public order and safety.

It remains to be seen whether he will succeed in cutting back on wage increases. And with economic growth running at about 2.5 percent, revenue collections are likely to disappoint.

Gordhan will be obliged to scrape the barrel to fund the 2013/14 spending programme.

Consumers face a looming petrol price hike of more than 80 cents next month and a potential 16 percent increase in Eskom tariffs this year. And those whose income tops the R60 000 a year tax threshold may find themselves paying more in tax.

Hardest hit are likely to be the relatively high-income earners, who already pay the lion’s share of revenue. Economists are asking: how much further can government squeeze the golden goose?

Last year’s Budget Review estimated that 4.5 percent of all taxpayers would contribute more than 37 percent of the 2012/13 tax take. Schussler said the government had already “shaken the tree very hard”.

Last year dividend withholding tax was introduced at 15 percent, 5 percentage points above the rate on secondary tax on companies which it replaced. The rate on capital gains tax rose from an effective 10 percent to 13.3 percent.

He predicted that many high-income earners would resort to tax dodging and immigration if the burden became too great.