How long can government just keep spending?

[Dave A]

I'm trying to puzzle this one out.

South Africa's fiscal gap could widen further after finance ministry figures showed government expenditure had soared while tax collections were much lower compared to last year.

The data released by the National Treasury on Monday showed tax collections for the first eight months of the 2009/10 fiscal year were R26-billion lower than the same period in the previous year.

Finance Minister Pravin Gordhan has said tax revenue for the 2009/10 fiscal year would probably undershoot the target by about R70-billion.
full story from M&G here

So tax revenues are down - significantly. Realistically this should be no surprise. Meanwhile expenditure has headed in the opposite direction.

In October, the Treasury forecast a record budget deficit of 7,6% of gross domestic product in the 2009/10 fiscal year but analysts say it could be higher.

The National Treasury figures also showed expenditure in the [period] climbed to R489,5-billion compared with R403,2-billion in the previous fiscal year as the government sought to counter the recession with increased spending.

That's 20% up in the expenditure column! Not exactly small change.

Spending more to "counter the recession" sounds grand, but how much of it is really extra gravy train spend (vs actual developmental stuff that will produce a meaningful return down the line)?

Looking ahead, perhaps tax revenue will increase slightly year-on-year in the coming year. But what is government going to do about expenditure? Just keep on spending like there's no tomorrow?

[tec0]

Well I suspect that the government will keep on spending money “on themselves” until we stop paying taxes. Sounds stupid right the truth is our country is really NOT in bad shape financially but if one looks at our expenses. Government itself is consuming more than 80% of all monies involved that means everything else only gets about 20% to keep it up and going. Of that 20% half gets consumed by corruption thus the people see only 10% or less being spend on the basic necessities like healthcare, national security and other such basic needs.

The South African people must demand better control and have more control on who gets what and then only may things actually change for the better. It is time to move forward and restructure the tax system but I bet you that will never happen so in the end 20c of ever R1 you earn are yours the rest is owned by government.

[Butch Hannan]

Hi Dave,
Easy solution just print some more money????

[Dave A]

Easy solution just print some more money????

That's the "option" that worries me, because then inflation is really going to run! Ultimately it's no more or less than government picking everyone's pockets without levying more taxes.

[Dave A]

Here's the option I actually suspect might happen - increased taxes. But does that grow the economy?

[wynn]

Rates, electricity, water, are already increasing so that more funds that should have been spent providing these services is left in the pot for redistribution.
Health and education have been hollowed out so don't expect the new national health to be a solution, it will just be jobs for pals again.
BEE & BBBEE is a blatent grab for a free ride unfortunately, because it was not thought out properly, the international sub-prime recession backfired that one.

It all go's back to the saying that "You cant reward someone with the income of someone else's hard work, because like all Communist states it is only a few weeks before the worker Bees decide to also become Drones, realising the futility of their production, instead of bringing themselves any reward, is being used to feed others lack of production."

[Butch Hannan]

My quote about printing more money was intended in a facetious manner. Our country needs some highly labour orientated schemes to give people work so that they can at least buy some food. They could for example build new roads with the pick and shovel brigade. A very large proportion of our population are unskilled. Fancy high tech. schemes will not work for them.
After the completion of all the stadiums there are going to a lot more people swelling the ranks of the jobless.

Butch Hannan

[Dave A]

My quote about printing more money was intended in a facetious manner.

I know - but it doesn't mean government won't lose the plot and actually do it. I thought it was worth pointing out the consequences

I see JZ is due to give a "January speech" where people are hoping to see some clear direction given.

An end to economic policy uncertainty, clarity on nationalisation, and allowing flexibility in the payment of workers to promote employment and growth are key issues which economic analysts would like to see mentioned tomorrow in President Jacob Zuma's "January" speech.

The rest of the article is well worth a read.

[Dave A]

The January speech didn't really give anything new - JZ is starting to sound like a stuck record.

Here's some more to factor into prospects for the year.

Bad debt is still on the rise.

Consumers have flooded debt counsellors' offices nationwide after over-extending themselves during the holidays, debt counsellor Consumer Assist said on Monday.

"They are now panicking as they face school and university fees and creditors begin calling," Consumer Assist said in a statement.

Consumer Assist Cape Town manager Leila Beltramo said they had received many enquiries in the first week of January.

"There are a range of problems. In some instances people expected bonuses that did not materialise or were far smaller than in previous years or they did not anticipate the big slice the taxman would take of the bonus," she said.
full story from M&G here

This is going to hit all over I expect, not just the banks.

The recession is over but South Africa's big four banks - Absa, Standard Bank, FirstRand and Nedbank - would report poor earnings for last year and the first half of this year because of heavy bad debt charges, analysts said yesterday.

This comes at a time when their US counterparts, hardest hit by the global economic downturn, have seen their earnings rise impressively in the past quarter, and are expected to triple them by 2011.

Analysts said earnings of South Africa's banking giants would continue to be severely hit in the first half of this year.
full story from Business Report here

Overall it looks like it's going to be another tight year.

While many emerging markets are expected to make a meteoric recovery this year - some with growth of close to 10 percent - the domestic economy is likely to grow by less than 3 percent.

Economists say there are a number of reasons South Africa is out of step with the dynamic developing countries of Asia and Latin America. These include high levels of household debt, a preference for welfare expenditure as opposed to infrastructure investment, ineffective local government and a labour relations framework that is closer to those of advanced economies.
full story from Business Report here

Government's big spend to "mitigate the recession" looks like it is more handing out fish rather than helping people to fish.

[Dave A]

Another option - instead of increasing taxes, just create new ones.

The National Treasury will press on with plans to introduce a new tax on vehicles designed to curb carbon dioxide emissions, an official said on Wednesday, despite concerns this could hamper the ailing car sector's recovery.

The motor industry is struggling to get back on its feet after being been hit by the global economic crisis and depressed local demand, which saw new vehicle sales fall to six-year lows in 2009.

The new tax, mooted last February, is part of government efforts to limit greenhouse gas emissions as well as increase tax revenues that have declined sharply as Africa's economy grappled with its first recession in 17 years, which it exited in the third quarter of 2009.

"The adjusting of existing ad valorem excise duties on motor vehicles to take CO2 emissions into account will still be implemented on March 1 2010," said Treasury spokesperson Thoraya Pandy on Wednesday.
full story from M&G here

[jinxster]

I would agree with the taxes and our overpriced government services.

The time is approaching that it is better to be self efficient then use government services.

The funniest thing is in Africa, electricity should be the cheapest ever. There are so many naturally free resources more here than in many other countries (eg China) yet we pay more... how does that work?

In Mossel Bay municipalty, if you use 60kl of water that will set you back a few cents over R700. (home with less than 25mm connection). This is ludacrous.

I think what should happen is, dont pay the mayors of the town so much. Most mayors take home R100 000 pm or more. And that is small town mayors who actually cant solve any problems. (eg parking).

The mayors of almost all towns in the Garden Route get too much money and deliver stupid ideas to fix large scale problems.

Oh the dams are 17% full... er tell everyone to stop using water...

It rains a little bit... dams back to 23% full... they say, wow we are so happy for the rain... but in 2 days the dam increased 6%, now anyone who has a basic of Grade 8 maths can work out... er the dams must be quite small... we should make it bigger. How can our area have experienced floods (houses washed away), water restrictions and drought conditions in less then 14 months?

And it only stopped raining as per usual here since Oct 2009.

But no we spend millions on a "save water" campaign, and pay our mayors too much. And government, they just get too much. Why does government jobs earn more than the private sector equivalent?

Why do we have so little say over the solutions to the problems? Arent we supposed to be democratic? At this rate communism will seem a better option soon... gonna have to change the business management textbooks at the universities....

[murdock]

i agree with the labour intensive work...build dam walls...more roads using labour employ the masses...hospitals...clinics...schools...houses... etc etc...arrest julius for all his corrupt activities and make him the head gang boy of all the prisoners wasting tax money...he will motivate the masses with his "sweet talk" and get them motivated to work.

this unfortunately this will never happens as it seems everyone is scared of him...and the reality of the situation is like the rest of africa the few powers that be be will milk the country for what ever they can for themselves not the masses...then start getting money from china or other 1st world countries because they are gona need our most valuable resouces like water...steel and open space.