Dear Friend of the IRR,

The annual Budget Speech is coming up this month, which means it's time for the government to tell us how they plan to spend our tax money in the coming year.

In this month's newsletters, we reflect on how government is managing South Africa's money and what needs to be done to fix South Africa's fiscal problems.

Today, we're looking at how government spending has been leading to a huge budget deficit, how that affects your tax burden, and what you can do about it.

The SA government is overspending

A budget deficit arises when the government spends more money than it collects. When this happens, the government has to borrow money to close the deficit.

Since 1913, the South African government has posted a deficit every single year – with two exceptions, both under the ANC government. In the first half our democratic era, the government worked hard on increasing economic growth and reducing spending. This ultimately resulted in a surplus of 0.6% of GDP in 2006/2007 and 0.8% of GDP in 2007/2008.

But this is where the good news stops. After 2008, government spending skyrocketed, peaking at an eye-watering deficit of –9.8% of GDP during the Covid year of 2020/2021.

Budget deficit/surplus (% of GDP)

Source: Statistics South Africa (Stats SA); Own Analysis

What is the government spending money on?

Practices and policies like BEE, preferential procurement, and cadre deployment allow the government to prioritise race and connections over value-for-money when deciding who to employ and to whom to award tenders.

This results in the government paying more than it needs to for goods and services, enriching a small number of already wealthy, well-connected, and corrupt elites at the expense of the rest of us.

How does this affect you?

A budget deficit means you will have to pay more tax. As long as the government continues to overspend, it will either have to increase taxes today to close the funding gap, increase taxes tomorrow to pay for the debt it incurred to finance today's deficit, or print more money, increasing inflation and eroding your savings.

What can you do about this?

Hold the government accountable for the way it manages the country's money by voting wisely in the 2024 Elections. Choose politicians and parties that stand for a government that does not spend money it cannot afford to. And raise your voice to support fiscally responsible politicians, in whatever party you find them.

By supporting the IRR, you are supporting the fight for a government that manages South Africa's money in a way that makes life better for its people. Forward this email to your friends and family and encourage them to join you in supporting the IRR.

Live Free. Prosper.