The Budget Speech is going to be held on 24 February and is eagerly awaited in many regards.  I have written about this topic before and how much government employees’ salaries are costing us as a country.  The bottom line is that government salaries are going to comprise 100% of the country’s entire GDP within about 10 to 12 years and while at some point the ANC will have to confront this problem, they are not going to choose to do so right now.  

Some well-known authors in somewhat negative books, have predicted that the ANC will never tackle the issue before the government will have to appeal to the IMF for a bailout and it is only at that time that they will then make a decision as whether to accept the advices that the IMF will surely give on firing large numbers of government employees, as well as cutting salaries that we will see any changes.  That might be an overly negative scenario, but it is the one painted by R W Johnson in his book “How long will South Africa survive?  The looming crisis”.  Even if you think that scenario is too negative, the one thing that you can accept is that while the ANC may not tackle this side of the problem – in other words, where the money is being spent and how it is being wasted – that they are certainly going to tackle the raising more money side of the equation.  The sensible way to do it would be to increase the VAT rate, but that will probably not fly politically.  It would be easy to justify and to point out that for example the UK has VAT at 20% and that is a far more modern first-world economy than ours, so it would not be hard to motivate increasing our VAT overnight to 17%.  I think however that what we are going to see is the same thing for a number of years – and that is slow, but continual increases in personal and company tax.