Renowned economist Dawie Roodt has warned that South Africa has unsustainable debt and deficits, which will become taxes that future generations will have to pay.

Speaking to Sakeliga executive director Russell Lamberti about the state of South Africa’s economy, Roodt said that the country’s debts and deficits are far higher than the government and budget indicate.

He said that despite some positive numbers, or ‘less bad’ figures coming out of the medium-term budget in November, South Africa’s lack of economic growth is the key factor that’s breaking the picture.

While the budget shows a narrowing of the consolidated budget deficit to around 4.4%-4.7% of GDP for the current fiscal year and moving to below 3% by 2027/28, this must be read in terms of growth.

“There was no increase in the economic growth forecast; it was actually a reduction”, Roodt said. “The minister of finance started off the year by saying he thinks the economy is going to grow at 1.9%.”

“Whenever new data came out, it was very clear that we were not going to get to that. His most recent number is 1.2%, and I don’t think we’re going to get to that.”

Roodt said that economists look at fiscal deficits-to-debt, deficits-to-GDP and debt-to-GDP to gauge the true state of the economy. If GDP is not growing, the debts and deficits balloon.

Taking this into account, he said that the reality is that each person in South Africa owes R100,000 more than they think they owe—reflecting the current debt-to-GDP ratio.

However, even that figure is “all wrong”, he said, because of how South Africa’s debt levels are understated in official data.

Roodt said there are three levels of state finances to look out for, those being local authorities, state-owned enterprises and the national accounts of the minister of finance.

Most of the numbers handled by the budget, including the headline figures on fiscal deficits, debt, interest et al are based only on the national accounts.

Unfortunately, the majority of local authorities are dysfunctional, receiving huge amounts from the Minister of Finance while their own debt continues to balloon. This municipal debt is not reflected in the national accounts.

State-owned enterprises have also been unable to stand on their own feet, adding to the national burden through bailouts and debt transfers, with their own financial crises not accounted for in the national figures outside of ‘contingent liabilities’.

Roodt said that, if the government were honest about South Africa’s debt, these other finances would be included in the national account.

If this were done, the country would see its debt-to-GDP ratio shoot up from under 80% to well over 90%. Similarly, the budget deficit would also be more stark.

Your children will pay the price

Roodt said that credit must be given to Finance Minister Enoch Godongwana for running a primary budget surplus.

This shows that the National Treasury is at least trying to rein in spending. The primary surplus shows that the government is spending less than it is bringing in through taxes.

Again, however, the primary budget is before interest costs, which have run up to about R400 billion a year, driving a huge deficit.

In addition to this, the state is borrowing more money, effectively to service this debt.

Treasury is forecast to borrow a trillion rand more over the next three to four years, after having already added a trillion rand over the past three-year cycles.

Combined with the ‘hidden’ debts not covered in the national account, South Africa faces a heavier debt burden and growing deficit, which is not reflected in the reported numbers.

Unfortunately, this has to be covered by taxpayers.

Sakeliga’s Lamberti noted that this would be covered by future taxpayers and unborn children, who will ultimately inherit the burden from the generation that created it.

According to Roodt, the deficits created by the government today are simply ‘postponed taxes’ on the generations that follow.

“The tax burden in South Africa is equal to state expenditure—because that deficit is nothing but postponed taxes,” he said.

“Somebody’s going to pay for that. Your kids are going to pay for that one day. And the more we postpone taxes, the bigger the tax burden will be on our kids and the economy going forward.”