Every individual taxpayer now supports 2.32 people

A recent report by Lisa Haagensen from the SA Institute of Race Relations (SAIRR) shows that while there are today more individual income taxpayers in SA compared to 2004/05, there has been an even bigger increase in the number of people on social welfare, taking the number of people each taxpayer supports to nearly two and a half. From SAIRR:

Between 2004/05 and 2007/08 the number of individual income taxpayers in South Africa grew from 4.3 million to 5.3 million – an increase of 23%.

In 2004/05 there were 7.8 million social grant recipients. That number increased to 12.3 million by 2007/08 or by 57%.

In 2004/2005, for every one taxpayer there were 1.82 social grant recipients. This ratio subsequently increased. In 2005/2006 there were 2.33 grant recipients for every individual taxpayer and in 2006/2007 the number was 2.39. However, this ratio has since decreased to 2.32 in 2007/2008 although it remains higher than that in 2004/2005.

From Haagensen, SAIRR. Dec 2009.

While South Africa has therefore recorded a decline in the ratio of individual income taxpayers to people who work and to people who are unemployed those taxpayers are supporting a higher number of their fellow citizens through social welfare.

Individual income tax accounts for approximately a third of South Africa’s tax revenue. Company tax accounts for a quarter. Sales tax and other indirect taxes, chief among which is VAT, account for the balance. 

We would add to Haagensen’s final paragraph (follows below) that while the ratio might decline in 2010/11 it will be as a result of SARS tightening restrictions and penalties, casting the tax net over more people. This will NOT mean the situation is improving, but rather that it is worsening through a larger tax burden on individual taxpayers.

Should the ratio of individual income taxpayers to social welfare beneficiaries continue to increase this will call the sustainability of the welfare system into question. This is particularly so in an environment of declining government revenues where the government has also already had to borrow increasing amounts to sustain levels of state expenditure.

- Lisa Haagensen, SAIRR

Quick back of the napkin calculations suggest welfare grants are supporting about 20 million people in total. This takes the above dependency ratio (social welfare beneficiaries divided by taxpayers) to about four. Also note this analysis ignores the number of government employees taxpayers are supporting, as well as the number of people supported through ‘government job creation.’ This is what you call ‘redistribution.’