Tax101: The Budget

April 21, 2024

Why do we pay tax?

In this series, we will tackle a creature that makes even the Boogeyman look like a sunflower. Its name The Tax Monster. The T-Monster is always there, watching us, lurking in the shadows, waiting for its time to strike. Unfortunately for us, The T-Monster cannot be avoided. BUT, if we equip ourselves with the right gear, we should know how to manoeuvre to avoid its deadly jaws. To start the process of conquering the T-Monster, we must begin with understanding why it exists in the first place. Contrary to popular belief, there is method in the madness. Stick with me and you just might get through this alive. 

Why do we pay tax?
In almost all economies in the world, the state is a central player in the system. The state has many responsibilities in the economy, like providing healthcare and infrastructure for its citizens. All these services, plus how they plan to acquire money to finance it all, is called the budget. Each year the government releases the new budget, making public its updated plan of action based on current economic conditions. The social services they deliver include education, health, community development, and social development. The other expenses in the budget include economic development, peace and security, general public services, debt-service costs, and contingency reserve.

  • Learning and culture: Basic education, university transfers, student financial aid
  • Health: District, provincial and central health services, facilities maintenance
  • Community development: Basic services, water and electricity programs, public transport
  • Social development: Pension grants, social security funds, child support grants
  • Economic development: Regulation, infrastructure, industrialization, agriculture, jobs
  • Peace and security: Police, law courts and prisons, defence and state security, home affairs
  • General public services: Public administration and fiscal affairs, legislation, external affairs
  • Debt-service costs: Interest payments on loans
  • Contingency reserve: Savings for unexpected

Budget Expenditure 
The government plans its resource allocation based on the current economic needs. Year on year, the most resources are allocated to education and social services. The figures below reflect the South African budget for 2022/23.

Budget Revenue
So where does the government get the money to finance these expenditures? Mainly in the form of tax revenues. This is why the T-Monster exists: The citizens of a country must pay the government taxes in order to receive public goods and services, like roads, hospitals, and police services. The government charges tax on many different products, services, and activities. In the figure below, we can see the breakdown of the various tax categories that fund the budget.

The main tax incomes for the government consists of personal income tax, value-added tax (VAT) and corporate income tax. In the next articles, we will discuss these three forms of tax and how individuals in each category can go about minimizing their tax expenditure.




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