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Good afternoon John
Wed, 12 March 2025

South Africa’s 2025 national budget confirms that the ANC remains unwilling to make the necessary decisions to address the country’s economic challenges.

It doesn’t seem as if Finance Minister Enoch Godongwana took note of the strong opposition to higher taxes that led to his first budget not being tabled.

The amended budget proposes a Vat hike of half a percent this year and the same again next year. But while this appears to be a concession, the burden on taxpayers has not been reduced – it has simply been shifted.

Instead of pushing through a more considerable Vat increase, Godongwana has ensured that all personal income taxpayers will pay more by not adjusting income tax brackets and rebates for inflation. Anyone who receives a salary increase to keep up with inflation will be pushed into a higher tax bracket and automatically pay more tax.

Known as fiscal drag, this measure will generate R18 billion in additional tax revenue this year and R19 billion in 2026/27. This is much more than the R13.5 billion the half-percentage-point Vat hike will yield this year and R15.5 billion next year.

The February draft budget at least contained some tax relief for lower earners, but this has now been scrapped.

However, perhaps more alarming is that despite Godongwana hiking taxes, he did not publicly announce significant government spending cuts. Yes, there were promises of spending reviews, but not a single concrete cut to indicate that the National Treasury is serious about saving.

There are vague commitments to future spending reviews, but cost-cutting needs to take effect now. The same promises of efficiency and reform have appeared in previous budgets, yet government spending continues to rise with little measurable impact on economic growth or service delivery.

This is not a budget designed to fix the economy. It will not lead to meaningful growth, job creation, or investment.

It is a desperate short-term attempt to stay the fiscal slide by taxing South Africans more.

What makes it even worse is Sars Commissioner Edward Kieswetter’s statements that no tax hike is necessary and that Sars can collect hundreds of billions of rands in tax with more resources.

While Sars will receive R3.5 billion in the current financial year and an additional R4 billion over the medium term, this allocation does not reflect the issue’s urgency. Since Sars was systematically weakened under state capture, restoring its full capacity should be a priority. Improving compliance would ensure more taxpayers contribute their fair share rather than forcing middle- and lower-income South Africans to absorb another tax increase.

It is also incomprehensible that R2 billion is budgeted for VIP protection, but Sars only gets R3.5 billion. The irony is tangible.

The lack of economic growth is at the heart of South Africa’s fiscal crisis. Since 2010, GDP growth has averaged just 1.5%, with 2023 and 2024 registering rates of 0.7% and 0.6%, respectively. These figures indicate an economy that is stagnant at best, unable to generate the revenue necessary to support government spending or create jobs for millions of unemployed citizens.

Treasury’s forecasts suggest that growth will remain weak in the coming years, making it clear that the current policy trajectory is unsustainable. The only way for South Africa to prosper is through accelerated economic growth driven by private-sector investment, job creation, and policy certainty. Not higher taxes to mask government inefficiency.

The GNU is set to engage over the next few days before the parliament votes on this budget. One can only hope that sanity prevails and that no party votes for the adoption of the budget in its current form.

If spending cuts are not enforced and the government’s thinking does not change, we will find ourselves in the same position next year – and taxpayers will once again bear the brunt.

Ryk van NiekerkRegards,
Ryk van Niekerk
Editor, Moneyweb
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