The unprecedented delay in tabling the budget “offers an opportunity for a profound rethink of fiscal priorities in South Africa”, says the Institute of Race Relations (IRR).
In light of the mooted proposal to hike Value-Added-Tax (VAT) to 17% having “hit a brick wall of political opposition”, the IRR says it will send to all members of Parliament’s two finance committees its Blueprint for Growth proposal, titled Cut VAT & BEE Premiums.
In a statement, the IRR says this report points to evaluations of a potential R150 billion in savings that could be achieved by reaping the “Zondo Dividend”, named after the Zondo Report’s recommendation to derive “maximum value-for-money in the procurement process” as opposed to spending extra on BEE preference premiums.
The IRR report being shared with Parliament makes three simple calls:
- make BEE premiums transparent in the budget;
- cut BEE premiums to R0; and
- cut VAT to 11.5% without increasing debt.
“In the bargaining process that is to follow, the first question is whether Parliament will finally force transparency on how much BEE premiums actually cost.
“Senior treasury official Mr Willie Mathebula has repeatedly explained that BEE “preference premiums” are “capped at 11%” for contracts over R50 million and capped at 25% for contracts below R50 million. But despite repeated requests, neither Mr Mathebula, nor anyone else at treasury, has been willing to say how much BEE premiums cost.”
In its statement, the IRR describes how, moments after the budget delay was announced, IRR Legal executive director, and author of the Cut VAT & BEE Premiums report, Gabriel Crouse, sought out ANC Secretary General Fikile Mbalula and asked him whether it was a good idea to cut BEE premiums in procurement.
Mbalula said: “We believe that government needs to take everyone into confidence around the issues of disagreement. Just to take one issue and run with it is incorrect. We know that VAT is the major question, and that is what we as the ANC think needs to be considered holistically.”
But, says Crouse, taking everyone into confidence around the issues of disagreement should include telling the public how much BEE premiums cost. Only then can supporters and critics debate whether BEE premium cuts are appropriate, or not.
He told Mbalula: “The reason we singled BEE premiums out is because with all of the other options we know what the cost is, where with BEE premiums we don’t know what the cost is. Isn’t that a problem?”
Mbalula answered: “I wouldn’t say so. Let’s wait.”
But there can be no delay to fiscal transparency, Crouse argues. Section 216 of the constitution requires “transparency and expenditure control” from Treasury, precisely for moments like this historic one.
The IRR says: “As South Africans debate whether taxes should be hiked or cut, how the deficit should be managed, whether SOEs should be bailed out some more or cut, numbers matter. The budget is a compromise cashed out in numbers.
“However, the one number South Africa does not have is an official account of BEE premiums. Both critics and supporters of BEE premiums can finally remedy this longstanding dereliction of constitutional duty during the coming bargaining process by ensuring that the first point of agreement is transparency.”
As Mr Mbalula said, the “government needs to take everyone into confidence about the issues of disagreement”.
BEE premiums, the IRR says, “are a matter of grave disagreement”.
“Research by the IRR, published in its report, indicates that a majority of all South Africans, and a majority of black South Africans, support cutting BEE premiums to R0.
“Furthermore, multiple pollsters including Afrobarometer and the Social Research Foundation indicate that there is a very high appetite to cutting taxes. If BEE premiums are cut to R0, then VAT can be cut by R100 billion, leaving cash in the pockets of tens of millions of people who know how to make each rand go as far as possible.”
In an earlier statement – released in the expectation that the budget speech would go ahead as scheduled − the IRR warns that Minister of Finance Enoch Godongwana’s hopes of advancing the GNU’s pro-growth ambitions “are critically undermined by the weakening of property rights and the ANC’s determination to double down on BEE failures”.
“The coalition administration’s founding goals of economic growth, job creation, and fixed capital formation have likely been placed beyond reach as a result,” the IRR says, pointing out that the government’s bad policy choices also run counter to what most South Africans say they want and need to succeed.
The IRR says its most recent annual polling, published in November 2024, “once again affirms South Africans as non-racial, moderate, and economically pro-growth in their core beliefs”.
“By a large margin, South Africans identify job creation as the most important national priority. 83% of South Africans prefer a government focused on job creation over social grants. 63% of South Africans believe the government must remove barriers to economic growth and allow businesses to create jobs.
“The GNU’s founding commitment to a pro-growth agenda has likely been responsible for the broad public support for the GNU so far. Yet, recent policy developments put this at significant risk. The signing into law of the Expropriation Act by President Ramaphosa, as well as his doubling down in SONA earlier this month on a toxic new BEE tax to fund race-based government intervention in the economy, place Minister Godongwana in a near impossible position, having to nurture the sapling of fiscal prudence planted in the 2024 Medium-Term Budget Policy Statement, as well as making the case for pro-growth government policy, while shackled to fundamentally anti-growth, pro-poverty policies.”
Says Hermann Pretorius, IRR head of strategic communications: “South Africans want and desperately need economic growth. For that, we need to attract investment. Yet, the already weak investment case for South Africa has now been further weakened by the ANC’s commitment to race-rigged policies and its assault on the property rights of all South Africans. This foolhardy obstinacy in the face of harsh economic reality is not only positioning the government in diametrical opposition to what South Africans want to see in terms of policy, but also risks setting Minister Godongwana up to fail on the issue of economic growth.”
The IRR’s Blueprint for Growth series of papers over the past year set out practical and credible ways to get South Africa’s economy growing again. The 2025 edition of the Blueprint for Growth paper on public finances and tax policy, published yesterday, exposes the ineffectiveness and waste of the bloated state, particularly spending on BEE premiums in public procurement, that South Africans can no longer afford.
Says Pretorius: “Achieving growth isn’t alchemy. There are things that secure economic growth, and there are things that deter it. The GNU would do well to get back to basics on economic common sense. Making South Africa an attractive investment destination and a place where people can truly build up wealth means cutting taxes and BEE premiums, bringing an end to all race-rigged policies, protecting property rights, and building on the fiscal prudence the GNU has seen introduced. Failure to take this common-sense, pro-growth path could signal the beginning of the end of the GNU’s wide public support.”
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