For the first time in South Africa’s democratic history, the national budget has been postponed. This unprecedented delay stems, apparently, from Finance Minister Enoch Godongwana’s proposal to increase VAT by two percentage points – a move so controversial that even members of his own party, the ANC, and the broader Government of National Unity (GNU) rejected it outright.
Opposition parties, regardless of ideology, have also expressed their disapproval. Yet, as absurd as this proposal is, it is rivalled in economic folly by the call of Julius Malema, leader of the Economic Freedom Fighters (EFF), for higher corporate taxes and a wealth tax. These ideas, though politically fashionable, are disastrous in practice and reveal a fundamental misunderstanding of how economies grow and jobs are created.
South Africa faces a fundamental choice: Does it continue to overburden a shrinking tax base while unemployment soars, or does it embrace a growth-oriented approach that incentivises investment, entrepreneurship, and job creation? The answer should be clear.
The country cannot tax itself into prosperity. Economic expansion, not punitive taxation, is the only sustainable path to reducing poverty and unemployment.
The Tax Burden is Already Crushing
South Africa’s tax regime is among the harshest in the world. The top marginal personal income tax rate sits at 45%, VAT at 15%, and corporate tax at 27%. On top of this, businesses and individuals face fuel levies, carbon taxes, and an array of other costs imposed by the state. The wealthier a person or a company is, the more aggressively they are taxed.
The justification is always the same: redistribution. Yet after three decades of such policies, poverty and unemployment remain at crisis levels.
The effects of these high taxes are devastating. Investment is deterred, businesses scale down or relocate, and skilled professionals seek opportunities abroad. South Africa’s tax-to-GDP ratio stands at around 26%, higher than that of many emerging economies.
By contrast, thriving economies with lower tax burdens – such as Singapore and Ireland – have demonstrated that reducing taxes encourages economic activity, investment, and job creation.
More Taxes, Fewer Jobs
The misguided belief that wealth can simply be redistributed through higher taxation ignores a key economic reality: when businesses are taxed more, they have less capital to expand, innovate, or hire workers. Higher corporate taxes, as suggested by Malema, would not squeeze money out of greedy executives but rather reduce the ability of businesses to grow and provide employment.
History proves this point. Countries that have attempted to tax their way to prosperity have often ended up with stagnation. As Margaret Thatcher once famously put it, “The problem with socialism is that you eventually run out of other people’s money.”
This is precisely the situation South Africa faces. The government relies on taxing a small base of productive individuals and businesses to fund unsustainable social spending, but there comes a point where this approach collapses under its own weight.
VAT: A Tax on the Poor That Should Be Scrapped
VAT is particularly harmful because it disproportionately affects the poor. Unlike income tax, which targets earnings, VAT applies to all consumers regardless of income level. A two-percentage point increase would make everyday essentials more expensive, further burdening households already struggling with high inflation and unemployment.
This increase would be especially absurd considering that VAT was already raised from 14% to 15% in 2018/19. If implemented, the new hike would represent a staggering 21.3% total increase in VAT in just a few years. This level of taxation is unsustainable and unjustifiable.
Those who defend VAT argue that it generates necessary government revenue. However, if the goal is to reduce poverty, the best approach is not to take more from people’s pockets but to create an environment where businesses thrive and jobs are plentiful. A growing economy generates more revenue through economic activity rather than coercive taxation.
South Africa should seriously consider phasing out VAT altogether, or at the very least, drastically reducing it. A lower or non-existent VAT would immediately increase disposable income for all citizens, leading to higher consumer spending and greater business activity. Many countries with low or no consumption taxes have seen rapid economic expansion because money remains in the hands of consumers rather than being siphoned off by the state.
What Should Be Done Instead?
South Africa’s economic crisis is not due to a lack of taxation but a lack of growth-friendly policies. Instead of raising taxes, the government should:
• Cut Corporate Taxes – Reducing corporate tax from 27% to 20% or lower would encourage investment, attract foreign businesses, and stimulate economic activity. This rate is chosen based on international competitiveness – many countries that have successfully driven economic growth, such as Ireland (12.5%) and Singapore (17%), have significantly lower corporate taxes. While South Africa may not immediately reach such low levels, reducing it to 20% would place it in a stronger position to compete for global investment and encourage local business expansion. Additionally, research has shown that lower corporate taxes often result in higher overall tax revenue due to increased economic activity.
• Reduce Personal Income Tax – The 45% top marginal tax rate is unreasonably high and discourages productivity. Lowering it would incentivise skilled professionals to stay in the country and contribute to economic growth.
• Abolish or Radically Reduce VAT – VAT should be eliminated or reduced to a minimal rate to relieve financial pressure on consumers and stimulate demand-driven economic growth.
• Cut Government Waste and Corruption – A bloated public sector drains resources that could be better used to stimulate the private sector. Useless government jobs should be eliminated, and the state should focus on efficiency rather than employment for political purposes. Corruption and wasteful expenditure must also be addressed. The example of the US Department of Government Efficiency (DOGE), which has made significant strides in reducing wasteful spending and inefficiencies, serves as a lesson for South Africa. If the government were to implement similar measures, billions of rands could be redirected toward meaningful economic growth rather than lost to mismanagement and fraud.
• End Policy Uncertainty – The government must scrap policies such as Expropriation Without Compensation, which creates an unpredictable investment climate. Investors, both local and foreign, need certainty before committing capital.
• Reduce Social Grant Dependency – While social support is necessary for the truly vulnerable, the system should not incentivise unsustainable dependency. For example, limiting child grants to one or two children per household would encourage personal responsibility while reducing the fiscal burden.
The Road to Prosperity
A country cannot tax itself into wealth. Economic history consistently shows that when taxes are lowered, businesses thrive, employment rises, and government revenue – contrary to fears – often increases due to a larger tax base. South Africa’s problem is not insufficient taxation, but a hostile economic environment that stifles entrepreneurship and investment.
The government must decide: Will it continue down the path of over-taxation and economic stagnation, or will it embrace policies that create wealth and jobs? If South Africa is serious about reducing poverty and growing the economy, it must reject higher taxes and instead pursue policies that reward work, investment, and innovation. Anything less is a recipe for national decline.
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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