South Africa’s delayed 2025 Budget is no win for ordinary South Africans. And despite what some politicians may argue, it isn’t even a worthy “compromise.”
The fact of the matter is that South Africa has far crossed over the sweet spot of the Laffer Curve. Any rise in taxes will have diminishing returns for the fiscus, as taxpayers are choked of their productive potential and the economy contracts due to the avarice of greedy politicians.
Value-added tax
The biggest talk of the budget is that the initial two-percentage-point proposed VAT hike will now only be one point spread out over two years. That’s a fancy way of saying 0.5% now, and another 0.5% later.
This is no victory.
VAT already eats at household budgets and erodes the bottom lines of businesses: mostly small businesses, that cannot easily pass the cost on to the consumer.
I can speak from personal experience. I use Facebook advertising to market my novels. There is a hard cap on how much consumers are willing to pay for books. So I can’t raise my prices much, while my own marketing costs have risen, due to the now 15.5% added to the advertising bill.
VAT is especially hurtful, considering that we could lower it substantially.
The Institute of Race Relations calculated that if we were to eliminate Black Economic Empowerment (BEE) legislation that enabled BEE compliant contracts to charge an excessive premium on government contracts, we could lower VAT to 11.5%. This alone, among a multitude of potential other reforms, would save a fortune for the poor, the middle-class, and small businesses.
Eskom bailout
The VAT increase isn’t the only problem with this budget.
Eskom’s debt relief payment of R70 billion has been lowered to R40 billion this financial year, and R10 billion in 2028/2029. But this number should be zero.
The fact that the government clings on to controlling Eskom while running it into the ground is the epitome of madness. Eskom should be unbundled and its assets sold to well-run private-sector enterprises. This would stabilise the grid, usher in an end to loadshedding, and free the fiscus from Eskom’s debt.
Income tax
Some would argue: we should be thankful that income tax has not gone up. But as economists and analysts have discussed, the unchanging tax brackets mean in practice that while our money won’t be taken directly by the tax man, it will instead be eroded by inflation.
Grants
While taxpayers will receive no relief from inflation, grants have been raised above inflation. While the fiscus is apparently struggling to plug a budgetary hole, it considers it fine to raise grants in a way that the taxpayer just can’t afford.
There is plenty of wasteful expenditure that could be cut to fund welfare, and even more terrible regulations that need to be cut to enable economic growth. Under such circumstances alone could a grant increase be considered prudent.
Or perhaps we should cut the big gaping so-called “temporary” grant which costs the country R35.2 billion. The SRD Grant was introduced in 2020 to provide relief during the Covid-19 lockdown. It’s time to end this drain on the fiscus.
Public sector wage
While normal South Africans struggle to make ends meet, entitled state workers have pushed up their salaries by 5.5%. This will cost taxpayers an additional R7.3 billion in 2025/2026, an additional R7.8 billion in 2026/2027, and an additional R8.2 billion in 2027/2028.
This is outrageous.
While the country falls into disrepair, with critical infrastructure crumbling, corruption rife, and the very fabric of the state failing, the government workers culpable for this crisis are demanding more money. This is while private sector workers are getting less money as the economy contracts.
There should be a major audit of the civil service, with redundant, incompetent, and unnecessary public sector workers being laid off. This should be combined with a radical liberalisation of the labour market to enable private sector businesses to more easily hire and fire workers and create additional jobs.
This will produce taxpayers for the economy, solve unemployment, and stop costing taxpayers billions.
Sin tax
Excise duties on alcohol and tobacco products have been raised by 6.8%, and by 4.8% for vaping products. This is one of the most delusional of tax raises.
The government still hasn’t learnt that if it raises the artificial price of these addictions too much, it just ends up pushing consumers into procuring the products illegally.
Between 2002 and 2022, the government lost an estimated R119 billion in VAT and excise duties from cigarettes. R15 billion of this alone was lost in 2022: all because the charges were too high. The illicit market thrives due to overregulation.
Most consumers would prefer to buy cigarettes and alcohol from reputable and formal stores. But if the cost is too high due to taxes, they will turn to cheaper and seedier sources. This means the fiscus gets nothing, and organised crime profits.
Sin tax needs to be reasonably low so to not push consumers towards criminality. With VAT being raised to 16% over the next two years, I’d propose even abolishing sin tax altogether.
Cut spending, free the market
Raising tax is not how we fix the budget or this country. Taxpayers are at their limit. Any additional taxes will just harm the economy, further lowering tax revenue.
Rather, the government needs to get off its ideological obsession with “structural transformation” and other communist nonsense, and commit to austerity. Unnecessary departments need to be closed. Wasteful expenditure must be audited and halted. Luxury spending by politicians must be fineable to the value of taxpayers’ money that was spent. Parastatals must be de-bundled and sold off.
On top of spending cuts, there needs to be a concerted effort to liberalise the economy to spur economic growth. BEE must be abolished, race quotas in employment must end, labour regulations must be lightened to make it easier to hire and fire workers. Licensing and registration regulations must be lessened to make starting a business as easy as possible.
South Africa could be rich. The government must just abandon its ideological obsession with socialism, and pretentious redress, and get to work focusing on making South Africans richer. Not looting them of every penny they have left.
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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