In response to the budget speech presented by Finance Minister Enoch Godongwana on March 12, Business Unity South Africa (Busa) says it welcomes the focus on macroeconomic stability, structural reforms, scaling up infrastructure and enhancing the State's capabilities.

However, aside from infrastructure investment, for which some detailed plans were outlined, Busa says the Budget remains silent on what will be done differently in other areas.

The organisation says the proposed one percentage point increase in VAT over two years, along with the absence of inflationary adjustments to personal income tax brackets, will further strain household incomes, leading to subdued aggregate demand.

It notes that these tax hikes also impose an additional burden on an already narrow tax base, which shoulders a significant portion of the country’s taxes.

“Given the slow GDP growth outlook over the medium term, relying on yet uncertain spending reviews while expanding government expenditure is a risky gamble for controlling spending.

“This budget lacks specific plans to eliminate inefficiencies, address wasteful expenditure and identify savings. It is unclear how the government plans to reprioritise and redirect resources to fund effective programmes while discontinuing non-performing ones,”

Busa says the 240 spending reviews mentioned by the Minister, which it notes have been conducted and yet not acted upon in 12 years, raise concerns about the government's political will to take decisive steps to curb spending.

“In light of the government's poor track record in controlling expenditure, we advocate for a legislated expenditure ceiling (fiscal rule) to ensure accountability and discipline.”

Busa posits that reducing public expenditure and stimulating economic growth are crucial for bringing down debt-service costs, which pose a significant burden on the fiscus, to manageable levels.

In a similar vein, the Organisation Undoing Tax Abuse (Outa) has expressed that it is “deeply concerned” about the announcement of a VAT increase, describing this as a “regressive tax” that will impact South Africans across all income levels, particularly low and middle-income households which is “unacceptable.”

“Treasury has opted for the easy option of a VAT hike rather than taking bold steps to cut waste, address inefficiencies and tackle corruption. A VAT hike may be easy to collect, but it disproportionately impacts the poor. Government must focus on cutting waste and ending corruption before reaching into citizens’ pockets,” says Outa CEO Wayne Duvenage.

Additionally, while Godongwana has spoken about fiscal discipline and no new tax increases, Outa says freezing inflationary increases on personal tax brackets and rebates amounts to a stealth tax increase on already struggling South Africans.

It argues that, by not adjusting rebates and tax brackets in line with inflation, government is quietly increasing the tax burden on individuals, which is also “unacceptable.”

“While tax increases can be a tool for stabilising government finances, the government has a history of fiscal mismanagement, high levels of debt and corruption. This flies in the face of government’s claim to fiscal discipline as a justification for tax increases. We need to see evidence of responsible spending, reduced waste and improved service delivery, which has not been the case in South Africa.

“Cut corruption and waste, then talk about tax increases,” the organisation asserts.

Concerning the 240 spending reviews and re-evaluations of government operations, Outa argues that there does not seem to be any identified savings and efficiencies resulting from these efforts.

The organisation says it would like to have full transparency on how these findings have reduced or will reduce unnecessary spending and calls for civil society involvement in the committee proposed by the Presidency that will review inefficient and underperforming programmes.

“South Africa doesn’t have a revenue problem. We have a spending problem. Unless we cut waste and corruption, tax increases like VAT are indicative of government’s inability to reform,” says Duvenage.
 

Outa says it believes that, to stimulate economic growth and increase tax revenue in South Africa, the government must implement structural reforms that improve business confidence, attract investment, create jobs and expand the tax base.

“Simply raising taxes without growing the economy will worsen inequality, increase unemployment, and drive more taxpayers into informal or offshore financial arrangements,” it says.

Business Leadership South Africa (BLSA) adds that South Africa cannot afford to cut the education, health and police budgets any further as these services are already “suboptimal,” expressing that the only place left to cut is the size of government itself.

“Again, this doesn’t mean fewer nurses and teachers  but fewer state entities and senior government personnel. Radical thinking is required or we will be revisiting this problem again and again in future budgets,” it says.

Meanwhile, the Beer Association of South Africa (BASA) has expressed its disappointment with the announcement of a 6.75% increase in excise duties, noting that this will place further strain on the industry.

“The beer industry is a key driver of employment and economic activity. Increasing excise taxes beyond inflation – especially by 2% above CPI – hinders growth and job creation. Coupled with the 0.5 percentage point VAT increase, the financial burden on both businesses and consumers is even more severe,” says BASA CEO Charlene Louw.

“A sustainable tax policy must consider economic realities, industry growth, and responsible alcohol consumption. BASA remains committed to engaging with National Treasury and stakeholders to develop a framework that balances revenue generation with industry stability,” she adds.