What budget alternatives are there to VAT increases in 2025?

With a revised budget reportedly green-lit behind closed doors, economists explore all possible alternatives to VAT increases in 2025 …

Behind closed doors, viable alternatives to VAT increases in 2025 have reportedly been agreed upon. Image: File

Following the controversial rejection of VAT increases in 2025 at last month’s postponed Budget Speech, the GNU has reportedly green-lit a revised budget. But what possible alternatives will be contained therein? Finance Minister Enoch Godongwana’s rescheduled Budget Speech is set to go ahead next week on Wednesday 12 March 2025. And economists estimate Godongwana’s shelved VAT increases in 2025 would have raised R60 billion, reports BusinessTech.

SHEVLED VAT INCREASES IN 2025

All VAT alternatives in 2025 will be revealed next week at the rescheduled Budget Speech. Image: File

Nevertheless, Alexforbes says government’s projected revenue for the last decade has usually been overestimated. Ironically enough, the shortfall is especially pronounced in years when taxes were hiked. Like the last time VAT was hiked to 15% (2018/2019). Basically, hiking VAT doesn’t wok and economists from the Bureau for Economic Research explained that VAT increases in 2025 would have pushed up consumer inflation and impacted interest rates. For example:

In 2017/18, when the National Treasury introduced a 45% top-income tax bracket for the wealthy, the shortfall was R49 billion.
In 2018/19, when VAT was last hiked to 15%, the shortfall was R57 billion.

In short, “South Africans are overtaxed and cannot be squeezed any further without collections going the other way,” says Alexforbes.

REDUCE GOVERNMENT OVERSPENDING

Finance Minister Enoch Godongwana had his 2%-point VAT increase shelved by GNU members last month. What will the revised 2025 budget look like? Image: File

Worryingly, VAT increases in 2025 are meant to fund above-inflation increases in government wages and South African Social Security Agency social grants. However, this doesn’t take into account the January 2025 High Court ruling that the R370 SRD grant should be expanded and increased to as estimated 18-million residents.

Similarly, there are also concerns how much National Health Insurance (NHI) will cost to fund. And what knock-on effects the cessation of United States Agency for International Development (USAID) will have to the country’s bottom line. Conservatively, economists say these risks could add as much R100 billion to the expenditure side of the 2025 budget.

GREEN-LIT 2025 BUDGET

As always, funding for expanded social-welfare initiatives will be difficult to balance in the 2025 budget. Image: File

Nevertheless, latest reports suggest the DA, ANC and fellow GNU members have reached an agreement behind closed doors this week on a revised 2025 budget. As far as alternatives to VAT increases in 2025 go, the DA proposed its own budget to cut down the state’s ‘reckless” expenditure’, reports BusinessTech.

DA spokesperson on Finance, Dr. Mark Burke, explained the alternatives to VAT increases in 2025 that could still cover government’s promised spending increase. The R60 billion in new expenditure is 3% of the overall R1.9-trillion budget and can be “easily sourced from failing and underperforming programmes. South Africa doesn’t have a revenue problem, it has a prioritising problem that doesn’t drive growth and job creation,” said Dr. Burke.

PROACTIVE COST-CUTTING NEEDED

Unlocking state assets and job creation is preferable to increases already over-taxed residents, says the DA. Image: Waldo Swiegers/Bloomberg

As a result, the DA says the following immediate cost-cutting measures could free up at least R60 billion:

50% reduction in government advertising budgets.
33% reduction in travel and catering expenditure across departments.
Hiring freeze for all non-essential government positions for 12 months.
A national audit of ‘ghost employees’.
Pro-business growth measures.

Furthermore, Dr. Burke insists that improving tax compliance and unlocking state assets will be far better than suffocating taxpayers. Selling underutilised state-owned land and properties could raise R10 billion per year alone. And SARS commissioner Edward Kieswetter gave tacit support in chasing down R800 billion in owed taxes. Similarly, now could be the time for the ‘temporary’ SRD grant to be converted into a Job Seekers’ Allowance or Basic Income Grant. All will finally be revealed next week Wednesday 12 March 2025.

ARE YOU CONFIDENT ABOUT THE REVISED 2025 BUDGET?

We’d love to hear from you in the comments section below … Image: File

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