By Prof. Busisiwe Mavuso
The revised budget tabled yesterday, including a VAT increase of 0.5 percentage points this year and another of the same amount next year, unfortunately increases the levels of uncertainty flowing from the failure to table the original budget last month. Even before Finance Minister Enoch Godongwana began his speech, the DA publicly stated it would not support the budget. We therefore face the real possibility that this budget will not be approved.
It is disturbing that, as minister in the presidency Khumbudzo Ntshavheni stated on Tuesday, there has been a sufficient period for input from all political parties, yet consensus still could not be reached. She is also correct in stating that long-term proposals would not help to fill the immediate R60bn hole in the budget that the rejected 2pp hike in VAT to 17% was intended to fill. What is more disturbing is that little mention was made in the budget of any long-term proposals to institute meaningful cuts in government expenditure – which is required because the scope to increase revenue through more taxation has pretty much hit the ceiling. SA cannot afford to cut the education, health and police budgets any further as these services are already suboptimal; 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.
For the short term, the R60bn deficit is to be filled by raising the VAT rate to 16% by 2026/27 and through higher effective income tax through bracket creep, by not adjusting tax brackets, rebates and medical tax credits for inflation. Minister Godongwana said these measures would raise R28bn in additional revenue in 2025/26 and R14.5bn in 2026/27.
To offset cost-of-living pressures, social grants get an above-inflation increase (though the total amount drops to R422.3bn from R427bn in last month’s untabled budget), with the social relief distress grant being extended by another year. As expected, the basket of VAT zero-rated food items is expanded to include canned vegetables, dairy liquid blends, and organ meats from sheep, poultry and other animals. The fuel levy remains unchanged.
One area of concern for BLSA is the absence of any mention of the geopolitical context, particularly the potential impact of US President Donald Trump’s anti-SA stance. The minister did not mention how South Africa would compensate for the loss of about R8bn in AIDS funding through USAID that was cut off.
On the National Health Insurance Act, the minister mentioned the new patient information system, centralised chronic medicine dispensing and distribution system, and a facility medicine stock surveillance system to be funded by the Department of Health – but still did not clarify how the programme would be funded. BLSA repeats its standpoint on this: until it is clear how this will be financed, it should be shelved. Proceeding with implementation without considering costs, given our current severe budget constraints, would be an economic disaster. Of course, the best solution to address the budget situation is through economic growth, and in this sense the budget is largely positive. Minister Godongwana’s strategy to achieve faster growth is anchored on four pillars: maintaining macroeconomic stability, implementing structural reforms, accelerating infrastructure investment and improving state capability.
BLSA CEO Busisiwe Mavuso says the budget is on track to address the first three factors. “The minister’s firm commitment to fiscal discipline to maintain macroeconomic stability is encouraging,” she says, with the budget targeting a budget primary surplus of 0.5% of GDP and debt stabilising at 76.2% of GDP, with the consolidated budget deficit narrowing to 3.5% by 2027/28. “Minister Godongwana is correct in emphasising the importance of debt reduction,” says Mavuso. “This year SA will be spending R389.6bn just on servicing debt, more than we spend on health, the police and basic education. Addressing this problem will eventually enable far more to be spent on critical services such as health and education.”
In terms of public infrastructure, R1tn is budgeted over three years, with R402bn for transport and logistics, R219.2bn for energy infrastructure and R156.3bn for water and sanitation. Government will also continue pushing the required reforms to facilitate greater private sector participation, capital budgeting reform and alternative infrastructure financing.
Private-public partnerships (PPPs), a component that is integral to successful infrastructure development, was also addressed. Minister Godongwana noted that the new regulations for PPPs had been finalised and will take effect on 1 June this year. The private sector has been calling for these regulations as they create capacity to support and manage PPPs, create clear rules for managing unsolicited bids and strengthen fiscal risk governance. Considering there is no extra allocations made for SOEs, it is now an imperative to accelerate the implementation of PPP growth projects and achieve the stated objectives and planned expenditures over the next three years.
Mavuso says that enabling Operation Vulindlela to push on with its reform programme is also a very important pro-growth factor. “This unit in the Presidency, that works with National Treasury to overcome obstacles to and implement reforms, has already notched up massive successes in the energy sector,” Mavuso says, adding that BLSA is pleased with the unit’s focus areas this year: to continue stabilising the supply of electricity; to reform the freight logistics system; to reduce costs and improve the quality of digital communication; to ensure a stable, quality supply of water; and reform the visa regime to facilitate skilled immigration and support tourism.
“These are all growth-enhancing reforms,” says Mavuso, “and BLSA is particularly pleased that the issues of digital communication and visa reform remain firmly on the government’s priorities list, alongside the national imperatives of addressing our dysfunctional water, energy and transport/logistics systems.”
BLSA is also pleased with the allocation to SARS of R3.5bn this year and an additional R4bn over the medium term to broaden the tax base and improve the efficacy of tax collection, after SARS commissioner Edward Kieswetter said that R800bn remained uncollected annually from individuals and companies.
The problem, however, is that the results of these growth-enhancing reforms will be felt only over the long term. The fiasco of last month’s delayed budget and today’s tabled budget which may be rejected in parliament is likely to be repeated, unless the government faces some harsh realities – that things cannot simply continue to be done in the same ways, because that will lead to the same outcomes.
