No one had the illusion that this government would suddenly wake up to the depth of the social crisis in this country and use the budget to address the extreme levels of unemployment and social deprivation. Nevertheless, the fact that the Treasury continues with a stingy, unambitious budget suggests that they live in a Marie Antoinette fantasy world. This budget dances to the tune of the international financial institutions and their fixation on running a primary budget surplus when every cent is needed to relieve the suffering of the more than 40 million people languishing in poverty. The poor again are made to shoulder the burden of the economic crisis by having to bear the burden of a VAT increase, despite other measures which are available to enhance government revenue. Nothing more is done to tax the extremely wealthy in this country. No wealth tax, no tax on luxury goods items, and no increase in corporate tax. It represents a fear of going against the financial markets and the rich establishment. Not even easy solutions are undertaken. For example, a pause in government contributions to the GEPF (which currently holds R2.38 trillion in assets) for one year would raise an additional R53 billion! In 2024, even after paying out all pensions, the GEPF had a surplus of R59.71 billion. But this is not done because the financial markets would react, sell off the Rand and exit the country. The government is captured. The poor are left to fend for themselves in a dog-eat-dog world. For this reason, we call for the rejection of the 2025 “Budget 2.0”.
The Finance Minister has taken the 2% point VAT increase off the table, replacing it with a 1% increase spread over this year and the next and – as he said in the follow-up interview – “maybe, a 0.5% in the year after that”. Making good on his “either-or” threats in the Sunday Times, the lower 1% point lower VAT increase means lower than the promised increases to social grants that would have been tabled in February 2025.
However, this time, the budget shows real increases to key areas of social spending. For the first time since fiscal consolidation was announced, the government is admitting what we have been saying, that deferring funding to areas like healthcare and education would mean compromising the government’s ability to meet its constitutional obligations to the people. Some areas still face austerity measures, such as post-school education, industrialisation, and agriculture and rural development. In addition, multiple times throughout the budget, the need to “manage staff headcounts” in public facilities is mentioned. Given the understaffing of schools, hospitals and clinics, this goal is concerning. While all-encompassing austerity seems to be slowing down, this must be analysed in the context of years of slashing budgets. One year of small real increases does not make up for half a decade of austerity and shrinking per-capita spending. Moreover, if increases are funded through VAT, the redistributive function is diminished, and it places an increased burden on the working class, who are already experiencing a cost of living crisis. There are many alternatives to VAT, whether 0,5, 1 or 2 percentage points!
The Treasury seems to be obsessed with lowering our debt-to-GDP ratio, not through growth (a more effective mechanism) but through prioritising debt services over and above all other spending, even with a R63bn primary budget surplus.
When comparing February’s would-be budget to the final March budget, it is revealed that in the last 3 weeks, more money was found to service debt to the tune of R2.623bn over the next three years. It is revealing that, in the last three weeks of negotiations, no additional money was found for alleviating the socio-economic crisis faced by people, but more money was found for debt servicing.
We are glad to see that the Treasury took up the AIDC’s suggestion not to inflate PIT tax brackets so as to bring the effective tax rate closer to the levels before the decades of over-zealous tax relief. However, we are disappointed that the Treasury did not only target higher income brackets for additional revenue, as the AIDC had proposed, but extended the intervention to also include lower tax brackets. Not increasing lower tax brackets for inflation will put strain on the precarious middle-class, decreasing their real take-home income.
Budget Cuts
While this budget presents a “gentler” austerity than before, many areas still face real cuts across the board:
– Post-school education and training – real decrease of 3.5% next year
– Arts culture sport and recreation – 2.9% real decrease this year and 5.6% real decrease in 2027/28
– Social security funds – real decrease of 1.9% this year, 6.5% next year and 7.4% in 2027/28
– Industrialisation and exports – real decrease of 1.1% this year, 3.9% next year and 3.5% in 2027/28
– Agriculture and rural development – real decrease 1.9% this year, 2.1% next year, 2.3% in 2027/28
– Home affairs – will face real decreases over the next three years with a whopping 16.47% real decrease in 2027/28.
Growth, Infrastructure, De-Risking, and Public-Private Partnerships
Even mainstream pro-austerity voices have started recognising that South Africa needs a “pro-growth budget” in order to deal with unemployment, poverty, and the general lack of economic vitality and dynamism. This budget could not be further from that goal – it is completely devoid of any ambitious vision for growth and development.
The class bias of the budget is further entrenched with another fixation of this government, namely, the ability of the private sector to deliver where the government has not. The private sector is invited to fix our freight system, our ports, energy, the transmission lines of our electricity system and our water system.
The private sector does not invest out of charity. This is why this budget puts an emphasis on plans to make sure that a framework for mitigating “investment risks” through subsidies and guarantees are put in place. The reliance on Public-Private Partnerships means that public money will flow to powerful corporate lobbies in the pursuit of quasi-privatisation. And yet, it is the very private sector, which is being begged to invest in government failures, that has been staging an investment strike for years. It is the very private sector that enabled state capture and other forms of corruption – remember McKinsey, Bain, Hitachi, MTM and let’s not forget the construction mafias (WBHO Construction, Group 5, Murray & Roberts, Aveng, etc.), just to name a few. Public-Private Partnerships in many parts of the world have been a drain on government finances, with ballooning costs overruns and time delays. No doubt, the costs for these “partnerships” in basic services will be passed on to the poor in massive increases for electricity (as is the case now) and water in the very near future. The profits of the private sector are being guaranteed over the well-being of the people.
In the days to come, AIDC will publish a further analysis of the budget, including a detailed look at revenue proposals, proposed real expenditure reductions, the fiscal anchor, debt, the impacts on the public sector and other aspects of the budget.
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For more information, contact:
Dominic Brown: +27 81 309 4973
Chloe van Biljon: +27 82 892 4702
Aliya Chikte: +27 82 695 5659
Jaco Oelofsen: +27 84 376 9019
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