Lose-lose for South Africa

Renowned economist Dawie Roodt says that politicians are playing a high-stakes game of chicken with South Africa’s economy, and the outcome is a lose-lose for everyone involved.

Speaking to Biznews following the high drama of the vote last week, Roodt said that the hyper-focus on the VAT hike and tit-for-tat politicking has distracted from the real problems with the 2025 budget.

He said that the ANC and the DA had been playing a game of chicken over the budget, effectively waiting to see who would “blink first”.

For the ANC, the victory would lie in getting the budget passed—which it did with the support of minority parties, sidestepping its biggest GNU partner.

Roodt said the party would have had “egg on its face” if it had failed to pass the budget.

But in victory—and confusingly—the ANC is now celebrating the tax hikes in the budget and will be seen as the party that forced through a VAT increase that will hit the poorest in the country hardest.

“This is a loss for the ANC, no matter how you look at it,” Roodt said.

Therein lies the bigger issue: this is a loss for South Africa as well, as the VAT and stealth tax hikes will damage the economy and disproportionally hit the poor—all the while allowing government spending to run rampant.

Explaining why the ANC would celebrate a lose-lose situation, Roodt said that the ANC had no choice but to push through higher taxes in the budget because it had nowhere else to turn.

This is because of the “fiscal debt situation”, which Roodt described as “dire”.

He said South Africa’s debt-to-GDP ratio is already significantly high, at over 76%. The reality, however, is far worse.

The current debt-to-GDP estimate does not include the debt of local authorities, which adds billions to the equation.

“You also have to include the debt that is guaranteed by the state for state-owned enterprises – and if you include all that debt, you’re going to get a completely different number, probably closer to 95% of GDP,” Roodt said.

He said the fiscal deficit is also a huge problem, exacerbated by the National Treasury’s estimates, which are far too optimistic and out of touch with economic reality.

The National Treasury expects South Africa’s economy to grow by 1.9% in 2025. Most other projections are lower, now at 1.5% or less. This means the circa 5% deficit will likely be bigger in reality.

At the same time, the government is launching a spending spree.

The ANC-led government loves to spend money and has always done so, Roodt said, and it does not want to cut back state spending.

“Ideologically, the ANC wants to spend more money, not less money, because they have all sorts of silly ideas like NHI and a basic income grant. Spending less money is not part of the ANC’s agenda,” he said.

Add to this that tenderpreneurship and rent extraction, which are still very much alive and part of the picture, and “that means the only alternative for the ANC now is to get some more money in”.

While various smaller revenue sources could be tapped, Roodt said the ‘big three’ are the only viable places to get enough money to support the spending.

Personal Income Tax is out of the question, as taxpayers are over the Laffer Curve and over-taxed already, Roodt said. He noted that the non-adjustment of tax brackets is already a form of additional income tax.

Corporate Income Tax is also not viable as South Africa’s CIT rate is already too high and uncompetitive globally.

This leaves VAT—the “only remaining significant revenue source”, he said.

Roodt noted that SARS collected around R8 billion more than expected, making the need for VAT questionable. Regardless, he said the VAT hike would be bad for the economy.

He warned that if South Africa continues on this trajectory, “we are going to get to a point where things go seriously, badly wrong”.

“The only alternative is for the state to cut spending—and there is ample space to cut spending,” he said.