Reality check for South Africa

With South Africa’s third try at a budget approaching later in May, Business Leadership South Africa (BLSA) chief executive, Busi Mavuso, says the country needs to face the facts about its financial reality.

She said the reality is that South Africa has only two options—raise taxes or cut spending—and the country has already made it very clear that it won’t stand for the former.

Two budgets have already been tabled and rejected, each including a proposal to raise VAT to fund the government’s ever-growing list of expenditures.

The third budget, planned for 21 May 2025, will not have any VAT hike, but parties are now scrambling to find alternative revenue or other means to rework the books.

While some have suggested turning to other tax measures to fill the gap, like a wealth tax or increasing corporate tax, Treasury has already widely rejected this.

Echoing these sentiments, Mavuso said personal income and corporate taxes in South Africa are already high by global standards.

She said that if these taxes go up, the people and companies affected would simply shift economic activity out of the country.

“Treasury’s research has shown that we may end up collecting even less tax as a result, because businesses move outside of our borders, costing jobs,” Mavuso said.

Another popular go-to for political parties is to simply balance the budget by increasing the tax collection target for the South African Revenue Service (SARS).

They argue that because SARS overshot its tax collection target in the last financial year by almost R9 billion, the taxman should easily cover the gap created by the loss of the VAT hike.

However, Mavuso said that this solution is not prudent.

While the country should certainly aim to collect all the tax it is owed and SARS should be strengthened, budgeting on ifs and maybes isn’t an answer.

“Those of us in business know that it is easy to budget to spend money, but much harder to budget to make money. Budgeting must be prudent, and relying on excess tax collections is not,” she said.

There is only one answer to South Africa’s budget

Mavuso said there is only one reasonable answer to the budget conundrum: the government must cut spending to within the country’s means.

Unfortunately, this is not politically palpable because “there will be losers”, she said.

“No politician wants to be the one to say that something can no longer be done by the government,” she said.

However, since the government establishes new projects and creates new spending lines every year, the expenditure side of the budget has grown well beyond what is sustainable.

Mavuso said it has led to the proliferation of state entities, not all of which deliver value for money.

She said the country needs a mature and honest assessment of what parts of government are delivering value to taxpayers, and the “political bravery” to make the necessary decisions when they are not.

“While it is good that our budget is subject to democratic interrogation, the government of national unity, as well as others in parliament, must show they have the political bravery to make decisions that won’t please everyone,” she said.

On top of the difficult choices ahead, the government also needs to make these decisions in a new context of global politics and economics.

When the budget was first tabled in February, there were hopes that economic growth would exceed 2%. These projections were still in place in the March budget.

However, after the eruption of a global trade war in April—amid other local political shifts—South Africa’s growth is now seen scraping 1%.

Mavuso said this should be top of mind when it comes to plotting the path forward.

“We must think carefully about how opportunities have shifted and ensure our partnership and plans are geared for the world as it now is,” she said.