This is the unfortunate reality of the situation. If the government does not somehow raise money to fund its planned spending, then the only alternative is to cut spending.<\/strong><\/p>\n\n\n\n A third option exists in turning to debt, but as many economists and business leaders have pointed out, this is something that should be avoided at all costs<\/strong><\/a>.<\/p>\n\n\n\n Old Mutual Group Chief Economist, Johann Els, said that, while tax increases are never ideal, the “bigger picture” of South Africa’s financial situation needs to be kept in mind.<\/p>\n\n\n\n Els said that in a fragile economy like South Africa, public finances need to be strengthened in a way that appeals to investors and credit rating agencies.<\/p>\n\n\n\n With the country’s current debt-to-GDP ratio hovering at around 75%, it needs firm steps to rein in deficits.<\/p>\n\n\n\n “This might not be pleasant in the short term but may be necessary for South Africa\u2019s long-term economic prospects,” he said.<\/p>\n\n\n\n “If the government chooses not to raise VAT, we could see severe spending cuts that jeopardise critical areas like health, education, or social grants. <\/p>\n\n\n\n “One has to decide which route is ultimately the least damaging.\u201d<\/p>\n\n\n\n The VAT hike, which would have seen a two-percentage point increase to VAT to 17%, was the proverbial straw that broke the camel’s back.<\/p>\n\n\n\n It became the fault line within the GNU that split the parties and led to the planned budget being shelved.<\/p>\n\n\n\n Els noted that the two percentage point hike would have hit consumers hard, but would have been mitigated by a host of other relief measures.<\/p>\n\n\n\n This included a higher-than-inflation increase in social grants, no fuel levy, and the extra zero-rating of meats and tinned vegetables, amongst others.<\/p>\n\n\n\n He also stressed that a higher VAT rate spreads the tax burden more widely\u2014unlike targeted hikes in personal income tax.<\/p>\n\n\n\n Reports<\/strong><\/a> indicate that amid the latest impasse, talk of a wealth tax to cover the “no-VAT” budget shortfalls has once again cropped up.<\/p>\n\n\n\n But Els said that these targeted taxes could drive high-net-worth individuals to seek avoidance strategies or even leave the country.<\/p>\n\n\n\n Regardless, the government has to do something, and it sits in the unenviable position of having to make hard choices with no winners.<\/p>\n\n\n\n “If (revenue) doesn\u2019t come from indirect taxes, it has to come from direct taxes or from cutting essential services, both of which could have deep social consequences,” Els said.<\/p>\n\n\n\n Old Mutual Group Head of Financial Education, John Manyike, said that hiking taxes is simply a ‘stopgap’ that does not resolve the core issues with governance.<\/p>\n\n\n\n Systemic issues such as wasteful expenditure, poor service delivery at municipal level and weak accountability measures have undermined public trust in government\u2019s fiscal management.<\/p>\n\n\n\n Unless govern,mnet’s tax measures are accompanied by more decisive reforms and prudent expenditure management, nothing will be resolved.<\/p>\n\n\n\n \u201cIncreasing VAT may bring short-term relief to the public purse, but it doesn\u2019t solve the underlying problems of fruitless expenditure or corruption. <\/p>\n\n\n\n “We need to see stricter controls, better financial governance at local and national government level and a concerted effort to ensure taxpayer money is spent responsibly. <\/p>\n\n\n\n “Without that, consumers can feel like they\u2019re being asked to pay more just to finance the same inefficiencies,” he said.<\/p>\n\n\n\n Manyike highlighted the poor culture of expenditure management at both the local and national level, citing the Auditor General reports which repeatedly find corruption and mismanaged budgets.<\/p>\n\n\n\n![\"\"](\"https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2025\/02\/Old-Mutual-Chief-Economist-Johann-Els-1024x576.jpg\")
<\/a>Government wasting money<\/h2>\n\n\n\n
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