With the commodity boom now a thing of the past and the Treasury having already tapped into the country’s foreign reserves to reduce debt, the government is set to squeeze more out of taxpayers to fund a projected R300bn shortfall. Treasury is on a debt reduction path as interest on almost R6 trillion national debt surpasses the R440bn mark, more than is spent on health and social services.
The Sunday Times understands discussions have been held about possible tax increases to cover the revenue shortfall.
All taxes could be impacted — including VAT, personal income and corporate taxes, and even the possible introduction of a wealth tax. Other revenue generation options include hiking the fuel levy, higher sin tax increases, and possibly ending medical aid tax credits.
The Treasury declined to comment when asked if the finance minister was mulling tax increases, saying they were under a closed period ahead of the budget presentation on Wednesday.
The Treasury has to find money for unplanned expenditure items not forecast in the 2024/25 budget. These include a probable 10 million increase in the number of social relief of distress (SRD) grant beneficiaries to 18 million, after a court ruled that the means test applied by the government to determine recipient eligibility was unconstitutional and exclusionary.
There is also pressure to find billions of rand to bolster HIV/Aids programmes — under threat after the US government declared a 90-day moratorium on all foreign aid. This affects programmes under the US president’s emergency relief plan for Aids relief (Pepfar), which channels about R7.5bn annually to local NGOs working in the sector. A subsequent waiver signed by secretary of state Marco Rubio reinstated some of the aid.
An economic think-tank estimates Eskom requires an extra R30bn this financial year after the power utility was granted lower tariff increases by regulator Nersa, on top of the R90bn owed to it by local governments.
It says the government must also consider pencilling in financial support to Transnet and other state-owned enterprises, which might need R45bn over the next three years.
The Treasury is set on sticking to fiscal consolidation - a commitment to reducing spending; ensuring debt peaks at 75.5% of GDP in 2025; narrowing the budget deficit; and increasing the primary surplus (when revenue exceeds non-interest spending).
There were suggestions that we call the grant something else going into the future, like renaming it to a job seekers grant, which will be phased out as soon as the basic income grant comes into effect.
Government coffers have previously benefited from a huge boom in commodity prices, which bolstered the fiscus but has since dissipated. In 2024/25, Godongwana announced plans to draw R150bn from the gold and foreign exchange contingency reserve account (GFECRA) — held by the Reserve Bank — to reduce debt, but warned that the fiscus could not continue relying on this kitty without putting the country at risk.
One insider, who asked not to be named, said the only realistic options before the minister were tax hikes, even though there was an understanding that hiking VAT, personal income taxes, or corporate tax would squeeze the economy and consumers further.
The Sunday Times understands there was a special cabinet meeting before the state of the nation address in Cape Town last week, where Godongwana is said to have hinted at the need to raise some taxes to plug the revenue shortfall.
Concerns were raised by some cabinet members, who are said to have questioned why the finance minister has his sights on VAT, a tax that largely that affects the poor. But he is said to have countered by assuring cabinet the poor will be protected through an extension of zero-rated goods.
Godongwana also vowed a continuation of the SRD grant, at least for this year, according to those privy to cabinet discussions. “SRD continues for this year. He wants to end it but it can’t and we told him that he has to find the money for next year and the other years,” said a cabinet member.
“There were suggestions that we call the grant something else going into the future, like renaming it to a job seekers grant, which will be phased out as soon as the basic income grant comes into effect.”
Rachel Bukasa, executive director of social justice group Black Sash said it strongly opposed any increase in VAT as this would be a direct attack on the poor.
“It is an inherently regressive tax that unfairly burdens low-income households, forcing them to pay a disproportionate share of their income on essential goods and services.
“The government cannot claim to support social protection while simultaneously pushing policies that undermine the very people these grants are meant to uplift.”
She said there were far more just and sustainable ways to raise revenue, such as taxing the wealthy and big corporations; cracking down on illicit financial flows; ending waste; and introducing a luxury goods tax.
“South Africa is in the midst of an unprecedented cost-of-living crisis. The idea that the government would even consider increasing VAT under these conditions is morally indefensible. We need bold, progressive policies that tax the ultra-wealthy and big business, not regressive taxes that punish the poor.
“Black Sash will continue to fight for a just and equitable economic system where the burden is placed on those who can afford it — not on those who are barely surviving,” she said.
The Institute for Economic Justice’s universal basic income grant researcher Siyanda Baduza said they were hoping for an announcement of new regulations on increasing the value of the SRD grant and the means test threshold, as ordered by a judge.
“The grant value, currently at R370, is less than half of the National Food Poverty Line — the minimum amount needed for an adult to meet their most basic nutritional needs. Furthermore, despite a meagre R20 increase in 2024, the grant would need to be at least R500 to buy the same amount of food as it could in 2020, when it was still R350.”
In a Budget 25 preview note, the Public Economy Project, headed by former Treasury official Michael Sachs, said it differs with debt projections and predicts national debt peaking at 80% of GDP by 2027/28 instead of stabilising at 75.5% of GDP this year.
It also forecasts a 1.2% budget deficit this financial year, while Treasury is planning for a 0.9% primary surplus (when revenue exceeds non-interest spending).
The think tank said adding to spending pressures were continued financial support to Eskom, estimated at R30bn this year; the SRD grant being extended beyond 2025; and grant recipients increasing by 50% in line with the court ruling.
Further, the government stepping in to support health programmes previously funded by USAID; Transnet and other SOEs probably requiring R45bn over the next three years; and the 5.5% public sector wage deal, would also put finances under immense pressure.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.