The government is struggling to balance its books and generate sufficient revenue
The unprecedented postponement of the 2025 budget speech to 12 March has left everyone riveted. The delay is indeed significant, but it would be shortsighted to overlook the broader context and underlying factors that led to this decision.
The warning signs of South Africa’s fiscal health crisis have been flashing for quite some time. At the Kgalema Motlanthe Foundation’s Inclusive Dialogue conference towards the end of last year, Finance Minister Enoch Godongwana painted a stark picture of South Africa’s national accounts being under significant pressure.
The proposed 2% VAT increase is a stark reminder of our fiscal fragility, and its implications are too profound to be ignored. Aside from the troubling socio-economic consequences that this proposal entails, the very fact that it was under consideration reveals a deeper concern: that the government is struggling to balance its books and generate sufficient revenue. The country’s debt-to-GDP ratio is projected to peak at 75.5% in the 2025-26 financial year, higher than the 60% threshold considered sustainable for emerging markets and expenditure will surpass revenue collection. This means there’s a significant shortfall in funds required to support envisioned development projects.
The proposal is also indicative that the government has limited alternatives to swiftly bolster revenue. VAT increases are typically considered a last resort to provide a rapid influx of funds. Unlike other taxes, which are collected periodically and susceptible to evasion, VAT is collected at the point of sale, making it a more efficient means of generating revenue — albeit highly risky from a socio-economic perspective.
A pressing question ahead of the 15 March budget speech demanding our attention and consideration is: where will the necessary funds come from?
A national development mindset for economic recovery
Economic history provides us with an important reminder of the critical role collective effort and fiscal responsibility plays in tackling fiscal crises and advancing national development. During the 1997 Asian financial crisis, South Korean citizens came together in a remarkable display of national unity and sacrifice, donating large amounts of their personal gold to the government through the Gold Collection Campaign.
This effort helped pay off the country’s debt to the International Monetary Fund and stabilise the economy. Through a combination of prudent policy measures, South Korea restored fiscal stability, regained the trust of foreign investors and emerged from its financial crisis.
Key initiatives included providing guarantees for Korean banks’ external liabilities and leveraging its substantial foreign reserves to maintain foreign exchange liquidity. As a result, South Korea transformed into a vibrant and resilient emerging economy, solidifying its position among the world’s leading nations.
I’m not suggesting that South Africa adopt a similar approach, but the underlying message is clear: a national development consciousness coupled with transparent fiscal management are essential ingredients to fiscal redemption.
True progress ultimately hinges on the government’s ability to be honest, transparent and accountable. Over the years, corruption and wasteful expenditure have plagued South Africa, resulting in significant financial losses and exacerbating widespread distrust among citizens.
The empirical evidence of the negative effects of corruption on economic growth is clear — even a modest 3-4% decrease in corruption could lead to a significant 2.8% increase in economic growth. This issue transcends partisan politics and mere convenience. Rather, it is a pivotal determinant of the nation’s fiscal wellbeing and long-term economic prosperity.
As we navigate the complexities of our fiscal landscape, it is imperative that we remain attuned to its subtle rhythms, for only then can we unlock innovative solutions to our most pressing economic problems.
Siseko Maposa is the director of Surgetower Associates management consultancy. He is a regular commentator on the South African political economy.