GEORGE NEWS - It is disappointing that Finance Minister Enoch Godongwana’s budget does not propose any true savings in spending, says Dr Dennis Farrell of Business Café in George.
Farrell was approached for comment on Godongwana’s announcement today of a value-added tax (VAT) increase of 0.5 percentage points on 1 May 2025 and again on 1 April 2026 to bring the rate to 16% in 2026/27.
Farrell said the VAT increase would spread the income stream of the government to some extent. “The exemption of basic foodstuffs will have a softening effect on low-income groups. However, a higher VAT rate is going to affect us on municipal level by impacting tariffs.”
He said the biggest disappointment is that savings are not being achieved by starting to downsize the cabinet and public service.
“Our public service needs to be more effective and productive, with fewer people. Godongwana is looking after the unions, but the country should be the priority. Get spending down and make the country more attractive for investment so that we can grow the economy. We need to create jobs so that fewer people are dependent on the state.”
Farrell warned that the debt-service costs of R389.6b in the current financial year, which translates to 22 cents in every rand of revenue, is another factor that makes the national budget unsustainable in the long run.
Godongwana said spending on debt is more than what is spent on health, the police and basic education. “We must reverse this trend and prevent the cost of debt from taking away resources that could otherwise be spent on our pressing social needs, or to invest in growth.”
The VAT increase will raise an additional R28b in 2025/2026 and R14.5b in 2026/2027. This would bring relief for spending pressures in health, education, transport and security, said the minister.
Afriforum also called for cutting expenses by downsizing the cabinet and government departments, reducing salaries and other benefits to high-ranking government officials, scrapping numerous advertising campaigns, cutting luxuries in terms of travel and catering, and privatising state-owned enterprises.
The civil rights organisation said in a statement Godongwana must realise that it is not his money that he is working with. “It is the hard-earned cents that determine the fate of households.”
A media statement by Standard Bank, issued in the wake of the budget speech, stresses the financial strain the poor is living with.
+The bank quotes from a new study from the UCT Liberty Institute of Strategic Marketing which shows that two income groups, often referred to as the “poor households” and "working poor", frequently make daily sacrifices like skipping meals.
The study co-author, Paul Egan of the UCT Liberty Institute, is quoted as saying that for these households, every spending decision is carefully planned and scrutinised. “They plan their spending based on specials. The financial pressure is so intense that many households struggle to meet even the most basic nutritional needs.”
In the light of the VAT hike, these struggling South Africans are bracing for greater financial strain.
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