Civil society slams pulled Budget, implores Treasury to ‘put poor first’ in revenue-raising plans

Godongwana’s tabling of the 2025/26 budget came to a screeching halt at the 11th hour on Wednesday when Cabinet decided to postpone the speech owing to a lack of consensus on a planned 2% VAT hike.

While the postponement until 12 March has been welcomed by some, others believe it points to trouble within the government of national unity.

The Institute of Economic Justice (IEJ) said it was both disappointed and relieved that the Cabinet decided not to table the Budget.

“We are disappointed that the National Treasury prepared a Budget that failed to adequately resource government priorities in the Medium-Term Development Plan. However, we are relieved that sanity has prevailed and the regressive VAT increase of two percentage points has seemingly been put on hold,” the IEJ’s Dalli Weyers said.

The General Industries Workers Union of South Africa (Giwusa), on the other hand, said the postponement was not an administrative but a political move.

“It followed directly from serious differences within the so-called government of national unity. At the heart of this paralysis is the neoliberal consensus among bourgeois parties – spearheaded by the African National Congress and Democratic Alliance – to force the working class to bear the brunt of their failed economic policies in the period of geopolitical and social volatility characterised by lack of confidence of the working class over all of them,” Giwusa president Mametlwe Sebei said.

VAT increase would disproportionately affect the poor

The IEJ said that while it supports the need to raise revenue, VAT is the least-desirable option to do so because it affects poor and low-income households.

“The previous increase in VAT failed to generate the expected tax intake due to lower-than-expected economic growth and changes in consumer spending behaviour. In the first year of the previous VAT increase, National Treasury had predicted VAT collection of R348-billion, yet SARS only managed to collect R325-billion – around R22-billion less than expected. With the current fragile economy, it is quite likely that a VAT increase would further depress economic activity,” Weyers added.

He said the proposed 2% increase was concerning considering the government has other revenue-raising options available to it that are far less likely to be damaging to the poor.

The IEJ suggested:

• Raise the corporate income tax back to 28%, since the previous reduction to 27% failed to attract investment;


• Remove tax breaks for high-income earners, such as those linked to pensions or medical aid contributions;


• Scrap ineffective corporate tax breaks, such as the employment tax incentives;


• More effectively tax wealth and income from owning wealth, for instance through greater inheritance taxation, taxing financial transactions, and planning for a net wealth tax;


• Raise personal income tax rates, particularly on the highest earners through not adjusting tax brackets, or through levying a progressive social security tax; and


• Secure additional unconventional financing mechanisms, for instance by tapping the Gold and Foreign Exchange Reserve Account for additional revenue.

The organisation, which has taken government to court regarding the Social Relief of Distress grant, noted that the untabled Budget also failed to resource an expansion and improvement in the grant, either immediately or over the medium term, in line with the Pretoria High Court order. 

Mervyn Abrahams, the programme coordinator at Pietermaritzburg Economic Justice and Dignity, told Daily Maverick that a VAT increase of any amount would not only affect the food basket, but every aspect of life.

“We are opposed to a VAT increase that will make everything — all the goods and services bought in South Africa — two percent more expensive across the board. Not only in terms of food, it would also affect electricity, water, clothing and transport. It would affect everything that we pay for,” Abrahams said.

He welcomed the fact that while the Treasury had made provision for expanding the zero-rated basket in the withdrawn Budget as a mitigating measure to protect the poor, but added that the expansion didn’t offer real protection because a VAT increase did not only increase the cost of food.

Abrahams explained that the food basket for January carried a VAT of R331,02, adding that a 2% increase, had it happened in January, would have increased VAT by R44,14 to a grand total of R375,16.

“That’s quite a big portion of that to have to pay on food alone. Now the (withdrawn Budget) did also speak about increasing social grants. Take the child support grant that would have been increased by R50, but if you deduct the increase in value-added tax (VAT), effectively what would have been left of that R50 increase would be R5,86,” Abrahams said.

“We understand that there is a deficit and the minister needs the revenue, but VAT is not the right way to go. It would create more problems than it would solve in the long term, because it would mean more hunger,” he added.

Abrahams suggested that the National Treasury look at a basket of other instruments to raise revenue, including:

• Cutting down on non-essential expenditure generated by the political class.


• Support SARS so that it could increase its tax collection, particularly of high earners.


• Look into instituting a wealth tax.


• Increase corporate income tax.

“These are all potential instruments the Treasury can look into. It might not bring in money tomorrow, but in the long term it could have a much more positive impact on our economy,” Abrahams said.

Public employment programmes

Daily Maverick previously reported the postponed Budget allocated an additional R8.8-billion for the nation’s public employment programmes.

The latest employment statistics show that while youth and general unemployment showed slight improvements the figures remained high at 44.6% and 31.9% respectively in the fourth quarter of 2024.

Business Maverick editor Neesa Moodley reported that Godongwana’s 19 February Budget would have allocated the following to the public employment programmes:

• Department of Basic Education: R5.8-billion for the basic education schools employment initiative;


• Department of Sport, Arts and Culture: Just more than a quarter of a billion (R0.35-billion) for the creative industry;


• Department of Trade, Industry and Competition: R1.3-billion for the Social Employment Fund;


• National Treasury: R0.45-billion for the Cities Employment Programme;


• National Youth Development Agency: R0.55-billion for the National Youth Service; and


• Department of Employment and Labour: R0.35-billion for the National Pathway Management Network, Innovation Fund and internships.

Youth Capital Communications network lead Clotilde Angelucci said the unemployment stats confirmed that young people continue to be the most vulnerable in the market, with nearly one in two people between the ages of 15 and 34 unemployed. She added that the difference between the participation rate and absorption rate in the labour market was concerning because they highlighted that the opportunities for decent work are simply not there. 

She added that the Budget failed to focus on strategies to stimulate the economy while including young people. 

“Instead it shows an attitude of ‘attempting more with less’ and unclear plans on how to extend the Presidential Employment Stimulus and the teacher assistant programme in the medium to long term. Research has indicated that public employment programmes can generate significant positive outcomes in employment, but their design is critical. We encourage the National Treasury to consult civil society [on] the need to balance skills development, exit pathways and small business inclusion, and keep in mind the trickle up impact of social spending in the wider economy,” Angelucci said. 

This was echoed by the IEJ, which criticised the Budget for allocating only R20-billion to public employment programmes despite public commitments to expand them. It added that the withdrawn Budget offered no clarity on how the Presidential Employment Stimulus would be scaled up.

Angelucci said Youth Capital research found that eight in 10 young people have to choose between buying food and looking for work. The organisation encouraged Treasury to explore different revenue-raising avenues that don’t hit the most vulnerable in the population the hardest. DM

This article was updated on 20 February at 16.55 to include comment from the Pietermaritzburg Economic Justice and Dignity Group.