Government Needs to Plan Beyond Just Collecting Revenue in Taxes

Dr. Alex Malapane

The 2025 National Budget Speech has laid bare the challenges of balancing economic growth with fiscal sustainability, yet it remains a testament to the government's continued reliance on taxpayers to fund its inefficiencies.

While the Minister of Finance has attempted to package the VAT hike as a necessary evil, the reality is that it places an additional burden on households that are already under immense financial strain. The decision to forgo adjusting tax brackets ensures that bracket creep will further erode disposable incomes, ultimately dampening consumer spending and economic activity.

Debt servicing costs continue to be a significant concern, consuming a staggering R389.6 billion for the year. With government borrowing at unsustainable levels, economic growth remains the only viable path to long-term stability. However, growth projections remain overly optimistic, and without structural reforms, the anticipated 1.7% GDP growth rate is unlikely to materialise. The budget’s infrastructure commitments are commendable, but questions about implementation efficiency and private sector participation remain. While the government has acknowledged the need for alternative financing models, it must go further by actively cutting waste and improving expenditure effectiveness.

A central oversight in the budget is the lack of significant cost-cutting measures. The public sector wage bill remains alarmingly high, and multiple government entities with overlapping functions continue to drain resources. Merging entities with duplicate mandates would streamline operations and reduce unnecessary spending. State-owned enterprises (SOEs) that serve similar functions should be consolidated to eliminate redundancies. At the same time, institutions operating in an unsustainable financial setting must be reviewed, like entities operating at a 60:40 operational expenditure (OPEX) to capital expenditure (CAPEX) ratio. For instance, an entity meant to provide financial assistance to SMMEs should not be spending the bulk of its budget on administration rather than fulfilling its core mandate. Many such institutions exist and must either be restructured or discontinued to ensure that budgets are allocated to initiatives that deliver tangible economic benefits.

Parliament will soon deliberate on the budget, and with the looming budget vote speeches, there is a real possibility that it may be rejected. If the government fails to address the inefficiencies in expenditure, opposition parties and even coalition partners may challenge its adoption. The pressure to increase revenue has resulted in measures that will ultimately hurt economic growth, and there needs to be a fundamental shift in approach. One such shift could involve exempting profit-driven SOEs from the Public Finance Management Act (PFMA) constraints, allowing them to operate more competitively. Eskom, Transnet, and SAA, for instance, would benefit from commercial flexibility without the bureaucratic delays imposed by PFMA compliance. This would reduce their reliance on government bailouts.

The focus must move beyond revenue collection and towards efficiency, productivity, and real economic reforms. Without decisive action, South Africa risks continued stagnation, and this budget will be remembered as yet another missed opportunity to implement the bold changes necessary for fiscal and economic sustainability.