South Africa’s budget crisis: A delicate balancing act between revenue and equity
Graeme Saggers
by Graeme Saggers
For the first time in South Africa’s democratic history, the presentation of the national budget was postponed—on 21 February 2025—after intense political wrangling. This year’s budget, set to be the first delivered by the newly formed Government of National Unity (GNU), was poised to include a controversial proposal: a 2% increase in the VAT rate, from 15% to 17%. The government argued that this increase was necessary to boost tax revenue, given that South Africa’s VAT rate remains comparatively low when benchmarked against other nations.
While the logic behind the VAT hike is clear—South Africa needs more revenue to bridge the gap between spending and income—the proposal has sparked fierce debate. On one hand, VAT is a relatively efficient way to raise funds quickly, particularly when other taxes are hard to increase in an economy struggling with slow growth and high unemployment. However, VAT is widely recognised as a regressive tax, disproportionately affecting low-income households who spend a larger share of their earnings on consumption. In a country where poverty is already endemic, the proposed increase would place an even heavier burden on the most vulnerable members of society.
Supporters of the VAT hike, however, argue that the increase could serve a dual purpose: not only would it raise much-needed revenue, but it would also provide a protective buffer for local industries. By making imported goods more expensive, the higher VAT could help shield domestic producers from foreign competition, similar to the effect of import tariffs. This argument, however, has not been enough to quell opposition from various quarters.
The opposition’s stance has ranged from calls to cut government expenditure, to more extreme proposals—such as raising Corporate Income Taxes or implementing a Wealth Tax. These suggestions, while unlikely to find traction, reflect the growing frustration with what many perceive as a government unable to take decisive action without exacerbating economic inequality.
On 12 March 2025, the government unveiled a revised budget, which sought to compromise by introducing a more gradual increase in VAT: 15.5% from 01 May 2025, followed by a further increase to 16% in April 2026. Once again, the proposal has met with significant pushback. As of now, the matter has yet to reach a vote in parliament, and the political dynamics suggest that securing the necessary support for any VAT increase may be a tough sell.
At this stage, it seems increasingly likely that the VAT rate will remain unchanged at 15%, a relief for consumers but potentially a blow to the government’s fiscal strategy. However, this delay in decision-making is far from inconsequential. The uncertainty surrounding the budget has raised concerns about the stability of the South African Government of National Unity, which has struggled to present a unified front. More worryingly, the prolonged budget standoff may be undermining investor confidence in South Africa’s ability to implement effective and sustainable fiscal policies.
As South Africa continues to navigate these turbulent fiscal waters, it is clear that the nation faces a delicate balancing act: securing the revenue needed for essential public services without exacerbating inequality or stalling economic growth. Whether the VAT increase—whether in full or in part—will become a reality remains to be seen, but what is certain is that the outcome will have far-reaching implications for both the country’s economic future and its political stability.
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Graeme Saggers is the Tax Director for Nolands. He holds a BCom (Hons) degree from Rhodes University and an MCom (Tax) degree from the University of Cape Town. Graeme qualified as a Chartered Accountant in 2009 after completing his articles at KPMG. He joined Nolands in 2011 as an Audit Manager and was appointed as a Tax Partner at Nolands in September 2014. Graeme is Regional Chair Middle East Africa of GGI’s ITPG. Contact Graeme.
