Constructive Alternatives to VAT Rise and Bracket Creep

Statement by Brett Herron, GOOD Secretary-General:

With talks about aspects of the 2025 national budget continuing, despite Finance Minister Enoch Godongwana having already gazetting the Rates and Monetary Amounts and Amendment of Revenue Laws Bill, the GOOD Party will focus on being a constructive voice in the room.

Tomorrow, parties who supported the fiscal framework will meet to discuss proposals to remove the VAT increase and personal income tax bracket creep. This is in line with the 30 days the Finance Committee gave National Treasury and Parliament to urgently finalise alternative revenue and expenditure proposals.

As GOOD, we believe that the National Treasury alone cannot be held responsible for Economic Growth. Every Minister in the Executive has a role and responsibility to contribute to the economy and create jobs. The GNU ministers who did not vote in favour of the budget will not be part of the meeting or the solution.

When the turbulence around Budget 2025 subsides, the government, whichever shape it takes, must prioritise developing decision-making protocols.

There is no doubt that increasing VAT and not adjusting lower personal income tax brackets to take account of inflation disproportionately impacts the middle-class and poorer South Africans, to whom every cent counts. The GOOD Party’s preference would be for these provisions to be replaced with provisions targeting a richer class of people.

There are viable alternatives to raise enough revenue to be able to reverse those elements in the budget. What must not be reversed are the commitments to social spend and infrastructure.

The GOOD Party welcomes the proposal of an expenditure review process. We have called for a fresh, zero-based, approach to budgeting for the past six years to eliminate waste and free resources.

The process will, however, require time and is realistically only achievable by the Medium-Term Budget Policy Statement at the earliest.

In the meantime, here are three immediately implementable steps to raise the required additional revenue to compensate for reversing the VAT hike and tax creep elements in the 2025 budget.

1. Reduce tax breaks which disproportionately benefit the wealthy. At a cost of R305 Billion, they effectively enable the wealthy to reduce their equitable tax burden. Reducing the R350,000 tax-free retirement saving break and adjusting medical tax credits could, on their own, raise R50 Billion.
2. Scrapping the Employment Tax Incentive (ETI) would free up close to R7 Billion. Multiple studies have shown the ETI has had little positive impact on employment levels, since companies hired workers that they would have anyway, and some even reduced wages to benefit from the ETI.
3. Finally, top up the shortfall, if any exists, by funding the balance through a withdrawal from the Gold and Foreign Exchange Reserve Account.

In the medium-term:

1. Implement a comprehensive and transparent expenditure review (or zero-based budgeting) process, including a review of the necessity for the provincial tier of government
2. Implement a just Wealth Tax targeting the ultra-wealthy.
3. Dispose of or discard inefficient, unproductive or costly-to-maintain public assets and SOEs, while retaining control of sectors key to the aspirations of the developmental state.

The only beneficiaries of uncertainty over the budget are some (not all) politicians.

It is time for level heads and good arguments to prevail… time for political opportunism, party role-playing and self-interest to stop.

GOOD Manifesto on Digital Transformation: Promoting the use of technology to enhance government services.

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