South Africa Has a Spending Problem

The Organisation Undoing Tax Abuse (OUTA) acknowledges the complex challenges faced by Finance Minister Enoch Godongwana as he delivered the 2025 Budget. However, OUTA is deeply concerned by the announcement of a VAT increase, set to take effect by 0.5% points a year over the next two years, bringing VAT to 16%. This is a regressive tax that will hit South Africans across all income levels, particularly low- and middle-income households, and is unacceptable.

“Treasury has opted for the easy option of a VAT hike rather than taking bold steps to cut waste, address inefficiencies and tackle corruption. A VAT hike may be easy to collect, but it disproportionately impacts the poor. Government must focus on cutting waste and ending corruption before reaching into citizens’ pockets,” says OUTA CEO Wayne Duvenage.

While Minister Godongwana has spoken about fiscal discipline and no new tax increases, freezing inflationary increases on personal tax brackets and rebates amounts to a stealth tax increase on already struggling South Africans. By not adjusting rebates and tax brackets in line with inflation, government is quietly increasing the tax burden on individuals. This is also unacceptable.

While tax increases can be a tool for stabilising government finances, the government has a history of fiscal mismanagement, high levels of debt, and corruption. This flies in the face of government’s claim to fiscal discipline as a justification for tax increases. We need to see evidence of responsible spending, reduced waste, and improved service delivery, which has not been the case in South Africa.

Cut corruption and waste, then talk about tax increases.

OUTA notes Minister Godongwana’s acknowledgment that “over time budgets tend to grow incrementally, often carrying forward historical allocations, without necessarily reflecting the evolving needs of our country. This approach has led to inefficiencies, misalignments, duplications and, in some cases, the continued funding of programmes that do not yield the intended impact.” This is in effect an approach to zero-based budgeting which we have requested for many years. We note however, that Treasury has already conducted 240 spending reviews and re-evaluations of government operations, and yet there do not appear to be any identified savings and efficiencies resulting from these efforts. OUTA would like to have full transparency on how these findings have reduced or will reduce unnecessary spending. OUTA calls for civil society involvement in the committee proposed by the Presidency that will review inefficient and underperforming programmes.

The reduction in Eskom’s debt takeover from R70 billion to R40 billion in 2025/26, with further reductions to R10 billion in 2028/29, is a positive move that saves the fiscus approximately R30 billion for this year. “OUTA has consistently called for an end to Eskom bailouts,” Duvenage states. “This reduction is welcome – however we need continued oversight to ensure Eskom stays on a path to self-sustainability.”

OUTA acknowledges the additional funding allocated to the South African Revenue Service (SARS), aimed at enhancing its forensic, investigative, and compliance capabilities, however, we are concerned that the increase is only R528m in 2025/26, which brings it equal to the budget in 2023, as it was reduced in 2024/25. In essence, the SARS budget has not increased in the new year, which is essential if SARS is going to significantly improve collections as per the SARS commissioner’s recommendations. This is not good enough and we propose that the SARS budget is increased by R1.5 billion per annum for the next three years.

Strengthening SARS is essential to ensuring that funds that might otherwise have been lost to tax evasion, illicit financial flows, and non-compliance are now collected and directed into the national fiscus. This is a critical step toward rebuilding an efficient and effective revenue service capable of holding even the most well-resourced tax dodgers accountable. However, OUTA stresses that improved revenue collection must be matched by responsible and transparent public spending. Without addressing corruption and maladministration, the additional revenue collected by SARS will do little to change the reality of failing public services and growing public distrust.

“Additional allocations to strengthen financial forensic and accounting capacity within law enforcement agencies – as mentioned by the Minister of Finance – are long overdue, however we need to see how this translates into meaningful prosecutions of state capture and current criminal syndicates, along with the recovery of stolen funds,” says Duvenage. Given the miniscule increases to the National Prosecuting Authority budget allocations over the next three years, we cannot see how this will improve the situation.

OUTA acknowledges the decision to not increase the fuel levy in this financial year, offering much-needed relief to households and businesses alike. “Given the high cost of living, freezing the fuel levy for a fourth year in a row was the right call,” Duvenage adds.

The introduction of performance-based conditional grants to metropolitan municipalities, linked to governance and financial reforms, is a step towards accountability in local government. “OUTA supports initiatives that incentivise proper governance. Municipalities must now deliver, and National Treasury must enforce these conditions without compromise,” Duvenage says.

“South Africa doesn’t have a revenue problem. We have a spending problem. Unless we cut waste and corruption, tax increases like VAT are indicative of government’s inability to reform,” says Duvenage.

At a time when international funding for HIV/AIDS is being withdrawn, South Africa needs to show leadership and accountability in health budgeting. Yet this budget shows no urgency in closing the looming HIV/AIDS funding gap. Government cannot continue to rely on foreign donors to safeguard the health of millions of South Africans – domestic funds must be allocated, and they must be spent efficiently and transparently.

OUTA calls on government to cancel the VAT increase and focus on cutting waste, whilst increasing revenue collection opportunities as has recently been mentioned by the SARS commissioner. We reiterate that government should begin by implementing OUTA’s proposal to find R500 billion – as per our letter to the Minister of Finance on 3 March 2025.

“South Africans and businesses are willing to contribute to building this country,” Duvenage concludes. “However, we are tired of being asked to pay more while corruption and inefficiency go unchecked.”

OUTA remains committed to holding government accountable and fighting for a South Africa where tax money funds services and infrastructure – not corruption and ineptitude.

OUTA believes that to stimulate economic growth and increase tax revenue in South Africa, the government must implement structural reforms that improve business confidence, attract investment, create jobs, and expand the tax base. Simply raising taxes without growing the economy will worsen inequality, increase unemployment, and drive more taxpayers into informal or offshore financial arrangements.