We Didn’t Need a 2% VAT Increase After All

The 2025 Medium-Term Budget Policy Statement (MTBPS) presented by Minister Enoch Godongwana is one of the better statements produced by the Ministry of Finance in many years. It reflects encouraging signs of an improving economic environment, with stronger revenue collections, a reduced debt-to-GDP ratio, and savings on debt-service costs showing indications of stabilisation and a shift toward a more positive trajectory for South Africa’s economy.

There were increased allocations of 42.4% for provinces and 9.7% for municipalities to safeguard frontline and basic services, and offset higher bulk-service costs for free basic services. OUTA cautions that these gains must be closely monitored by Treasury to ensure that corruption and maladministration do not siphon off hard-earned progress.

Treasury’s effort to improve procurement transparency through the launch of a Procurement Payments Dashboard on the eTender portal is a welcome step. OUTA has always maintained that transparency is the enemy of corruption. However, it must be implemented in a way that is accessible and meaningful to civil society. Treasury should invite public input to help identify and restrict corrupt suppliers and directors from doing business with the state at all levels.

Government’s revenue rebound demonstrates that administrative integrity delivers far more than rate hikes ever could. By strengthening SARS (which received an additional R7.5 billion in the May Budget), closing illicit-trade loopholes, and enforcing better expenditure controls, Treasury has found savings and grown revenue within the system. SARS collected R18 billion more than anticipated in May.

OUTA welcomes the additional allocations to SARS for illicit-trade enforcement and compliance drives. Investing in capable institutions pays for itself by raising revenue, improving safety, and curbing corruption. With higher SARS revenue collections anticipated, the case for any further tax hikes simply falls away.

By the same token, more funds must be channelled to the broader criminal justice system, including the Special Investigating Unit, the NPA and its Investigating Directorate Against Corruption, the Hawks, NPA and the courts, to strengthen their capacity to hold corrupt officials and criminal syndicates to account.

Treasury’s Targeted and Responsible Savings (TARS) initiative, which is working towards savings of R6.7 billion over the medium-term by closing or scaling down low-priority and underperforming programmes and tackling social-grant fraud, is a no-brainer. The question is why it took so long. Imagine how much could have been saved had this work started in earnest years ago.

OUTA believes there is still significant scope for further savings based on the patterns of corruption, wasteful expenditure and maladministration witnessed across many departments and state entities. As the country moves into a period of improved collections and fiscal discipline, Treasury should focus on reducing the tax burden, lowering debt, and investing in infrastructure, rather than finding new ways to increase spending.

“South Africans are already among the highest taxed nations in the world when compared to the services received from the state,” says OUTA CEO Wayne Duvenage. “This is the time for government to use the improved fiscal position to give citizens some relief, not to grow the size of the state.

“The 2025 MTBPS proves that when SARS collects effectively and Treasury spends wisely, South Africa can restore stability without raising taxes. Now the focus must be on implementation, accountability and ensuring that every rand delivers real value.”