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Outa’s plan to generate R500 billion annually far exceeds the R50 to R60 billion that a 2% VAT hike would bring.
With the budget speech coming up and the government of national unity still unable to find common ground about where to find the budget shortfall of R58 billion, civil society organisation Outa has a plan for the minister of finance to find R500 billion.
Outa CEO, Wayne Duvenage, says in a letter to minister Enoch Godongwana the over-reliance on borrowing and increasing taxes has left little room for him to manoeuvre. “The reality is clear: South Africa has reached, if not surpassed, its tax collection ceiling. There is little left to extract from taxpayers and any increase of VAT must be an absolute last resort.”
Outa identified 11 areas that, if implemented with commitment and urgency, could conservatively generate savings and additional revenue of more than R650 billion within two years and approximately R500 billion annually thereafter, far exceeding the R50 to R60 billion that a 2% VAT hike would bring, Duvenage says.
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Outa’s 11 areas where government can save money
These eleven areas are:
- Tightening tax collection and enforcement: Much has been said about strengthening Sars to address under-invoicing, customs fraud, tax evasion by high-net-worth individuals and corporations and illicit financial flows. Outa believes there are significant tax-gains to be made in this area, as much as R700 billion in the short term and R450 billion per year thereafter, as suggested by Edward Kieswetter. Being conservative in our estimations at 75%, this is the additional revenue to be collected by Sars. R525 billion can be recovered in the short term and R337.5 billion beyond two years
- Broaden the tax base:Introducing taxation to the taxi industry and taking a 75% conservative approach, Outa estimate the income to Treasury of R2 billion over the short term and R9.2 billion beyond two years. Addressing opportunities to formalise taxation of parts of the informal sector and expand tax compliance through digital integration can bring in R2 billion over the short term and R3.8 billion beyond two years.
- Cutting non-essential government spending:Outa says it is clear that the minister is not a fan of zero-based budgeting (ZBB). However, Outa says, it is a meaningful way to have government departments justify all contractual and rental/lease contracts, especially after decades of above inflation-related increases applied to so many contracted services, consultants, systems and property leases over time. Place a freeze on all non-critical government hiring and scrutinise all consultancy fees, while terminating all unnecessary and wasteful contracts, Outa says, to save R5 billion over the short term and R10 billion beyond two years. The public sector wage bill can be rationalised by implementing performance-based pay structures, freezing salary increases for top earners in government and reducing the size of Cabinet as well as the number of deputy ministers to save R2 billion beyond two years. A review of VIP protection and luxury perks for government officials. The approximately R4 billion per year could be reasonably reduced by 20% and save R0.8 billion over the short term and another R0.8 billion beyond two years.
- Recovering state capture and corruption funds:Capacitating and expediting the Asset Forfeiture Unit (AFU), NPA, SIU, the Public Protector, the courts and other meaningful structures within the criminal justice system, aggressively pursuing recovery of looted state funds, plus high-profile and criminal syndicate prosecutions and simultaneously introducing whistleblower protection and incentives to expose financial crimes. Doing this can save government R10 billion over the short term.
- Release accumulated surpluses built up in many state entities:Many SOEs and state departments quietly accumulated surpluses over many years, although government departments are not supposed to accumulate surpluses over extended periods. In October 2024, Outa’s scan of the annual reports of 26 entities within the department of higher education alone established a collective R55.5 billion in accumulated surpluses. There are many more with surpluses that could be justified in their release to National Treasury. Government can save R41.6 billion over the short term and R8.3 billion beyond two years.
- Revisit skills development levy allocations to SETAs:As much as R16 billion is budgeted in allocations in the 2025 tax year (up from R11.8 billion a decade ago) to SETAs. The value to the economy of the current programme appears to be underperforming, as this spending appears to have no effect on the unemployment rate over the past decade. Outa estimates Treasury could trim the allocation of 25% to SETAs without harming their output or their ability to serve the country with meaningful skills development. This would release R4 billion back to Treasury every year.
- Revisit National Skills Fund expenditure:In just one year of 2024, the Auditor General highlighted R1.7 billion spending that lacked adequate evidence in the National Skills Funds. Outa says this is a significant portion of the R3.9 billion allocated. Outa believes a prudent spending regime could enable a reduction in allocations of around R1 billion per year, without harming output.
- Revisiting Nsfas allocations and expenditure:Concerns of wasteful and inefficient spending in Nsfas runs into several billions of rands, with an average of R5 billion identified by the Special Investigations Unit (SIU) of incorrect amounts paid over to 40 000 students between 2017 and 2022. In addition, over R250 million per year is lost to fraud through the enrolment of “ghost learners” and other corruption and maladministration. This could save government R1.3 billion over the short term and R1.3 billion beyond two years.
- Increasing sin taxes:Outa says given the tight spot we are currently in, the minister may want to consider raising taxes on alcohol, tobacco and sugary drinks. A 10% increase in these taxes could generate roughly R3 billion in taxes, after the reduction in sales from a price elasticity factor applied.
- Selling underutilised state assets:Outa says this is also the time for government to identify and sell underperforming or unnecessary state-owned assets such as non-strategic properties, non-core SOEs (SAA, Denel etc) and land and buildings to save R5 billion over the short term. Taking this opportunity to also look at leasing high-value state land for commercial use could bring in another R1 billion beyond two years.
- Addressing mismanagement of municipal conditional grants or bailouts:Outa says Treasury should apply stricter conditional funding to municipalities, based on strict governance and turnaround commitments by strengthening financial oversight and monitoring, better consequence management and enforcement, introducing centralised municipal capacity and skills enhancement programmes and engaging with civil society to improve transparency through organised mechanisms and community based monitoring. Outa believes a definitive focus in this space could reduce wasteful expenditure and losses by R10 billion per year in a couple of years.
- Clamping down on government procurement corruption and wasteful expenditure:Outa says the implementation of e-procurement systems that ensure full transparency is long overdue. Reports from the Auditor-General, National Treasury and independent research institutions suggest that losses amount to at least R200 billion per year, due to corruption, inefficiency and wasteful expenditure in procurement. Looking at only the departments of transport, education, higher education and health can save government R50 billion over the short term and R100 billion beyond two years.
- Reviewing the rules, fees and controls applied to boards of government entities: Outa says its experience and research show a vast range in the size of many boards appointed to oversee many government entities and state companies, along with the number of meetings these entities hold and the exorbitant fees they earn for board meetings. In many instances, Outa says, government entity boards have become employment agencies for people connected to dubious procurement practices and lack the necessary independence or expertise to fulfil their oversight duties and responsibilities. Stricter rules and regulator enforcement is needed, with potential savings of R200 million over the short term and R300 million beyond two years.
Outa says these actions can save government R655.8 billion over the short term and R492.1 billion beyond two years.
Duvenage writes that Outa would be happy to meet with the minister and assist in charting the course ahead. “The question is: will this administration finally take the bold steps South Africa desperately needs?”
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