Outa wants the minister to cancel the VAT increase and finds it unacceptable that personal income tax brackets were not changed in the budget speech.
South Africa does not have a problem with revenue, but it does have a problem with spending, the Organisation Undoing Tax Abuse (Outa) said after the Minister of Finance Enoch Godongwana finally got to deliver his budget speech.
Wayne Duvenage, CEO of Outa said while the minister had to face complex challenges, Outa is deeply concerned by the announcement of a VAT increase, as it is a regressive tax that will hit South Africans across all income levels, particularly low- and middle-income households.
“Treasury 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 affects the poor. Government must focus on cutting waste and ending corruption before reaching into citizens’ pockets,” he said.
“Outa calls on government to cancel the VAT increase and focus on cutting waste, while 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.
“South Africans and businesses are willing to contribute to building this country, but we are tired of being asked to pay more while corruption and inefficiency go unchecked.”
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Budget speech: fiscal discipline, but also stealth tax increase
While minister Godongwana spoke 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, he says.
“By not adjusting rebates and tax brackets in line with inflation, government is quietly increasing the tax burden on individuals. This is also unacceptable.”
Duvenage says while tax increases can be a tool for stabilising government finances, government has a history of fiscal mismanagement, high levels of debt and corruption and this flies in the face of government’s claim of fiscal discipline as a justification for tax increases.
“We must see evidence of responsible spending, reduced waste and improved service delivery, which has not been the case in South Africa.”
He says government should first cut corruption and waste before talking about tax increases and notes 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.”
Duvenage says this is in effect an approach to zero-based budgeting which Outa has requested for many years.
“However, we note 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 reduced or will reduce unnecessary spending and we call for civil society involvement in the committee proposed by the presidency that will review inefficient and underperforming programmes.”
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Reduction in Eskom debt positive
Duvenage says 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 consistently called for an end to Eskom bailouts and this reduction is welcome although we need continued oversight to ensure Eskom stays on a path to self-sustainability.”
In addition, he says, Outa acknowledges the additional funding allocated to Sars aimed at enhancing its forensic, investigative and compliance capabilities. “However, we are concerned that the increase is only R528 million 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 the Sars commissioner recommended.
“This is not good enough and we propose that the Sars budget is increased by R1.5 billion per year for the next three years. Strengthening Sars is essential to ensure 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.”
Duvenage says this is a critical step to rebuild 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 Sars collects will do little to change the reality of failing public services and growing public distrust.”
He adds that additional allocations to strengthen financial forensic and accounting capacity within law enforcement agencies are long overdue, although they have to show how this translates into meaningful prosecutions of state capture and current criminal syndicates, along with the recovery of stolen funds.
“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.”
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Decision not to increase fuel levy also positive
He says the decision to not increase the fuel levy in this financial year, offering much-needed relief to households and businesses alike was the right call given the high cost of living.
Duvenage also points out that the introduction of performance-based conditional grants to metropolitan municipalities, linked to governance and financial reforms, is a step towards accountability in local government.
“We support initiatives that incentivise proper governance. Municipalities must now deliver and National Treasury must enforce these conditions without compromise. South Africa does not 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.”
He says at a time when international funding for HIV/Aids is being withdrawn, South Africa must show leadership and accountability in health budgeting, but the budget speech 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.”
Duvenage emphasises that Outa believes that to stimulate economic growth and increase tax revenue in South Africa, 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.”
