WeeklySA_AdminGROWTH: Cobwebs blind government economists to stumble on tax hike mentality, more than economic growth
By Sandile Swana
The budget is the clearest expression of national intent with funds clearly allocated to that intent.
Everything the cabinet or parliament is serious about must be clearly stated in the budget with the means to achieve it set aside for that purpose. Parliament as the elected representatives of the people of South Africa. It approves the budget for the welfare and prosperity of South Africans not for the cabinet.
The results at year-end and every three years (the medium-term is three years) must reflect the achievement of that intent.
The GDP per capita has remained stagnant for 17 years, because the gross domestic product (GDP) has not grown while the population has grown at a healthy rate. The GDP growth rate has average about 0.8%pa since 2012 and grew at a measly 0.6% in 2024.
There has not been a single year where the President and the minister of finance did not present a ‘growth’ budget, with the parliament approving it and then listened to many wonderful excuses why the GDP growth was not achieved even though comparable economies achieved 4% per annum GDP growth even after the advent of the disruptive 2008 Global Financial Crisis and Covid-19 pandemic. The African Christian Democratic Party or ACDP voted against the budget side by side with the DA, EFF and MKP, among others.
The ACDP raised the valid question of whether the 1.9% per annum GDP growth proposed by minister Enoch Godongwana was credible given that the country achieved only 0.6%pa GDP growth in 2024 in partnership with Big Business under the GNU.
Remember that Operation Vulindlela was started in 2020 and is the key breakthrough instrument for 3% per annum GDP growth and beyond and is the anchor point of the governing troika of big business, the ANC, and the DA.
Both Ramaphosa and Adrian Gore the leader of big business have pronounced that “our growth must be 3% per annum this year and going forward”.
The DA says the budget does not talk to this, and many economists and political parties agree that this is not a growth budget at all.
This is a continuation of the culture of mediocrity and chasing predictable failure in terms of jobs and GDP growth. This is a culture of sophistry and even voodoo economics where cover up and convoluted explanations are the order of the day.
The Daily Investor publication cites former deputy Reserve Bank governor Kuben Naidoo commending the five superstars namely, Sean Phillips, Duncan Pieterse, Mahesh Fakir, Rudi Dicks, and Saul Musker, who run Operation Vulindlela states, and states: “Naidoo explained that while the economy grew a mere 0.6% last year (2023), Rudi Dicks and his team prevented a deep recession of -3% or -4%.
“Research from the Bureau of Economic Research showed that Operation Vulindlela could grow South Africa’s economy by over 2% a year in the next few years.”
Naidoo was talking about the 2023 year, but in 2024 the GDP growth rate remained dismal at 0.6%. The final revised GDP growth for 2023 was 0.7%, and then it slid downwards in 2024 to 0.6%.
This is a worrying factor where in reality the majority of parties in parliament validly rejected the budget (include BOSA and Action SA in that rejecting group), but the discussion around economic growth was crowded by the unnecessary and unwise debate over Value-Added Tax (VAT).
Business Leadership South Africa which is part of Operation Vulindlela had clearly indicated on May 28 2024 that new taxes must not be executed, and stipulated who must be excluded from the likely grand coalition or GNU. Once you read the text it becomes clear tax of any kind is a no-go area under the GNU.
“On the eve of the election, News24 reported that Business Leadership SA (BLSA) had warned that if a new ruling coalition included partners who pushed for nationalisation and new taxes, the business sector would withdraw from a successful partnership with the government.
“We are not going to support an administration that is touting policies of mass economic destruction,” BLSA CEO Busi Busisiwe Mavuso told the publication.
All clear-headed economists said that we should not be focusing on increasing taxing, nor should we focus on austerity. Instead, we must launch serious investment (Gross Fixed Capital Formation).
Mmusi Maimane correctly argues in line with the NDP and general Gross Capital Formation Statistics suggests that we should be targeting 30% Gross Capital Formation a year. We are at about 15%.
Traditionally one third of that investment must come from the state – about R693bn per year. That in turn would be linked to a 1.5 million new jobs, proper jobs in real companies that are innovative and fast growing. Checkers Shoprite employs about 163 000 people. That means roughly you would create close to ten companies the size of Checkers Shoprite for 10 to 20 years to eradicate unemployment.
The 1.5 million jobs would generally come from start-up companies that employ 5 to 300 people each plus public works and so on. This aspect alone means that parliament cannot continue the trend of rubber-stamping non-growth and anti-economic growth budgets. We must expect all parties to set time aside over the next twenty-four months to break this cycle of failure and return to the high-performance culture of the pre-2008 era.
Let me add that the VAT and personal income tax issue cannot be condoned and allowed to cloud our minds. The Budget Framework shows Revenue at R2221.9bn versus Expenditure of R2592.3bn and a budget deficit of R370bn.
The 0.5% VAT increase apparently brings in R13.5bn and when you add the planned personal income tax increase (bracket creep) you will end up with R28bn collected from the public.
That R28bn is 1.26% of the revenue Sars is planning to collect and a smaller percentage of the expenditure.
The ANC cannot hold the nation to ransom for this amount and cloud the central topic of GDP growth which will over a four-year period increase state revenues and national prosperity if it is done correctly. That is the catalyst for litigation and foreseeable political protest.
Sars has exceeded its collection target in 2024 and has 400bn of already submitted tax returns against which to collect at least R100bn for the 2025 year to cover the extra R28bn. They have piloted the system to do this, and they are confident they can cover the R28bn and more without increasing taxes. All of us must agree with Sars as professionals and accept their superior performance track record. On April 1, it released its performance report.
“By the end of March 2025, Sars had collected a record gross amount of R2.303 trillion, representing year-on-year growth of 6.9% against estimated nominal GDP growth of 5.4% (2024/2025).
In this difficult economic environment, Sars paid refunds of R447.7 billion to taxpayers, the highest-ever amount in refunds (versus R413.9 billion in the prior year), representing growth of 8.2%.
This brings the collected net amount to R1.855 trillion, which is almost R8.8 billion higher than the revised estimate, and R114 billion more than last year’s R1.741 trillion.
That should silence the debate about taxes and shift our attention to budgeting for high economic growth and creating a capable high-performance state like we had before 2008.
Many high-capacity public servants and politicians are sitting on the bench, sidelined, Herman Mashaba, Phumzile Mlabo-Ngcuka and many engineers, advocates and specialists of various kinds are watching from the sidelines weeping as our country is ravaged by mediocrity.
• Swana is an independent political and governance analyst, principal consultant at the Centre for Strategic Leadership
