Media Statement: Budget Speech 2025

RE: BUDGET SPEECH POSTPONEMENT AND LOOMING VAT HIKE 

We express deep disappointment and grave concern over the National Treasury’s inability to table the Budget in Parliament—a historic first in our democratic era that jeopardizes the very foundations of our state. In a healthy democracy, the executive must function as a unified whole; the state, in its entirety, is far greater than the sum of its individual political factions. Party politics must not fragment or undermine the essential operation of a functional state, for it is only through a cohesive Government of National Unity (GNU) that we can preserve and build upon the legacy of the first GNU in South Africa.

A unified executive is not merely a matter of political expediency, it is a requirement for ensuring sound fiscal governance and national stability. When internal divisions prevent timely coherent policy-making, the entire nation suffers. This discord not only disrupts the government’s ability to deliver on its mandate but also erodes public trust in our democratic institutions.

Adding to these serious concerns is the looming 2% VAT hike, which would raise the current rate from 15% to 17% (the last such increase occurred in 2018). While the need for additional revenue to fund critical public services is undeniable, a uniform VAT increase is inherently regressive. It disproportionately burdens lower-income households—those who spend a higher share of their income on essential goods—by forcing them to pay more for items they cannot easily do without. Underpinned by the philosophy of utilitarianism, a  truly progressive tax system is designed so that each additional unit of tax levied generates diminishing marginal disutility for those with higher incomes, thereby protecting the welfare of those with lower incomes. In contrast, a flat increase in VAT places a heavier relative burden on the poor, as they allocate a larger portion of their limited resources to necessities like food. The impact of this tax increase will be felt more acutely by young people, who are often the first to feel the pinch of economic policies that reduce their purchasing power and restrict access to basic goods and services.

Food, which is a basic necessity, exhibits low income elasticity. So even as real incomes change, households must continue to spend nearly the same proportion on food. A VAT hike on food items makes these essential goods less affordable, forcing lower-income households to reduce the quality or variety of their diet, thereby exacerbating social injustice. These effects are not offset by the existence or expansion of zero-rated goods, as this creates a constraint on consumers at lower income thresholds, which is inherently unfair. Additionally, this system is often not effectively applied, as the list is limited to a very small basket of essential food items and excludes non-food necessities like toiletries.

Instead of relying on regressive tax increases that disproportionately burden lower-income households, we must urgently optimise progressive tax mechanisms like capital gains tax, dividend tax, and estate duty tax. These taxes focus on wealth accumulation, ensuring that those who have benefited the most from our economy contribute a fair share. While it is crucial to strike a delicate balance to avoid discouraging investment in private capital and wealth-generating assets, our state can no longer rely on a constrained revenue base through VAT while overlooking the significant revenue potential from wealth-based taxes.

The failure to present the budget combined with the threat of a VAT hike, highlights a dual crisis: one of slightly fractured governance and another of economically regressive policy that threatens social equity. We call upon all stakeholders to address these issues because failure to do so effectively undermines young people’s livelihoods.

END

ISSUED BY THE SOUTH AFRICAN YOUTH ECONOMIC COUNCIL

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