South African budget controversy: FMF calls for rejection over tax hikes

Source: Reuters. South African President Cyril Ramaphosa gestures as he delivers his 2025 State of the Nation Address in Cape Town, South Africa, 6 February, 2025.

The FMF urges Parliament, which must soon vote on the budget, to reject this fiscal framework.

“This is a rare opportunity for lawmakers to reject short-term populism in the interest of long-term prosperity,” says Dr Morné Malan, FMF deputy head of policy. “The evidence is clear: smaller government, not higher taxes, lifts countries out of poverty.”

According to the FMF, South Africa has had anaemic GDP growth, averaging below 1% annually since 2013, caused in large part by government overreach, epitomised by a bloated bureaucracy and state monopolies.

The Vat hike, while framed by Godongwana as a "marginal increase" to avoid deeper spending cuts, distracts from the urgent necessity for fiscal responsibility, tax reform, and privatisation, argues the FMF.

“South Africans are not cash cows to be milked by an inefficient state,” said Malan. “The finance minister claims this Vat increase was carefully weighed against alternatives like raising corporate or personal income taxes, but the real alternative – cutting government waste and reducing its socio-economic footprint – was ignored. Studies show that the poorest 10% in free-market economies earn some eight times more than their counterparts in interventionist states. This budget punishes taxpayers and the poor alike.”

Reducing State burden

The FMF’s Liberty First initiative, launched in response to the Government of National Unity (GNU) formed after the ANC’s loss of its parliamentary majority in May 2024, offers practical solutions to reduce the burden represented by the state on the economy. The Size of Government report proposes three key reforms:

Fiscal responsibility: Slash the public sector wage bill, which has ballooned to 13.6% of GDP despite subpar service delivery. The FMF further recommends reducing the Cabinet from 34 portfolios to 10 and limiting deputy ministers.
Tax reform: Ease the tax burden with a modest income tax cut across all brackets, a five-year moratorium on tax increases, and broader Vat exemptions. The report warns that South Africa’s tax-to-GDP ratio of 26% – among the highest globally – yields little return for taxpayers.

Privatisation: End state monopolies in critical sectors like electricity and transport, where entities like Eskom and Transnet have cost taxpayers over R520bn in bailouts since 2015. Opening these fields to private competition would boost efficiency and relieve fiscal pressure.

The budget’s reliance on Vat hikes and bracket creep to raise R46bn – much of it to fund a public sector employing 18.6% of the workforce – betrays an unacceptable disregard for taxpayers while these less invasive alternatives are available.

“With National Treasury touting a projected primary budget surplus and debt stabilisation at 76.2% of GDP by March 2026, such gains are illusory when achieved through higher taxes rather than concrete policy reform – if they are achieved at all. The additions to VAT-exempt foods are token gestures that fail to address the systemic over-taxation of individuals and businesses,” Malan concluded.