The parliamentary budget office, an independent body set up to analyse fiscal policies, has lambasted the National Treasury’s reasoning for hiking VAT, saying it is oblivious to the country’s growing inequality.
The Treasury ignited fierce debate last month with a proposal to increase the VAT rate, raising it by 0.5 percentage points annually for the next two fiscal years to reach 16% by 2026-27, defending the hike as comparing favourably to that of peer countries.
The parliamentary budget office, whose evaluation of budgetary proposals and delivery of data-driven insight help MPs to offer a counterbalance to cabinet propositions, gave its assessment on Wednesday.
The assessment gauges whether proposed allocations in the Division of Revenue Bill and the Appropriation Bill are appropriately targeted to address the challenges of “socioeconomic realities that shape the context of the budget and promote equitable development”.
Measures put forward by the Treasury, including increasing social grants above inflation and increasing the number of zero-rated goods, would not shield the poor from the VAT hike, the office said.
“The argument that SA’s VAT rate is low relative to ‘peer’ countries ignores the extreme wealth and income inequality present within the country,” it said. “In SA, the bottom 50% of the population holds negative wealth (that is, they owe more than they own), while the top 10% owns more than 85% of the total wealth.
“By contrast, the wealth and income distribution in these ‘peer’ countries is less concentrated in the hands of the top 10%,” it said.
The parliamentary budget office added that the “proposed regressive revenue raising measures” were likely to disproportionately burden poor and low-income households and that the measures risked deepening inequality across racial and gender lines.
The budget tabled by finance minister Enoch Godongwana last month proposed new revenue measures to help offset additional spending pressures, including an increase in VAT.
This, with a freeze on personal income tax brackets, was expected to raise an additional R28bn in fiscal 2025/26 and R14.5bn in fiscal 2026/27.
The fiscal proposals have sown division in the government of national unity (GNU), with the DA voting against the adoption of the fiscal framework — forcing the ANC to look outside the coalition to secure enough votes to pass it. The DA and EFF have gone to court seeking adoption of the framework to be declared illegal.
The parliamentary budget office painted a picture of an economy in regression, saying that since fiscal framework measures began in 2012, SA’s annual official unemployment rate rose from 24.9% to 32% last year. “The youth unemployment rate, often described as a ‘ticking time bomb’ in SA due to its obscenely high rates, remained above the national average at 45.6% in 2024.
“The National Treasury justifies the VAT increase by comparing SA’s rate to countries with higher VAT, yet unemployment in these comparator countries ranges from 3% to 13.4% in 2024,” the office said.
“Though the intervention in spending in the public employment programmes is a step in the right direction, it is unlikely to significantly affect the millions of unemployed people, many of whom have been without jobs for a year or longer.”
The office also took issue with the funding for police posts. It said despite the increased funding, the number of funded police posts at all levels remained unchanged at 188,018 for 2024/25 throughout the medium-term expenditure framework; this was still a cutback based on historical data.
“This represents a reduction of 9,854 posts since 2012. This is concerning, particularly as SA recorded more than 75 murders per day in the third quarter of the 2024/25,” it said.
It said the reduction in subsidies for university infrastructure from R2.98bn in 2024/25 to R1.39bn in 2025/26 in nominal terms may further worsen the pressures on overall university capacity, including the availability of affordable student housing.
“Many of the country’s 26 public universities face severe constraints in expanding their physical infrastructure to accommodate increased student enrolment. For instance, the University of Joburg received 360,000 applications from new first-year university students but could only accommodate 10,500 students.”
The next test for the budget will be the passing of the Division of Revenue Bill and the Appropriation Bill.
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