The now resolved VAT debate has distracted from a far bigger issue. SA’s economy is running out of road — but that doesn’t have to be the case.
In recent weeks we’ve been dealing with the fiscal framework in parliament that spells out how the government plans to manage the country’s money. It includes where it will come from, how it will be spent, and how debt will be repaid.
That framework is built on problematic, and in some cases overly optimistic, assumptions. Chief among them is a projected 1.9% economic growth rate for SA in 2025 that underpins all the government’s income expectations. Even in February 1.9% growth was highly unlikely to materialise. Now, given the declining outlook globally, there is even less likelihood.
The recent IMF projections bear testament to this fact, having slashed their growth forecast for SA to 1% as global trade uncertainty increases. US tariffs are one reason for the global economy’s slower growth expectations — and all countries are in the same boat.
SA’s exports and investment inflows are already under pressure. In February the IMF warned that global economic growth would remain subdued for the next two years, and that developing countries such as SA will be particularly vulnerable. So we must be honest and realistic about our growth prospects. A 1.9% GDP growth rate is a great stretch target, but it is not solid enough to plan on.
The US’s changing policy positions have hit everyone, including SA. Since our budget was first proposed in February, global — particularly American — consumption patterns have changed, affecting our economic outlook. The next step in the budget process — the division of revenue, which puts the fiscal framework into action through a detailed annual plan of who gets what — is thus in even more trouble.
When a government cannot raise enough money, raising taxes has long been seen as a stopgap. But it is unsustainable and doesn’t fix the bigger problem, which in SA’s case is the need for urgent economic reform. More tax brings pain for everyone — and this is why the DA has consistently opposed a VAT hike. Any VAT increase is always felt hardest by the poor, which in SA is a huge section of the population.
You cannot simply tax your way out of trouble when a budget doesn’t balance. To compound matters, a global slowdown means reduced demand for our exports, lower revenue from commodities, and less investment. In this context, higher taxes will only stifle growth further. Belts tighten, people spend less and the economy contracts further. The result is a shrinking tax base, even higher unemployment and rising public frustration.
There is a better way. The DA has consistently put forward a credible alternative — a comprehensive plan for real economic reform that prioritises fiscal discipline, smart spending and pro-growth policies. Our plan is implementable, costed and achievable without burdening the public with new taxes.
Our six-point plan to reset SA’s economic trajectory has been on the table since long before the budget was proposed in February. It is a vision of a better SA for everyone.
- No new taxes, including VAT, personal income tax and company income tax. SA’s tax base is too small and too overburdened to carry the weight of additional tax increases without doing serious harm to investment, growth and jobs. Proposals for a wealth tax or higher VAT discourage economic activity and cause capital flight. Ultimately, we’ll raise less revenue, not more. Instead of asking more from households and businesses already under pressure, the government must find the R60bn it needs from within its own budget. With a total expenditure envelope of R1.9-trillion this is not only possible — it’s essential.
- Cut unnecessary government expenditure. The DA proposes targeted, immediate cost-cutting measures that will free up at least R60bn without touching essential services, including a 50% reduction in government advertising budgets; a 33% cut in travel and catering across departments; a hiring freeze for all nonessential government positions for 12 months; and a national audit of “ghost employees”, based on the Passenger Rail Agency of SA’s audit, which revealed that 10% of its listed workforce did not exist. These are simple, effective measures that any capable government would already have implemented.
- Concrete, probusiness growth measures. Economic growth is the only sustainable way to raise living standards, create jobs and stabilise public finances. We need reforms that unlock the energy and resources of the private sector, instil investor confidence and modernise infrastructure. The DA proposes fast-tracking trade and logistics reforms, including setting strict deadlines for the concessioning of freight rail and major ports such as Cape Town and Richards Bay; and establishing a $5bn (R92bn) concessional loan arrangement with the World Bank to fund urban infrastructure projects that stimulate growth and create jobs — without adding to national debt. These growth-boosting interventions will do far more to improve the fiscal outlook than any tax hike.
- A comprehensive spending review to reprioritise R58bn. We are calling for a three-month emergency spending review to identify and phase out failing or wasteful programmes. This will allow government to reallocate funds towards essential services such as healthcare, education, policing, and infrastructure. Our proposal includes using the adjustment budget mechanism to shift funds during the year, as inefficiencies are uncovered; a deeper nine-month review of legacy programmes that no longer deliver value; and absorbing commitments such as the R7bn public sector wage agreement without resorting to tax hikes. This approach is about making better use of existing money, not demanding more from the public.
- Increasing revenue (without raising taxes). There is room to grow revenue — not by increasing taxes, but by increasing tax compliance and unlocking dormant state assets. Improving tax compliance from 63% to 67% could raise R60bn per year, with no change to tax rates. Selling or leasing underutilised government land and properties could raise at least R10bn annually, while stimulating economic activity and reducing maintenance costs. A government that focuses on performance and delivery, instead of extraction, can rebuild trust and expand the tax net over time.
- Protecting essential services and the most vulnerable. The DA’s plan ensures that essential services — front-line healthcare workers, teachers, police personnel and social grants — are not touched by cuts. We also propose converting the social relief of distress (SRD) grant into a job seekers’ allowance — a more effective tool that supports the unemployed in actively looking for work, while linking them to opportunities, training and support services. We believe in a social safety net that protects the vulnerable, while building pathways to dignity and independence.
Yes, SA is a middle-income country grappling with global economic shifts, like many others. But we can help ourselves. We do not need to be victims, and we do not need to hurt ourselves more by taking shortcuts such as raising VAT. We need an honest look at our economy, and we need the will to reform it.
* Steenhuisen is DA leader and minister of agriculture.
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