What’s glorious about finance minister Enoch Godongwana’s budget is that it marks a turn for the better after a 15-year drift towards profligate spending, taxation, regulation, nationalisation, corruption and government failure. For this he scores nine out of 10. For gory omissions he loses two, down to seven, but up from 2025’s six.
The gory part is that he missed an opportunity to launch the country onto the high road of liberty and prosperity for all. I was virtually alone singing the praises of last year’s budget, which was followed by widely celebrated economic improvements. Improved though they are, our budgets still fall short of what would make us a winning nation.
Having laid the foundations for real change by ending tax and deficit increases, the nationalised electricity and rail monopoly, and failed state-owned enterprises (SOEs), and launching privatisation (called “structural reform” — a term coined in the early years to pacify the unreconstructed left) Godongwana has done much that deserves credit. Not a single analyst appears to have noticed the giant leap in the right direction: extensive privatisation-by-stealth, with far more promised in this budget.
The budget celebrated efficient private enterprise in newly deregulated electricity and railways, and noted that municipal and provincial functions must run as if they are, or partner with, private businesses, as well as public-private partnerships (PPPs) to combat illicit trade and border crossing. A new entirely private Hoedspruit airport will rival the country’s best, including such facilities as a tourist cableway up one of our highest peaks, Mariepskop. Privatisation-by-stealth includes replacing the failed sector education and training authorities (Seta) training system with dual-training PPPs.
The negative role of the government is diminishing in another important respect — less tax as a proportion of the economy (GDP). The government is budgeted to consume about half a percentage point less of personal wealth than last year; the equivalent of everyone working a day less for the government and a day more for themselves.
Tax freedom day
The government will consume 37% of the economy instead of 38%. This can be thought of as people working for the government until May 17 instead of May 18. This is called tax freedom day (TFD), calculated annually by Freedom Foundation statistician Garth Zeitsman.
Two decades ago the government consumed about 25% of everyone’s wealth, or a TFD in early April. People kept 12%, or six weeks, more wealth. If the minister is serious about increasing wealth and jobs, he should advance TFD by a week every year until we return to the smaller size of government that coincides with prosperity worldwide. The Chinese government consumes only 20% of GDP.
NHI
Predictably, commentators called for more government spending in their interests. But there is no such thing as government money, only other people’s money. Before governments spend, they must take. All visible benefits generate negative effects, including less food, clothes, jobs, houses, healthcare and skills.
Mercifully, there was no allocation for National Health Insurance (NHI). If implemented, NHI would be the biggest and costliest folly ever contemplated. It defines neither “health” nor “healthcare”, has no costing or budget, prohibits rather than provides insurance, and lacks concrete proposals or substantive law. Everything will be decided arbitrarily by unknowable future health ministers. As such, it violates the separation of powers.
The Freedom Foundation’s is the only rigorous cost estimate according to which “fully implemented” NHI would take up the entire GDP — R7-trillion. Godongwana said off script that health minister Aaron Motsoaledi fights with him because he refuses to budget for something unknowable. One of Motsoaledi’s false mantras is that the government is the sole provider of healthcare for 84% of the population, whereas it provides some care for less than 50%. The 84% lie is intended to prepare subjects for the nationalisation of private care.
SEZs
The most gory omissions were the pre-conditions for winning-nation prosperity, such as the biggest contributor to China’s spectacular success, special economic zones (SEZs). We have twice as many so-called SEZs (12) with only 4% of China’s population. Perhaps ours were not mentioned because they are relative failures. China’s SEZs produce trillions, while ours consume billions. This is because there is nothing “special” about our unspecial zones. China’s are the freest economies on earth.
Instead of wasting money on multiple little zones, he could have reduced ours to two or three that are truly “special”. Like China’s, they must be the freest economies on earth, genuinely “offshore”, and at least the size of a big city. They must be tax-free for at least 10 years and have no forex, import, export, financial, investment or employment controls. They need autonomous or private services and power, with freedom to import skills and technology.
Godongwana wants South Africa to attract data centres. They will be immense because of the AI revolution. He could have turned one of our SEZs into a global data-centre haven. Coega would be ideal because of its proximity to the proposed Thyspunt nuclear power plant. Data centres need reliable power on a scale that we, with abundant uranium and coal, can provide. Since fast, cheap and reliable internet is an essential aspect of future infrastructure, he should have announced freedom from BEE for Elon Musk’s Starlink. Keeping it out is like a Bafana Bafana own goal.
SDZs
Godongwana lamented the terrible triplets — poverty, unemployment and inequality — without suggesting solutions. A good start would be special development zones (SDZs) for the poor. Low-income areas could be a different kind of special. SEZs are for big business. SDZs would be for the poor, who face distinctive issues such as lacking proof of address, sophisticated banking, formal zoning, building plans, services and infrastructure. SDZs would accommodate informal property rights, no South African Revenue Service red tape, and no elitist development or zoning laws. But the government is doing the opposite. Like the apartheid regime, local governments are declaring war on the informal sector.
One of Godongwana’s predecessors, Tito Mboweni, promised zero-base budgeting (ZBB), supposedly adopted by the Treasury in June 2020. Given all that Godongwana said about the desire for good and investor-friendly government, he should have implemented ZBB, which would force all organs of state to abandon incremental budgeting in favour of justifying every rand spent, debt reduction and efficiency.
Capital gains tax exemption
Reverting to the glory, the increased capital gains tax exemption is excellent. Wasteful expenditure is already down by R12bn. The deficit narrowed, there was a primary surplus, greylisting ended and global markets grew. He eliminated bracket creep, increased the VAT ceiling, endorsed the reduced inflation target, increased tax-free saving and did not repeal tax savings on private healthcare. These are all glorious achievements.
Every budget has levity. Ministers predict higher growth than they expect. About half a percentage point must usually be deducted, meaning his Treasury really expects about 1.2% growth, not 1.7%. He predicts a miserable 2% by 2028. Had he filled his gory gaps with high-growth policies, he could safely have predicted 5% or more. At a realistic 7%, wealth doubles in a decade. Had we grown in this way from 1994, today we would be one of the world’s wealthiest countries, with a GDP of R15-trillion instead of our tardy R2-trillion.
With fewer gory omissions, instead of riding in taxis, South Africa’s poor would be able to own cars and replace shebeen visits with overseas holidays.
• Louw, the founder and former president of the Free Market Foundation, is CEO of the Freedom Foundation.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.