Finance Minister Enoch Godongwana is set to present the government’s third budget this year, aiming to secure support from Government of National Unity (GNU) partners while addressing pressing revenue shortfalls.
Revenue Shortfalls and Limited Options
The Treasury faces significant constraints after failing to raise the VAT rate, leaving few viable avenues to boost revenue. Economists suggest that a wealth tax or corporate income tax hike is unlikely, with government instead expected to focus on increasing the fuel levy and improving tax collection efficiency through the South African Revenue Service (SARS).
Borrowing to cover the deficit is also seen as problematic, given South Africa’s already high public debt—now exceeding 76% of GDP—and the staggering R1 billion per day spent on debt servicing. Rating agencies are closely monitoring fiscal decisions, making additional borrowing an unattractive option.
Three Tough Choices
Experts outline three possible approaches:
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Raising taxes through indirect measures, such as fuel levies or consumption taxes, rather than direct income or corporate tax hikes.
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Cutting expenditure, which many economists favor due to widespread inefficiencies in government spending.
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Additional borrowing, though this risks worsening the debt crisis.
“The most viable option is to cut expenditure,” said one analyst, noting that South African taxpayers and businesses are already overburdened.
SARS Modernization Key to Revenue Growth
Rather than raising tax rates, strengthening SARS’ enforcement and digital systems could recover billions in lost revenue. Experts point to global trends, such as real-time VAT reporting and e-invoicing, as ways to combat fraud and improve compliance.
“Modernizing VAT collection could significantly boost revenue without increasing tax rates,” said a tax policy specialist.
Low Growth Limits Revenue Potential
A major underlying issue remains South Africa’s sluggish economic growth, which the IMF predicts will reach just 1% this year—far below Treasury’s earlier 1.9% forecast. Narrower tax bases and weaker revenue collection underscore the need for structural reforms to stimulate expansion.
As Minister Godongwana prepares his budget announcement, the balancing act between fiscal discipline, revenue generation, and economic recovery will be closely watched by markets, rating agencies, and a financially strained public.