A budget for the politicians, not the people – IRR
“A crude distinction between economics and politics would be that economics is concerned with expanding the pie while politics is about distributing it.”
With this quote from economists Alberto Alesina and Dani Rodrik, finance minister Enoch Godongwana framed the introduction to his budget speech a year ago, in 2024.
He went on: “The point, Madam Speaker, is that the size and quality of the national pie is what informs, and ultimately determines, the realisation of our political imperative of redistribution.”
One year on, with this week’s 2025 budget speech postponed until next month, it turns out that politics has stalled economics altogether: the battle over how to expand the pie has delayed any effort to distribute it.
Democratic South Africa’s first budget postponement gives National Treasury three weeks to re-evaluate its approach to expanding the revenue base. The initial plan relied on a two-percentage point Value-Added Tax (VAT) increase, from 15% to 17%.
The opposition to a VAT increase has sharpened the focus on alternative solutions that could free up revenue without placing an extra burden on consumers and potentially having counterproductive effects on revenue. Earlier this week, the Institute of Race Relations (IRR) released a report, authored by IRR fellow and Executive Director of IRR Legal Gabriel Crouse, proposing cutting VAT by 3.5 percentage points, from 15% to 11.5%. The report identifies R100bn in potential savings if government prioritises value-for-money procurement.
“The report argues that if government is transparent on the costs associated with BEE procurements, it would expose how much taxpayers are overpaying,” says IRR researcher Anlu Keeve.
“And it shows how redirecting these funds could create the fiscal space to actually lower VAT.”
Fiscal space is exactly what National Treasury needs right now, but it won’t get there without forcing the government to face reality. The African National Congress (ANC) has for far too long let political interests drive the budget instead of shaping policy around what the budget can actually sustain.
“But, this time,” Keeve points out, “Treasury finds itself in a rare position of power.”
She continues: “Ordinarily, the budget is not up for negotiation. But this year, opposition to the budget emerged before a single number was publicly tabled, forcing an unexpected opening for compromise. If government (mainly the ANC) wants the budget to be approved, it will have to find the kind of savings that would demonstrably be available if it sacrificed wasteful BEE procurement spending.”
Government can no longer afford to outrun economic reality. The pie belongs to the people who baked it – all taxpayers, which includes those who pay only VAT. And they cannot afford another year of crumbs.
Media contact: Anlu Keeve, IRR researcher Tel: 071 929 9516 Email: anlu@irr.org.za
Media enquiries: Michael Morris Tel: 066 302 1968 Email: michael@irr.org.za