SANJITH HANNUMAN

SOUTH Africa is staring down the barrel of a 2% VAT increase - from 15% to 17% - in what may be the most contentious fiscal decision in recent history. At face value, this hike is about raising revenue, but dig deeper, and a more troubling reality emerges. Years of mismanagement, corruption, and economic stagnation have left government coffers empty, and now, ordinary South Africans are being asked to foot the bill.

A conveniently selective justification

Government justifies this VAT increase by arguing that it is necessary to fund key public services. According to budget documents, the additional revenue is intended to cover above-inflation wage increases for civil servants, support early childhood development, retain teachers and doctors, finance essential frontline workers, restore commuter rail services, and increase social grants beyond inflation.

However, despite these claims, Treasury has refused to officially release this information, even though these details are widely shared on WhatsApp. Conveniently absent from the government’s rationale is any mention of critical financial black holes- Eskom, Denel, SAA, dysfunctional municipalities, failing Waterboards, the R350 grant, inflated performance bonuses, and the opulent lifestyles of those in power.

The reality is stark: South Africa's leadership is prioritizing public sector wages.,while ignoring the urgent need for structural reforms in collapsing state-owned enterprises. A more transparent and responsible approach would involve stringent lifestyle audits for all state employees, from the lowest-ranking official to the president, coupled with mandatory conflict-of-interest declarations and full disclosure of any directorships held. Without these measures, any attempt at economic recovery is merely cosmetic.

Who bears the burden?

For everyday South Africans, a VAT increase means higher costs on nearly everything- from clothing and toiletries to transport and household essentials. While some basic food items remain VAT-exempt, the financial strain will be impossible to ignore.

A R100 purchase that currently costs R115 with VAT will rise to R117 - a small change on a single transaction, but a crushing blow when multiplied across daily expenses.

The effects will ripple through every sector of society:

– Pensioners and the unemployed on fixed incomes will face an impossible squeeze.

– Workers will see their already stretched salaries cover even less.

– Small businesses will have to absorb rising costs while battling reduced consumer spending.

– Farmers will struggle with higher input costs, threatening food production and supply.

– The financial sector will see lower consumer participation in banking, credit, and insurance.

The burden of this VAT hike will fall heaviest on those who can least afford it.

The true cost of mismanagement

The government justifies this increase as a necessary measure to plug the growing budget deficit, but what they fail to acknowledge is why this deficit exists in the first place. South Africa loses an estimated R1.5 trillion per year to corruption - an amount nearly equivalent to the entire national budget.

State-Owned Enterprises (SOEs) have become black holes for taxpayer money: Eskom is drowning in over R400 billion of debt, while Transnet’s failures have crippled logistics, slowing economic growth even further. The result? A stagnating GDP growth rate of just 1%, barely enough to keep pace with inflation, let alone create jobs and drive prosperity.

A crumbling infrastructure, a broken economy

Beyond corruption, poor infrastructure is accelerating South Africa’s economic decline.

– Deteriorating roads increase transport costs, driving up food and goods prices.

– Unreliable electricity forces businesses to invest in expensive backup systems—costs they pass to consumers.

– Failing water infrastructure leads to huge municipal losses and rising household costs.

Government borrowing is now so high that debt service costs exceed what is spent on health and education. Meanwhile, service delivery is collapsing, forcing citizens to pay twice: once through taxes, and again for private alternatives to government failures.

Instead of addressing these systemic issues, the government is resorting to the easiest - but most damaging - solution: taxing the people even more.

Food security and the knock-on effects

A VAT hike will have serious consequences for food security. While some staple foods like maize meal, tinned vegetables, and certain meats are zero-rated, many essential items working-class families rely on will increase in price.

– Cooking oil, margarine, white and brown bread, processed meats, stock cubes, and vegetables will all become more expensive.

– Families will be forced to cut back on nutritious foods, relying more on starch-heavy diets.

– Over time, this will contribute to rising malnutrition, stunting rates, and preventable hospitalisations.

Before the VAT hike, South African households were already struggling to afford food. The January 2025 PMBEJD data shows that a worker earning the national minimum wage is already 46.4% short of affording a basic monthly food basket for their family. A VAT increase will only widen this gap.

Similarly, the child support grant—currently R530 per month—falls 33% below the food poverty line of R796. With a VAT hike, these grants will stretch even less, forcing families to choose between food, transport, education, and medical care.

Would VAT need to rise?

The fundamental question is: is this VAT increase necessary?

A simple calculation shows that recovering just 25% of corruption-related losses would generate more revenue than the proposed VAT hike. That means if government simply reined in waste and looting, there would be no need to impose further financial burdens on citizens.

Instead of raising VAT, the government should focus on:

– Eliminating corruption and wasteful spending.

– Reforming SOEs to prevent further financial drain.

– Investing in infrastructure maintenance to reduce business costs and improve economic efficiency.

– Strengthening service delivery so citizens don’t have to pay for private alternatives.

Until these core issues are addressed, increasing taxes will only serve as a temporary band-aid on a gaping economic wound.

The political gamble

The Government of National Unity (GNU) finds itself in a difficult position. While coalition politics promotes inclusive decision-making, it also complicates the ability to implement strong economic reforms. The dramatic interruption of the 2025 Budget Speech underscored the volatility of the political climate.

Yet, political survival cannot come at the cost of economic justice. The choice is clear: tax increases or fundamental reform. The path the government chooses will reveal whether they are truly committed to fixing the economy or simply looking for a quick fix at the public’s expense.

The bigger picture: we will pay, one way or another

The harsh truth is that National Treasury needs the money. If the VAT increase is blocked, the government will simply find another way to extract revenue - whether through higher personal income taxes, fuel levies, or new tariffs. One way or another, South Africans will pay - not for improved services, not for economic growth, but for the continued financial excesses of a government that refuses to reform itself.

At the heart of the issue is a fundamental injustice: ordinary citizens are being asked to sacrifice their livelihoods to cover the failures of those in power. South Africans deserve better.

Rather than reaching deeper into taxpayers' pockets, it's time for the government to reach deeper into its conscience. The real path to economic recovery lies in accountability, not additional taxation.

The choice before the government is simple: fix the system or keep making citizens pay for its failures. Which will they choose?

Sanjith Hannuman is the managing director of Avinash Consultants & Actuaries.

** The views expressed do not necessarily reflect the views of IOL or Independent Media.

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