As debates about the 2025 Budget continue, the Parliamentary Budget Office (PBO) and the Financial and Fiscal Commission (FFC) have warned that increasing VAT would disproportionately impact low-income households and is unlikely to generate proportional revenue growth.
They presented their concerns during a joint parliamentary committee meeting on the 2025 national budget earlier this week.
In his budget speech on 12 March, Finance Minister Enoch Godongwana proposed increasing VAT by 0,5% this year, and 0,5% in 2026.
But both the PBO and FFC are of the view VAT may not be the answer to balance the books.
Key points from the meeting:
- The PBO highlighted that VAT is regressive and that low-income groups already contribute significantly to VAT revenue. A VAT hike would worsen poverty and inequality.
- Alternative revenue sources suggested include reversing corporate income tax cuts, introducing a 0,5 – 1% wealth tax (potentially raising R38.4 billion), and curbing illicit financial flows.
- The FFC noted that previous VAT increases have not significantly boosted revenue and called for a reevaluation of VAT as a fiscal tool.
- Recommendations include improving fiscal planning, ensuring budget allocations align with government priorities, enhancing transparency in state-owned enterprise (SOE) bailouts, and managing the public-sector wage bill.
- Concerns were raised about the Eskom Debt Relief Amendment Bill and the need for better governance of SOEs.
- Some parliamentarians suggested focusing on reducing wasteful government spending rather than raising taxes.
Overall, both entities emphasized the need for strategic fiscal management, alternative revenue measures, and improved financial governance.
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