Spend Less, Tax Less
The solution to the government’s fiscal shortfall is not to raise income, but to spend less, and to enable the economy to grow.
Despite what the minister of finance, the treasury or the government may be saying, we don’t need to raise tax. In fact, raising tax in any way will not increase government revenue, but cause the economy to contract to such a degree that overall income will go down.
The solution to the government’s fiscal shortfall is not to raise income, but to spend less, and to enable the economy to grow. This must be accomplished through auditing the government and strictly cutting not just needless, but plain illicit spending habits.
Auditing firm PwC has predicted a R10-billion tax shortfall for the current fiscal year (at time of writing) still to occur second attempt at a budget speech. Most forms of tax have underperformed, with only corporate income tax providing a bumper. A cyclical one, as South African companies face a harsh economic climate due to anti-business regulations.
According to Minister of Finance Enoch Godongwana, national departments wasted R8 billion in the 2023/2024 financial year. This wastage is categorised as unauthorised, irregular, and fruitless spending. In other words, spending that shouldn’t have happened in the first place, if the government was held accountable and denied access to precious financial resources.
This doesn’t even include the 2017 report by then Minister of Economic Development Ebrahim Patel that corruption was costing the country anywhere between R27 billion to R100 billion a year.
This is only the recorded wastage from the national departments. State-owned enterprises, which should all ideally be privatised and receive no funding from taxpayers, cost billions. In February 2025, the Post Office received R150 million as a bailout - a pittance compared to the R3.8 billion it requested. And far more than the failing institution deserves, as its functions are fast replaced by far more competent private sector alternatives.
Transnet managed to secure a R5 billion loan from the BRICS bank. Loan payments will doubtlessly fall on taxpayers, as Transnet continues to let our critical commercial infrastructure fall into disrepair, further holding back economic growth.
And that’s not to mention Eskom’s debt relief in 2023, amounting to R254 billion to be spread over three years. Or the SABC’s R2.1 billion bailout in 2019. A bailout that didn’t work, as SABC made a loss of over R1.1 billion in 2023 and expressed the need for yet another bailout.
All these parastatals should be privatised, and their costs shifted to private capital and consensual consumers, rather than already overtaxed businesses and income-earners. This would save the taxpayer billions a year.
If we eliminate the unnecessary burden of these costly parastatals, South Africa’s fiscus would already be in the black. If we eliminate the wasteful spending on top of that, South Africa would be running a healthy surplus in which to wipe out its debts, and even lower tax.
Attempts to increase the budget further need to be rejected as fiscally insane and irresponsible. The Social Relief of Distress (SRD) grant, which was only meant to be a temporary relief fund during the COVID lockdown, costs South Africa R36 billion, while reportedly not even helping that much. There is pressure to increase the number of recipients and the value of the grant – which would eventually balloon the cost of the so-called temporary grant to R171 billion by 2032/2033.
Finance minister Godongwana blames the SRD grant for his attempt to raise VAT by 2% and has stated that there would be no need to raise taxes if this grant was ended.
There also needs to be a concerted effort to cut the bloat in our highest levels of office. Dawie Roodt, Chief Economist at Efficient Group, argues that South Africa only needs four crucial ministries. Most of the current departments and ministries are redundant or unneeded. With only four ministries, a lot of expensive politicians may be out of a job – but I don’t think we should be too sympathetic to them. They’ve drained taxpayers enough as is.
The raising of VAT shouldn’t even have been up for discussion. VAT disproportionately affects poor consumers, while putting a regulatory and fiscal burden on small businesses. Many small businesses cannot afford a rise in VAT, as they often cannot easily pass the costs onto the consumer. These small businesses account for 60% of employment and 34% of GDP. Raising VAT could devastate our economy overnight.
Rather than raising tax, we should be increasing the number of taxpayers. This can be accomplished through liberalising the economy to enable economic growth. Small businesses, rather than being burdened with extra VAT, taxes, red tape, rolling blackouts and crime, should be supported to enable them to earn more money and employ more workers.
Rather than redressing past injustices Black Economic Empowerment (BEE) policies only create regulatory hurdles and force up the price of government procurement. The government is obligated to pay 25% more for BEE contracts under R50 million, and 11% more on contracts exceeding R50 million. The Institute of Race Relations estimates that VAT could be cut to 11.5% by getting rid of BEE.
We must also stop this fixation on a Wealth Tax and shifting all tax burdens onto the rich. A minority pay tax in South Africa. And the millionaires and billionaires make up a lion share of the tax income already. Further raising their tax burden only threatens to chase them away from South Africa, while discouraging investment. And a Wealth Tax is a torrid, borderline evil notion, that believes that people’s property can be seized without it even producing a tangible income for them.
Taxing a single high-income individual will never beat enabling thousands of individuals, businesses and household to start earning enough to better their own living conditions and contribute to tax.
The Laffer curve, which measures how much a population can be taxed before there are steep diminishing returns on government revenue, is just about to tip over into losses. South Africans are overtaxed. And the most frustrating thing of all is that the vast majority of government spending is completely needless.
We don’t need to cut tens of thousands of civil service jobs. We don’t need to cut the SASSA grant. We don’t need to close public hospitals or schools. We just need the government to stop spending money on things it shouldn’t be spending it on. Cut the waste. And stop even thinking about raising tax. We can be prosperous - it’s just a matter of making the right decisions.
Nicholas Woode-Smith is the managing editor of the Rational Standard. He is a political analyst and author and a senior associate of the Free Market Foundation. He writes in his personal capacity.