The role of the state must change to avoid budget deficits
A new path must be pursued, and the postponement of the budget presents an opportunity to embark on this new direction.
Treasury was rightly prevented from increasing prices on goods and services for South Africans with its proposed VAT hike in the now-abandoned budget for the 2025/2026 financial year. Citizens already pay an excessive amount of taxes, and as Treasury scrambles to find a solution, we must ask: how did we get here, and how can we get out?
According to National Treasury, the South African government must address a R60 billion shortfall in its budget of nearly R2 trillion. The finance ministry proposed increasing taxes, which faced opposition from all quarters, including the Tax Commissioner, who warned against such a measure. As a result, the budget has been postponed till 12 March to explore alternative solutions for filling this fiscal gap.
Thus, the issue of a budget deficit persists, and cutting spending appears to be politically unpalatable for most political parties. Increasing debt should be off the table, especially considering that the second-highest item in our budget is the cost of servicing the existing debt. The finance minister finds themselves in an unenviable position, to say the least.
The reluctance to cut spending in areas such as social services or government wages and jobs stems from the awareness South Africans have developed regarding the role the state should play in their lives. As long as the state is perceived as the collective guardian responsible for ensuring that everyone is employed, clothed, and well-fed, these fiscal challenges will persist.
It is important to note that on one hand South Africans desire a parental state that will provide them with free, quality healthcare and education. On the other hand, South Africa faces the highest unemployment rate in the world and an economy that is not growing at the same pace as its peers. South Africans seek benefits that exceed the limits of the country's economic capabilities.
This contradiction between what South Africans desire from their government, as reflected in their voting patterns, and what economic realities allow, has placed both us and the finance minister in this predicament. Unless the public's awareness shifts, the essential reforms – such as reducing spending and deregulation – needed to revitalize South Africa will never be enacted.
A recent World Bank report titled “Driving Inclusive Growth in South Africa: Quick Wins with Competitive Markets and Efficient Institutions” offers intriguing insights, particularly regarding the outcomes of government spending on sectors such as health and education. The report argues that South Africa's public expenditure, which in some instances exceeds that of other Organization for Economic Co-operation and Development (OECD) countries, does not yield comparable improvements in the quality of life or living standards of its citizens.
As South Africans we must ask ourselves whether allocating more funds to address the issues inherent in the operation of the South African government – issues that have even been identified by the World Bank – is the right approach. As a nation, we have been following a path of increased state dependence, accompanied by a growing tax burden on the working class to support this reliance.
A new path must be pursued, and the postponement of the budget presents an opportunity to embark on this new direction. This involves significantly reducing government spending, utilizing proposals that have even been suggested by some parties within the GNU.
It requires a shift in the mindset of the South African populace, which can be facilitated by our leaders who recognize the critical fiscal challenges we face as a nation. Additionally, this path must include a commitment to allow businesses to operate freely, fostering market conditions that promote economic growth. Evidence shows that a market-friendly policy stance has proven effective wherever it has been implemented.
This path will require us, as South Africans, to sacrifice some of the luxuries provided by our state. From welfare benefits to comfortable government jobs, these privileges must be relinquished for the sake of our country's future prosperity. Such sacrifices must, of course, be led by our government leaders – the beneficiaries of blue light convoys – beginning at the highest levels.
Austerity is often linked to hardships, and it can be argued that life becomes more difficult for those who rely on state services when these services are reduced. This situation is unfortunate, which is why it is essential to advocate for measures that stimulate economic growth while simultaneously reducing government spending. Such an approach would create an environment where individuals dependent on the state can rely on their ability to contribute to society and serve their fellow human beings instead.
Considering the criticism directed at the consequences of austerity, particularly in South Africa, we often overlook the repercussions of a state that is interventionist and spends as liberally as the South African government. The struggling economy, suffocated by regulations, and the declining quality of service delivery – exacerbated by each wage increase in the public sector – are issues we fail to associate with state actions, even though we should be drawing that connection.
This budget presents an opportunity for South Africans to seriously reconsider the type of state we desire. Clearly, we do not want a government that burdens us with excessive taxation. Therefore, we must commit to a limited government in both scope and size, which will reduce the revenue it needs to collect from citizens. This approach will help minimize the likelihood of incurring debt or operating at a deficit, as is currently the case.
Zakhele Mthembu BA Law LLB (Wits) is Policy Officer at the Free Market Foundation.
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