Latest news with #R75-billion


Daily Maverick
26-05-2025
- Business
- Daily Maverick
The fuel levy increase vs VAT hike explained
While South Africans breathed a sigh of relief at the passing of the 2025 National Budget – and the relegation of the proposed VAT increase – one announcement of note was an increase in the fuel levy. While far less politically contentious than a VAT hike, debate has emerged over whether the fuel levy increase is, in fact, a 'stealth VAT'. It's a shift that raises valid questions about regressivity, affordability, and who will bear the brunt of the cost. When the levee breaks The National Treasury had aimed to raise R75-billion over three years by increasing VAT by 0.5% and then another 0.5% next year. But following political backlash and a likely legal pushback, the proposal was withdrawn. The fiscal gap, however, remained and needed plugging. advertisement Don't want to see this? Remove ads In his revised May 2025 budget speech, Finance Minister Enoch Godongwana announced that the shortfall would instead be offset by expenditure controls and new revenue measures, including a 16c/litre increase on petrol and 15c/litre on diesel, effective 5 June 2025. This marks the first fuel levy increase since 2021/22, bringing the total to R4.01 per litre – up from R3.85. Treasury projects that the change will raise R23-billion over three years, far less than the R75-billion expected from the shelved VAT plan, but still material given the constrained fiscal outlook. Read more: 'We tread water for another year' — this fiscal offering is a stopgap, not a solution Who suffers? 'Well, it is pretty much the same,' economist Dawie Roodt told Daily Maverick when comparing the VAT proposal to the fuel levy increase. 'The only difference is the quantum – the effect area will be less, simply because the rate of increase is less.' VAT applies broadly to goods and services (excluding zero-rated essentials), while the fuel levy targets a narrower tax base, but its economic reach is wide – transport, logistics, manufacturing and food pricing are all exposed – which means that costing goes up across the value and supply chains – and even if it is the case that this increase is more distributed than a VAT hike, its impacts are still disproportional. advertisement Don't want to see this? Remove ads According to the Pietermaritzburg Economic Justice & Dignity Group, which carries out monthly research on basic household costs, a minimum-wage worker commuting by taxi can spend more than a third of their monthly income on transport. Here, even a marginal fuel price increase imposes disproportionate burdens on low-income earners. As The Outlier reported in its weekly newsletter issued on Friday, 23 March 2025: 'While the 16c increase is just another charge for some of us, it will likely impact poorer communities more. When the fuel price rises, it hits South Africa's working class the hardest.' These costs also pass through to food prices and consumer goods. 'Fuel costs increase the price of most other goods and services as they push up transport costs across the board,' the publication said. A revenue hole that still needs to be filled Taking into account that the fuel levy will raise an estimated R4-billion in 2025/26, there is still quite a gap. 'Certainly not comparable,' Roodt notes. 'These two cannot be compared in terms of quantum, but in terms of the effect on the poor, that is pretty much the same.' To close the gap, the Treasury is counting on SARS to ramp up compliance and enforcement – targeting an additional R20- to R50-billion in revenue annually. These gains remain aspirational, however, and are not yet factored into formal projections, both in terms of revenue or timeline, with much still depending on SARS Commissioner Edward Kieswetter. advertisement Don't want to see this? Remove ads advertisement Don't want to see this? Remove ads An inflation signal? Perhaps not For now, headline petrol prices are expected to drop in June, thanks to a decline in the basic fuel price. That may temporarily mask the effect of the levy increase, but longer-term pressures persist. 'Hardly any inflationary pressures will be expected from this,' Roodt argues, 'because petrol prices are coming down in any event.' April CPI data shows inflation edged up from 2.7% in March to 2.8%, with key contributors being food, beverages, housing and services. Read more: SA consumer inflation ticks up in April but remains below 3.0% While the direct inflationary impact of the levy may be limited, the pass-through effects to goods and public transport fares are likely to show over a longer horizon. Is there a better way? It can be said that a fuel levy increase, much like a VAT increase, is regressive and disproportionately affects the most vulnerable. Roodt is unequivocal: 'South Africa's total tax regime is dramatically progressive already,' he says. 'There's nothing else that can be done to make it more progressive, basically.' A detailed look at the May 2025 Budget shows that indirect taxes – including VAT, fuel levies and excise duties – account for more than 45% of gross tax revenue, compared with 39.9% from personal income tax. VAT alone contributes more than R480-billion, and domestic goods and services taxes collectively represent a third of all state income. advertisement Don't want to see this? Remove ads advertisement Don't want to see this? Remove ads In other words, while the tax code may be progressive in theory, its impact is mixed in practice – and regressive taxes still carry weight in the government's pocket – but the fuel levy, unlike income tax, charges the same amount per litre regardless of the earner's bracket. This doesn't negate additional strain on middle and low-income households, but rather illustrates the increasingly narrow options available to the Treasury in an almost zero-growth environment, saddled by debt. A tax by another name? Ultimately, the decision to withdraw the VAT hike and instead raise the fuel levy was as much political as it was fiscal. VAT increases require legislation and expose divisions in Parliament. The fuel levy, by contrast, can be adjusted via the Budget process – no legislative amendment required. Whether this amounts to a 'stealth tax' or a strategic compromise depends largely on your own perspective, but as fuel-dependent households, which includes everyone within our borders in one form or another, absorb yet another marginal increase, it is clear that we are all still paying – just not through VAT. DM


Eyewitness News
21-05-2025
- Business
- Eyewitness News
Budget 3.0: EFF won't support 'austerity' that cuts funding to critical depts
CAPE TOWN - The Economic Freedom Fighters (EFF) says it won't support an "austerity" that cuts any funding to critical departments like health and education. Finance Minister Enoch Godongwana will deliver the national budget speech at the Cape Town International Convention Centre on Wednesday. With a value-added tax (VAT) hike no longer on the table, the minister is under pressure to fill a R75-billion budgetary gap over the next three years. The EFF caucus is in a defiant mood ahead of the budget speech. The red berets say its proposals of increasing the corporate tax and introducing a wealth and apartheid tax have not found favour with the African National Congress (ANC). EFF national spokesperson Sinawo Tambo says its clear the GNU's next course of action is to cut spending. 'We are going to do our work in the Standing Finance Committee and those who bare going to support an anti-poor budget that's going to cut teachers and nurses they are going to be exposed to South Africans because they said they oppose the VAT hike because they are for the poor let's see now when we get budget cuts where they stand.' Meanwhile, the two biggest parties in the GNU, the ANC and DA, say they have resolved their budget differences.


Daily Maverick
19-05-2025
- Business
- Daily Maverick
A R75bn question mark hangs like the sword of Damocles over Godongwana
It's important to note that both the domestic and global macroeconomic outlook have worsened since the withering of Budget 1.0 and Budget 2.0 on the political vines. The bottom line is that South Africa is running out of fiscal room. Over the medium term — meaning the next three years — there is a R75-billion question that Finance Minister Enoch Godongwana will need to answer on Wednesday, 21 May 2025, when he makes an unprecedented third attempt at tabling the Budget. With the proposed VAT hikes now off the table, there is a R75-billion shortfall forecast over the next three years that needs to somehow be plugged, and the fragile South African economy has few faucets that can still be tapped. That leaves just three options — tax hikes, spending cuts or increased borrowing. Among economists, there is consensus that there is virtually no more scope for hikes to income or corporate tax, though the fuel tax levy could be played with to siphon some more liquidity for the Treasury. What this means for you If you are a taxpayer, no relief is in sight but there should be little additional pain — in the short run. In the longer run, a failure to keep the debt-to-GDP ratio from surging above current levels is needed if you want tax relief down the road. Faster levels of economic growth are also critical to reduce your future tax burden and to create jobs. At the end of the day, the Budget is about your hard-earned money and how the government spends it. Beyond that, it comes down to belt tightening or the debt market. 'There will likely be spending cuts and increased borrowing,' Jee-A van der Linde, senior economist at Oxford Economics Africa, told Daily Maverick. Van der Linde pointed out that ratings agencies such as S&P — which last week affirmed South Africa's BB- credit rating with a positive outlook — forecast that the country's gross debt to gross domestic product (GDP) ratio will reach 80% this year. That is in sharp contrast to the Treasury's latest projection of the debt to GDP ratio peaking at 76.2% for 2025/26. 'If you look at what the ratings agencies expect, like S&P, of an 80% debt to GDP ratio and yet they maintain a positive outlook, that tells me that the Treasury may increase borrowing. It's already being priced in by the ratings agencies,' Van der Linde said. Still, South Africa can no longer borrow and spend like a drunken sailor. 'The National Treasury will have a hard time finding sustainable revenue sources in the current economic environment,' Van der Linde said. Spending That brings into sharp focus the need for a blade to cut spending. 'We think that the Minister of Finance could announce a spending review in the October 2025 Medium Term Budget Policy Statement. We have pencilled in a net increase in spending of R30.0-billion compared to R61.6-billion in Budget 2.0 in FY25/26, consisting of a combination of infrastructure and 'other',' Tertia Jacobs, Investec Treasury economist, said in a pre-Budget note. 'In contrast, new spending on the frontline could be tied to a spending review or reprioritisation of existing expenditures.' Jacobs also noted while 'some fiscal slippage is expected… this may not translate into an increase in bond supply due to higher available cash balances'. Jacobs flagged two developments since Budget 2.0 — an opening cash balance that is R20-billion higher, and an R80-billion surge in the value of the Reserve Bank's Gold and Foreign Exchange Contingency Reserve Account because of red-hot gold prices. Last year the Treasury announced it would draw down R150-billion from this source over the next three years, and it could conceivably be tapped again. The R75-billion shortfall has also been questioned by some. 'To preemptively justify expenditure cuts, National Treasury has deliberately exaggerated the revenue implications of removing the originally proposed VAT increase. A reversal of VAT implies a R2.7-billion gap in the current fiscal year and a R60-billion gap over the medium term, instead of the R75-billion widely quoted,' the Institute for Economic Justice (IEJ) said. To avoid an 'austerity budget', the institute suggests removing tax breaks linked to pensions and medical aid contributions for high-income earners, restoring the corporate income tax to 28% from 27%, and dipping back into the Reserve Bank's Gold and Foreign Exchange Contingency Reserve Account. Domestic and global macroeconomic outlooks have worsened It's also important to note that both the domestic and global macroeconomic outlooks have worsened since the withering of Budget 1.0 and Budget 2.0 on the political vines. The Treasury's rose-tinted forecast for economic growth of 1.9% this year is bound to be shaved. The International Monetary Fund (IMF) cut its 2025 forecast for South Africa on this front last month to 1.0% from 1.5%. The IMF also pared down its global growth forecast for this year to 2.8% from 3.% largely because of the chaos and uncertainty triggered by US President Donald Trump's ham-fisted tariffs and trade wars. The bottom line is that South Africa is running out of fiscal room and that R75-billion question is the sword of Damocles hanging over Budget 3.0. DM


Daily Maverick
13-05-2025
- Business
- Daily Maverick
Loaded for Bear: Budget 3.0 faces an ‘event horizon' that could suck SA into a black financial hole
An event horizon looms and the laws of economic gravity will not be defied. Staring into the abyss of a black hole will require National Treasury to make significant expenditure cuts if it does not want to be sucked into the void. Black holes are mysterious cosmic objects that astronomers, physicists and philosophers here on Earth have long grappled to understand. Massive concentrations of matter, black holes are so dense that their gravitational pull beyond what is termed the 'event horizon' is so strong that not even light can escape. The bottom line is that once you cross the 'event horizon', there is no going back. You get sucked into the black hole – a place from which there is no return. The South African government's third attempt at a Budget this year is hovering precariously close to an economic event horizon. With the wildly unpopular and ill-conceived VAT hikes now launched into the outer reaches of space, Finance Minister Enoch Godongwana must find a way to craft a Budget that does not suck the South African economy into a fiscal black hole. The revenue shortfall over the medium term is estimated at R75-billion but that could balloon as South African economic growth seems sure to grow at a slower-than-expected pace as Donald Trump's trade wars take their toll on the global economy. Meanwhile, South Africa's debt-to-GDP ratio is nearing the 75% mark, severely curtailing the usual option of borrowing to make up the shortfall. In short, an event horizon looms and the laws of economic gravity will not be defied. Staring into the abyss of a black hole will require Treasury to make significant expenditure cuts if it does not want to be pulled into the void. Another prism through which to regard this matter is to imagine someone kayaking on a river towards a waterfall. This was the analogy used last week by physicist Dr Luca Pontiggia for his acclaimed and visually electrifying show at the Joburg Theatre, Hidden Giants: Where Black Holes Meet Human Curiosity. As the kayaker or canoeist approaches the waterfall, the speed of the water flow will soon equal the force applied by the paddle to reverse. Eventually there is a point of no return, and the vessel gets sucked through the spray and plunges down the waterfall. This watery event horizon or point of no return is perhaps a better take on Treasury's dilemma than a black hole as it conjures up an image often used by economists and analysts – the fiscal cliff. With a black hole, once the event horizon is passed, there is no going back from the inside of a dark void that is invisible. 'Abandon all hope, ye who enter here,' is the fate that awaits all matter pulled into a black hole. Our fictional kayaker may feel the same way, but at least they have a limited prospect of survival. Annie Edson Taylor, for example, was the first person to survive a trip in a barrel over Niagara Falls in 1901. It can be done! Plunging over this waterfall – or fiscal cliff – will be a disorienting experience for South Africa's body politic and it will be battered and bruised, while the ship of state that carried it over the edge will be smashed to smithereens. At least the economy and state can pick up the pieces and recover from this mishap – unlike matter pulled into a black hole. But it won't be easy and will entail a lot of pain before there is any visible gain. There are many plausible scenarios on this front, including an IMF bailout and the fiscal austerity of a structural adjustment programme (SAP) – a state of affairs that South Africa has long been at pains to avoid. The descent into junk status for a credit rating that was once coveted investor grade status will accelerate, raising borrowing costs while consigning the rand to the scrapyard of basket-case currencies. Unemployment, already at nose-bleed altitudes, will scale new peaks, widening South Africa's glaring disparities of income and wealth into a chasm. Social unrest will also reach new heights, propelling populists proffering potions comprising snake oil. The best course of action is to stay well clear of the event horizon. Once an economy hurtles over the waterfall or fiscal cliff, it takes a long time before it can be afloat again. DM


eNCA
01-05-2025
- Business
- eNCA
Parliament ready for third budget 2025
PARLIAMENT - Finance Minister Enoch Godongwana will table his third budget on 21 May. It follows the setting aside of the Fiscal Framework approved in Parliament. WATCH: Discussion | Budget 3.0 to be tabled in May It included a 0.5-point VAT increase. without the tax hike, Godongwana warns there is a R75-billion shortfall.