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Objection to VAT increases

The South African Communist Party (SACP) strongly objects to the government’s decision to implement 0.5-percentage point increase in Value-Added Tax (VAT) in the 2025/2026 and 2026/2027 financial years. The initial intention to increase VAT by 2 percentage points this year was met with widespread public resistance, particularly from the working class, and was ultimately reversed due to pressure from ordinary citizens and working-class organisations like the SACP, COSATU, SAFTU and progressive civil society organisations, including those in the People’s Budget process. However, the continued VAT hike, even at a reduced rate, remains unacceptable.

VAT increases have a disproportionate impact on workers and the poor, more so on the bottom 40 per cent of society in income terms. VAT is a regressive tax, meaning that it takes a larger percentage of income from low-income earners than from wealthier individuals. This discredits the pro-poor claim made by the Minister of Finance Enoch Godongwana when he presented the budget to Parliament in Cape Town on Wednesday, 12 March 2025. For the poorest South Africans, VAT increases exacerbate existing inequalities by further eroding their meagre purchasing power. Essential goods and services become even less affordable, leaving the most vulnerable to suffer the harshest consequences. The poor are spread across the country, including in former Bantustan areas where there is no single rail network and passenger rail service.  

The poor, who already spend the vast majority of their income on basic goods and services, will bear a disproportionately high burden when VAT rates rise. On the other hand, wealthier individuals and large corporations, whose spending patterns involve a higher share of non-essential goods, are less affected by the VAT increase, thereby reinforcing social and economic inequalities. While it is important to expand the basket of VAT zero-rated goods, it is misleading and creates a false impression to suggest that the prices of the ingredients and inputs used in producing these zero-rated goods are exempt from VAT.

In contrast, alternative taxation measures present a more equitable solution. Modelling conducted by the Applied Development Research Solutions, for example, highlight that a mere 0.5 per cent wealth tax only targeting the richest 20 per cent of society could generate revenue comparable to a 2-percentage points VAT increase, not to speak of the combined 0.5 per cent VAT increase for the 2025/2026 and 2026/2027 financial years. Such a tax is progressive, meaning that it requires those who have the most to contribute more, without disproportionately burdening the poor and working class.

In addition to a wealth tax, other measures should be considered, such as increasing corporate income tax, introducing a capital transactions tax and implementing stronger regulation to combat illicit financial flows. Decisive actions should be taken to tackle corruption, fruitless and wasteful spending. By shifting the tax burden towards those who are better able to bear it – corporations, the wealthy and multinational interests – we can ensure a more equitable distribution of the tax burden and generate sustainable revenue for public goods. 

The SACP calls on the government to reconsider its approach to taxation and prioritise fairness and social justice. Rather than continuing to increase VAT, which disproportionately harms the poor and working-class South Africans, the government must adopt tax policies that target wealth and corporate profits, while clamping down on illicit financial flows and corruption. This would create a more just society and a more sustainable economic future for all South Africans.

The 2025 Budget Review reflects a continuation of austerity measures despite the glowing picture that the minister sought to paint. This will negatively impact key developmental priorities. Below are some of the critical areas of concern for the SACP and indeed the working class broadly regarding budget cuts, slow expenditure growth, and the overall effect on social services and economic development:

Constrained growth in essential public services

The budgets for basic education, health and policing are only projected to grow at nominal annual averages of 5.9 per cent, 5.9 per cent and 5.2 per cent, respectively, over the Medium-Term Expenditure Framework period of three years​. With inflation factored in, these increases are barely sufficient to sustain existing services, let alone expand them to meet growing needs.

Expenditure for goods and services is expected to rise by 5.4 per cent, reflecting a squeeze on public critical supplies, which could further weaken state capacity​, contradicting the imperative to transform South Africa’s to become a capable developmental state. 

The youth unemployment crisis 

The National Youth Development Agency receives R549.8 million under the Presidential Employment Initiative, but this is far below what is needed to address the crisis of youth unemployment​. 

Weak infrastructure investment growth 

Despite claims of prioritising “growth-enhancing public investment”, medium-term capital payments and transfers will only grow at 6.6 per cent annually, a sluggish rate given South Africa’s dire infrastructure needs​. The construction sector, crucial for both infrastructure development and employment creation, contracted by 6.2 per cent in the first three quarters of 2024 due to underinvestment, despite its high employment multiplier​. In contradiction, South Africa needs a bold state-led infrastructure development, maintenance and security. The infrastructure bond that the minister announced should be examined from this perspective. 

Driving broad-based industrialisation and large-scale employment creation, rejecting neo-liberalism

South Africa’s economic stagnation is the direct result of ne-oliberal austerity, deindustrialisation and a crisis-ridden capitalist system that prioritises profit over social development. Since the 1990s, successive governments have pursued neo-liberal policies that, combined with state capture and other forms of corruption, have gutted manufacturing, weakened state-owned enterprises (SOEs) and entrenched a crisis of mass unemployment.

GDP growth remains sluggish, unemployment exceeds 42 per cent and manufacturing’s share of GDP has fallen below 13 per cent, exposing the failure of a market-driven approach. Instead of cutting social spending and squeezing the working class to appease credit rating agencies, the state must drive broad-based industrialisation through public investment in productive sectors such as steel, energy, transport and high-tech manufacturing. Revitalising Eskom, Transnet and PRASA, among others, under public ownership is critical to rebuilding infrastructure and reducing industrial costs. State intervention must reject the logic of profitability for capital and instead prioritise large-scale employment, decent work and remuneration, and structural transformation of the economy to serve the needs of the majority.

At the heart of this transformation must be the expansion of social security and public services to guarantee a dignified life for all. The National Health Insurance must be fully implemented to break the private healthcare monopoly and ensure universal access to quality care. The Social Relief of Distress Grant must be made permanent and expanded into a Universal Basic Income Grant basic social security and support the economy. These programmes are not “handouts” but essential redistributive measures to counteract deep inequalities and the exploitative nature of capitalism. 

Austerity must be rejected outright, replaced by progressive taxation on corporate profits, wealth and financial speculation to fund industrial development and social security. The working class must mobilise against austerity and demand an alternative path – one that places economic power in the hands of workers, expands public ownership and drives socialist transformation to build a just, equitable and industrialised society.

Issued by the South African Communist Party,