Civil Society warns against austerity measures following VAT hike cancellation

Various civil society organisations have cautioned that while the government's decision to scrap the 0.5% VAT hike is a victory, it should not come at the expense of austerity measures and budget cuts that threaten public services and social support systems.

In a joint statement, the Alternative Information and Development Centre (AIDC), Amadiba Crisis Committee (ACC), Back 2 Work Campaign, Botshabelo Unemployed Movement (BUM), Cry of the Xcluded (CryX), PE Amandla, South African Green Revolutionary Council (SAGRC), and Unemployed People's Movement (UPM) expressed their relief and disappointment in the government’s recent actions.

While they welcomed this development, they emphasised that VAT is a regressive tax that disproportionately impacts the working class and low-income people. 

They also criticised the government’s plan to respond with spending cuts, which they argue would worsen public service delivery and social inequality.

“We reject the intention to reintroduce spending cuts in response; instead, the AIDC calls for the implementation of progressive tax and revenue-raising options and increased expenditure to address the multiple crises our people face.”

The Treasury has indicated that if Parliament rejects the VAT increase, it will seek to adjust expenditures to maintain fiscal sustainability. 

The organisations said it implies that if revenue is not increased through VAT, spending must be cut—primarily to service debt. 

“There are many suggestions, the Treasury acknowledges, but some could create greater negative consequences for growth and employment, and others would not generate immediate revenue to replace a VAT increase.”

They warned that this stance effectively means South Africans must accept spending cuts if they oppose a VAT hike. 

However, they argued that this approach was misguided, citing the devastating impact austerity has had on public services since 2020. 

“Hospitals are understaffed, clinics lack supplies, and teachers face overwork—all amid soaring unemployment, which remains at 32% (and 40% when including discouraged workers)." 

“Replacing a VAT increase with budget cuts is not a victory for unemployed and working-class South Africans but a defeat,” they assert.

The Case for Alternative Revenue Measures

The group pointed out that the government’s budget data shows that the proposed VAT hike would have generated R11.5 billion in revenue this year—yet SARS recently reported collecting R8.8 billion more than expected, leaving a shortfall of just R2.7 billion. 

This shortfall, they argued, is easily manageable.

“Cancelling the tax credits for high-income earners—specifically those earning over R1 million—would do the trick. That would generate R3.4 billion, more than enough to cover the shortfall,” they said.

They added that extending this measure to all high earners could raise an additional R30 billion annually.

According to the group, other immediate measures include pausing government contributions to the Government Employees Pension Fund (GEPF)—which had an R60 billion surplus in 2024—and implementing a net wealth tax of 1% on the top 1% and 3% on the top 0.1%, potentially raising R59 billion per year.

“Long-term strategies involve delaying adjustments to personal income tax brackets for high earners and strengthening SARS’s capacity to recover unpaid taxes—estimated at up to R800 billion—through enhanced enforcement and tackling illicit financial flows.”

A Call for Structural Change

While these measures address short-term fiscal concerns, the organisations emphasise that South Africa’s economy requires fundamental reform. 

They mentioned that the country faces persistent high unemployment, stark inequality, and the legacies of apartheid entrenched in urban and rural neglect.

“We need a long-term growth, development, and low-carbon, wage-led re-industrialisation strategy driven by public investment."

“This requires a shift away from neoliberal policies that prioritise shrinking the state’s role and instead focus on meeting basic needs and creating sustainable employment,” they argued.

The organisations added that the legacy of apartheid runs through the country’s cities, townships, and neglected rural areas.

“We urge policymakers to prioritise social justice, equitable growth, and the protection of public services over austerity and short-term fiscal balancing.”

As South Africa navigates these economic challenges, civil society remains committed to advocating for fairer taxation and investment in the well-being of all its citizens.

IOL NEWS