Godongwana's path to austerity deepening poverty, inequality

IOL News

25-05-2025

Finance Minister Enoch Godongwana presented the National Budget in Parliament for the third time on May 21, 2025. While it is a welcome relief that the proposed VAT hike was ultimately scrapped, its replacement with deep spending cuts is no cause for celebration, says the writer.
Image: Armand Hough / Independent Newspapers
Reneva Fourie
On 21 May, Parliament finally adopted the national budget after months of contention, heated debates, and public pushback.
The initial two drafts, presented on 19 February and 12 March, did not gain the requisite political backing, resulting in an unprecedented Budget crisis for the country. The most controversial proposal involved increasing the Value Added Tax (VAT) by half a percentage point on 1 May 2025 and another half percentage point on 1 April 2026.
The proposed increase in VAT sparked strong protests from civil society, labour unions, and political parties. In response to this widespread opposition, the government had to rethink its approach and revise the national budget.
When comparing the original budget presented in March to the updated version adopted in May, some significant changes stood out.
The planned VAT increase was cancelled, which many welcomed. However, this decision came with its challenges. Instead of finding new ways to raise money such as taxing the top one per cent of the country's wealthiest, reducing a bloated cabinet, or accelerating efforts to improve state efficiency, the government introduced further austerity measures. The March budget allocation for public spending was significantly reduced, with the most affected sectors being health, education, defence, and social development, four critical areas already under intense pressure.
These reductions occur as the general fuel levy is scheduled to increase by 16c/l for petrol on 4 June, while diesel will rise by 15c/l.
These funding allocation cuts come at a time when the country really can't afford them.
South Africa's public services have been in decline for years. Since 2020, repeated budget cuts have eroded the quality of basic services. Schools are overcrowded, poorly maintained, and lacking in basic teaching resources.
In the health sector, clinics are chronically understaffed and understocked. Nurses and teachers are overwhelmed and demoralised.
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Furthermore, the US government has decreased the money it provides through an initiative called PEPFAR, which supports efforts to fight HIV and AIDS.
This reduction threatens the programmes that have saved many lives over the past twenty years. Many clinics are already experiencing shortages of critical medications and are doing fewer tests to monitor patients' health. When the government tightens its budget for health, the situation is likely to get even worse. This funding gap highlights the growing weaknesses in South Africa's public health system.
In terms of defence, these allocation cuts will likely impact diplomatic initiatives, military-related projects, and participation in collaborative security efforts with allies. The reductions in the budget for this sector have significantly hindered the country's ability to uphold its commitments in the region.
South African peacekeeping troops are in increasingly difficult situations with no air defence support. Without enough resources, their morale and ability to perform their tasks are declining. Additionally, the decreased funding could limit the country's capacity to adequately address and mitigate potential security threats at home.
Perhaps most disturbing are the allocation cuts to social grants.
The Social Relief of Distress Grant has served as a lifeline for millions of poor South Africans, particularly in the wake of the COVID-19 pandemic and the continued high levels of unemployment. Reducing allocations to social development in this context is not just shortsighted; it borders on cruelty. It ignores the daily realities of poverty, hunger and economic hardship faced by millions.
The root of this crisis lies not in a lack of funds but in how those funds are prioritised and managed. Instead of ensuring that wealthy individuals contribute their fair share or expand the revenue base by creating jobs, the state keeps leaning on budget cuts.
These strategies to control spending haven't worked. They haven't lowered the level of debt, and they haven't helped the economy grow. What they have done is deepen poverty, worsen hunger and drive unemployment even higher.
While it is a welcome relief that the proposed VAT hike was ultimately scrapped, its replacement with deep spending cuts is no cause for celebration. Indirect taxes like VAT hit poor households the hardest. But slashing social spending to make up for the cancelled increase is just another blow to families who are already struggling.
Almost half of South Africa's working-age population is unemployed or engaged in precarious, low-paying work. At the same time, one in five children goes to bed hungry each night. Yet the government continues to push ineffective fiscal policies disguised as reform favouring deregulation and the growing privatisation of essential services.
The result is the gradual weakening of public institutions while private companies step in to fill the gaps for profit. This shift undermines the public sector and erodes the principle of universal access to essential services such as water, energy, education and healthcare. These services should be public goods, not business opportunities.
These policy interventions represent a systematic and calculated assault on the livelihoods of poor and working-class individuals. By favouring the interests of the wealthy and prioritising corporate profits, these measures undermine essential support systems and resources that vulnerable communities rely on.
As a result, the economic divide widens, exacerbating the struggles those already marginalised face.
Ironically, there is room to manoeuvre even within the current fiscal framework. The South African Revenue Service has recovered about R95 billion in 2024/25. While this is a positive development, it highlights a deeper issue. There are still billions of rands in tax revenue that go uncollected every year. This is due to widespread tax evasion, insufficient enforcement capacity at SARS, and aggressive tax avoidance by large corporations.
SARS estimates that, based on the improved capacity and efforts to tackle illicit financial flows on the back of the investments being made, it could recover at least R120 billion during the current financial year.