South Africans were given a rude awakening this week when Finance Minister Enoch Godongwana was forced to postpone the 2025 Budget announcement amid controversy over a proposed two-percentage-point increase in VAT.

The move, now set to be debated until March 12, exposes the undeniable truth that South Africa is spending far more than it generates. In other words, we are broke.

The government’s relentless expansion of social welfare programmes — ranging from grants to free education — has created an economic burden that is simply unsustainable.

The stark reality is that there are more social grant recipients than taxpayers in South Africa - more than 28 million South Africans receive social grants, while fewer than seven million individuals bear the brunt of the tax burden.

This imbalance is a recipe for economic disaster, and the proposed VAT hike is an attempt to keep the welfare machine running — at the expense of the very people who drive the economy.

The Price of Generosity

South Africa’s government, particularly under the ANC, has prided itself on being a welfare state, offering an extensive social safety net that includes:

Social grants for children, the elderly, and the disabled
The Covid-19 Social Relief of Distress grant, now extended yet again
Free education through NSFAS, which funds over 900,000 students
The National Health Insurance (NHI), which aims to provide universal healthcare
Massive public sector wage bills, with billions allocated to keeping teachers, doctors, and other frontline workers employed
A bloated cabinet of more than 70 ministers and deputy ministers

These programmes, while noble in intent, require an ever-growing pool of funds that the country simply does not have. The government’s solution? Higher taxes, more debt, and an overburdened middle class that is being squeezed to pay for promises it never signed up for.

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The VAT Shock: Who Pays the Price?

The government’s justification for increasing VAT from 15% to 17% is that it is the “most efficient and broad-based approach” to securing revenue.

At its core, VAT is a regressive tax. Unlike personal income tax, which targets higher earners, VAT applies to everyone, rich or poor. A higher VAT rate means that the cost of everyday goods — food, transport, healthcare, and electricity — will increase for all South Africans, but especially for those who can least afford it.

The very people the government claims to protect — the poor — will be the hardest hit. Basic survival will become even more expensive, plunging more households into poverty while further eroding the already fragile middle class.

A Middle Class Under Siege

South Africa’s middle class is the backbone of its economy. These are the individuals and businesses that pay income tax, employ workers, and stimulate economic growth.

However, this group is shrinking under the weight of escalating cost of living expenses, declining service delivery, and economic stagnation.

The VAT hike is just the latest assault in a long war against financial stability for middle-income earners.

The government claims that higher VAT will fund essential services such as education, healthcare, and infrastructure. But taxpayers have heard this story before. Billions have already been allocated to these sectors, yet there is little to show for it.

Corruption, mismanagement, and inefficiency mean that much of this money is wasted, while taxpayers are asked to give more with little to show for it.

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A Nation Addicted to Welfare

The ANC has built a system where social grants are treated not as temporary relief, but as a permanent feature of life.

Every election cycle, new welfare promises are made, but no one asks the fundamental question: Who will pay for this? The government’s answer, it seems, is simple — you.

But when the tax base is shrinking, and the economy is barely growing (forecasted at a dismal 0.8% for 2025), this approach is a one-way ticket to financial ruin.

The ANC government has made a habit of promising more than the country can afford. But the maths is not mathing.

South Africa is running out of taxpayers, and without a drastic shift in policy, the economic time bomb will explode — dragging both the middle class and the poor down with it.

As IOL’s Business Content Manager, Sihle Mlambo opined on social media in the wake of the Budget postponement: “The money has gotta come from somewhere and we need a lot of it... With a tiny tax base, massive unemployment, with demands on the fiscal at the level of a slay queen dating a public school teacher, what do we expect the Finance Minister to do?”.

The question is no longer whether we can afford to keep expanding social programmes. The question is whether South Africa can afford the consequences of continuing to do so.

The VAT hike is just the beginning. Unless urgent reforms take place, the real crisis is yet to come.

Lee Rondganger is the Deputy Editor of IOL

IOL Opinion

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BUDGET 2025 | VAT hike signals a fiscal time bomb for South Africa