State ‘must cut fat’

2025 BUDGET: VAT HIKE MAY ‘PUSH ECONOMY INTO NEGATIVE CYCLE’

- Brian Sokutu

Government is under pressure to curb state consumption spending and economists have come up with innovative ideas for Finance Minister Enoch Godongwana to rework the national budget he will present next month.

This is against the background of his botched plan to introduce a 2% value added tax (VAT) increase, leading to the postponement of the tabling of the budget in parliament.

Prof Raymond Parsons, of the North-West University Business School, said government’s emphasis should now be on curbing state consumption spending – not infrastructure development.

“In a revised budget, the priority should be on cutting fat, not muscle. With other tax and borrowing options now highly constrained, the main problem still lies on the spending side.

“The fiscal ‘gap’ of R58 billion in the current budget, which the VAT hike is intended to cover, primarily relates to ‘big ticket items’ like the public sector wage bill and bailouts to ailing state-owned enterprises (SOEs),” said Parsons.