Budget Office under pressure to recommend alternatives as VAT criticism mounts

The Parliamentary Budget Office (PBO), South Africa's legislative agency tasked with providing insightful analysis on Budget and Money Bills, has until next week to indicate adjustments to the 2025/26 Budget.

This comes after the PBO refrained from making on-the-spot recommendations regarding increased VAT during a meeting of the Standing Committee on Appropriation on Wednesday, preferring instead the request to be made in writing.

Chairperson Mmusi Maimane emphasised the importance of this request, noting its alignment with the Money Bill Act, which mandates prioritisation in the allocation of budgets towards essential services.

“There is a lot of work done here on a broad principle that says reject the VAT hike. You have already said Treasury’s comparison relative to other countries means that South Africans are going to suffer from higher regressive penalties on the basis of the VAT hike,” Maimane said.

PBO director Dumisani Jantjies reiterated their commitment to support parliamentary committees and MPs.

“In our work flow, we do create space for MPs to send to us the areas they would want us to focus on. It is important to remind the committee that we work on your behalf,” Jantjies said.

“If you have areas you want us to work on, send the request. We will let you know what we can do, how long, and so on,” he said.

Jantjies said it was important to remember that they give a critical analysis of how the economy was running, and Parliament has a final say.

“We will do a review or advice what could be the measures the committee to recommend,” he said.

Maimane said he wanted MPs, as policy and lawmakers, not to abdicate their responsibility as Parliament to the PBO or the Financial and Fiscal Commission.

“It becomes genuine work of policy and law making when we do our report on the matters that should be ventilated here.”

The PBO's analysis expressed sharp criticism of the National Treasury's proposed VAT increase, asserting that it would further burden those already struggling financially. 

In a scathing assessment, the PBO said the average cost of a household food basket exceeded the real value of social grants and national minimum wage, leaving many vulnerable households significantly more exposed to hunger and nutritional insecurity.

“National Treasury has committed to shielding vulnerable households from proposed VAT increases through above inflation social grant adjustments, expanding the zero-rated food items and not increasing fuel levy.

“However, these measures alone may not sufficiently protect vulnerable households from the broader inflationary effect of the VAT increase.”

The Parliament’s policy and budget advisory body stated that an increased VAT will disproportionately burden middle- and low-income earners, who typically spend over 68% of their income on essential items such as food, water electricity, and housing.

The PBO observed that although social grant support has contributed to improving food security for millions of poor people, significant challenges remained.

In 2023, 9.3m people experienced hunger while 8% of households were affected by severe food insecurity.

“The argument that the VAT is low relative to ‘peer’ countries ignores the extreme wealth and income inequality within the country. In South Africa the bottom 50% of the population holds negative wealth while the top 10% own over 85% of wealth,” reads the PBO’s presentation.

“The wealth and income distribution in these ‘peer’ countries is less concentrated in the hands of the top 10%. Therefore, the population in most of these countries has been less vulnerable to the regressive effects of higher indirect taxes.”

The PBO observed that the National Treasury emphasised key spending to frontline services including crime prevention, courts, prisons, and home affairs with budget rising by 6.3%.

At least R133.4 billion in 2025/26 is allocated to police services.

“Despite the increased funding and indications of restructuring, the number of funded police posts at all levels remains unchanged at 188 018 for 2024/25 through to the Medium-Term Expenditure Framework.

“This represents a reduction of 9 854 posts since 2012. This is concerning particularly as South Africa recorded more than 75 murders per day in the third quarter of 2024/25.”

PBO also stated that the VAT increases would help the basic education sector, including the early childhood development and health.

“National Treasury highlighted that the funding increase aims to retain 11 000 teachers in classrooms. However, despite the positive step, the funding increase is insufficient to redress the years of slow spending, which have contributed to the pressures provincial education departments continue to face with teacher shortages.”

The PBO said as of 2024, the learner-teacher ratio increased to 35, up from 34 in 2023.

Maimane noted the political negotiations around the Budget, but he said their job was to serve as best as possible.

“We will use the legislative mechanism to do our best around the Budget,” he said, referring to preparing reports and making recommendations to Parliament.

mayibongwe.maqhina@inl.co.za