Neelam Rahim | neelam@radioislam.co.za
3-minute read
23 May 2025 | 10:45 CAT

As government sidesteps a VAT hike, South Africans silently pay more through fiscal drag — all while debt costs soar and public services stagnate.

After much political wrangling and multiple failed attempts, South Africa’s national budget has finally been tabled — but not without controversy. With increasing financial pressure and a rising debt bill, ordinary South Africans are feeling the squeeze of what experts call “stealth taxes,” while vital services such as healthcare and education face stagnating allocations.

Speaking on Radio Islam International, policy expert Rashad Amra unpacked the implications of this year’s budget, explaining that while the national budget is typically viewed as a grand event following the State of the Nation Address, this year saw an unusual sequence of delays and rejections, culminating in a final version passed just this week.

At the heart of the debate was the proposed VAT hike — initially suggested at 1.5 percentage points, then trimmed to 0.5 in March, and ultimately scrapped altogether. This climbdown, Amra notes, reflects deeper fractures within South Africa’s evolving Government of National Unity (GNU), where opposition ministers now hold sway within Cabinet.

Instead of broad tax increases, the government opted for what economists term fiscal drag or stealth tax: not adjusting income tax brackets for inflation. This means workers receiving inflation-related salary increases now fall into higher tax brackets, effectively paying more in tax without any formal increase. “Formally employed South Africans are worse off,” Amra said, warning that such silent taxation shifts the burden unfairly onto the employed middle class, while failing to raise the broader revenues a VAT increase might have.

Despite Finance Minister assurances that this is not an austerity budget, many South Africans remain unconvinced. Funding for healthcare, education, and infrastructure has either plateaued or shrunk in real terms. “We’re in a low-growth, high-debt environment,” Amra explained, “and Treasury must now juggle citizen needs with ensuring South Africa remains creditworthy on international markets.”

The consequences are stark: government spending in real terms (adjusted for inflation) is growing slowly, while the population expands more rapidly. With quality in public services already strained, fewer resources per capita threaten to deteriorate education and healthcare further — a long-standing concern for poorer households reliant on state provision.

Meanwhile, the national debt looms large. South Africa now spends over R1.2 billion per day just on interest — more than on police, clinics, or schools. This, Amra says, is the price of years of borrowing to cover deficits and public wage commitments. The challenge now is to make this debt path sustainable, or risk losing access to capital markets altogether, plunging the country into a crisis like those seen in Lebanon or Argentina.

As South Africans grapple with these realities, the budget offers little comfort. With no meaningful relief for the unemployed, rising indirect tax burdens, and mounting pressure on public services, the question remains: can the state deliver on its promises without collapsing under the weight of its own obligations?

Listen to the full ASRI Report on Sabaahul Muslim with Moulana Ibrahim Daya and Rashad Amra.