How the 2025 VAT increase will deepen inequality in South Africa

Budget Speech 2025: Further VAT Increase Will Widen the Gap Between the Poor and Rich

South Africa’s 2025 Budget Speech has been met with mixed reactions, but one thing is clear: a further increase in the value-added tax (VAT) is a misstep that will only exacerbate the already stark divide between the rich and the poor.

The poorest South Africans, already struggling with a sluggish economy and high unemployment rates, will bear the brunt of this decision, while the wealthier sectors of society remain largely unaffected. As South Africa grapples with unprecedented unemployment, rising costs of living, and a crumbling social fabric, this proposed VAT increase threatens to deepen inequalities further.

It is disheartening that the Finance Minister has chosen to opt for measures that punish the most vulnerable in society when economic recovery is a priority. South Africa already has one of the highest levels of income inequality globally, and increasing VAT, a regressive tax, will do nothing to rectify this. VAT disproportionately impacts lower-income households because they spend a larger portion of their income on goods and services, making them more vulnerable to price hikes.

This decision to increase VAT occurs when inflation spirals and economic growth remains sluggish. The middle class and the poor have already been struggling with a steady price rise, and now they will face another financial burden. From food to transport to basic goods, a VAT increase will increase the cost of living, putting more strain on already stretched-thin households.

In contrast, the wealthiest individuals, who typically spend a smaller portion of their income on taxed goods, will feel little to no effect from this increase. Therefore, this indiscriminate tax makes the rich richer and the poor poorer.The unemployed, in particular, will suffer the most. With unemployment already at an alarming level, the South African government needs to prioritize creating jobs and stabilizing the labour market.

Instead, this proposed VAT hike will further alienate the unemployed from any sense of economic inclusion. As prices rise, they will find it increasingly difficult to survive on minimal resources. The government should focus on policies that stimulate job creation, education, and skills development, not on policies that increase the burden on those least equipped to bear it. While the government might argue that the VAT increase is necessary to fund essential services, one must ask: whom are they pleasing with these measures?

The answer, sadly, seems to be large corporations and the political elite. The government has been backed into a corner, struggling to balance its books while trying to fund state obligations. However, rather than focusing on ways to tax the wealthy, fight corruption, and stimulate economic growth, they have chosen to go after the very people who are already suffering the most. The Democratic Alliance (DA), typically regarded as the voice of the opposition in South Africa, has spoken out against the proposed VAT increase. However, one cannot help but wonder about their underlying agenda.

The DA’s concern for the unemployed and the poor seems disingenuous, given that its stance on economic matters often aligns with neoliberal policies prioritising market-driven solutions over people-centred approaches. Are they genuinely advocating for the welfare of the masses, or are they simply trying to protect the market and the interests of big business?

It is unusual for the DA to focus on the plight of the poor with such intensity, given its historical track record of advocating for market-friendly policies that tend to benefit the rich. The party's sudden concern for the poor seems to be more of a political manoeuvre than a genuine commitment to social justice.

While valid in their opposition to the VAT hike, the DA's criticisms often lack a comprehensive alternative solution. If the DA’s advocacy against VAT hikes is purely a defensive measure to protect business interests, their agenda may be more about protecting the market than the people. It is imperative that the DA, and indeed all political parties, shift their focus toward policies that prioritize economic growth through sustainable job creation and the protection of vulnerable citizens. The approach must be one of inclusivity, not exclusion. Rather than further taxing those who can least afford it, we need a budget that reinvests in the people—the workers, the small businesses, and the youth of this country. Suppose the government is serious about narrowing the inequality gap. In that case, it must move beyond short-term fiscal measures like VAT hikes and focus on long-term solutions that create real opportunities for the people. The proposed VAT increase in South Africa’s 2025 Budget is a clear misstep that will worsen the economic divide. It will hurt the poor, exacerbate unemployment, and leave the rich largely unaffected.

The Finance Minister needs to reconsider this approach and instead focus on policies that prioritize the welfare of the people. Similarly, the DA must reflect on its true agenda and whether it is genuinely advocating for the interests of the poor or simply protecting the market and the wealthy few. South Africa's future depends on a government prioritising people over profits, and it is high time that the country's leadership re-evaluates its priorities.

*Mayalo is an independent writer, analyst, and commentator