South Africa’s Economic Crossroads

In the current climate, the pressing need for increased tax revenues to sustain existing programmes is evident. Yet, relying solely on higher taxes without addressing the core issues—namely, economic stagnation and declining investor confidence—won’t deliver sustainable results. To truly unlock revenue potential, South Africa must pursue structural reforms that foster a stronger, more dynamic economy.

The case for economic reform: Stimulating growth to generate revenue

One of the most telling indicators is South Africa’s tax buoyancy ratio—an important measure of how well tax revenues respond to economic growth. For the 2024/25 fiscal year, the ratio stood at an impressive 1.6%. This means that for every 1% economic growth, government revenues increased by approximately 1.6%. Such responsiveness indicates that fostering higher economic growth can significantly boost tax income, provided the right policies are in place.

Yet, persistent economic challenges—such as infrastructural decay, poor port efficiencies, and declining harbour rankings—are hampering growth. Our ports in Cape Town and Durban, critical gateways for trade, are hindered by outdated infrastructure and operational inefficiencies, contributing to sluggish import-export flows and higher costs for business.

This underscores the need to improve infrastructure, reduce bottlenecks, and create an enabling environment for commerce. When businesses see streamlined logistics and supportive policies, they are more inclined to invest and expand, ultimately increasing government revenues and generating the capital necessary for social and economic programs.

Untapped potential and the importance of investment

South Africa is sitting on a R1.8 trillion cash reserve held by local companies, according to the SARB’s Quarterly Bulletin 2025Q2. This substantial pool of capital won’t be invested unless the economic climate encourages confidence and certainty. Similarly, the informal economy, estimated at around R900 billion, remains a significant yet underutilised engine of growth. With better access to banking, finance, and formal markets, this sector could become a vital contributor to employment and economic activity.

For long-term growth, policies that promote private sector investment, deregulate key sectors, and protect property rights are essential. A clear, well-defined alternative economic blueprint—focused on trade access, property rights, tax reforms, and labour market flexibility—must underpin efforts to unlock this potential.

The need for reform: Beyond the conventional approach

Reforming the economic environment involves counterintuitive steps that challenge current conventions but are crucial for fostering growth. Lowering taxes and trimming red tape will boost disposable incomes, stimulate consumption, and incentivise investment. Reconsidering BEE and DEI mandates could simplify compliance and attract more responsible investment.

Addressing serious challenges like crime, corruption, and infrastructure decay must go hand-in-hand with economic reforms. As Singapore demonstrated, decisive action on crime and transparency can substantially improve a nation’s investment appeal.

Fiscal realities and the limitations of borrowing

South Africa’s mounting debt—over R5.8 trillion or 78% of GDP—poses a serious threat. Servicing this debt now consumes a larger slice of the budget than healthcare or housing, leaving less for vital public services. With debt costs rising and no further borrowing capacity, the country must look inward.

This fiscal squeeze occurs against a backdrop of sluggish economic growth, a shrinking tax base, and increasing social demands. Over 28 million citizens rely on social grants, and government expenditure on wages and debt costs already swallows a significant portion of tax revenue. As the Minister of Finance grapples with these realities, it becomes clear that without a drastic shift in economic strategy, South Africa risks spiralling into a financial crisis.

Raising more revenue through sound reforms is the only sustainable path forward. The government’s recent VAT increase, opposed by many, exemplifies how reliance on higher taxes is becoming increasingly untenable. Instead, fostering growth that generates more income and broadening the tax base will be more effective.

Urgent priorities for the MTBPS

The upcoming MTBPS must address critical issues:

• How to fund the R100 billion proposed transformation fund without exacerbating debt levels.
• The future of the NHI and its impact on the tax system, including the possible phase-out of medical aid tax credits.
• Economic policy reforms to encourage private investment, including deregulation and property rights protection.
• Infrastructure expansion, maintenance, and upgrades, especially at ports and rail networks, to improve trade efficiency.
• Strategies to unlock corporate cash reserves and the informal economy for investment.

Conclusion: A call for decisive, growth-oriented policies

South Africa stands at a crossroads. The path to fiscal stability and economic prosperity lies not in tax hikes alone but in implementing meaningful reforms that create a thriving environment for business. By embracing structural reforms, reducing unnecessary regulation, and reinvigorating infrastructure, we can unleash our country’s vast potential.

The MTBPS 2025 is a critical moment — a chance to shift gears from a path of borrowing and stagnation to steady, sustainable growth. By focusing on creating a favourable business environment through strategic reforms, South Africa can secure a better future through economic growth and participation for all citizens of this beautiful country.