OP-ED | Postponed Budget offers opportunity for rights-based fiscal reform

Civil society has consistently advocated for ways to expand public spending without deepening debt or burdening the poor. Now, the challenge is political will. In such a volatile economic climate, leaders must seize this moment to craft a Budget that strengthens the delivery of public education and healthcare services, prioritises the most vulnerable who depend on these services, and builds a capable state.

The postponement of Budget 2025 has been a stark wake-up call for South Africa’s fiscal policy and its role in alleviating hardship. Civil society has long criticised sluggish growth, soaring debt costs, and dwindling funds for essential sectors like education and health. 

In response, the Budget-that-never-was proposed much-needed spending increases — the largest since Covid-19 — but controversially sought to fund them through a VAT hike. This regressive move sparked a backlash, forcing the Treasury back to the drawing board to explore alternative revenue-raising mechanisms and ensure more effective, high-quality public spending.

Civil society has consistently advocated for ways to expand public spending without deepening debt or burdening the poor. Now, the challenge is political will. In such a volatile economic climate, leaders must seize this moment to craft a Budget that strengthens the delivery of public education and healthcare services, prioritises the most vulnerable who depend on these services, and builds a capable state: one that generates, allocates, and spends revenue fairly and effectively for all.

Shift in education and health spending

South Africa’s economy has stagnated for years, with weak growth, limited job creation, and persistent poverty deepening inequality. In response, the government pursued aggressive fiscal consolidation that civil society condemned for its resultant budget cuts that left schools and clinics understaffed and eroded the quality of essential public services. The most stark of these budget cuts included a R1.2 billion cut to health infrastructure funding despite the prevalence of dilapidated clinics and a R1.2 billion reduction to basic education funding in October last year that pushed provinces to reduce thousands of teacher posts, probably worsening overcrowding in schools in marginalised communities.

Raising revenue without harming the poor

The postponed Budget had promised the largest funding increases for basic education and health in years, with allocations rising by 7.6% and 7.8% respectively. Had it been tabled, it might have offered provinces long-overdue relief from relentless funding constraints. Unfortunately, in a step forward followed by two steps back, the government proposed a 2 percentage point VAT hike to fund these allocations. This move would have probably worsened the cost-of-living crisis already burdening millions of South Africans.

VAT is a regressive tax that affects the poor the most. Such an increase would have made economic participation more difficult for millions of South Africans who are struggling to cope with the current price levels. Reduced economic participation would probably dash the chances of much-needed economic growth, and thus how much revenue would have been collected from this move. Notably, the impact of VAT on grant recipients cannot be overstated, especially given that many businesses would have passed the additional costs of complying with the new VAT tax on to the consumer. Not even SARS Commissioner Edward Kieswetter supported a proposal to increase VAT considering the failure to collect higher tax revenues in the 2017 VAT hike.

At this critical moment, it is clear that alternative solutions prioritising the needs of South Africans must be urgently explored. One example is Kieswetter’s proposal to boost tax compliance to significantly expand the fiscus, an approach civil society had advocated for long before the 2025 Budget. According to the commissioner, SARS has yet to collect R800-billion, a staggering amount that could help close funding gaps in education and health if the agency received additional resources. Even recovering a fraction of this sum would ease fiscal pressure without deepening hardship for citizens. Strengthening tax compliance and enhancing SARS’ capacity to collect revenue offer a viable path to increasing national income without resorting to harmful measures like a VAT hike.

In the past, the Treasury heeded civil society’s proposal to draw down on Gold and Foreign Exchange Contingency Reserve Account to cushion the impact of austerity on marginalised people. However, short-term solutions like this are temporary and should be used within the context of longer-term investment in strengthening state capacity to generate funding in a human-rights foregrounded manner.

Ensuring public funds reach the people

While the focus on pro-poor alternative revenue generation is welcome, it is equally crucial to address persistent underspending in education and health. Limited funds allocated to these sectors often go unspent, ultimately returning to national departments or even back to the Treasury. Despite the urgent need for quality education and healthcare, inefficiencies such as irregular and wasteful expenditure, underspending, cost overruns, capacity constraints, and poor project management have further strained an already struggling public sector. These challenges prevent essential services from reaching the people who need them most.

Last year’s Medium-Term Budget Policy Statement exposed the depth of the crisis: only one school was built in 2024, a staggering failure against a budgeted target of 30 schools. Even more alarming, not a single one of the 100 schools slated to receive water facilities saw those commitments fulfilled, despite budget allocations for this priority.

The crisis extends beyond education to the failing healthcare system, where mud clinics remain a grim reality in rural provinces, and dilapidated hospitals in urban centres continue to deteriorate. This is even more alarming when considering budget allocations. Unlike the Education Infrastructure Grant, which saw an above-inflation increase of 11.4% in the 2024 Budget Speech (from R12.3 billion to R13.7 billion) and a further 2.3% rise in the Medium Term Budget Policy Statement, the Health Revitalisation Grant was slashed by R1.2 billion, with only R6.5 million allocated for flood-damaged clinics in the Western Cape.

The devastating combination of deep budget cuts and chronic underspending directly threaten access to healthcare and education for millions of South Africans. If left unaddressed, this failure will further weaken an already fragile public sector, leaving the most vulnerable without the care they desperately need.

Underspending

Some of these issues have had a direct impact on the Treasury’s fiscal policy stance and allocations, most notably underspending. Spending cuts and reductions in allocations are often justified on the basis of public entities being unable to spend parts of their previous budgets, without any consideration for the needs of the people or the impact of reducing money allocated to public services. Discussions on the underspending of budgets should be framed on what the causes of underspending are first. South Africa still needs to spend a considerable amount of money to deal with the many challenges faced by the education and health sectors.

There is a need to contextualise underspending in South Africa. Not all levels of government face the same budgetary challenges. The national government, for example, typically spends nearly its entire annual budget. A 2023 Parliamentary Budget Office report on spending trends over a decade from 2011/12 to 2020/21 confirms this fact. Thus, the underspending problem tends to be located at the provincial and local levels of government where provinces have especially underspent several conditional grants. Underspending, coupled with severe shortcomings in project monitoring and management, has significantly hindered subnational governments from fulfilling their constitutional mandate to provide quality, accessible healthcare and education. 

Capacity grants can improve spending performance by strengthening provincial management of infrastructure projects. The Treasury, with the education and health departments, should introduce these grants to address procurement bottlenecks, unreliable service providers, and cash flow constraints. Enhancing internal capacity and ensuring accountability for failed projects would optimise grant spending, improve efficiency, and deliver better infrastructure.

The postponement of Budget 2025 may be disruptive but should not be disruptive for disruption’s sake. Rather, our leadership must take this rare opportunity to rethink South Africa’s fiscal policy to prioritise building a state capable of both generating revenues and spending expenditure in a sustainable, human rights foregrounded manner. Such a moment demands bold leadership to craft a Budget that not only raises revenue fairly, but also ensures that public funds translate into tangible improvements in education, healthcare, and social services for those who need them most.

Nkosi and Lencoasa form the budget team at SECTION27. They are members of the Budget Justice Coalition.