The Congress of South African Trade Unions (COSATU) notes with extreme disappointment the 2025/26 Budget tabled at Parliament by government. Whilst there are many progressive provisions that COSATU campaigned for in the Budget, its primary source for funding these with an unnecessary 0.5% VAT hike for each of the next two years and not adjusting personal income tax brackets for 2025 will be a painful blow to millions of highly indebted working-class families and an already battered economy.
Revenue
COSATU cannot support tax hikes upon the working class and the poor and thus calls upon Parliament to reject this ill-considered pickpocketing of workers and amend the Budget with more progressive tax revenue options. VAT is regressive and hurts the poor who already cannot afford to buy essential foods, electricity or transport. The decision not to adjust tax brackets for low- and middle-income workers is not acceptable when they are already drowning in debt with their meagre wages not keeping pace with inflation. These tax hikes will now make the lives of millions even more difficult.
Whilst the Federation appreciates government’s heeding its call for an expansion of zero-rated goods to include other meat, vegetables and dairy products, this should be expanded to include sanitary pads and school supplies. The freeze of fuel price taxes for a second year will bring welcome relief to commuters and the economy.
We are deeply irritated government has allocated a damp additional R500 million to boost the South African Revenue Service’s tax and customs compliance efforts. SARS has shown that it has the capacity to deliver. The R3.5 billion allocated to it over the Medium-Term Expenditure Framework (MTEF) needs to be brought forward to 2025 and 2026 to enable it to ramp up collection of the R800 billion in owed taxes by at least R60 billion. Further discussions must take place on how the Reserve Bank’s reserves can support the fiscus. These would be far more humane and sober revenue options than fleecing workers with a VAT hike and not adjusting tax brackets for inflation.
The temporary relief provided for the sugar industry is welcome. More must be done to assist this struggling sector to transition as must greater support be provided for industries to adjust to the Carbon Tax.
Public Services
Whilst we are extremely irritated by the anti-poor VAT hike and failure to adjust tax brackets for inflation, we welcome government’s realisation that bleeding public services working class communities and businesses depend upon is reckless and harmful to the economy. The additional MTEF allocations to frontline services, in particular Education (R29 billion), Health (R28.9bn), Home Affairs (R3bn), Defence (11.7bn) and Correctional Services (2.6bn) will help repair damage inflicted by previous austerity budget cuts.
The commitment to hiring more teachers, doctors, nurses, home affairs, police and border management officers, amongst other critical frontline personnel will boost public services; but details on when this will be done, and the exact numbers must be provided.
The finalisation of the public service wage agreement will help public servants heal financial wounds. We are concerned about the impact the loss of valuable skills and experience by public servants who may opt for early retirement, may have upon the state’s ability to provide public services.
Local Government
The rising number of municipalities battling to pay staff, including pension funds, or provide basic services as well as the doubling of municipal debt owed to Eskom to R94 billion, and community debt owed to municipalities nearing R300 billion; requires accelerating interventions to stabilise and rebuild local government. It is critical that a new municipal funding model be developed and the move towards the District Development Model be expedited.
State-Owned Enterprises (SOEs)
COSATU applauds the outstanding work done by Eskom and municipal workers to overcome loadshedding. We are pleased that the debt relief package has provided Eskom breathing space to ramp up maintenance. It is critical that Eskom be given more support to tackle corruption, wasteful expenditure, cable theft and bring on board new generation capacity. The allocation of R219bn for energy infrastructure will be an invaluable boost. These measures must translate into affordable electricity if the economy, in particular mining and industry are to survive and grow.
Whilst government is naturally reluctant to provide further debt relief to SOEs, Transnet should be assisted to settle its debt to free up capital for the modernisation of its port and railway network as these will unlock the mining, manufacturing and agricultural sectors and create thousands of badly needed jobs and boost state revenue. The R19.2 billion infrastructure support for Metro Rail will boost its efforts to return to full capacity and enable 10 million workers and commuters travel quickly and save money on transport.
Treasury must urgently honour its court signed business rescue agreement to provide the Post Office with the long delayed R1.4 billion. Failure to do so will see the collapse of this institution.
Government needs to table the Road Accident Fund (RAF) and Benefits Scheme Bills at Parliament as part of a package of interventions to set the RAF on a sustainable path and ensure its funds are directed to the poor not the wealthy, let alone insatiable ambulance chasing lawyers.
Stimulus
We welcome the additional allocation of R46.7bn to bring the total MTEF spending for infrastructure to R1.03 trillion, in particular roads (R402bn), water (R156bn) as well as investments in rail, ports, new hospitals and 13 000 university beds. Parliament needs to crack the whip on government to ensure these funds are spent timeously and support locally produced materials. Law enforcement must tackle the construction mafia hindering many construction projects.
We are worried no additional support is being put in place to cushion the agricultural and manufacturing sectors, amongst others, that will be hit hard if the United States does not extend the African Growth and Opportunities Act and imposes painful tariffs upon South African exports from 2 April. We cannot afford to be complacent with an economy sitting at 1% growth and an unemployment rate of 41.6%.
The R31 billion allocated for investments by the Development Bank and the Industrial Development Corporation as well as R1 billion for SMMEs will not have the impact the economy needs. Engagements on a mass industrial financing plan need to be accelerated to mobilise much greater resources from the public and private sectors. This needs to be done by November’s Medium-Term Budget Policy Statement.
Social Relief
COSATU welcomes the substantial above inflation increases for social grants, helping 19 million recipients cope with the rising costs of living. We are deeply dismayed that government failed to provide similar inflationary protection for the 8 million SRD Grant recipients, who once again will be denied any increase. This is an absolute abomination.
The additional R8.8 billion for Public Employment Programmes as well as R22 billion from the Unemployment Insurance Fund for job creation programmes are a welcome shift from previous disastrous cuts but are still inadequate to make a meaningful dent in the 12 million unemployed. COSATU will be requesting urgent engagements at Nedlac on a revamped public programme that pools together various funding options, reduces corruption and wastage; and ensures recipients are paid the National Minimum Wage and receive the training and experience needed to find permanent work once exiting them.
The R3bn pilot project for the missing model to be access support for tertiary education is positive. It must be accompanied by a clean-up of NSFAS and an inflation recovery for its threshold.
We are pleased Treasury has committed to further engagements with COSATU to finalise the next phase of the Two Pot Pension Reforms, in particular to help workers who have lost their jobs or are drowning in debt, whilst simultaneously boosting retirement savings. These reforms, initiated by COSATU, have injected over R43 billion into the pockets of more than 2.2 million workers as well as the economy.
Conclusion
Whilst there are many progressive provisions in the Budget, including allocating 61% for social wage expenditure, which COSATU campaigned for, we are deeply dismayed by the VAT hike and the failure to adjust income tax brackets that will inflict unnecessary pain upon working class families and the economy. The failure to show any relief for the 8 million SRD Grants is beyond shameful. We are equally disappointed that government continues to shy away from putting sufficient resources to support SMMEs, industrialisation and export sectors.
The Budget does not foresee growth rising beyond 2% over the next decade whilst we need at least 3% growth if we are to turn the corner on unemployment. We dare not normalize a 41.6% unemployment rate. This is a ticking time bomb that will one day explode and the price of picking up the pieces will be far greater than we can afford.
COSATU is thus calling upon Parliament to exercise its legislative authority to amend the 2025/26 Budget to scrap the VAT hike and the failure to adjust tax brackets for lower and middle income workers, to replace them with an additional immediate R2bn for SARS and higher taxes upon the wealthy and large corporations, as well as to adjust the SRD Grant for CPI, to increase funding for public employment programmes, and industrial and export financing.
We cannot afford to continue to stumble along a path of business as usual and expect better results. A bold and decisive Marshall Plan is needed if we are to capacitate the state, stimulate growth and slash unemployment. We do not have endless time to make the bold changes our many socio-economic crises demand. COSATU will be seeking further engagements with government on these burning matters.Issued by COSATU
Matthew Parks(Parliamentary Coordinator)
Mobile: 082 785 0687
Email: matthew@cosatu.org.za