In the next two weeks, we are set to receive our third budget of the year. It is vital for the nation that this budget promotes growth. The budgeting process has been difficult due to lackluster economic performance. To ensure sustainable public spending, we must drive government revenue through strong growth.

At present, our politicians are confronted with hard choices, made even more complex by various factors, including the trade wars that have emerged since February, when the economic outlook appeared more favorable. Our growth forecasts have since diminished, leading to lower tax revenues as businesses become less profitable and consumer spending declines. The budgeting scenario is now more precarious than it was two months ago.

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As I have mentioned in prior letters, it’s critical that the budget does not worsen the already bleak economic outlook by increasing debt levels. The National Treasury has made considerable efforts to mend the financial crisis from five years ago. Ratings agencies have recognized this, enhancing our credit rating outlook. We aim to restore the investment-grade credit rating we lost in 2020, which would lower borrowing costs for the government and benefit the overall economy. Conversely, rising debt levels could compel investors to demand higher interest rates on government debt, utilizing more tax revenue and stalling economic growth.

This leaves us with two main options: increase taxes to generate more revenue for the government or cut expenditures. Politically, the National Treasury’s initial proposal to raise VAT has faced significant opposition. We must either explore alternative tax options or contemplate cutting expenses.

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The Treasury’s challenge lies in the fact that there are limited avenues for tax hikes beyond VAT. While some political factions advocate for such increases, personal and corporate tax rates are already high by international standards. Raising these rates often results in individuals and companies relocating their economic activities outside our borders.

Research from the Treasury suggests that we might ultimately collect even less tax as businesses relocate, resulting in job losses. Proposals to encourage the South African Revenue Service (SARS) to boost tax collection efficiency are well-intentioned but do not constitute a solid budgeting strategy. Those of us in business understand that while spending money is straightforward, creating an effective budget to generate income is far more challenging. Budgeting must be prudent, and relying on inflated tax collections is unwise.

The only viable path forward is to reduce spending within our means. This is a politically sensitive matter, as it invariably leads to “losers.” No politician wants to be seen as limiting the government’s abilities. Yet, each year, new projects and spending initiatives emerge, resulting in numerous entities, not all of which provide value for taxpayer money. When pruning expenses, we need mature and honest assessments of which government sectors deliver value and the political courage to implement necessary cuts where they do not. While it is encouraging that our budget undergoes democratic scrutiny, the national unity government and others in parliament must demonstrate the political will to make unpopular choices.

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There are numerous other strategies we can pursue to foster growth, and one of our key assets is the collaboration between business and government. I eagerly await the upcoming meeting between organized business and the president this Friday. Our last meeting in January was fruitful, as we aligned on crucial structural reforms. While we have made strides—from enhancing the electricity system to improving logistics—global conditions have shifted. This was prior to the US election and tariffs. We initially targeted a 3% growth rate by year’s end, but global challenges now make that goal more elusive. Nonetheless, we must amplify our efforts to implement reforms that boost our economy’s performance, as the need has only intensified. We must carefully evaluate how opportunities have evolved and ensure that our plans are in sync with the current global landscape.

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As the budgeting situation demonstrates, growth is essential for our nation. We must free ourselves from the low-growth cycle we have been ensnared in for the past fifteen years. Achieving this will necessitate innovative and courageous thinking, particularly in light of the new global environment.

I look forward to working alongside business and government colleagues to tackle these challenges.

Busi Mavuso is CEO of Business Leadership South Africa.

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