19 May 2025
As the Minister of Finance prepares to table Budget 3.0 before Parliament on Wednesday, 21 May 2025, the Federation of Unions of South Africa (FEDUSA) urges the government to reject austerity as a fiscal policy response and instead adopt a more inclusive and progressive budgetary framework. The Federation warns that any attempt to close the funding gap by placing a disproportionate burden on workers and the poor will deepen inequality and further erode social cohesion and economic confidence.
FEDUSA has consistently warned against austerity as a blunt instrument to address budgetary imbalances. The track record of austerity policies in South Africa speaks for itself: job losses, a hollowing out of public services, a weakened state capacity, and the entrenchment of poverty. The Federation cautions that fiscal consolidation, when applied without regard for social realities, only aggravates the economic stagnation it seeks to resolve. South Africa does not have a spending problem; it has a growth and revenue problem that requires strategic investment in labour-intensive sectors, not indiscriminate cuts.
The government has yet to provide a full and transparent explanation for the so-called R75 billion budget shortfall, with various economists and fiscal commentators questioning both the figure and the assumptions behind it. The lack of clarity fuels uncertainty and diminishes public trust in the Treasury’s modelling. If the deficit projections are overstated or poorly defined, this could result in an unnecessary contractionary stance that punishes the very sections of society most in need of government support.
VAT: NO TO A REGRESSIVE FIX
The reversal of the VAT hike earlier this year was a necessary decision to prevent further erosion of household incomes for low-income earners. However, FEDUSA notes with concern that the pressure to recoup the foregone revenue may translate into spending cuts in key public sectors. We assert unequivocally that the burden of budgetary correction cannot be borne by the most vulnerable. Regressive fiscal instruments such as consumption-based taxes must not become a default response to fiscal pressure. Instead, Treasury should explore avenues such as windfall taxes on sectors that performed exceptionally during recent commodity booms, and greater enforcement of tax compliance among high-income earners and multinational corporations.
In addition, FEDUSA renews its call for the introduction of a wealth tax on high-net-worth individuals to help redistribute wealth and ease pressure on the tax base without undermining the purchasing power of ordinary South Africans.
The South African economy remains trapped in low growth, high unemployment, and a rising cost-of- living crisis. With over 11 million people unemployed and youth unemployment exceeding 50%, this budget must provide tangible measures to stimulate job creation. This includes:
Scaling up public employment programmes with secure, dignified conditions of work and long- term funding.
Increasing infrastructure investment with local labour and enterprise procurement targets.
Protecting the public wage bill to ensure delivery of services in education, health, policing, and local government.
Financing the Just Transition by leveraging climate finance for localised industrial development in renewables and green manufacturing.
FEDUSA believes that while fiscal discipline is necessary, the government must be reminded that the Treasury’s role is not merely to balance books, but to enable development through strategic resource allocation.
Treasury must shed its reputation as an institution of restraint and begin to embody a facilitative role in building an inclusive economy in a developmental state. Fiscal policy cannot remain aloof from the lived realities of South Africans. It must be responsive to economic cycles and the structural inequalities that continue to define post-apartheid South Africa.
Budget 3.0 presents an opportunity for the government to reset its approach and align fiscal policy with the constitutional imperatives of social justice, human dignity, and equitable development.
END.