Come clean on BEE costs, and cut VAT & BEE premiums – IRR

The 2025 budget, the first under the coalition administration of the Government of National Unity (GNU), is an opportunity to save the country from another decade and a half of growthless economic stagnation.

Using the Treasury’s “Budget Tips – Make your voice heard” online portal, the IRR has called on the Treasury to unlock the wiser buying power of millions of South Africans, particularly the poor, who best understand the value of every cent they spend.

This can be done by being transparent about BEE costs, and cutting BEE premiums to pay for a R100 billion Value-Added-Tax (VAT) reduction to stimulate economic growth.

Why does transparency about what senior treasury official Willie Mathebula calls BEE “preference premiums” matter?

South Africans deserve to know how their money is being spent. If the amount of BEE premiums spent every budget cycle is kept off the record, as it has been for over two decades, this makes it unduly challenging for people to know if the amount is too much, or too little.

The Constitution requires “transparency and expenditure control”. That means the state cannot keep secrets about how much is spent on BEE premiums.

Crucially, this call should be supported by both proponents of BEE and opponents of BEE, though both camps have tended to keep quiet about transparency for decades.

Separately, Treasury has been urged to reduce BEE premiums to R0.

This is in keeping with the Zondo Report’s analysis of BEE in the legislative mosaic: “Ultimately in the view of the Commission the primary national interest is best served when the government derives the maximum value-for-money in the procurement process and procurement officials should be so advised.”

Furthermore, a “Growth Through Inclusion” report by Harvard University found that “[e]mpowerment of a few has de facto come at the expense of the many”, and recommended reducing BEE premium costs “not only during the emergency response but also during the permanent functioning of the system”.

Third, the estimated R17 billion direct saving and R137 billion indirect from cutting BEE premiums should fund an initial VAT cut from 15% to 11.5%. That cut would leave R100 billion in the pockets of millions of South Africans who know how to get value for money when spending.

The state is not capable of getting value for money at its current size. Multiple economists have found that the “fiscal multiplier” in South Africa is zero, or negative. That means the last rand spent in the budget will literally add nothing to economic growth, or else will shrink the economy.

By contrast, a range of estimates show that when ordinary South Africans spend money in ways that grow the economy, especially poorer South Africans who benefit more from VAT cuts than any other kind of tax cut.

The IRR will host an online briefing on 18 February, the day before finance minister Enoch Godongwana’s budget speech, to discuss the details of these proposals. Details of the briefing will be given tomorrow.

Media contact: Gabriel Crouse, IRR Legal Executive Director Tel: 082 510 0360 Email: gabriel@irrlegal.org.za

Media enquiries: Michael Morris Tel: 066 302 1968 Email: michael@irr.org.za