South Africa’s political parties are fighting the wrong budget battle:
The budget debate has become a theatre of rancorous noise. Political parties, having chosen to bicker over changes in VAT rates and inflationary adjustments on personal income tax thresholds, have overlooked what they all seemingly agree on.
Most parties in parliament concede that the current fiscal framework is unsustainable and requires radical reform. A big part of that, most would concede, involves greater work on the expenditure side, providing an important and opportune moment for a richer civic discussion on the budget. It is in that spirit that we write this article.
While the distributional effect of VAT and “bracket creep” is regressive, we do not believe that this is the sole question that should occupy us. Precisely as the fallout from American trade policy has spiked 10-year bond yields as a signal of base rates for borrowing across the economy but also the terms on which the state will borrow.
This raises another fundamental question relating to how and where the state spends the money collected from either revenue proposals or public borrowing requirements. This question uncovers institutional and other challenges in the state, not just in relation to what it collects, but how it spends what it collects.
The fixation on VAT — a regressive but easy-to-collect revenue stream — distracts from the real crisis unfolding on the expenditure side. Our country faces pervasive public goods unavailability and service delivery crises, despite its over R2 trillion gross revenue take. Until parties shift their focus from tax tinkering to more stringent expenditure accountability, South Africa’s fiscal debates will remain esoteric exercises with little effect on citizens.
The VAT obsession: A convenient distraction
The VAT discussion, as in 2018, has become a political football. Amid the rivalrous chatter about it lies a concerning reluctance to confront systemic execution failures in expenditure. The 2018 VAT panel, appointed by then minister Nhlanhla Nene to consider a list of food and non-food items to incorporate in the basket of VAT zero-rated goods, made an important and prescient observation — it would be cheaper to return the cost of the VAT increase to the poorest households by expenditure programmes than to extend zero rating.
The panel further noted that the challenge rested in the extent to which social wage and public goods-focused investments actually reach “the bulk of low-income households” — whether the money spent ultimately benefited townships, villages and cities with the envisaged growth, investment and jobs.
Expenditure: Where the real crisis lies
Municipalities and state-owned entities are the main agencies seized with capital expenditure on roads, bridges, clinics, schools, treatment works and dams, among others. These are areas crucial to economic and social activities.
The South African legal framework requires that budgets of organs of state are spent in an economic, efficient and effective manner. The auditor general highlights the effect of underspending of conditional grants linked to service delivery contributing to delays in completing infrastructure projects aimed at improving service delivery to communities.
So too have we seen crucial grants made to state-owned companies for commuter rail, passenger bus services and other service-focused infrastructure being chronically underspent.
The reasons? Poor project management, ineffective contract management and delays in procurement processes rank high as causes for chronic underspending in municipalities and state-owned entities.
From VAT battles to spending realism
While proposing a way forward might be tricky, a starting point has to be “systemic” rather than “episodic’” issues. For instance, is it still sustainable to assume that over 200 local authorities will all have the personnel and other capacity to spend on capital budgets linked to their areas of functional authority? Or that receiving a 10th of nationally collected revenue they can build long-term institutional capability without “own revenue” from a taxable base, if they have no industry in their areas?
Similarly, do demarcations and the functional borders in our areas reproduce ethno-national boundaries while lacking some administrative-industrial articulation that could make these viable subnational boundaries? What role is there for state-owned entities which might have the capacity and scale economies to deliver in these areas?
South Africa’s political parties are stuck in a VAT-centric timewarp, debating tax rates while the quality of services declines. The budget is not a piggybank to be cracked open or guarded; it is a tool to build a society that works. If parties cannot shift their focus from how much we tax or borrow to how well we spend, election manifestos are rendered obsolete.
The people need more than a debate on the regressivity of VAT. That is moot. They need a government that can fix a pothole. And fast.
Chrispin Phiri is the spokesperson for the department of international relations. Ayabonga Cawe is the chief commissioner at the Trade Administration Commission of South Africa. The authors write in their personal capacities.
Tariffs, power and the myths of free trade:
The word “tariff” is a reminder that the global economy was never about goods alone — it was always about the flow of power. “Tariff” comes to us through the Arabic ta?r?f, meaning “to make known” — a declaration of terms, an act of setting boundaries. But in the world forged by colonial conquest and industrial capitalism, tariffs became far more than notifications. They became weapons.
A tariff, at its simplest, is a tax on goods crossing a border. Yet its simplicity masks a long and often violent history. Tariffs have been used to nurture industries and to destroy them, to build empires and to strip colonies bare. They have shaped the global economy in ways that remain with us today.
Before Britain became the champion of free trade, it was a staunch protectionist. For nearly two centuries it relied on measures like the Navigation Acts, prohibitive tariffs, and what is now politely termed industrial espionage, to protect and grow its manufacturing base.
It was only in the 1840s — once Britain had already achieved global industrial dominance — that it embraced free trade. The repeal of the Corn Laws in 1846, often celebrated as a triumph of free-market ideals, came only after Britain had secured its industrial dominance. As the great historian Eric Hobsbawm notes, Britain’s turn to free trade was not a principled commitment to liberalism but a strategic shift — having used protection to rise, it now sought open markets for its goods abroad.
The US has followed a similar trajectory. In the 19th century, it maintained average tariff rates of between 40% and 50% on manufactured goods — among the highest in the world. Like Britain, the US used tariffs to protect its “infant industries”, shielding domestic producers from foreign competition while building the foundations of its industrial strength.
Once these powers were in control of the global economy, however, they denied others the right to follow the same path. What the 19th-century German economist Friedrich List called “kicking away the ladder” became a defining feature of imperial economic policy. Protectionism was for the strong. The rest were told to compete on open terms — even if they had no chance.
The story of Bengal offers one of the clearest examples of how tariffs and trade policy were used as weapons of economic conquest. In the early 18th century, Bengal was the world’s leading producer of cotton textiles. According to the historian Prasannan Parthasarathi, wages for skilled Bengali textile workers were among the highest in the world, and its muslins and cottons were traded as luxury goods across Asia, the Middle East and Europe.
But Britain, seeking to protect its own industries, imposed punishing tariffs on Indian textiles — in some cases as high as 80%. The Calico Acts of 1700 and 1721 banned or heavily taxed the importation of Indian textiles into Britain. After the British East India Company gained military and political control over Bengal following the Battle of Plassey in 1757, the assault intensified. British goods were exported into India tariff-free, while Indian producers were burdened with taxes and restrictions.
The results were catastrophic. Between 1750 and 1810, India’s share of the global textile trade collapsed from around 25% to under 5%. British textile mills — powered by colonial cotton, enslaved labour and protected by tariffs — rose as Bengal’s artisans were plunged into poverty. Though some colonial apologists have dismissed the more lurid stories of weavers’ thumbs being cut off, the broader truth is undeniable — through tariffs, trade restrictions and military domination, a thriving industrial economy was dismantled to clear space for British industrialisation.
Across the world, similar patterns have repeated. Western powers often enforced unequal trade through “gunboat diplomacy”. Haiti, the world’s first black republic, was blockaded by European and American warships after its revolution in 1804 — eventually forced to pay an enormous “independence tariff”.
In 1853, Commodore Matthew Perry’s “Black Ships” forced Japan to open its markets. After British naval bombardments during the Opium Wars of the 19th century, China was compelled to accept the opium trade and sign “unequal treaties” that ceded key ports and legal powers to European powers, independence indemnity debt” to France and accept punishing trade terms that would cripple its economy for generations.
As formal empires gave way to subtler forms of dominance after World War II, military coercion was replaced by economic leverage. The post-war Bretton Woods institutions — particularly the International Monetary Fund and World Bank — assumed the role once played by imperial gunboats. Aid and loans were tied to “reforms” that opened markets, privatised public assets and subordinated national planning to global capital.
In the 1980s, structural adjustment programmes swept through the Global South. African countries that had used tariffs as part of broader efforts to foster national industries were forced to liberalise trade in exchange for desperately needed loans. The consequences were devastating. Local industries collapsed, state capacity weakened and poverty deepened.
The Washington Consensus — that mix of liberalisation, deregulation and fiscal austerity — was promoted as a path to prosperity. In reality, it locked countries into dependency.
South Africa was no exception. Following the end of apartheid, the country committed to sweeping trade liberalisation. In 1994, South Africa signed on to the General Agreement on Tariffs Trade framework and later joined the World Trade Organisation. Between 1996 and 2004, tariffs on clothing were cut from nearly 90% to about 40%; footwear tariffs fell from 60% to 30%.
These reductions coincided with China’s entry into the World Trade Organisation in 2001, triggering a surge of cheap imports. In places like Durban and Cape Town, where whole communities depended on clothing factories, the effects were brutal. By some estimates, more than 75 000 jobs were lost in the clothing sector between 2002 and 2006.
At the same time, the US continued to protect its own industries. Generous cotton subsidies helped American farmers undercut producers across West Africa, depressing prices and squeezing rural livelihoods. The global rules were never neutral — they reflected the interests of the powerful.
Tariffs reappeared on the global stage during Donald Trump’s first presidency. Between 2018 and 2020, his administration imposed tariffs on more than $ 350 billion worth of Chinese goods and targeted multiple allies with new duties. But this new tariff regime was driven less by strategic industrial planning and more by political theatre.
While tariffs once protected rising industries, today’s context is vastly different. According to the US Census Bureau, manufacturing now makes up just 11% of the US economy — down from 28% in 1953. Only about 8% of US workers are employed in manufacturing, compared to 30% in the 1950s.
A 2021 study found that Trump’s tariffs had raised costs for consumers and businesses but did not result in a measurable increase in domestic manufacturing jobs. Most firms simply shifted supply chains to low-cost countries. The attempt to use tariffs to reverse decades of deindustrialisation ran into a hard truth — once factories close, skills atrophy and supply chains fragment. Reviving an industrial base requires more than border taxes, it demands sustained investment, strategic planning and a political economy geared towards production over speculation.
The history of tariffs is not a morality tale of free trade versus protectionism. It is a story of power; of who could build behind walls, who was denied that right and who still bears the scars. From the abandoned looms of Bengal to the closed clothing factories of Cape Town and the hollowed-out steel towns of the American Midwest, tariffs mark a deeper story — one in which the rules of trade have been written and rewritten by the strong at the expense of the weak.
In today’s fractured global economy, where economic nationalism is resurging, the old lessons remain. Tariffs can nurture local industries or deepen inequality — the outcome depends less on ideology than on power, context and intent.
Vashna Jagarnath is a historian; political risk and diversity, equity and inclusion consultant; labour expert; pan-African and South Asian political analyst and curriculum specialist.
Last week, US Secretary of State Marco Rubio met Nasser Bourita, the Moroccan foreign minister. At the meeting, Rubio reaffirmed the commitment of the Trump administration to negotiating “a mutually acceptable solution” for Western Sahara using the framework articulated in the Autonomy Proposal.
The political status of Western Sahara remains the subject of considerable debate. Prior to 2020, the US recognised Western Sahara as a dependent state or area of special sovereignty. At the end of the first term, the Trump administration unexpectedly dropped that status function when it recognised the sovereignty of Morocco over the entirety of Western Sahara. But the Sahrawi Arab Democratic Republic continues to maintain diplomatic relations with other independent states, and the United Nations continues to regard Western Sahara as a non-self-governing territory.
In the proclamation recognising the sovereignty of Morocco over Western Sahara, President Donald Trump expressed support for the Autonomy Proposal as “the only basis for a just and lasting solution to the dispute over the Western Sahara territory”. If adopted, the Autonomy Proposal would grant an autonomous region to the Sahawari people in exchange for a recognition of Moroccan sovereignty over it. But this will not be an easy proposal to implement. The Polisario Front, the national liberation movement for the Saharawi people, is opposed to the Autonomy Proposal.
During the meeting with Bourita, Rubio reportedly reaffirmed a commitment to the Moroccan government on behalf of the US government. To fulfill that commitment, the US government now needs to facilitate progress toward the resolution of the conflict using the Autonomy Proposal. Some Republican members of Congress believe that the best way to achieve that outcome is for the US to officially designate the Polisario Front as a foreign terrorist organisation. They theorise that move would sideline the Polisario Front and its traditional state supporters (for example, Algeria and South Africa).
On 11 April, representative Joe Wilson announced that he would introduce legislation to designate the Polisario Front as a foreign terrorist organisation. That followed a recent meeting between the US acting under secretary of state for political affairs, Lisa Kenna, and the personal envoy of the secretary general for Western Sahara, Staffan de Mistura. In his announcement, Wilson included the allegation that the Polisario Front was providing Iran and Russia with a platform to gain “a foothold in Africa” — thereby linking the Polisario Front to the “Axis of Aggression”.
Any designation of the Polisario Front as a foreign terrorist organisation would have serious implications for South Africa.
First, it could have a substantive effect on advocacy and fundraising for the Polisario Front and other Western Saharan groups in South Africa.
Zineb Riboua, a research fellow at the Hudson Institute, says there will be “some actors — especially mainstream NGOs — [who] would likely step back to avoid legal exposure”. But there will probably be other actors “motivated by ideology or religious solidarity” that would “continue their support covertly”.
If the South African government does not support the enforcement of a future designation “internally”, Riboua predicts that this second group of “fringe actors may persist — but they will face greater isolation, increased monitoring, and serious financial risk”.
Second, it could have a negative effect on the South African economy.
According to Riboua, any designation could lead to increased international scrutiny of the South African banking system. She bases that assessment on the fact that there “are unconfirmed reports — mostly from media and limited intelligence sources — suggesting that certain individuals or NGOs in South Africa may have engaged in fundraising or advocacy” on behalf of the Polisario Front.
That increased international scrutiny would almost certainly be an unwelcome development for South African banks.
Riboua contends that increased international scrutiny could lead to financial transactions being “flagged more often by global compliance systems”, and that could expose South African banks “to reputational damage, derisking and even secondary sanctions”.
Third, it could affect the imposition of targeted sanctions (for example, Magnitsky sanctions) and/or the designation of South Africa as a state sponsor of terrorism.
Riboua warns that South Africans should expect the US government to take the enforcement of any designation of Polisario Front seriously.
In her eyes, there is already a risk that the South African government could be designated as a state sponsor of terrorism over a variety of concerns, including “weak enforcement of terror financing” and “FATF Financial Action Task Force] grey-listing”. And that risk would only increase if the South African government would be unwilling or unable to support the enforcement of a future designation of Polisario Front as a foreign terrorist organisation.
Since the US inauguration, the risk of a complete rupture in US-South Africa relations has been rising by the day. The potential designation of the Polisario Front as a foreign terrorist organisation therefore presents another wrinkle in an already strained relationship.
Michael Walsh is a non-resident senior fellow at the Foreign Policy Research Institute. The views expressed are his own.
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