VAT wars, political shifts, and economic storms: Dawie Roodt unpacks SA’s fiscal future

Economist Dawie Roodt joins Bronwyn Nielsen to discuss South Africa’s VAT hike, political tensions, and economic stagnation. He critiques government spending, warns of investor flight, and calls for urgent tax reform. A sharp, insightful take on the country’s fiscal future and the growing pressure on the ANC-led coalition government.Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up for the BizNews channel here..Watch here.Listen here.Edited transcript of the interview .Bronwyn Nielsen (00:01.037)Dawie Roodt, Chief Economist of the Efficient Group. Good to have you in my sights. We've got a number of issues on the table, and the first one we need to start with is, of course, that our only hope of not getting a VAT increase come the 1st of May lies with the Democratic Alliance, who is currently at the Western Cape High Court with an urgent interdict to prevent the VAT hike. How is this going to pan out?Dawie (00:29.230)Hello, Bronwyn. I've got a suspicion they're not going to be successful, and I've got a suspicion that the VAT is going to become effective on the 1st of May. I think the Minister of Finance is going to win this round. So, I think we're going to pay more VAT. But you know, this is an excellent example of politicians playing games - politicians wanting to see who's going to blink first.Because if you look at what happened to the revenue of the state last year - remember, nobody's talking about this - but about two, three weeks ago, SARS announced that they collected close to R10 billion more than what they were aiming for in the previous financial year. And a half a percentage point increase in VAT gives you roughly about R10 billion. So, they've got the money. So why do we actually need to increase VAT? Because there's an overrun in revenue in the previous financial year.This is a lose-lose for the ANC, just by the way. If they are successful, there will be a VAT increase and everybody's going to be angry at them. If they're not successful, it means they're going to lose out to the DA. So, this is a lose-lose for the ANC. I think it's really stupid to keep on pushing for this VAT increase. In fact, that’s not the issue here. The issue isn't about revenue - well, it is - but it's more about the lack of economic growth. The real issue has to do with state expenditure. They're simply spending too much money.Bronwyn Nielsen (01:52.055)To what extent, as you say, it's a lose-lose for the ANC when it comes to the voters, will the MK encroach on ANC territory? We've seen them win their first ward in the recent round of municipal elections.Dawie (02:12.408)Yeah, interesting. I actually thought this would be the beginning of the end of the EFF, because political parties - very populist ones with strong, charismatic leaders like Julius Malema—and the same applies to the MK with Jacob Zuma - usually don't last very long.But I spoke to Frans Cronje, and interesting for me is that both the MK and the EFF actually gained votes. If there’s an election tomorrow, the ANC would lose support, and the DA would gain new support. But I'm actually quite surprised to see that the MK and the EFF, their support actually increased. Whether this is going to last?I still think those two political parties will eventually collapse because they're centred around two individuals, basically. And that's not the way to build a political party. But I guess some people are very unhappy with the ANC at the moment. They’re just not prepared to vote for the DA, and they’re now moving their support to the MK and the EFF. But yeah, this can potentially be quite dangerous for South Africa going forward.Bronwyn Nielsen (03:29.965)And Dawie, what does this mean for the GNU? Going back now to the VAT issue, it's been a stumbling block. How is the DA going to proceed if they cannot stop the VAT hike? As you say, you believe that VAT will go ahead on the 1st of May - for the Government of National Unity?Dawie (03:46.791)Yeah. If I were the DA, I would leave the Government of National Unity - but not yet. I think the GNU will survive. It’s not really a GNU, by the way - it’s a coalition. Let’s be honest about it.I think this coalition will survive until maybe a year or so before the next general election. If I were the DA, I would leave then. The reason I say so is because, in the first few months of the GNU, the impression was that the ANC swallowed the DA. The DA became part of the ANC.But with this VAT issue, the DA played it absolutely brilliantly. They used this to make the point that they are an important political party putting South Africa first. That’s part of the reason for the huge gain in popularity for the DA.So, where we are at the moment: I think the DA is waiting for the ANC to kick them out, and the ANC is waiting for the DA to leave. That’s more or less where we are. I've got a suspicion they'll somehow make it work, and we’ll see the GNU limping forward. But it's very clear that the ANC simply does not want to accept the reality that they no longer have 50%. They're trying to create the impression that the other political parties - especially the DA - are at fault. But actually, it's the ANC that’s the biggest loser here.Bronwyn Nielsen (05:32.599)With the VAT hike potentially going ahead, does that not weaken the DA’s position, given that they’ve fought hard down to the wire to prevent it? Doesn’t it show they don’t have power?Dawie (05:49.135)No, I don't think so. They lost out because everyone knows the ANC is the dominant political party, and they lost out to a court decision. I mean, if the court decides against you, you've still made your point. And the point is that you are against increasing taxes. That’s what they’ve communicated.Incidentally, I am actually also in favour of an increase in VAT. But - and this is a very important but - I would increase VAT, even by 2% or more, on the condition that we reduce more damaging taxes. I don't think VAT is harmful. Personal income taxes are far more damaging. Company taxes, capital gains taxes, withholding taxes - all of those are much more damaging to the economy than an increase in VAT.VAT is the only tax that, if you want more money, can be increased and will give you substantially more money.Bronwyn Nielsen (06:47.917)So Dawie, I need to push you on that point because I don’t think it’s going to be very popular - the fact that you are in favour of a VAT increase. But you have carefully balanced that with the idea of reducing more harmful taxes. Just restate your case clearly for our audience.Dawie (07:08.389)Let me just make a few things very clear.Companies do not pay tax. They always shift their entire tax burden to individuals. In the end, people pay all taxes. Let me use company taxes as an example. In South Africa, around 1,000 companies pay more than 70% of all company taxes. Our company tax rate - 27% - is far higher than in most other countries. We have to get that down to make South Africa more attractive for investment. That will result in more economic growth, more employment, and more people paying VAT or personal income tax.The tax mix we currently have is very harmful to growth.As for personal income tax: a few individuals pay most of it. Around half a million people pay about 50% of the total personal income tax. That’s completely unsustainable. We're losing our wealthy individuals - they’re emigrating or aggressively restructuring their tax affairs because taxes are too high.I'm an asset manager. People come into my office and say two things: I want to take my money out of the country and I don’t want to pay tax. We're already beyond the so-called Laffer Curve for personal income tax—where raising taxes brings in less revenue.We’re also getting close to that point with VAT. But VAT is still an efficient, broad-based tax and very difficult to evade.In fact, I would get rid of all the zero-rated items. If you want to address poverty, do it through the expenditure side - like increasing grants. Rich people also eat bread and basic goods, often spending more on those than poor people.Dawie (09:27.552)The whole tax regime in South Africa needs to be redone. It needs to be simplified, and some taxes need to be adjusted - just as I’ve mentioned.Bronwyn Nielsen (09:42.071)I also want to talk about the country’s economic growth. While we've spent most of our time debating the VAT issue ahead of May 1st, talk to me about the underlying growth and the health of the South African economy.Dawie (09:59.203)The Minister of Finance, in his budget, forecasted growth at around 1.8% - just below 2% for the next three years. At the start of the year, my expectation was 1.5% - which, by the way, is more or less in line with population growth. So, zero per capita GDP growth. That’s where we are.This isn’t new - we are poorer today than we were 15 years ago. But then a few headwinds appeared: Trump, AGOA, uncertainty with the GNU, budget issues, and so on. All of these can shave off from growth. I now estimate growth at around 1%, maybe less. Last year, we grew at 0.6%. So even 1% might be optimistic.The Finance Minister depends on a growing economy to fund the massive state machinery. So we need to do two things:Improve the efficiency of the state.Put in place policies that drive growth.If we don’t grow the economy and change policies, we’ll keep growing below 1% - and that’s not sustainable. We’re getting poorer, and the wealthy are leaving the country.Bronwyn Nielsen (12:02.367)And of course, with no economic growth, there’s no jobs growth - something we desperately need.Dawie (12:08.550)Indeed. That’s another issue with government policy. They talk about job creation. But getting people to wave flags on the side of the road is not job creation - it’s just keeping people busy.What we need is to forget about trying to "create" jobs. Grow the economy, and jobs will take care of themselves.Bronwyn Nielsen (12:32.929)Dawie, just coming back to the Finance Minister, Enoch Godongwana. With the ANC set to lose support - especially with the VAT increase on May 1st -do you think Enoch Godongwana is actually working himself very quickly out of a job?Dawie (12:51.880)It looks like it. I must tell you, I don’t think he’s the best Minister of Finance out there. He’s got a bit of a history, but he’s probably the best the ANC can offer right now. Still, this VAT issue was a blunder. It cost the ANC big time, and I think there will be pressure to replace him.I can think of a few people - Mcebisi Jonas, for example, would be a brilliant choice. He’s a good guy, and I don’t think he’s going to the US to be our envoy to Trump. That was another blunder. But Jonas is an example of someone who could do a good job.Bronwyn Nielsen (13:35.799)So, you would put Mcebisi Jonas in the Finance Minister ring, correct? Just to clarify.Dawie (13:43.936)Well, I’d actually put myself in there - so I can overhaul the whole tax system.Bronwyn Nielsen (13:51.437)Dawie, thanks so much. I appreciate you catching up with us to give us this update. And of course, we’ll speak again as things unfold. This is perhaps a once-in-a-lifetime movie in the business world we’re navigating right now.Dawie (14:10.267)Indeed. There’s so much uncertainty - but it’s a lot of fun being an economist, I can tell you that. Thank you, Bronwyn.Bronwyn Nielsen (14:16.279)Thank you so much, Dawie Roodt, Chief Economist of the Efficient Group.

VAT wars, political shifts, and economic storms: Dawie Roodt unpacks SA’s fiscal future

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