This interview with Chris Axelson, acting head of tax and financial sector policy at National Treasury, will give listeners a window into how Treasury thinks when putting together a tax package. Our conversation provides invaluable insights into how budget decisions are made and the balancing act that Treasury must perform.

As the saying goes, “nothing is certain but death and taxes.” But understanding how taxes work and what their implications are, can be quite complex.

Budget 2025 has stirred up quite a debate, particularly surrounding the proposed tax increases. Initially, the government sought to collect an additional R58billion through a 2 percentage point increase in VAT, but after cabinet rejected this increase, government had to reassess its approach.

This saga has highlighted a crucial aspect of fiscal policy: the delicate balance between increasing revenue and managing public sentiment.

The government – much like a household – cannot spend money it does not have. The dilemma lies in whether to cut spending or raise taxes. For the government, raising taxes is the primary means of increasing income, and this directly impacts residents.

I spoke to Chris Axelson, acting head of tax and financial sector policy at National Treasury, about the implications of various tax instruments, including personal income tax, corporate tax, and VAT.

Interestingly, Axelson emphasises that VAT is considered more “growth friendly” than personal income tax. The reasoning is that VAT does not disincentivise work or saving, unlike personal income tax. A hike in personal income tax might discourage individuals from taking on additional work due to higher tax rates. This perspective is crucial as it shapes how policymakers approach tax increases.

He explains the significant impact of tax decisions on households. We discuss the concept of “fiscal drag”, where inflation pushes individuals into higher tax brackets without any formal rate increase, effectively raising taxes without visible changes.

This stealth tax can lead to significant revenue increases without the public backlash that often accompanies explicit tax hikes.

Axelson also explains how the additional tax raised in this budget will be used for frontline services such as health and education, which directly benefit society. The implications of Budget 2025 are far-reaching, affecting everything from teacher vacancies to infrastructure development.

This episode is not just about taxes; it’s about understanding how our government’s financial decisions affect our daily lives. Whether you’re a taxpayer, a business owner, or simply someone interested in the economy, this episode is a must-listen.

This podcast was produced in partnership with National Treasury.